UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
þR  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
or
For the quarterly period ended June 30, 2011
 or
£  
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
For the transition period fromto.
Commission file number: 001-9383001-09383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA
(State or Other Jurisdiction of Incorporation or Organization)

94-2156203
(I.R.S. Employer Identification No.)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA94901
CALIFORNIA
(State or Other JurisdictionAddress of
Incorporation or Organization) Principal Executive Offices)
94-2156203
(I.R.S. Employer
Identification No.)Zip Code)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant’sRegistrant's Telephone Number, Including Area Code (707) 863-6000

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

Yes R                      No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesþNoo

Yes R                                                                                                 No £

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

Large accelerated filerþR
Accelerated filero£
Non-accelerated filero£
Smaller reporting companyo£
 (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesoNoþ

Yes £                      No R

Indicate the number of shares outstanding of each of the registrant’sregistrant's classes of common stock, as of the latest practicable date:
Title of ClassShares outstanding as of April 26,July 25, 2011
  
Common Stock,
No Par Value
28,878,05328,523,000
 
 



TABLE OF CONTENTS


 
Page
Forward Looking Statements
 3
PART I - FINANCIAL INFORMATION  
Page
3
Statement 4
 8
2830
29
31
46
50
4650
PART II - OTHER INFORMATION 
46
50
47
50
47
51
48
51
48
51
48
51
48
51
49
52
5053
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)54
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)55
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 135056
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT57

- 2 -


FORWARD-LOOKINGFORWARD-LOOKING STATEMENTS
This report on Form 10-Q 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, 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”"believes", “anticipates”"anticipates", “expects”"expects", “intends”"intends", “targeted”"targeted", “projected”"projected", “continue”"continue", “remain”"remain", “will”"will", “should”"should", “may”"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 current and potential future difficulties in the national and California economies and the effects of federal 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 terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including data processing system failures or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, and other disasters, on the uninsured value 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, and (13) changes in the securities markets. The Company undertakes no obligation to update any forward-looking statements in this report. The reader is directed to the Company’sCompany's annual report on Form 10-K for the year ended December 31, 2010, for further discussion of factors which could affect the Company’sCompany's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report.

- 3 -


PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Item 1
Financial Statements

WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
WESTAMERICA BANCORPORATION 
CONSOLIDATED BALANCE SHEETS 
(unaudited) 
       
  At June 30,  At December 31, 
  2011  2010 
  (In thousands) 
Assets:      
Cash and due from banks $320,119  $338,793 
Money market assets  -   392 
Investment securities available for sale  705,078   671,484 
Investment securities held to maturity,
with fair values of:
$687,326 at June 30, 2011, $594,711 at December 31, 2010
  669,452   580,728 
Purchased covered loans  622,727   692,972 
Purchased non-covered loans  164,844   199,571 
Originated loans  1,963,642   2,029,541 
Allowance for loan losses  (33,008)  (35,636)
Total loans  2,718,205   2,886,448 
Non-covered other real estate owned  16,637   13,620 
Covered other real estate owned  24,348   21,791 
Premises and equipment, net  35,015   36,278 
Identifiable intangibles, net  31,576   34,604 
Goodwill  121,673   121,673 
Other assets  234,628   225,713 
Total Assets $4,876,731  $4,931,524 
         
Liabilities:        
Deposits        
Noninterest bearing deposits $1,446,973  $1,454,663 
Interest bearing deposits  2,641,412   2,678,298 
Total deposits  4,088,385   4,132,961 
Short-term borrowed funds  106,727   107,385 
Federal Home Loan Bank advances  46,351   61,698 
Debt financing and notes payable  25,853   26,363 
Other liabilities  60,075   57,830 
Total Liabilities  4,327,391   4,386,237 
         
Shareholders' Equity:        
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding:
28,540 at June 30, 2011, 29,090 at December 31, 2010
  375,277   378,885 
Deferred compensation  3,060   2,724 
Accumulated other comprehensive income  8,251   159 
Retained earnings  162,752   163,519 
Total Shareholders' Equity  549,340   545,287 
Total Liabilities and  Shareholders' Equity $4,876,731  $4,931,524 
         
  At March 31,  At December 31, 
  2011  2010 
  (In thousands) 
Assets:
        
Cash and due from banks $348,157  $338,793 
Money market assets  342   392 
Investment securities available for sale  741,603   671,484 
Investment securities held to maturity, with fair values of:        
$604,898 at March 31, 2011  591,923     
$594,711 at December 31, 2010      580,728 
Purchased covered loans  660,456   692,972 
Purchased non-covered loans  187,203   199,571 
Originated loans  1,986,976   2,029,541 
Allowance for loan losses  (34,321)  (35,636)
       
Total loans  2,800,314   2,886,448 
Non-covered other real estate owned  14,613   13,620 
Covered other real estate owned  20,914   21,791 
Premises and equipment, net  35,704   36,278 
Identifiable intangibles, net  33,056   34,604 
Goodwill  121,673   121,673 
Interest receivable and other assets  229,130   225,713 
       
Total Assets
 $4,937,429  $4,931,524 
       
         
Liabilities:
        
Deposits        
Noninterest bearing deposits $1,476,590  $1,454,663 
Interest bearing deposits  2,663,783   2,678,298 
       
Total deposits  4,140,373   4,132,961 
Short-term borrowed funds  104,359   107,385 
Federal Home Loan Bank advances  51,490   61,698 
Debt financing and notes payable  26,108   26,363 
Liability for interest, taxes and other expenses  64,184   57,830 
       
Total Liabilities
  4,386,514   4,386,237 
       
         
Shareholders’ Equity:
        
Common stock (no par value), authorized — 150,000 shares        
Issued and outstanding:        
28,920 at March 31, 2011  379,142     
29,090 at December 31, 2010      378,885 
Deferred compensation  2,724   2,724 
Accumulated other comprehensive income  2,526   159 
Retained earnings  166,523   163,519 
       
Total Shareholders’ Equity
  550,915   545,287 
       
Total Liabilities and Shareholders’ Equity
 $4,937,429  $4,931,524 
       
See accompanying notes to unaudited condensed consolidated financial statements.


- 4 -


WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
         
  Three months ended 
  March 31, 
  2011  2010 
  (In thousands, 
  except per share data) 
Interest and Fee Income:
        
Loans $41,363  $44,702 
Money market assets and funds sold     1 
Investment securities available for sale  5,218   3,895 
Investment securities held to maturity  5,913   7,405 
       
Total Interest and Fee Income
  52,494   56,003 
       
Interest Expense:
        
Deposits  1,890   2,488 
Short-term borrowed funds  62   537 
Federal Home Loan Bank advances  151   84 
Debt financing and notes payable  200   425 
       
Total Interest Expense
  2,303   3,534 
       
Net Interest Income
  50,191   52,469 
Provision for Loan Losses
  2,800   2,800 
       
Net Interest Income After Provision For Loan Losses
  47,391   49,669 
       
Noninterest Income:
        
Service charges on deposit accounts  7,521   8,742 
Merchant credit card  2,171   2,221 
Debit card  1,201   1,174 
ATM and interchange  935   891 
Trust fees  493   381 
Financial services commissions  29   149 
Other  2,393   1,912 
       
Total Noninterest Income
  14,743   15,470 
       
Noninterest Expense:
        
Salaries and related benefits  15,075   15,892 
Occupancy  4,025   3,777 
Outsourced data processing services  2,456   2,240 
Amortization of identifiable intangibles  1,548   1,598 
FDIC insurance assessments  1,220   1,320 
Furniture and equipment  933   1,051 
Professional fees  850   663 
Courier service  843   907 
Other  4,373   4,583 
       
Total Noninterest Expense
  31,323   32,031 
       
Income Before Income Taxes
  30,811   33,108 
Provision for income taxes  8,429   9,532 
       
Net Income
 $22,382  $23,576 
       
         
Average Common Shares Outstanding
  29,021   29,228 
Diluted Average Common Shares Outstanding
  29,225   29,596 
Per Common Share Data:
        
Basic earnings $0.77  $0.81 
Diluted earnings  0.77   0.80 
Dividends paid  0.36   0.36 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
  Three months ended Six months ended 
  June 30, June 30, 
  2011 2010 2011 2010 
  (In thousands, except per share data)
Interest and Fee Income:         
Loans $41,272 $44,060 $82,635 $88,762 
Money market assets and funds sold  -  -  -  1 
Investment securities available for sale  5,684  4,026  10,902  7,921 
Investment securities held to maturity  6,132  6,992  12,045  14,397 
Total Interest and Fee Income  53,088  55,078  105,582  111,081 
Interest Expense:             
Deposits  1,777  2,180  3,667  4,668 
Short-term borrowed funds  47  491  109  1,028 
Federal Home Loan Bank advances  128  52  279  136 
Debt financing and notes payable  201  422  401  847 
Total Interest Expense  2,153  3,145  4,456  6,679 
Net Interest Income  50,935  51,933  101,126  104,402 
Provision for Loan Losses  2,800  2,800  5,600  5,600 
Net Interest Income After Provision For Loan Losses  48,135  49,133  95,526  98,802 
Noninterest Income:             
   Service charges on deposit accounts  7,577  8,629  15,098  17,371 
   Merchant processing services  2,391  2,176  4,562  4,397 
   Debit card fees  1,283  1,245  2,484  2,419 
   ATM processing fees  997  1,021  1,932  1,912 
   Trust fees  482  448  975  829 
   Financial services commissions  117  223  146  372 
   Other  2,445  2,028  4,838  3,940 
Total Noninterest Income  15,292  15,770  30,035  31,240 
Noninterest Expense:             
   Salaries and related benefits  14,913  15,476  29,988  31,368 
   Occupancy  4,050  3,822  8,075  7,599 
   Outsourced data processing services  2,122  2,202  4,578  4,442 
   Settlements  2,100  -  2,100  23 
   Amortization of identifiable intangibles  1,480  1,540  3,028  3,138 
   Professional fees  1,453  867  2,303  1,530 
   Furniture and equipment  1,038  1,116  1,971  2,167 
   Courier service  852  903  1,695  1,810 
   FDIC insurance assessments  740  1,260  1,960  2,580 
   Other  5,561  4,909  9,934  9,469 
Total Noninterest Expense  34,309  32,095  65,632  64,126 
Income Before Income Taxes  29,118  32,808  59,929  65,916 
   Provision for income taxes  7,849  9,247  16,278  18,779 
Net Income $21,269 $23,561 $43,651 $47,137 
              
Average Common Shares Outstanding  28,771  29,207  28,895  29,217 
Diluted Average Common Shares Outstanding  28,923  29,568  29,073  29,582 
Per Common Share Data:             
   Basic earnings $0.74 $0.81 $1.51 $1.61 
   Diluted earnings  0.74  0.80  1.50  1.59 
   Dividends paid  0.36  0.36  0.72  0.72 
See accompanying notes to unaudited condensed consolidated financial statements.

- 5 -


WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(unaudited)
                         
  Common      Accumulated          
  Shares  Common  Deferred  Comprehensive  Retained    
  Outstanding  Stock  Compensation  Income  Earnings  Total 
  (In thousands) 
                         
Balance, December 31, 2009
  29,208  $366,247  $2,485  $3,714  $133,002  $505,448 
Comprehensive income                        
Net income for the period                  23,576   23,576 
Other comprehensive income, net of tax:                        
Increase in net unrealized gains on securities available for sale              1,073       1,073 
Post-retirement benefit transition obligation amortization              9       9 
                        
Total comprehensive income                      24,658 
Exercise of stock options  85   3,697               3,697 
Stock option tax benefits      259               259 
Stock based compensation      360               360 
Stock awarded to employees  1   49               49 
Purchase and retirement of stock  (88)  (1,115)          (3,689)  (4,804)
Dividends                  (10,536)  (10,536)
                   
Balance, March 31, 2010
  29,206  $369,497  $2,485  $4,796  $142,353  $519,131 
                   
                         
Balance, December 31, 2010
  29,090  $378,885  $2,724  $159  $163,519  $545,287 
Comprehensive income                        
Net income for the period                  22,382   22,382 
Other comprehensive income, net of tax:                        
Increase in net unrealized gains on securities available for sale              2,358       2,358 
Post-retirement benefit transition obligation amortization              9       9 
                        
Total comprehensive income                      24,749 
Exercise of stock options  68   2,967               2,967 
Stock option tax benefits      27               27 
Stock based compensation      360               360 
Stock awarded to employees  1   40               40 
Purchase and retirement of stock  (239)  (3,137)          (8,902)  (12,039)
Dividends                  (10,476)  (10,476)
                   
Balance, March 31, 2011
  28,920  $379,142  $2,724  $2,526  $166,523  $550,915 
                   
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(unaudited)

  Common   Accumulated       
  Shares Common Deferred Comprehensive Retained   
  Outstanding Stock Compensation Income Earnings Total 
  (In thousands)
              
Balance, December 31, 2009  29,208 $366,247 $2,485 $3,714 $133,002 $505,448 
Comprehensive income                   
     Net income for the period              47,137  47,137 
     Other comprehensive income,
           net of tax:
                   
        Increase in net unrealized gains
           on securities available for sale
           2,582     2,582 
        Post-retirement benefit transition
           obligation amortization
           18     18 
Total comprehensive income                 49,737 
Exercise of stock options  210  8,783           8,783 
Stock option tax benefits     796           796 
Restricted stock activity  7  194  239        433 
Stock based compensation     720           720 
Stock awarded to employees  1  77           77 
Purchase and retirement of stock  (308) (3,828)       (13,392) (17,220)
Dividends              (21,093) (21,093)
Balance, June 30, 2010  29,118 $372,989 $2,724 $6,314 $145,654 $527,681 
                    
Balance, December 31, 2010  29,090 $378,885 $2,724 $159 $163,519 $545,287 
Comprehensive income                   
     Net income for the period              43,651  43,651 
     Other comprehensive income,
        net of tax:
                   
        Increase in net unrealized gains
           on securities available for sale
           8,074     8,074 
        Post-retirement benefit transition
           obligation amortization
           18     18 
Total comprehensive income                 51,743 
Exercise of stock options  74  3,273           3,273 
Stock option tax benefits     28           28 
Restricted stock activity  15  455  336        791 
Stock based compensation     720           720 
Stock awarded to employees  1  58           58 
Purchase and retirement of stock  (640) (8,142)       (23,542) (31,684)
Dividends              (20,876) (20,876)
Balance, June 30, 2011  28,540 $375,277 $3,060 $8,251 $162,752 $549,340 
See accompanying notes to unaudited condensed consolidated financial statements.

- 6 -


WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
         
  For the three months 
  ended March 31, 
  2011  2010 
  (In thousands) 
Operating Activities:
        
Net income $22,382  $23,576 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  3,435   3,411 
Loan loss provision  2,800   2,800 
Net amortization of deferred loan (fees) cost  (107)  70 
(Increase) decrease in interest income receivable  (613)  258 
Increase in other assets  (2,559)  (8,655)
Increase in income taxes payable  8,238   12,593 
Decrease in deferred taxes  219    
Decrease in interest expense payable  (220)  (66)
(Decrease) increase in other liabilities  (1,069)  1,108 
Stock option compensation expense  360   360 
Excess tax benefits from stock-based compensation  (27)  (259)
Gain on sale of other assets  (400)   
Loss (gain) on sale of property and equipment  5   (463)
Originations of mortgage loans for resale  (90)   
Proceeds from sale of mortgage loans originated for resale  93    
Net (gain) loss on sale of foreclosed assets  (106)  352 
Writedown of foreclosed assets  152   249 
       
Net Cash Provided by Operating Activities
  32,493   35,334 
       
         
Investing Activities:
        
Net repayments of loans  78,875   89,819 
Proceeds from FDIC loss-sharing agreement  855   19,863 
Purchases of investment securities available for sale  (133,899)  (53,537)
Purchases of investment securities held to maturity  (28,909)   
Proceeds from maturity/calls of securities available for sale  57,159   22,621 
Proceeds from maturity/calls of securities held to maturity  24,267   36,350 
Proceeds from sale of FRB/FHLB* stock  447   2,763 
Proceeds from sale of property acquired in satisfaction of debt  2,970   4,860 
Purchases of property, plant and equipment  (177)  (258)
Proceeds from sale of property, plant and equipment     603 
       
Net Cash Provided by Investing Activities
  1,588   123,084 
       
         
Financing Activities:
        
Net change in deposits  7,831   (164,280)
Net change in short-term borrowings  (13,027)  (90,660)
Exercise of stock options/issurance of shares  2,967   3,697 
Excess tax benefits from stock-based compensation  27   259 
Retirement of common stock including repurchases  (12,039)  (4,804)
Common stock dividends paid  (10,476)  (10,536)
       
Net Cash Used in Financing Activities
  (24,717)  (266,324)
       
Net Change In Cash and Due from Banks
  9,364   (107,906)
Cash and Due from Banks at Beginning of Period
  338,793   361,135 
       
Cash and Due from Banks at End of Period
 $348,157  $253,229 
       
         
Supplemental Cash Flow Disclosures:
        
Supplemental disclosure of noncash activities:        
Loan collateral transferred to other real estate owned $3,652  $6,092 
Supplemental disclosure of cash flow activities:        
Interest paid for the period  3,367   4,457 
Income tax payments for the period     3,500 
*CONSOLIDATED STATEMENTS OF CASH FLOWS
Federal Reserve Bank/Federal Home Loan Bank (“FRB/FHLB”)(unaudited)
  For the six months 
  ended June 30, 
  2011  2010 
  (In thousands) 
Operating Activities:      
Net income $43,651  $47,137 
Adjustments to reconcile net income to net cash
  provided by operating activities:
        
Depreciation and amortization  6,943   7,589 
Loan loss provision  5,600   5,600 
Net amortization of deferred loan (fees) cost  (190)  28 
(Increase) decrease in interest income receivable  (161)  657 
Decrease in other assets  1,685   403 
Increase in income taxes payable  212   2,899 
Increase in net deferred tax asset  (571)  (11,275)
Decrease in interest expense payable  (328)  (1)
Increase (decrease) in other liabilities  4,581   (13,866)
Stock option compensation expense  720   720 
Stock option tax benefits  (28)  (796)
Gain on sale of other assets  (800)  (608)
Net gain on sale of premises and equipment  (127)  (447)
Originations of mortgage loans for resale  (90)  (277)
Net proceeds from sale of mortgage loans originated for resale  93   288 
Net gain on sale of foreclosed assets  (193)  (478)
Write-down of foreclosed assets  845   399 
Net Cash Provided by Operating Activities  61,842   37,972 
         
Investing Activities:        
Net repayments of loans  146,387   145,389 
Proceeds from FDIC loss-sharing indemnification  5,265   29,841 
Purchases of investment securities available for sale  (152,998)  (149,493)
Purchases of investment securities held to maturity  (128,294)  - 
Proceeds from maturity/calls of securities available for sale  122,645   73,064 
Proceeds from maturity/calls of securities held to maturity  41,749   73,977 
Net change in FRB/FHLB* securities  (13,158)  3,121 
Proceeds from sale of foreclosed assets  6,734   8,071 
Purchases of premises and equipment  (250)  (448)
Proceeds from sale of premises and equipment  169   603 
Net Cash Provided by Investing Activities  28,249   184,125 
         
Financing Activities:        
Net change in deposits  (43,848)  (168,106)
Net change in short-term borrowings and FHLB advances  (15,658)  (92,152)
Exercise of stock options  3,273   8,783 
Stock option tax benefits  28   796 
Repurchases/retirement of stock  (31,684)  (17,220)
Dividends paid  (20,876)  (21,093)
Net Cash Used in Financing Activities  (108,765)  (288,992)
Net Change In Cash and Due from Banks  (18,674)  (66,895)
Cash and Due from Banks at Beginning of Period  338,793   361,135 
Cash and Due from Banks at End of Period $320,119  $294,240 
         
Supplemental Cash Flow Disclosures:        
Supplemental disclosure of non cash activities:        
   Loan collateral transferred to other real estate owned $14,637  $13,749 
Supplemental disclosure of cash flow activities:        
   Interest paid for the period  6,299   8,058 
   Income tax payments for the period  16,638   27,257 
See accompanying notes to unaudited condensed consolidated financial statements.

* Federal Reserve Bank/Federal Home Loan Bank ("FRB/FHLB")
- 7 -


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and six months ended March 31,June 30, 2011 and 2010 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20102010.

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.

Note 2: Accounting Policies

The Company’s accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Certain amounts in prior periods have been reclassified to conform to the current presentation.

Nonmarketable Equity Securities.  Nonmarketable equity securities include securities that are not publicly traded and securities acquired for various purposes, such as to meet regulatory requirements (for example, Federal Home Loan Bank and Federal Reserve stock).  These 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 for possible declines in value that are considered “other than temporary”.  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 exit strategy.  The asset value is reduced when a decline in value is considered to be other than temporary.  The Company recognizes the estimated loss as a loss from equity investments in noninterest income.

Certain accounting policies underlying the preparation of these financial statements require Management to make estimates and judgments. These estimates and judgments may significantly affect reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management exercises judgment to estimate the appropriate level of the allowance for credit losses and the acquisition date fair value of purchased loans, which are discussed in the Company’s accounting policies.

As described in Note 3 below, Westamerica Bank (“Bank”) acquired assets and assumed liabilities of the former Sonoma Valley Bank (“Sonoma”) on August 20, 2010. The 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. Management made significant estimates and exercised significant judgment in accounting for the acquisition. Management judgmentally measured loan fair values based on loan file reviews (including borrower financial statements and tax returns), appraised collateral values, expected cash flows, and historical loss factors. Repossessed loan collateral was primarily valued based upon appraised collateral values. The Bank also recorded an identifiable intangible asset representing the value of the core deposit customer base of Sonoma Valley Bank based on Management’s evaluation of the cost of such deposits relative to alternative funding sources. In determining the value of the identifiable intangible asset, Management used significant estimates including average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other significant estimates. Management used quoted market prices to determine the fair value of investment securities and FHLB advances.

The acquired assets of Sonoma Valley Bank include loans; such loans are not indemnified by the Federal Deposit Insurance Corporation (FDIC).  However, on February 6, 2009, the Bank acquired loans in a business combination that are indemnified by the FDIC, as described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Pursuant to acquisition accounting, the loans in each business combination were measured at their estimated fair value at the respective acquisition date.  This method of measuring the carrying value of purchased loans differs from loans originated by the Company, and as such, the Company identifies purchased loans not indemnified by the FDIC as “Purchased Non-covered Loans” and purchased loans indemnified by the FDIC as “Purchased Covered Loans.”


- 8 -


Loans originated by the Company are measured at the principal amount outstanding, net of unearned discount and unamortized deferred fees and costs.  These loans are identified as “Originated Loans.”

Recently IssuedAdopted Accounting Standards
Financial Accounting Standards Board (FASB)
FASB Accounting Standards Update (ASU) 2011-01,Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Topic 310)2011-02, was issued January 2011 deferring the new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of theFASB Accounting Standards Codification) about troubled debt restructurings to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update,Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. As a result of the issuance of Update 2011-02, the provisions of Update 2011-01 are effective for the first interim or annual period beginning on or after June 15, 2011 or September 30, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.
FASB ASU 2011-02,A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, was issued April 2011 providing additional guidance for creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring.  The provisions of this standard are effective for the first interim or annual period beginning on or after June 15, 2011 with early adoption permissible, and should be applied retrospectively to the beginning of the annual period of adoption. The Company early adopted the provisions of this standard effective April 1, 2011 with retrospective application to January 1, 2011. One troubled debt restructuring was identified as a result of the adoption of this Update as disclosed in Note 5.

FASB ASU 2011-01Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Topic 310), was issued January 2011 deferring the new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. As a result of the issuance of Update 2011-02, the provisions of Update 2011-01 are effective for the first interim or Septemberannual period beginning on or after June 15, 2011 or July 1, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. The Company adopted the Update concurrent with ASU 2011-02.

Recently Issued Accounting Standards

FASB ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements, was issued April 2011 addressing the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.  The amendments remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion.  The provisions of this Update are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.

FASB ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued May 2011 as a result of the FASB and International Accounting Standards Board’s (IASB) goal to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. The provisions of this Update are effective during the interim or annual periods beginning after December 15, 2011, and are to be applied prospectively.  Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.

FASB ASU 2011-05, Presentation of Comprehensive Income, was issued June 2011 requiring that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  This Update also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statements.  The provisions of this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively.  Early adoption is permitted.  Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.

- 9 -

Note 3:  Acquisition

On August 20, 2010, the Bank purchased substantially all the assets and assumed substantially all the liabilities of Sonoma from the FDIC, as Receiver of Sonoma. Sonoma operated 3 commercial banking branches within Sonoma County, California. The FDIC took Sonoma under receivership upon Sonoma’s closure by the California Department of Financial Institutions at the close of business August 20, 2010. Westamerica Bank purchased substantially all of Sonoma’s net assets at a discount of $43 million$43,000 thousand and paid a $5 million$5,008 thousand deposit premium.

The Sonoma acquisition was accounted for under the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. The statement of net assets acquired as of August 20, 2010 and the resulting bargain purchase gain are presented in the following table. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of a merger as information relative to closing date fair values becomes available. A “bargain purchase” gain totaling $178 thousand resulted from the acquisition and is included as a component of noninterest income on the statement of income. The amount of the gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed. Sonoma’s results of operations prior to the acquisition are not included in Westamerica’s statement of income.


Statement of Net Assets Acquired (at fair value)   
  At 
  August 20, 2010 
  (In thousands) 
Assets   
Cash and due from banks $57,895 
Money market assets  26,050 
Securities  7,223 
Loans  213,664 
Other real estate owned  2,916 
Core deposit intangible  5,270 
Other assets  2,065 
Total Assets $315,083 
     
Liabilities    
Deposits  252,563 
Federal Home Loan Bank advances  61,872 
Other liabilities  470 
Total Liabilities  314,905 
     
Net assets acquired $178 
Statement of Net Assets Acquired (at fair value)   
  At 
  August 20, 2010 
  (In thousands) 
    
Sonoma Valley Bank tangible shareholder's equity $13,923 
Adjustments to reflect assets acquired and
  liabilities assumed at fair value:
    
    Cash payment from FDIC  21,270 
    Loans and leases, net  (34,562)
    Other real estate owned  (1,491)
    Other assets  (811)
    Core deposit intangible  5,270 
    Deposits  (1,233)
    Federal Home Loan Bank advances  (1,872)
    Other liabilities  (316)
Gain on acquisition $178 

- 910 -


Statement of Net Assets Acquired (at fair value)
     
  At 
  August 20, 2010 
  (In thousands) 
Assets    
Cash and due from banks $57,895 
Money market assets  26,050 
Securities  7,223 
Loans  213,664 
Other real estate owned  2,916 
Core deposit intangible  5,270 
Other assets  2,065 
    
Total Assets $315,083 
    
Liabilities    
Deposits  252,563 
Federal Home Loan Bank advances  61,872 
Liabilities for interest and other expenses  470 
    
Total Liabilities  314,905 
    
Net assets acquired $178 
    
     
Sonoma Valley Bank tangible shareholder’s equity $13,923 
Adjustments to reflect assets acquired and liabilities assumed at fair value:    
Cash payment from FDIC  21,270 
Loans and leases, net  (34,562)
Other real estate owned  (1,491)
Other assets  (811)
Core deposit intangible  5,270 
Deposits  (1,233)
Federal Home Loan Bank advances  (1,872)
Other liabilities  (316)
    
Gain on acquisition $178 
    
Note 4:  Investment Securities

The amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio as of March 31, 2011, follows:
                 
      Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
U.S. Treasury securities $3,550  $  $(26) $3,524 
Securities of U.S. Government sponsored entities  178,380   187   (2,320)  176,247 
Residential mortgage-backed securities  105,476   3,643   (26)  109,093 
Commercial mortgage-backed securities  4,929   8   (13)  4,924 
Obligations of States and political subdivisions  285,627   2,623   (4,128)  284,122 
Residential collateralized mortgage obligations  57,534   1,146   (241)  58,439 
Asset-backed securities  8,701      (392)  8,309 
FHLMC and FNMA stock  824   1,979   (4)  2,799 
Corporate securities  89,274   329   (249)  89,354 
Other securities  2,532   2,330   (70)  4,792 
             
Total $736,827  $12,245  $(7,469) $741,603 
             

  Investment securities available for sale 
  At June 30, 2011 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands)
U.S. Treasury securities $3,546  $27  $-  $3,573 
Securities of U.S. Government sponsored entities  167,028   390   (554)  166,864 
Residential mortgage-backed securities  100,150   5,045   (16)  105,179 
Commercial mortgage-backed securities  4,827   12   (8)  4,831 
Obligations of States and political subdivisions  265,340   4,628   (1,607)  268,361 
Residential collateralized mortgage obligations  54,248   1,527   -   55,775 
Asset-backed securities  8,305   -   (281)  8,024 
FHLMC and FNMA stock  824   3,410   (4)  4,230 
Corporate securities  83,776   377   (247)  83,906 
Other securities  2,397   1,988   (50)  4,335 
Total $690,441  $17,404  $(2,767) $705,078 
The amortized cost, unrealized gains and losses, and fair value of the held to maturity investment securities portfolio  as of March 31, 2011, follows:
                 
      Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Residential mortgage-backed securities $37,232  $1,724  $  $38,956 
Obligations of States and political subdivisions  478,904   12,801   (1,495)  490,210 
Residential collateralized mortgage obligations  75,787   2,073   (2,128)  75,732 
             
Total $591,923  $16,598  $(3,623) $604,898 
             

- 10 -

  Investment securities held to maturity
  At June 30, 2011
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Residential mortgage-backed securities $33,139  $1,702  $-  $34,841 
Obligations of States and political subdivisions  503,039   16,618   (629)  519,028 
Residential collateralized mortgage obligations  133,274   2,274   (2,091)  133,457 
Total $669,452  $20,594  $(2,720) $687,326 


The amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio as of December 31, 2010, follows:
                 
      Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
U.S. Treasury securities $3,554  $  $(12) $3,542 
Securities of U.S. Government sponsored entities  175,080   162   (2,365)  172,877 
Residential mortgage-backed securities  105,702   4,142   (15)  109,829 
Commercial mortgage-backed securities  5,081   7   (23)  5,065 
Obligations of States and political subdivisions  264,757   2,423   (6,047)  261,133 
Residential collateralized mortgage obligations  24,709   894      25,603 
Asset-backed securities  9,060      (774)  8,286 
FHLMC and FNMA stock  824   42   (211)  655 
Corporate securities  79,356   200   (365)  79,191 
Other securities  2,655   2,699   (51)  5,303 
             
Total $670,778  $10,569  $(9,863) $671,484 
             

  Investment securities available for sale 
  At December 31, 2010 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
U.S. Treasury securities $3,554  $-  $(12) $3,542 
Securities of U.S. Government sponsored entities  175,080   162   (2,365)  172,877 
Residential mortgage-backed securities  105,702   4,142   (15)  109,829 
Commercial mortgage-backed securities  5,081   7   (23)  5,065 
Obligations of States and political subdivisions  264,757   2,423   (6,047)  261,133 
Residential collateralized mortgage obligations  24,709   894   -   25,603 
Asset-backed securities  9,060   -   (774)  8,286 
FHLMC and FNMA stock  824   42   (211)  655 
Corporate securities  79,356   200   (365)  79,191 
Other securities  2,655   2,699   (51)  5,303 
Total $670,778  $10,569  $(9,863) $671,484 
- 11 -

The amortized cost, unrealized gains and losses, and fair value of the held to maturity investment securities portfolio  as of December 31, 2010 follows:
 Investment securities held to maturity 
                 At December 31, 2010 
 Gross Gross       Gross  Gross    
 Amortized Unrealized Unrealized Fair  Amortized  Unrealized  Unrealized  Fair 
 Cost Gains Losses Value  Cost  Gains  Losses  Value 
 (In thousands)  (In thousands) 
Residential mortgage-backed securities $40,531 $1,797 $ $42,328  $40,531  $1,797  $-  $42,328 
Obligations of States and political subdivisions 455,372 13,142  (1,142) 467,372   455,372   13,142   (1,142)  467,372 
Residential collateralized mortgage obligations 84,825 2,198  (2,012) 85,011   84,825   2,198   (2,012)  85,011 
         
Total $580,728 $17,137 $(3,154) $594,711  $580,728  $17,137  $(3,154) $594,711 
         
The amortized cost and fair value of securities as of March 31, 2011, by contractual maturity are shown in the following table:
                 
  Securities Available  Securities Held 
  for Sale  to Maturity 
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands) 
Maturity in years:                
1 year or less $21,109  $21,163  $6,607  $6,671 
Over 1 to 5 years  328,487   327,399   104,845   107,858 
Over 5 to 10 years  65,941   65,990   342,876   351,252 
Over 10 years  149,995   147,004   24,576   24,429 
             
Subtotal  565,532   561,556   478,904   490,210 
Mortgage-backed securities and residential collateralized mortgage obligations  167,939   172,456   113,019   114,688 
Other securities  3,356   7,591       
             
Total $736,827  $741,603  $591,923  $604,898 
             

- 11 -

  At June 30, 2011
  Securities Available Securities Held
  for Sale to Maturity
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands)
Maturity in years:            
1 year or less $14,162  $14,230  $9,574  $9,590 
Over 1 to 5 years  304,588   305,523   123,233   126,678 
Over 5 to 10 years  62,451   63,277   325,489   337,477 
Over 10 years  146,794   147,698   44,743   45,283 
Subtotal  527,995   530,728   503,039   519,028 
Mortgage-backed securities and residential
collateralized mortgage obligations
  159,225   165,785   166,413   168,298 
Other securities  3,221   8,565   -   - 
Total $690,441  $705,078  $669,452  $687,326 


The amortized cost and fair value of securities as of December 31, 2010, by contractual maturity are shown in the following table:
                 
  Securities Available  Securities Held 
  for Sale  to Maturity 
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands) 
Maturity in years:                
1 year or less $21,362  $21,460  $6,057  $6,103 
Over 1 to 5 years  315,777   314,605   92,837   95,608 
Over 5 to 10 years  64,565   64,804   351,407   360,602 
Over 10 years  130,103   124,160   5,071   5,059 
             
Subtotal  531,807   525,029   455,372   467,372 
Mortgage-backed securities and residential collateralized mortgage obligations  135,492   140,497   125,356   127,339 
Other securities  3,479   5,958       
             
Total $670,778  $671,484  $580,728  $594,711 
             

  At December 31, 2010
  Securities Available Securities Held
  for Sale to Maturity
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands) 
Maturity in years:            
1 year or less $21,362  $21,460  $6,057  $6,103 
Over 1 to 5 years  315,777   314,605   92,837   95,608 
Over 5 to 10 years  64,565   64,804   351,407   360,602 
Over 10 years  130,103   124,160   5,071   5,059 
Subtotal  531,807   525,029   455,372   467,372 
Mortgage-backed securities and residential
collateralized mortgage obligations
  135,492   140,497   125,356   127,339 
Other securities  3,479   5,958   -   - 
Total $670,778  $671,484  $580,728  $594,711 
Expected maturities of mortgage-backed 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-backed securities.

- 12 -

An analysis of gross unrealized losses on the available for sale investment securiteis portfolio follows:
  Investment securities available for sale
  At June 30, 2011 
  Less than 12 months 12 months or longer Total
     Unrealized     Unrealized     Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
Securities of U.S. Government sponsored entities
 $66,561  $(554) $-  $-  $66,561  $(554)
Residential mortgage-backed securities  -   -   974   (16)  974   (16)
Commercial mortgage-backed securities  -   -   1,384   (8)  1,384   (8)
Obligations of States and political subdivisions
  58,597   (1,187)  12,956   (420)  71,553   (1,607)
Asset-backed securities  -   -   8,024   (281)  8,024   (281)
FHLMC and FNMA stock  -   -   1   (4)  1   (4)
Corporate securities  39,753   (247)  -   -   39,753   (247)
Other securities  -   -   1,950   (50)  1,950   (50)
Total $164,911  $(1,988) $25,289  $(779) $190,200  $(2,767)
An analysis of gross unrealized losses of the available for sale investment securities portfolio as of March 31, 2011, follows:
                         
  Less than 12 months  12 months or longer  Total 
      Unrealized      Unrealized      Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
U.S. Treasury securities $3,524  $(26) $  $  $3,524  $(26)
Securities of U.S. Government sponsored entities  130,220   (2,320)        130,220   (2,320)
Residential mortgage-backed securities  986   (26)        986   (26)
Commercial mortgage-backed securities        2,995   (13)  2,995   (13)
Obligations of States and political subdivisions  115,634   (3,517)  13,371   (611)  129,005   (4,128)
Residential collateralized mortgage obligations  15,651   (241)        15,651   (241)
Asset-backed securities        8,309   (392)  8,309   (392)
FHLMC and FNMA stock        2   (4)  2   (4)
Corporate securities  44,806   (249)        44,806   (249)
Other securities        1,930   (70)  1,930   (70)
                   
Total $310,821  $(6,379) $26,607  $(1,090) $337,428  $(7,469)
                   

An analysis of gross unrealized losses of the held to maturity investment securities portfolio as of March 31, 2011, follows:
  Investment securities held to maturity
  At June 30, 2011
  Less than 12 months 12 months or longer Total
     Unrealized     Unrealized     Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
Obligations of States and political subdivisions
 $34,115  $(334) $9,821  $(295) $43,936  $(629)
                         
Residential collateralized mortgage obligations
  22,259   (97)  16,856   (1,994)  39,115   (2,091)
Total $56,374  $(431) $26,677  $(2,289) $83,051  $(2,720)
                         
  Less than 12 months  12 months or longer  Total 
      Unrealized      Unrealized      Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
Obligations of States and political subdivisions $50,394  $(1,003) $10,271  $(492) $60,665  $(1,495)
Residential collateralized mortgage obligations        17,743   (2,128)  17,743   (2,128)
                   
Total $50,394  $(1,003) $28,014  $(2,620) $78,408  $(3,623)
                   

The unrealized losses on the Company’s investments in collateralized mortgage obligations and asset backed securities were caused by market conditions for these types of investments.  The Company evaluates these securities on a quarterly basis including changes in security ratings issued by rating agencies, 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. Substantially all of these securities continue to be AAA rated by one or more major rating agencies.

- 12 -



The unrealized losses on the Company’s investments in obligations of states and political subdivisions were caused by conditions in the municipal securities market.  The Company’s investments in obligations of states and political subdivisions primarily finance essential community services such as school districts, water delivery systems, hospitals and fire protection services. Further, these bonds are primarily “bank qualified” issues whereby the issuing authority’s total debt issued in any one year does not exceed $30 million, thereby qualifying the bonds for tax-exempt status for federal income tax purposes. Therefore, “bank qualified” bonds are relatively small in amount providing a high degree of diversification within the Company’s investment portfolio. The Company evaluates these securities quarterly to determine if a change in security rating has occurred or the municipality has experienced financial difficulties.  Substantially all of these securities continue to be investment grade rated.

The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of March 31,June 30, 2011.

The fair values of the investment securities could decline in the future if the issuers’ financial condition deteriorates, general economy deteriorates, credit ratings decline, or the liquidity for securities is low.  As a result, other than temporary impairments may occur in the future.

- 13 -

An analysis of gross unrealized losses of the available for sale investment securities portfolio as of December 31, 2010, follows:
                         
  Less than 12 months  12 months or longer  Total 
      Unrealized      Unrealized      Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
U.S. Treasury securities $3,542  $(12) $  $  $3,542  $(12)
Securities of U.S. Government sponsored entities  146,083   (2,365)        146,083   (2,365)
Residential mortgage-backed securities  1,534   (15)        1,534   (15)
Commercial mortgage-backed securities  3,028   (23)        3,028   (23)
Obligations of States and political subdivisions  132,014   (5,505)  10,341   (542)  142,355   (6,047)
Asset-backed securities        8,286   (774)  8,286   (774)
FHLMC and FNMA stock  550   (211)        550   (211)
Corporate securities  44,752   (365)        44,752   (365)
Other securities  1      1,948   (51)  1,949   (51)
                   
Total $331,504  $(8,496) $20,575  $(1,367) $352,079  $(9,863)
                   

  Investment securities available for sale
  At December 31, 2010
  Less than 12 months  12 months or longer Total
     Unrealized     Unrealized     Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
U.S. Treasury securities $3,542  $(12) $-  $-  $3,542  $(12)
Securities of U.S. Government sponsored entities
  146,083   (2,365)  -   -   146,083   (2,365)
Residential mortgage-backed securities  1,534   (15)  -   -   1,534   (15)
Commercial mortgage-backed securities  3,028   (23)  -   -   3,028   (23)
Obligations of States and political subdivisions
  132,014   (5,505)  10,341   (542)  142,355   (6,047)
Asset-backed securities  -   -   8,286   (774)  8,286   (774)
FHLMC and FNMA stock  550   (211)  -   -   550   (211)
Corporate securities  44,752   (365)  -   -   44,752   (365)
Other securities  1   -   1,948   (51)  1,949   (51)
Total $331,504  $(8,496) $20,575  $(1,367) $352,079  $(9,863)

An analysis of gross unrealized losses of the held to maturity investment securities portfolio asfollows:

  Investment securities held to maturity 
  At December 31, 2010 
  Less than 12 months  12 months or longer Total
     Unrealized     Unrealized     Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
Obligations of States and political subdivisions
 $22,157  $(382) $18,663  $(760) $40,820  $(1,142)
Residential collateralized mortgage obligations
  -   -   20,182   (2,012)  20,182   (2,012)
Total $22,157  $(382) $38,845  $(2,772) $61,002  $(3,154)

The following table provides information about the amount of December 31, 2010, follows:interest income from taxable and non-taxable investment securities:
                         
  Less than 12 months  12 months or longer  Total 
      Unrealized      Unrealized      Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
  (In thousands) 
Obligations of States and political subdivisions $22,157  $(382) $18,663  $(760) $40,820  $(1,142)
Residential collateralized mortgage obligations        20,182   (2,012)  20,182   (2,012)
                   
Total $22,157  $(382) $38,845  $(2,772) $61,002  $(3,154)
                   

  For the three months For the six months
  ended June 30, ended June 30,
  2011  2010  2011  2010 
  (In thousands) 
Taxable $4,223  $4,199  $7,980  $8,628 
Tax-exempt  7,593   6,819   14,967   13,690 
Total interest income from investment securities $11,816  $11,018  $22,947  $22,318 

- 1314 -


Note 5: Loans and Allowance for Credit Losses

A summary of the major categories of originated loans outstanding is shown in the following table:
         
  At March 31,  At December 31, 
  2011  2010 
  (In thousands) 
Originated loans:        
Commercial $450,492  $474,183 
Commercial real estate  746,219   757,140 
Construction  24,270   26,145 
Residential real estate  299,884   310,196 
Consumer installment & other  466,111   461,877 
       
Total $1,986,976  $2,029,541 
       
The carrying amount
  At June 30,  At December 31, 
  2011  2010 
  (In thousands)
Originated loans:      
Commercial $429,033  $474,183 
Commercial real estate  734,811   757,140 
Construction  25,698   26,145 
Residential real estate  293,771   310,196 
Consumer installment & other  480,329   461,877 
Total $1,963,642  $2,029,541 

A summary of purchased covered loans, consistingthe major categories of impaired and non impaired purchased covered loans is shown in the following table.table:
                         
  As of March 31, 2011  As of December 31, 2010 
  Impaired  Non Impaired      Impaired  Non Impaired    
  Purchased  Purchased  Total Purchased  Purchased  Purchased  Total Purchased 
  Covered Loans  Covered Loans  Covered Loans  Covered Loans  Covered Loans  Covered Loans 
  (In thousands)  (In thousands) 
Purchased covered loans:                        
Commercial $9,978  $143,266  $153,244  $10,014  $158,971  $168,985 
Commercial real estate  14,056   367,589   381,645   14,079   376,603   390,682 
Construction  8,314   18,844   27,158   9,073   19,307   28,380 
Residential real estate  138   14,437   14,575   138   18,236   18,374 
Consumer installment & other  247   83,587   83,834   252   86,299   86,551 
                   
Total $32,733  $627,723  $660,456  $33,556  $659,416  $692,972 
                   
  As of June 30, 2011 As of December 31, 2010
  
Impaired
Purchased
Covered Loans
  
Non Impaired
Purchased
Covered Loans
  
Total Purchased
Covered Loans
  
Impaired
Purchased
Covered Loans
  
Non Impaired
Purchased
Covered Loans
  
Total Purchased
Covered Loans
 
  (In thousands)(In thousands) 
Purchased covered loans:                  
Commercial $6,593  $125,530  $132,123  $10,014  $158,971  $168,985 
Commercial real estate  12,507   364,661   377,168   14,079   376,603   390,682 
Construction  5,997   11,709   17,706   9,073   19,307   28,380 
Residential real estate  138   13,724   13,862   138   18,236   18,374 
Consumer installment & other  244   81,624   81,868   252   86,299   86,551 
    Total $25,479  $597,248  $622,727  $33,556  $659,416  $692,972 

Changes in the carrying amount of impaired purchased covered loans were as follows:
        
 Quarter ended Year ended  Six months ended  Year ended 
 March 31, 2011 December 31, 2010  June 30, 2011  December 31, 2010 
 (In thousands)  (In thousands) 
Carrying amount at the beginning of the period $33,556 $43,196  $33,556  $43,196 
Reductions during the period  (823)  (9,640)  (8,077)  (9,640)
     
Carrying amount at the end of the period $32,733 $33,556  $25,479  $33,556 
     
Impaired purchased covered loans had an unpaid principal balance (less prior charge-offs) of $44 million$34,517 thousand and $48 million$48,471 thousand at March 31,June 30, 2011 and December 31, 2010, respectively.
The carrying amounts
A summary of the major categories of purchased non-covered loans consisting of impaired and non impaired purchased non-covered loans, areis shown in the following table. Re-classification of some purchased non-covered loans occurred in the first quarter 2011 upon conversion of such loans to the Company’s accounting systems.
                         
  At March 31, 2011  At December 31, 2010 
  Impaired  Non Impaired  Total Purchased  Impaired  Non Impaired  Total Purchased 
  Purchased Non-  Purchased Non-  Non-covered  Purchased Non-  Purchased Non-  Non-covered 
  covered Loans  covered Loans  Loans  covered Loans  covered Loans  Loans 
  (In thousands)  (In thousands) 
Purchased non-covered loans:                        
Commercial $1,946  $16,837  $18,783  $415  $15,005  $15,420 
Commercial real estate  21,649   91,301   112,950   22,988   99,900   122,888 
Construction  5,164   14,457   19,621   6,514   15,106   21,620 
Residential real estate  311   5,996   6,307   311   6,744   7,055 
Consumer installment & other  1,256   28,286   29,542   1,790   30,798   32,588 
                   
Total $30,326  $156,877  $187,203  $32,018  $167,553  $199,571 
                   

  At June 30, 2011 At December 31, 2010 
  
Impaired
Purchased Non-
covered Loans
  
Non Impaired
Purchased Non-
covered Loans
  
Total Purchased
Non-covered
Loans
  
Impaired
Purchased Non-
covered Loans
  
Non Impaired
Purchased Non-
covered Loans
  
Total Purchased
Non-covered
Loans
 
  (In thousands)  (In thousands) 
Purchased non-covered loans:                  
Commercial $1,294  $14,121  $15,415  $415  $15,005  $15,420 
Commercial real estate  15,876   85,516   101,392   22,988   99,900   122,888 
Construction  4,001   10,844   14,845   6,514   15,106   21,620 
Residential real estate  311   5,970   6,281   311   6,744   7,055 
Consumer installment & other  459   26,452   26,911   1,790   30,798   32,588 
Total $21,941  $142,903  $164,844  $32,018  $167,553  $199,571 

- 1415 -


The following table represents the non impaired purchased non-covered loans receivable at the acquisition date of August 20, 2010. The amounts include principal only and do not reflect accrued interest as of the date of acquisition or beyond (in thousands):beyond:
     
Gross contractual loan principal payment receivable $188,206 
Estimate of contractual principal not expected to be collected  (15,058)
Fair value of non impaired purchased loans receivable $175,922 

Non impaired purchased non-covered loans receivable
  At August 20, 2010 
  (In thousands) 
    
Gross contractual loan principal payment receivable $188,206 
Estimate of contractual principal not expected to be collected  (15,058)
Fair value of non impaired purchased loans receivable $175,922 

The Company applied the cost recovery method to impaired purchased non-covered loans at the acquisition date of August 20, 2010 due to the uncertainty as to the timing of expected cash flows as reflected in the following table (in thousands):table:
Impaired purchased non-covered loans   
     At August 20, 2010 
 (In thousands) 
Contractually required payments receivable (including interest) $70,882  $70,882 
Nonaccretable difference  (33,140)  (33,140)
   
Cash flows expected to be collected 37,742   37,742 
Accretable difference    - 
   
Fair value of loans acquired $37,742  $37,742 
   
Changes in the carrying amount of impaired purchased non-covered loans were as follows for the periods indicated below from August 20, 2010 (acquisition date) through March 31, 2011 (in thousands):June 30, 2011:
         
      August 20, 2010 
  Quarter ended  through 
  March 31, 2011  December 31, 2010 
  (In thousands) 
Carrying amount at the beginning of the period $32,018  $37,742 
Reductions during the period  (1,692)  (5,724)
       
Carrying amount at the end of the period $30,326  $32,018 
       

     August 20, 2010 
  Six months ended  through 
  June 30, 2011  December 31, 2010 
  Impaired purchased non-covered loans 
  (In thousands) 
Carrying amount at the beginning of the period $32,018  $37,742 
Reductions during the period  (10,077)  (5,724)
Carrying amount at the end of the period $21,941  $32,018 

Impaired purchased non-covered loans had an unpaid principal balance (less prior charge-offs) of $48 million, $51 million$33,642 thousand, $50,875 thousand and $60 million$59,662 thousand at March 31,June 30, 2011, December 31, 2010 and August 20, 2010, respectively.
- 16 -

The following summarizes activity in the allowance for credit losses:
                             
  Allowance for Credit Losses 
  For the Quarter Ended March 31, 2011 
      Commercial      Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands) 
Allowance for credit losses:                            
Beginning balance $9,878  $9,607  $3,559  $617  $6,982  $7,686  $38,329 
Charge-offs  (1,324)     (1,475)  (308)  (2,136)     (5,243)
Recoveries  200            928      1,128 
Provision  1,093   752   346   68   (1,177)  1,718   2,800 
                      
Ending balance $9,847  $10,359  $2,430  $377  $4,597  $9,404  $37,014 
                      
Components:                            
Allowance for loan losses $7,816  $10,355  $2,260  $377  $4,458  $9,055  $34,321 
Liability for off-balance sheet credit exposure  2,031   4   170      139   349   2,693 
                      
Total $9,847  $10,359  $2,430  $377  $4,597  $9,404  $37,014 
                      
Ending balance: individually evaluated for impairment $  $  $149  $  $  $  $149 
                      
Ending balance: collectively evaluated for impairment $9,847  $10,359  $2,281  $377  $4,597  $9,404  $36,865 
                      
Ending balance: loans acquired with deteriorated quality $  $  $  $  $  $  $ 
                      

  Allowance for Credit Losses
  For the Six Months Ended June 30, 2011
     Commercial     Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands)
Allowance for credit losses:                     
Beginning balance $9,878  $9,607  $3,559  $617  $6,982  $7,686  $38,329 
    Charge-offs  (4,987)  -   (1,475)  (527)  (3,475)  -   (10,464)
    Recoveries  643   -   -   -   1,593   -   2,236 
    Provision  2,967   667   1,980   376   (1,431)  1,041   5,600 
Ending balance $8,501  $10,274  $4,064  $466  $3,669  $8,727  $35,701 
Components:                            
    Allowance for loan losses $6,729  $10,241  $3,959  $466  $3,522  $8,091  $33,008 
    Liability for off-balance sheet
      credit exposure
  1,772   33   105   -   147   636   2,693 
    Total $8,501  $10,274  $4,064  $466  $3,669  $8,727  $35,701 
Ending balance: individually evaluated for impairment
 $-  $399  $1,514  $-  $-  $-  $1,913 
Ending balance: collectively evaluated for impairment
 $8,501  $9,875  $2,550  $466  $3,669  $8,727  $33,788 
Ending balance: loans acquired with deteriorated quality
 $-  $-  $-  $-  $-  $-  $- 
  Allowance for Credit Losses
  At December 31, 2010
     Commercial     Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands)
Allowance for credit losses                     
Components:                     
    Allowance for loan losses $8,094  $9,607  $3,260  $617  $6,372  $7,686  $35,636 
Liability for off-balance sheet credit exposure  1,784   -   299   -   610   -   2,693 
    Total $9,878  $9,607  $3,559  $617  $6,982  $7,686  $38,329 
Ending balance: individually evaluated for impairment
 $-  $-  $1,365  $-  $-  $-  $1,365 
Ending balance: collectively evaluated for impairment
 $9,878  $9,607  $2,194  $617  $6,982  $7,686  $36,964 
Ending balance: loans acquired with deteriorated quality
 $-  $-  $-  $-  $-  $-  $- 

- 1517 -


                             
  Allowance for Credit Losses 
  At December 31, 2010 
      Commercial      Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands) 
Allowance for credit losses                            
Components:                            
Allowance for loan losses $8,094  $9,607  $3,260  $617  $6,372  $7,686  $35,636 
Liability for off-balance sheet credit exposure  1,784      299      610      2,693 
                      
Total $9,878  $9,607  $3,559  $617  $6,982  $7,686  $38,329 
                      
Ending balance: individually evaluated for impairment $  $  $1,365  $  $  $  $1,365 
                      
Ending balance: collectively evaluated for impairment $9,878  $9,607  $2,194  $617  $6,982  $7,686  $36,964 
                      
Ending balance: loans acquired with deteriorated quality $  $  $  $  $  $  $ 
                      
The recorded investment in loans related to the allowance for credit losses was as follows:
                             
  At March 31, 2011 
      Commercial      Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands) 
Purchased loans principal balance $203,708  $531,516  $56,270  $21,873  $120,407  $  $933,774 
Default risk purchase discount  (31,681)  (36,921)  (9,491)  (991)  (7,031)     (86,115)
                      
Purchased loans recorded investment  172,027   494,595   46,779   20,882   113,376      847,659 
Originated loans  450,492   746,219   24,270   299,884   466,111      1,986,976 
                      
Ending balance $622,519  $1,240,814  $71,049  $320,766  $579,487  $  $2,834,635 
                      
                            
 At December 31, 2010  At June 30, 2011
 Commercial Residential           Commercial     Residential          
 Commercial Real Estate Construction Real Estate Consumer Unallocated Total  Commercial  Real Estate�� Construction  Real Estate  Consumer  Unallocated  Total 
 (In thousands)  (In thousands)
Purchased loans principal balance $215,728 $554,619 $60,983 $26,420 $128,959 $ $986,709  $176,566  $513,345  $39,501  $21,134  $114,630  $-  $865,176 
Default risk purchase discount  (31,323)  (41,049)  (10,983)  (991)  (9,820)   (94,166)  (29,028)  (34,785)  (6,950)  (991)  (5,851)  -   (77,605)
               
Purchased loans recorded investment 184,405 513,570 50,000 25,429 119,139  892,543   147,538   478,560   32,551   20,143   108,779   -   787,571 
Originated loans 474,183 757,140 26,145 310,196 461,877  2,029,541   429,033   734,811   25,698   293,771   480,329   -   1,963,642 
               
Ending balance $658,588 $1,270,710 $76,145 $335,625 $581,016 $ $2,922,084  $576,571  $1,213,371  $58,249  $313,914  $589,108  $-  $2,751,213 
               
  At December 31, 2010
     Commercial     Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands)
Purchased loans principal balance $215,728  $554,619  $60,983  $26,420  $128,959  $-  $986,709 
Default risk purchase discount  (31,323)  (41,049)  (10,983)  (991)  (9,820)  -   (94,166)
Purchased loans recorded investment  184,405   513,570   50,000   25,429   119,139   -   892,543 
Originated loans  474,183   757,140   26,145   310,196   461,877   -   2,029,541 
Ending balance $658,588  $1,270,710  $76,145  $335,625  $581,016  $-  $2,922,084 

The recorded investment in loans was evaluated for impairment as follows:
                             
  At March 31, 2011 
      Commercial      Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands) 
Individually evaluated for impairment $9,499  $7,046  $11,806  $  $1,270  $  $29,621 
                      
Collectively evaluated for impairment $601,096  $1,196,298  $45,765  $322,082  $576,714  $  $2,741,955 
                      
Loans acquired with deteriorated quality $11,924  $35,705  $13,478  $449  $1,503  $  $63,059 
                      
                            
 At December 31, 2010  At June 30, 2011
 Commercial Residential           Commercial     Residential          
 Commercial Real Estate Construction Real Estate Consumer Unallocated Total  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
 (In thousands)  (In thousands)
Individually evaluated for impairment $11,947 $7,004 $7,421 $ $ $ $26,372  $4,958  $5,669  $15,000  $-  $1,271  $-  $26,898 
               
Collectively evaluated for impairment $636,212 $1,226,639 $53,137 $335,176 $578,974 $ $2,830,138  $563,726  $1,179,319  $33,251  $313,465  $587,134  $-  $2,676,895 
               
Loans acquired with deteriorated quality $10,429 $37,067 $15,587 $449 $2,042 $ $65,574  $7,887  $28,383  $9,998  $449  $703  $-  $47,420 
               

- 16 -


  At December 31, 2010
     Commercial     Residential          
  Commercial  Real Estate  Construction  Real Estate  Consumer  Unallocated  Total 
  (In thousands)
Individually evaluated for impairment $11,947  $7,004  $7,421  $-  $-  $-  $26,372 
Collectively evaluated for impairment
 $636,212  $1,226,639  $53,137  $335,176  $578,974  $-  $2,830,138 
Loans acquired with deteriorated quality
 $10,429  $37,067  $15,587  $449  $2,042  $-  $65,574 
The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to 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.” If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review examinations, assigned risk grades will be re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authority during regulatory examinations.
- 18 -

The following summarizes the credit risk profile by internally assigned grade:
                             
  Originated Loans 
  At March 31, 2011 
                          Total 
      Commercial      Residential  Indirect  Other  Originated 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                            
Pass $398,601  $699,449  $17,673  $296,294  $404,076  $59,869  $1,875,962 
Special mention  21,140   19,918      1,743      450   43,251 
Substandard  29,827   26,852   6,597   1,847   412   730   66,265 
Doubtful  924            82   37   1,043 
Loss              455      455 
                      
Total $450,492  $746,219  $24,270  $299,884  $405,025  $61,086  $1,986,976 
                      

                            
 Originated Loans  Originated Loans 
 At December 31, 2010  At June 30, 2011 
 Total                    Total 
 Commercial Residential Indirect Other Originated     Commercial     Residential  Indirect  Other  Originated 
 Commercial Real Estate Construction Real Estate Automobile consumer Loans  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
 (In thousands)  (In thousands) 
Grade:                      
Pass $427,878 $718,124 $18,073 $305,433 $398,805 $59,984 $1,928,297  $386,926  $691,531  $14,218  $289,703  $416,265  $61,802  $1,860,445 
Special mention 17,731 19,216  1,749  568 39,264   22,517   17,322   341   1,737   -   450   42,367 
Substandard 27,801 19,800 8,072 3,014 311 1,481 60,479   18,690   25,958   11,139   2,331   399   907   59,424 
Doubtful 773    61 28 862   900   -   -   -   19   35   954 
Loss     636 3 639   -   -   -   -   452   -   452 
               
Total $474,183 $757,140 $26,145 $310,196 $399,813 $62,064 $2,029,541  $429,033  $734,811  $25,698  $293,771  $417,135  $63,194  $1,963,642 
               
                             
  Purchased Covered Loans 
  At March 31, 2011 
                          Total 
                          Purchased 
      Commercial      Residential  Indirect  Other  Covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                            
Pass $78,657  $268,648  $1,014  $11,514  $  $84,882  $444,715 
Special mention  14,015   42,640   610            57,265 
Substandard  84,100   85,555   18,065   3,585      1,435   192,740 
Doubtful  5,010   5,655   11,925         5   22,595 
Loss  50               275   325 
Default risk purchase discount  (28,588)  (20,853)  (4,456)  (524)     (2,763)  (57,184)
                      
Total $153,244  $381,645  $27,158  $14,575  $  $83,834  $660,456 
                      

  Originated Loans 
  At December 31, 2010 
                    Total 
     Commercial     Residential  Indirect  Other  Originated 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                     
Pass $427,878  $718,124  $18,073  $305,433  $398,805  $59,984  $1,928,297 
Special mention  17,731   19,216   -   1,749   -   568   39,264 
Substandard  27,801   19,800   8,072   3,014   311   1,481   60,479 
Doubtful  773   -   -   -   61   28   862 
Loss  -   -   -   -   636   3   639 
       Total $474,183  $757,140  $26,145  $310,196  $399,813  $62,064  $2,029,541 
  Purchased Covered Loans 
  At June 30, 2011 
                    Total 
        ��           Purchased 
     Commercial     Residential  Indirect  Other  Covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                     
Pass $70,063  $257,709  $1,914  $10,911  $-  $82,752  $423,349 
Special mention  14,797   40,650   605   -   -   95   56,147 
Substandard  73,541   99,450   6,200   3,475   -   1,475   184,141 
Doubtful  1,520   1,085   11,925   -   -   87   14,617 
Loss  -   -   -   -   -   -   0 
Default risk purchase discount  (27,798)  (21,726)  (2,938)  (524)  -   (2,541)  (55,527)
       Total $132,123  $377,168  $17,706  $13,862  $-  $81,868  $622,727 
  Purchased Covered Loans 
  At December 31, 2010 
                    Total 
                    Purchased 
     Commercial     Residential  Indirect  Other  Covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                     
Pass $97,652  $281,679  $1,721  $12,688  $-  $88,733  $482,473 
Special mention  17,485   44,355   615   -   -   -   62,455 
Substandard  82,657   86,720   30,890   5,345   -   1,034   206,646 
Doubtful  430   1,105   345   865   -   2   2,747 
Loss  -   -   -   -   -   435   435 
Default risk purchase discount  (29,239)  (23,177)  (5,191)  (524)  -   (3,653)  (61,784)
       Total $168,985  $390,682  $28,380  $18,374  $-  $86,551  $692,972 

- 1719 -


                             
  Purchased Covered Loans 
  At December 31, 2010 
                          Total 
                          Purchased 
      Commercial      Residential  Indirect  Other  Covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                            
Pass $97,652  $281,679  $1,721  $12,688  $  $88,733  $482,473 
Special mention  17,485   44,355   615            62,455 
Substandard  82,657   86,720   30,890   5,345      1,034   206,646 
Doubtful  430   1,105   345   865      2   2,747 
Loss                 435   435 
Default risk purchase discount  (29,239)  (23,177)  (5,191)  (524)     (3,653)  (61,784)
                      
Total $168,985  $390,682  $28,380  $18,374  $  $86,551  $692,972 
                      
                             
  Purchased Non-covered Loans 
  At March 31, 2011 
                          Total 
                          Purchased 
      Commercial      Residential  Indirect  Other  Non-covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                            
Pass $15,425  $62,466  $4,670  $4,504  $  $22,399  $109,464 
Special mention  1,719   14,293   2,702   345      2,748   21,807 
Substandard  2,741   41,526   15,142   1,925      7,929   69,263 
Doubtful  1,991   10,733   2,142         720   15,586 
Loss                 14   14 
Default risk purchase discount  (3,093)  (16,068)  (5,035)  (467)     (4,268)  (28,931)
                      
Total $18,783  $112,950  $19,621  $6,307  $  $29,542  $187,203 
                      
                            
 Purchased Non-covered Loans  Purchased Non-covered Loans 
 At December 31, 2010  At June 30, 2011 
 Total                    Total 
 Purchased                    Purchased 
 Commercial Residential Indirect Other Non-covered     Commercial     Residential  Indirect  Other  Non-covered 
 Commercial Real Estate Construction Real Estate Automobile consumer Loans  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
 (In thousands)  (In thousands) 
Grade:                      
Pass $12,748 $78,899 $5,335 $6,157 $ $25,184 $128,323  $13,493  $45,140  $1,581  $4,481  $-  $21,363  $86,058 
Special mention 2,282 15,589 4,604   2,748 25,223   599   20,931   -   344   -   2,748   24,622 
Substandard 1,980 33,796 15,110 1,365  9,690 61,941   2,348   39,890   16,717   1,923   -   5,872   66,750 
Doubtful 494 12,476 2,363   1,132 16,465   205   8,490   559   -   -   238   9,492 
Loss      1 1   -   -   -   -   -   -   - 
Default risk purchase discount  (2,084)  (17,872)  (5,792)  (467)   (6,167)  (32,382)  (1,230)  (13,059)  (4,012)  (467)  -   (3,310)  (22,078)
               
Total $15,420 $122,888 $21,620 $7,055 $ $32,588 $199,571  $15,415  $101,392  $14,845  $6,281  $-  $26,911  $164,844 
               

- 18 -


  Purchased Non-covered Loans 
  At December 31, 2010 
                    Total 
                    Purchased 
     Commercial     Residential  Indirect  Other  Non-covered 
  Commercial  Real Estate  Construction  Real Estate  Automobile  consumer  Loans 
  (In thousands) 
Grade:                     
Pass $12,748  $78,899  $5,335  $6,157  $-  $25,184  $128,323 
Special mention  2,282   15,589   4,604   -   -   2,748   25,223 
Substandard  1,980   33,796   15,110   1,365   -   9,690   61,941 
Doubtful  494   12,476   2,363   -   -   1,132   16,465 
Loss  -   -   -   -   -   1   1 
Default risk purchase discount  (2,084)  (17,872)  (5,792)  (467)  -   (6,167)  (32,382)
       Total $15,420  $122,888  $21,620  $7,055  $-  $32,588  $199,571 

The following tables summarize loans by delinquency and nonaccrual status:
                         
  Originated Loans 
  At March 31, 2011 
      Past Due               
  30-89 Days  90 days  Total Past          Total 
  Past Due  or More  Due  Current      Originated 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $8,739  $  $8,739  $430,704  $11,049  $450,492 
Commercial Real Estate  19,991      19,991   718,997   7,231   746,219 
Construction  4,545      4,545   17,001   2,724   24,270 
Residential Real Estate  3,405      3,405   296,092   387   299,884 
Indirect Automobile  4,558   407   4,965   400,060      405,025 
Other Consumer  638   32   670   60,351   65   61,086 
                   
Total $41,876  $439  $42,315  $1,923,205  $21,456  $1,986,976 
                   
                         
  Originated Loans 
  At December 31, 2010 
      Past Due               
  30-89 Days  90 days  Total Past          Total 
  Past Due  or More  Due  Current      Originated 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $7,274  $  $7,274  $458,061  $8,848  $474,183 
Commercial Real Estate  14,037      14,037   737,167   5,936   757,140 
Construction  4,022      4,022   18,073   4,050   26,145 
Residential Real Estate  2,552      2,552   305,709   1,935   310,196 
Indirect Automobile  6,382   647   7,029   392,784      399,813 
Other Consumer  488   119   607   61,358   99   62,064 
                   
Total $34,755  $766  $35,521  $1,973,152  $20,868  $2,029,541 
                   
                        
 Purchased Covered Loans  Originated Loans 
 At March 31, 2011  At June 30, 2011 
 Past Due Total     Past Due             
 30-89 Days 90 days Total Past Purchased  30-89 Days  90 days  Total Past        Total 
 Past Due or More Due Current Covered  Past Due  or More  Due  Current     Originated 
 and Accruing and Accruing and Accruing and Accruing Nonaccrual Loans  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
 (In thousands)  (In thousands) 
Commercial $6,526 $ $6,526 $134,540 $12,178 $153,244  $6,254  $-  $6,254  $420,791  $1,988  $429,033 
Commercial Real Estate 25,377  25,377 345,097 11,171 381,645   14,466   -   14,466   713,627   6,718   734,811 
Construction 1,602  1,602 15,628 9,928 27,158   -   -   -   14,559   11,139   25,698 
Residential Real Estate    14,437 138 14,575   3,899   -   3,899   289,019   853   293,771 
Indirect Automobile  4,447   522   4,969   412,165   -   417,134 
Other Consumer 1,132 251 1,383 82,208 243 83,834   354   33   387   62,591   217   63,195 
             
Total $34,637 $251 $34,888 $591,910 $33,658 $660,456  $29,420  $555  $29,975  $1,912,752  $20,915  $1,963,642 
             
                         
  Purchased Covered Loans 
  At December 31, 2010 
      Past Due              Total 
  30-89 Days  90 days  Total Past          Purchased 
  Past Due  or More  Due  Current      Covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $12,692  $  $12,692  $144,307  $11,986  $168,985 
Commercial Real Estate  12,413      12,413   355,518   22,751   390,682 
Construction  415      415   17,508   10,457   28,380 
Residential Real Estate  128      128   16,568   1,678   18,374 
Other Consumer  2,200   355   2,555   83,723   273   86,551 
                   
Total $27,848  $355  $28,203  $617,624  $47,145  $692,972 
                   

- 1920 -


                         
  Purchased Non-covered Loans 
  At March 31, 2011 
      Past Due               
  30-89 Days  90 days  Total Past          Total Purchased 
  Past Due  or More  Due  Current      Non-covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $411  $  $411  $16,999  $1,373  $18,783 
Commercial Real Estate  1,292      1,292   84,336   27,322   112,950 
Construction  2,955      2,955   8,415   8,251   19,621 
Residential Real Estate           5,996   311   6,307 
Other Consumer  1,191   18   1,209   24,002   4,331   29,542 
                   
Total $5,849  $18  $5,867  $139,748  $41,588  $187,203 
                   
                         
  Purchased Non-covered Loans 
  At December 31, 2010 
      Past Due               
  30-89 Days  90 days  Total Past          Total Purchased 
  Past Due  or More  Due  Current      Non-covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $1,089  $  $1,089  $13,969  $362  $15,420 
Commercial Real Estate  2,860      2,860   93,384   26,644   122,888 
Construction           13,390   8,230   21,620 
Residential Real Estate  3,336      3,336   3,408   311   7,055 
Other Consumer  1,503   1   1,504   27,468   3,616   32,588 
                   
Total $8,788  $1  $8,789  $151,619  $39,163  $199,571 
                   
  Originated Loans 
  At December 31, 2010 
     Past Due             
  30-89 Days  90 days  Total Past        Total 
  Past Due  or More  Due  Current     Originated 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $7,274  $-  $7,274  $458,061  $8,848  $474,183 
Commercial Real Estate  14,037   -   14,037   737,167   5,936   757,140 
Construction  4,022   -   4,022   18,073   4,050   26,145 
Residential Real Estate  2,552   -   2,552   305,709   1,935   310,196 
Indirect Automobile  6,382   647   7,029   392,784   -   399,813 
Other Consumer  488   119   607   61,358   99   62,064 
    Total $34,755  $766  $35,521  $1,973,152  $20,868  $2,029,541 
  Purchased Covered Loans 
  At June 30, 2011 
     Past Due           Total 
  30-89 Days  90 days  Total Past        Purchased 
  Past Due  or More  Due  Current     Covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $2,720  $-  $2,720  $118,879  $10,524  $132,123 
Commercial Real Estate  26,102   -   26,102   343,498   7,568   377,168 
Construction  305   -   305   8,578   8,823   17,706 
Residential Real Estate  -   -   -   13,724   138   13,862 
Other Consumer  940   472   1,412   79,918   538   81,868 
    Total $30,067  $472  $30,539  $564,597  $27,591  $622,727 
  Purchased Covered Loans 
  At December 31, 2010 
     Past Due           Total 
  30-89 Days  90 days  Total Past        Purchased 
  Past Due  or More  Due  Current     Covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $12,692  $-  $12,692  $144,307  $11,986  $168,985 
Commercial Real Estate  12,413   -   12,413   355,518   22,751   390,682 
Construction  415   -   415   17,508   10,457   28,380 
Residential Real Estate  128   -   128   16,568   1,678   18,374 
Other Consumer  2,200   355   2,555   83,723   273   86,551 
    Total $27,848  $355  $28,203  $617,624  $47,145  $692,972 
  Purchased Non-covered Loans 
  At June 30, 2011 
     Past Due             
  30-89 Days  90 days  Total Past        Total Purchased 
  Past Due  or More  Due  Current     Non-covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $23  $-  $23  $15,107  $285  $15,415 
Commercial Real Estate  3,324   -   3,324   74,739   23,329   101,392 
Construction  -   -   -   7,563   7,282   14,845 
Residential Real Estate  562   -   562   5,408   311   6,281 
Other Consumer  1,896   159   2,055   22,612   2,244   26,911 
    Total $5,805  $159  $5,964  $125,429  $33,451  $164,844 

- 21 -

  Purchased Non-covered Loans 
  At December 31, 2010 
     Past Due             
  30-89 Days  90 days  Total Past        Total Purchased 
  Past Due  or More  Due  Current     Non-covered 
  and Accruing  and Accruing  and Accruing  and Accruing  Nonaccrual  Loans 
  (In thousands) 
Commercial $1,089  $-  $1,089  $13,969  $362  $15,420 
Commercial Real Estate  2,860   -   2,860   93,384   26,644   122,888 
Construction  -   -   -   13,390   8,230   21,620 
Residential Real Estate  3,336   -   3,336   3,408   311   7,055 
Other Consumer  1,503   1   1,504   27,468   3,616   32,588 
    Total $8,788  $1  $8,789  $151,619  $39,163  $199,571 
There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31,June 30, 2011 and December 31, 2010.

The following summarizes the impaired loans:
                     
  Impaired Loans 
  At March 31, 2011 
      Unpaid      Average  Recognized 
  Recorded  Principal  Related  Recorded  Interest 
  Investment  Balance  Allowance  Investment  Income 
  (In thousands) 
Purchased loans with no related allowance recorded:                    
Commercial $21,424  $35,101     $21,900  $330 
Commercial Real Estate  42,751   73,750      43,411   315 
Construction  23,798   39,407      21,553   84 
Residential Real Estate  449   451      449    
Other Consumer  2,774   3,747      2,408   4 
                     
Originated loans with an allowance recorded:                    
Construction  1,485   2,425   149   2,593    
                     
Total:                    
Commercial  21,424   35,101      21,900  $330 
Commercial Real Estate  42,751   73,750      43,411   315 
Construction  25,283   41,832   149   24,146   84 
Residential Real Estate  449   451      449    
Other Consumer  2,774   3,747      2,408   4 

  Impaired Loans 
  At June 30, 2011 
     Unpaid    
  Recorded  Principal  Related 
  Investment  Balance  Allowance 
  (In thousands) 
Impaired loans with no related allowance recorded:         
    Commercial $12,845  $22,026  $- 
    Commercial Real Estate  32,195   55,568   - 
    Construction  20,330   33,994   - 
    Residential Real Estate  449   451   - 
    Other Consumer  1,974   2,708   - 
             
Impaired loans with an allowance recorded:            
    Commercial Real Estate  1,857   1,857   399 
    Construction  4,668   5,608   1,514 
             
Total:            
    Commercial $12,845  $22,026  $- 
    Commercial Real Estate  34,052   57,425   399 
    Construction  24,998   39,602   1,514 
    Residential Real Estate  449   451   - 
    Other Consumer  1,974   2,708   - 

  Impaired Loans 
  For the three months ended  For the six months ended 
  June 30, 2011  June 30, 2011 
  Average  Recognized  Average  Recognized 
  Recorded  Interest  Recorded  Interest 
  Investment  Income  Investment  Income 
  (In thousands) 
Commercial $17,135  $179  $17,373  $509 
Commercial Real Estate  38,402   414   38,732   729 
Construction  25,141   89   24,572   173 
Residential Real Estate  449   -   449   - 
Other Consumer  2,374   13   2,191   17 
  Total Impaired Loans $83,501  $695  $83,317  $1,428 

- 2022 -


The amount of interest income recognized on the cash basis of accounting was $320 thousand for the three months ended March 31, 2011.
             
  Impaired Loans 
  At December 31, 2010 
      Unpaid    
  Recorded  Principal  Related 
  Investment  Balance  Allowance 
  (In thousands) 
Purchased loans with no related allowance recorded:            
Commercial $22,376  $35,027    
Commercial Real Estate  44,071   67,905    
Construction  19,308   36,244    
Residential Real Estate  449   451    
Other Consumer  2,042   3,077    
             
Originated loans with an allowance recorded:            
Construction  3,700   3,700   1,365 
             
Total:            
Commercial  22,376   35,027    
Commercial Real Estate  44,071   67,905    
Construction  23,008   39,944   1,365 
Residential Real Estate  449   451    
Other Consumer  2,042   3,077    
  Impaired Loans 
  At December 31, 2010 
     Unpaid    
  Recorded  Principal  Related 
  Investment  Balance  Allowance 
  (In thousands) 
Impaired loans with no related allowance recorded:         
    Commercial $22,376  $35,027  $- 
    Commercial Real Estate  44,071   67,905   - 
    Construction  19,308   36,244   - 
    Residential Real Estate  449   451   - 
    Other Consumer  2,042   3,077   - 
             
Impaired loans with an allowance recorded:            
    Construction  3,700   3,700   1,365 
             
Total:            
    Commercial $22,376  $35,027  $- 
    Commercial Real Estate  44,071   67,905   - 
    Construction  23,008   39,944   1,365 
    Residential Real Estate  449   451   - 
    Other Consumer  2,042   3,077   - 

The Company had one troubled debt restructuring with an outstanding recorded investment of $3,183 thousand pre-and post-modification at June 30, 2011 and no troubled debt restructurings at March 31, 2011 and December 31, 2010.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). At March 31,June 30, 2011, loans pledged to secure borrowing totaled $106.7 million$99,944 thousand compared with $138.0 million$137,954 thousand at December 31, 2010. The FHLB does not have the right to sell or repledge such loans.

There were no loans held for sale at March 31,June 30, 2011 and December 31, 2010.
Note 6: Concentration of Credit Risk

The Company’s business activity is with customers in Northern and Central California. The loan portfolio is well diversified within the Company’s geographic market, although the Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 5, the Company had loan commitments and standby letters of credit related to real estate loans of $12.4 million$10,025 thousand and $13.0 million$13,048 thousand at March 31,June 30, 2011 and December 31, 2010, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans at origination.
Note 7: Goodwill and Identifiable Intangible Assets

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize impairment during the quartersix months ended March 31,June 30, 2011.

The carrying values of goodwill were (in thousands):
    
December 31, 2010 $121,673  $121,673 
   
March 31, 2011 $121,673 
   
June 30, 2011 $121,673 
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 quartersix months ended March 31,June 30, 2011, no such adjustments were recorded.

- 2123 -


The gross carrying amount of identifiable intangible assets and accumulated amortization was:
                 
  At March 31,  At December 31, 
  2011  2010 
  (In thousands) 
  Gross      Gross    
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
                 
Core Deposit Intangibles $56,808   ($26,093) $56,808   ($24,719)
Merchant Draft Processing Intangible  10,300   (7,959)  10,300   (7,785)
             
Total Identifiable Intangible Assets $67,108   ($34,052) $67,108   ($32,504)
             

  At June 30,  At December 31, 
  2011  2010 
  (In thousands) 
  Gross     Gross    
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
             
Core Deposit Intangibles $56,808  $(27,423) $56,808  $(24,719)
Merchant Draft Processing Intangible  10,300   (8,109)  10,300   (7,785)
Total Identifiable Intangible Assets $67,108  $(35,532) $67,108  $(32,504)
As of March 31,June 30, 2011, the current year and estimated future amortization expense for identifiable intangible assets was:
             
      Merchant    
  Core  Draft    
  Deposit  Processing    
  Intangibles  Intangible  Total 
  (In thousands) 
Three months ended March 31, 2011 (actual) $1,374  $174  $1,548 
Estimate for year ended December 31, 2011  5,351   624   5,975 
2012  4,868   500   5,368 
2013  4,304   400   4,704 
2014  3,946   324   4,270 
2015  3,594   262   3,856 
2016  3,292   212   3,504 
  At June 30, 2011 
     Merchant    
  Core  Draft    
  Deposit  Processing    
  Intangibles  Intangible  Total 
  (In thousands) 
Six months ended June 30, 2011 (actual) $2,704  $324  $3,028 
Estimate for year ended December 31, 2011  5,351   624   5,975 
     2012  4,868   500   5,368 
     2013  4,304   400   4,704 
     2014  3,946   324   4,270 
     2015  3,594   262   3,856 
     2016  3,292   212   3,504 
Note 8: 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. 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 $397.8 million$385,199 thousand and $422.7 million$422,677 thousand at March 31,June 30, 2011 and December 31, 2010, respectively. 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. Standby letters of credit outstanding totaled $24.9 million$25,643 thousand and $25.5 million$25,458 thousand at March 31,June 30, 2011 and December 31, 2010, respectively. The Company also had commitments for commercial and similar letters of credit of $4.1 million$2,954 thousand and $3.4 million$3,351 thousand at March 31,June 30, 2011 and December 31, 2010, respectively.

Due to the nature of its business, the Company is subject to various threatened or filed legal cases resulting from loan collection efforts, transaction processing for deposit accounts including the order of posting transactions and the assessment of overdraft fees, and employment practices. Like many banks, the Bank is a defendant in a lawsuit alleging it improperly assessed overdraft fees on deposit accounts due to the order in which it processed payments against such deposit accounts. The Bank has reached a preliminary mediated settlement of this matter which is subject to court approval. The Company establishes a liability for contingent litigation losses for any legal matter when payments associated with the claims become probable and the costs can be reasonably estimated. The Bank has accrued a liability for the preliminary mediated settlement. Legal costs related to covered assets are eighty percent indemnified under loss-sharing agreements with the FDIC if certain conditions are met.
- 24 -

Note 9:  Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Available for sale investment securities 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 certain loans held for investment and other assets.  These nonrecurring fair value adjustments typically involve the lower-of-cost-or-fair value accounting or impairment or write-down of individual assets.

- 22 -



In accordance with the Fair Value Measurement and Disclosure topic of the 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.  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. 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 federal agency 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 mortgage-backed securities, municipal bonds and residential collateralized mortgage obligations as well as other real estate owned and impaired loans collateralized by real property where the fair value is generally based upon independent market prices or appraised values of the collateral.

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. Level 3 includes those impaired loans collateralized by business assets where the expected cash flow has been used in determining the fair value.
- 25 -

Assets Recorded at Fair Value on a Recurring Basis
The table below presents assets measured at fair value on a recurring basis.
                 
  At March 31, 2011 
      Quoted Prices       
      in Active  Significant    
      Markets for  Other  Significant 
      Identical  Observable  Unobservable 
      Assets  Inputs  Inputs 
  Fair Value  (Level 1)  (Level 2 )  (Level 3 ) 
  (In thousands) 
U.S. Treasury securities $3,524  $3,524  $  $ 
Securities of U.S. Government sponsored entities  176,247   176,247       
Municipal bonds:                
Federally Tax-exempt — California  86,634      86,634    
Federally Tax-exempt - 29 other states  189,782      189,782    
Taxable — California  2,018      2,018    
Taxable — 2 other states  5,688      5,688    
Residential mortgage-backed securities (“MBS”):                
Guaranteed by GNMA  40,644      40,644    
Issued by FNMA and FHLMC  68,449      68,449    
Residential collateralized mortgage obligations:                
Issued or guaranteed by FNMA, FHLMC, or GNMA  51,703      51,703    
All other  6,736      6,736    
Commercial mortgage-backed securities  4,924      4,924    
Asset-backed securities — government guaranteed student loans  8,309      8,309    
FHLMC and FNMA stock  2,799   2,799       
Corporate securities  89,354      89,354    
Other securities  4,792   2,862   1,930    
             
Total securities available for sale $741,603  $185,432  $556,171  $ 
             

  At June 30, 2011 
  Fair Value  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2 )
  
Significant
Unobservable
Inputs
(Level 3 )
 
  (In thousands) 
U.S. Treasury securities $3,573  $3,573  $-  $- 
Securities of U.S. Government sponsored entities  166,864   166,864   -   - 
Municipal bonds:                
Federally Tax-exempt - California  84,983   -   84,983   - 
Federally Tax-exempt - 29 other states  175,534   -   175,534   - 
Taxable - California  2,030   -   2,030   - 
Taxable - 2 other states  5,814   -   5,814   - 
Residential mortgage-backed securities ("MBS"):                
Guaranteed by GNMA  39,970   -   39,970   - 
Issued by FNMA and FHLMC  65,209   -   65,209   - 
Residential collateralized mortgage obligations:                
Issued or guaranteed by FNMA, FHLMC, or GNMA  49,604   -   49,604   - 
All other  6,171   -   6,171   - 
Commercial mortgage-backed securities  4,831   -   4,831   - 
Asset-backed securities - government guaranteed student loans  8,024   -   8,024   - 
FHLMC and FNMA stock  4,230   4,230   -   - 
Corporate securities  83,906   -   83,906   - 
Other securities  4,335   2,385   1,950   - 
Total securities available for sale $705,078  $177,052  $528,026  $- 
There were no significant transfers in or out of Levels 1 and 2 for the threesix months ended March 31,June 30, 2011.


  At December 31, 2010 
  Fair Value  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2 )
  
Significant
Unobservable
Inputs
(Level 3 )
 
  (In thousands) 
U.S. Treasury securities $3,542  $3,542  $-  $- 
Securities of U.S. Government sponsored entities  172,877   172,877   -   - 
Municipal bonds:                
Federally Tax-exempt - California  83,616   -   83,616   - 
Federally Tax-exempt - 29 other states  170,741   -   170,741   - 
Taxable - California  6,276   -   6,276   - 
Taxable - 1 other state  500   -   500   - 
Residential mortgage-backed securities ("MBS"):                
Guaranteed by GNMA  43,557   -   43,557   - 
Issued by FNMA and FHLMC  66,272   -   66,272   - 
Residential collateralized mortgage obligations:                
Issued or guaranteed by FNMA, FHLMC, or GNMA  18,010   -   18,010   - 
All other  7,593   -   7,593   - 
Commercial mortgage-backed securities  5,065   -   5,065   - 
Asset-backed securities - government guaranteed student loans  8,286   -   8,286   - 
FHLMC and FNMA stock  655   655   -   - 
Corporate securities  79,191   -   79,191   - 
Other securities  5,303   3,342   1,961   - 
Total securities available for sale $671,484  $180,416  $491,068  $- 

- 2326 -


                 
  At December 31, 2010 
      Quoted Prices       
      in Active  Significant    
      Markets for  Other  Significant 
      Identical  Observable  Unobservable 
      Assets  Inputs  Inputs 
  Fair Value  (Level 1)  (Level 2 )  (Level 3 ) 
  (In thousands) 
U.S. Treasury securities $3,542  $3,542  $  $ 
Securities of U.S. Government sponsored entities  172,877   172,877       
Municipal bonds:                
Federally Tax-exempt — California  83,616      83,616    
Federally Tax-exempt — 29 other states  170,741      170,741    
Taxable — California  6,276      6,276    
Taxable — 1 other state  500      500    
Residential mortgage-backed securities (“MBS”):                
Guaranteed by GNMA  43,557      43,557    
Issued by FNMA and FHLMC  66,272      66,272    
Residential collateralized mortgage obligations:                
Issued or guaranteed by FNMA, FHLMC, or GNMA  18,010      18,010    
All other  7,593      7,593    
Commercial mortgage-backed securities  5,065      5,065    
Asset-backed securities — government guaranteed student loans  8,286      8,286    
FHLMC and FNMA stock  655   655       
Corporate securities  79,191      79,191    
Other securities  5,303   3,342   1,961    
             
Total securities available for sale $671,484  $180,416  $491,068  $ 
             
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 application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at March 31,June 30, 2011 and December 31, 2010, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.
                     
  At March 31, 2011 
  Fair Value  Level 1  Level 2  Level 3  Total losses 
  (In thousands) 
Originated other real estate owned (1) $3,294  $  $3,294  $  $(220)
Originated impaired loans (2)  1,485      1,485      (940)
                
Total assets measured at fair value on a nonrecurring basis $4,779  $  $4,779  $  $(1,160)
                

                     
  At December 31, 2010 
  Fair Value  Level 1  Level 2  Level 3  Total losses 
  (In thousands) 
Originated other real estate owned (1) $1,863  $  $1,863  $  $(664)
Originated impaired loans (2)  4,780      4,780     $(829)
                
Total assets measured at fair value on a nonrecurring basis $6,643  $  $6,643  $  $(1,493)
                
(1)Represents the fair value of foreclosed real estate owned that was measured at fair value subsequent to their initial classification as foreclosed assets.
(2)Represents carrying value of loans for which adjustments are predominantly based on the appraised value of the collateral and loans considered impaired under FASB ASC 310-10-35, Subsequent Measurement of Receivables, where a specific reserve has been established or a chargeoff has been recorded.
  At June 30, 2011 
  Fair Value  Level 1  Level 2  Level 3  Total losses 
  (In thousands) 
Non-covered other real estate owned (1) $5,632  $-  $5,632  $-  $(623)
Covered other real estate owned (2)  7,511   -   7,511   -   (449)
Originated impaired loans (3)  5,352   -   5,352   -   (1,475)
Total assets measured at fair value on a nonrecurring basis $18,495  $-  $18,495  $-  $(2,547)

- 24 -


  At December 31, 2010 
  Fair Value  Level 1  Level 2  Level 3  Total losses 
  (In thousands) 
Non-covered other real estate owned (1) $1,863  $-  $1,863  $-  $(664)
Originated impaired loans (3)  4,780   -   4,780   -   (829)
Total assets measured at fair value on a nonrecurring basis $6,643  $-  $6,643  $-  $(1,493)

(1) Represents the fair value of foreclosed real estate owned that was measured at fair value subsequent to their initial classification as foreclosed assets.
(2) Represents the fair value of foreclosed real estate owned that is covered by the Indemnification Agreement with the FDIC where the real estate was written down subsequent to its initial classification as foreclosed assets. Total losses are reduced by the 80% indemnified loss percentage.

(3) Represents carrying value of loans for which adjustments are predominantly based on the appraised value of the collateral and loans considered impaired under FASB ASC 310-10-35, Subsequent Measurement of Receivables, where a specific reserve has been established or a chargeoff has been recorded.

Disclosures about Fair Value of Financial Instruments

The following section describes the valuation methodologies used by the Company for estimating fair value of financial instruments not recorded at fair value.

Cash and Due from BanksThe carrying amount of cash and amounts due from banks approximate fair value due to the relatively short period of time between their origination and their expected realization.

Money Market AssetsThe carrying amount of money market assets approximate fair value due to the relatively short period of time between their origination and their expected realization.

Investment Securities Held to MaturityThe fair values of investment securities were estimated using quoted prices as described above for Level 1 and Level 2 valuation.

LoansLoans were separated into two groups for valuation. Variable rate loans, except for those described below, which reprice frequently with changes in market rates were valued using historical cost. Fixed rate loans and variable rate loans that have reached their minimum contractual interest rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the allowance for loan losses of $34.3 million$33,008 thousand at March 31,June 30, 2011 and $35.6 million$35,636 thousand at December 31, 2010 and the fair value discount due to credit default risk associated with purchased covered and purchased non-covered loans of $57.2 million$55,527 thousand and $28.9 million,$22,078 thousand, respectively at March 31,June 30, 2011 and $61.8 million$61,784 thousand and $32.4 million,$32,382 thousand, respectively at December 31, 2010 were applied against the estimated fair values to recognize estimated future defaults of contractual cash flows. The Company does not consider these values to be a liquidation price for the loans.

- 27 -

FDIC ReceivableThe fair value of the FDIC receivable recorded in Other Assets was estimated by discounting estimated future cash flows using current market rates for financial instruments with similar characteristics.

Deposit LiabilitiesThe carrying amount of checking accounts, savings accounts and money market accounts approximates fair value due to the relatively short period of time between their origination and their expected realization.  The fair values of time deposits were estimated by discounting estimated future cash flows related to these financial instruments using current market rates for financial instruments with similar characteristics.

Short-Term Borrowed FundsThe carrying amount of securities sold under agreement to repurchase and other short-term borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected realization.  The fair values of term repurchase agreements were estimated by using interpolated yields for financial instruments with similar characteristics.

Federal Home Loan Bank AdvancesThe fair values of FHLB advances were estimated by using interpolated yields for financial instruments with similar characteristics.

Debt Financing and Notes PayableThe fair values of debt financing and notes payable were estimated by using interpolated yields for financial instruments with similar characteristics.

Restricted Performance Share GrantsThe fair value of liabilities for unvested restricted performance share grants recorded in Other Liabilities were estimated using quoted prices as described above for Level 1 valuation.

The table below is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities.  The carrying amounts in the following table are recorded in the balance sheet under the indicated captions.

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.

- 25 -



                 
  At March 31, 2011  At December 31, 2010 
  Carrying  Estimated  Carrying  Estimated 
  Amount  Fair Value  Amount  Fair Value 
  (In thousands) 
Financial Assets
                
Cash and due from banks $348,157  $348,157  $338,793  $338,793 
Money market assets  342   342   392   392 
Investment securities held to maturity  591,923   604,898   580,728   594,711 
Loans  2,800,314   2,835,235   2,886,448   2,923,612 
Other assets — FDIC receivable  44,403   44,006   44,738   44,353 
                 
Financial Liabilities
                
Deposits  4,140,373   4,139,917   4,132,961   4,135,113 
Short-term borrowed funds  104,359   104,359   107,385   107,385 
Federal Home Loan Bank Advances  51,490   51,407   61,698   61,833 
Debt financing and notes payable  26,108   28,336   26,363   26,811 
Other liabilities — restricted performance share grants  2,321   2,321   2,259   2,259 
  At June 30, 2011  At December 31, 2010 
  
Carrying
Amount
  
Estimated
Fair Value
  
Carrying
Amount
  
Estimated
Fair Value
 
  (In thousands) 
Financial Assets            
Cash and due from banks $320,119  $320,119  $338,793  $338,793 
Money market assets  -   -   392   392 
Investment securities held to maturity  669,452   687,326   580,728   594,711 
Loans  2,718,205   2,752,643   2,886,448   2,923,612 
Other assets - FDIC receivable  41,152   40,987   44,738   44,353 
                 
Financial Liabilities                
Deposits  4,088,385   4,089,138   4,132,961   4,135,113 
Short-term borrowed funds  106,727   106,727   107,385   107,385 
Federal Home Loan Bank Advances  46,351   46,757   61,698   61,833 
Debt financing and notes payable  25,853   27,742   26,363   26,811 
Other liabilities - restricted performance share grants  1,506   1,506   2,259   2,259 

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.

- 28 -

Note 10: Borrowed Funds

Debt financing and notes payable were as follows:
         
  At March 31,  At December 31, 
  2011  2010 
  (In thousands) 
Senior fixed-rate note (1) $15,000  $15,000 
Subordinated fixed-rate note (2)  11,108   11,363 
       
Total debt financing and notes payable — Parent $26,108  $26,363 
       
  
At June 30,
2011
  
At December 31,
2010
 
  (In thousands) 
Senior fixed-rate note (1) $15,000  $15,000 
Subordinated fixed-rate note (2)  10,853   11,363 
Total debt financing and notes payable - Parent $25,853  $26,363 
(1)Senior note, issued by Westamerica Bancorporation, originated in October 2003 and maturing October 31, 2013. Interest of 5.31% per annum is payable semiannually on April 30 and October 31, with original principal payment due at maturity.
(2)Subordinated debt, assumed by Westamerica Bancorporation March 1, 2005, originated February 22, 2001. Par amount $10 million,$10,000 thousand, interest of 10.2% per annum, payable semiannually. Matures February 22, 2031, redeemable February 22, 2011 at a premium and February 22, 2021 at par.

The subordinated debtnote is currently callable by the Company at a premium. The Company intends to redeem the subordinated note in August 2011, and has adjusted the premium amortization accordingly. The call premium will approximate 5 percent of the $10 million$10,000 thousand principal amount.

- 26 -




Note 11: Earnings Per Common Share

The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are computed by dividing net income applicable to common equity by the average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net income applicable to common equity by the average number of common shares outstanding during the period plus the impact of common stock equivalents.
         
  March 31, 
  2011  2010 
  (In thousands, except per share data) 
Net income applicable to common equity (numerator) $22,382  $23,576 
       
Basic earnings per common share
        
Weighted average number of common shares outstanding — basic (denominator)  29,021   29,228 
Basic earnings per common share $0.77  $0.81 
       
Diluted earnings per common share
        
Weighted average number of common shares outstanding — basic  29,021   29,228 
Add exercise of options reduced by the number of shares that could have been purchased with the proceeds of such exercise  204   368 
       
Weighted average number of common shares outstanding — diluted (denominator)  29,225   29,596 
       
Diluted earnings per common share $0.77  $0.80 
       

       
  
For the three months ended
June 30,
  
For the six months ended
June 30,
 
  2011  2010  2011  2010 
  (In thousands, except per share data)  (In thousands, except per share data) 
Net income applicable to common equity (numerator) $21,269  $23,561  $43,651  $47,137 
Basic earnings per common share                
Weighted average number of common shares outstanding - basic
    (denominator)
  28,771   29,207   28,895   29,217 
Basic earnings per common share $0.74  $0.81  $1.51  $1.61 
Diluted earnings per common share                
Weighted average number of common shares outstanding - basic  28,771   29,207   28,895   29,217 
Add exercise of options reduced by the number of shares that could
    have been purchased with the proceeds of such exercise
  152   361   178   365 
Weighted average number of common shares outstanding - diluted
    (denominator)
  28,923   29,568   29,073   29,582 
Diluted earnings per common share $0.74  $0.80  $1.50  $1.59 

For the three months ended March 31,June 30, 2011, stock options and warrants to purchase 1.0 million1,149 thousand and 247 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect. For the threesix months ended March 31, 2010,June 30, 2011, stock options and warrants to purchase 294962 thousand and 247 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because their inclusion would have had an anti-dilutive effect. For the option exercise price exceededthree months and six months ended June 30, 2010, options to purchase 287 thousand and 290 thousand shares of common stock, respectively, were outstanding but not included in the fair valuecomputation of the stock such thatdiluted net income per share because their inclusion would have had an anti-dilutive effect.


- 2729 -


WESTAMERICA BANCORPORATION
WESTAMERICA BANCORPORATION 
FINANCIAL SUMMARY
 
             
  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
  (In thousands, except per share data) 
Net Interest Income (FTE)* $55,837  $56,573  $110,830  $113,602 
Provision for Loan Losses  2,800   2,800   5,600   5,600 
Noninterest Income  15,292   15,770   30,035   31,240 
Noninterest Expense:                
  Settlements  2,100   -   2,100   23 
  Other noninterest expense  32,209   32,095   63,532   64,103 
Total Noninterest Expense  34,309   32,095   65,632   64,126 
Income Before Income Taxes (FTE)*  34,020   37,448   69,633   75,116 
Income Tax Provision (FTE)*  12,751   13,887   25,982   27,979 
Net Income $21,269  $23,561  $43,651  $47,137 
                 
Average Common Shares Outstanding  28,771   29,207   28,895   29,217 
Diluted Average Common Shares Outstanding  28,923   29,568   29,073   29,582 
Common Shares Outstanding at Period End  28,540   29,118   28,540   29,118 
                 
As Reported:                
  Basic Earnings Per Common Share $0.74  $0.81  $1.51  $1.61 
  Diluted Earnings Per Common Share  0.74   0.80   1.50   1.59 
  Return On Assets  1.73%  2.00%  1.78%  1.99%
  Return On Common Equity  15.64%  18.24%  16.14%  18.54%
  Net Interest Margin (FTE)*  5.38%  5.62%  5.37%  5.61%
  Net Loan Losses to Average Gross Originated Loans  0.83%  0.64%  0.83%  0.65%
  Efficiency Ratio**  48.2%  44.4%  46.6%  44.3%
                 
Average Balances:                
  Total Assets $4,927,849  $4,731,270  $4,934,387  $4,771,872 
  Total Earning Assets  4,156,226   4,033,831   4,154,676   4,072,374 
  Originated Loans  1,978,155   2,136,407   1,990,042   2,150,857 
  Purchased Covered Loans  644,555   788,108   659,597   809,515 
  Purchased Non-covered Loans  178,384   -   185,870   - 
  Total Deposits  4,143,749   3,895,671   4,141,288   3,925,321 
  Shareholders' Equity  545,637   518,128   545,421   512,796 
                 
Balances at Period End:                
  Total Assets $4,876,731  $4,727,086         
  Total Earning Assets  4,125,743   4,007,989         
  Originated Loans  1,963,642   2,124,570         
  Purchased Covered Loans  622,727   763,619         
  Purchased Non-covered Loans  164,844   -         
  Total Deposits  4,088,385   3,890,560         
  Shareholders' Equity  549,340   527,681         
                 
Financial Ratios at Period End:                
  Allowance for Loan Losses to Originated Loans  1.68%  1.87%        
  Book Value Per Common Share $19.25  $18.12         
  Equity to Assets  11.26%  11.16%        
  Total Capital to Risk Adjusted Assets  15.72%  15.72%        
                 
Dividends Paid Per Common Share $0.36  $0.36  $0.72  $0.72 
Common Dividend Payout Ratio  49%  45%  48%  45%
FINANCIAL SUMMARY
             
  Three months ended 
  March 31,  March 31,  December 31, 
  2011  2010  2010 
  (In thousands, except per share data) 
Net Interest and Fee Income (FTE)*
 $54,993  $57,029  $56,412 
Provision for Loan Losses
  2,800   2,800   2,800 
Noninterest Income
  14,743   15,470   15,143 
Noninterest Expense
  31,323   32,031   31,513 
          
Income Before Income Taxes (FTE)*
  35,613   37,668   37,242 
Income Tax Provision (FTE)*
  13,231   14,092   13,511 
          
Net Income
 $22,382  $23,576  $23,731 
          
             
Average Common Shares Outstanding
  29,021   29,228   29,103 
Diluted Average Common Shares Outstanding
  29,225   29,596   29,341 
Common Shares Outstanding at Period End
  28,920   29,206   29,090 
             
As Reported:
            
Basic Earnings Per Common Share $0.77  $0.81  $0.82 
Diluted Earnings Per Common Share  0.77   0.80   0.81 
Return On Assets  1.84%  1.99%  1.87%
Return On Common Equity  16.65%  18.84%  17.53%
Net Interest Margin (FTE)*  5.35%  5.60%  5.39%
Net Loan Losses to Average Gross Originated Loans  0.83%  0.66%  1.03%
Efficiency Ratio**  44.9%  44.2%  44.0%
             
Average Balances:
            
Total Assets $4,940,998  $4,812,924  $5,032,157 
Total Earning Assets  4,153,110   4,111,345   4,164,013 
Originated Loans  2,002,061   2,165,467   2,045,917 
Purchased Covered Loans  674,806   831,161   704,728 
Purchased Non-covered Loans  193,440      207,450 
Total Deposits  4,138,799   3,955,299   4,159,497 
Shareholders’ Equity  545,203   507,406   537,204 
             
Balances at Period End:
            
Total Assets $4,937,429  $4,745,495  $4,931,524 
Total Earning Assets  4,168,503   4,061,997   4,174,688 
Originated Loans  1,986,976   2,146,580   2,029,541 
Purchased Covered Loans  660,456   809,503   692,972 
Purchased Non-covered Loans  187,203      199,571 
Total Deposits  4,140,373   3,895,029   4,132,961 
Shareholders’ Equity  550,915   519,131   545,287 
             
Financial Ratios at Period End:
            
Allowance for Loan Losses to Originated Loans  1.73%  1.88%  1.76%
Book Value Per Common Share $19.05  $17.77  $18.74 
Equity to Assets  11.16%  10.94%  11.06%
Total Capital to Risk Adjusted Assets  15.80%  15.21%  15.50%
             
Dividends Paid Per Common Share
 $0.36  $0.36  $0.36 
Common Dividend Payout Ratio
  47%  45%  44%
The above financial summary has been derived from the Company's unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading "As Reported" are annualized with the exception of the efficiency ratio.
The above financial summary has been derived from the Company’s unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading “As Reported” are annualized with the exception of the efficiency ratio.
*Yields on securities and certain loans have been adjusted upward to a “fully taxable equivalent” (“FTE”) basis, which is a non-GAAP financial measure, in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
**The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis, which is a non-GAAP financial measure, and noninterest income).

* Yields on securities and certain loans have been adjusted upward to a "fully taxable equivalent" ("FTE") basis, which is a non-GAAP financial measure, in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
** The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis, which is a non-GAAP financial measure, and noninterest income).

- 2830 -


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

Westamerica Bancorporation and subsidiaries (the “Company”) reported first quarter 2011 net income of $22.4$21.3 million or $0.77$0.74 diluted earnings per common share for the second quarter 2011 and net income of $43.7 million or $1.50 diluted earnings per common share for the six months ended June 30, 2011. The second quarter of 2011 included $2.1 million in litigation settlement accruals which decreased net income by $1.2 million and earnings per diluted common shares by $0.04. First six months ended June 30, 2011 included expenses related to the integration of the former Sonoma Valley Bank (“Sonoma”) of $393 thousand after tax in addition to the settlement accruals, equivalent to $0.06 diluted earnings per share. These results compare to net income applicable to common equity of $23.6 million or $0.80 diluted earnings per common share for the second quarter of 2010 and $23.7net income of $47.1 million or $0.81$1.59 diluted earnings per common share respectively, for the first and fourth quartershalf of 2010.
Acquisition

Westamerica Bank (“Bank”) acquired assets and assumed liabilities of the former Sonoma Valley Bank (“Sonoma”) on August 20, 2010. The acquired assets and assumed liabilities were measured at estimated fair values, as required by FASB ASC 805, Business Combinations. Management made significant estimates and exercised significant judgment in accounting for the acquisition. Management judgmentally measured loan fair values based on loan file reviews (including borrower financial statements and tax returns), appraised collateral values, expected cash flows, and historical loss factors. Repossessed loan collateral was primarily valued based upon appraised collateral values. The Bank also recorded an identifiable intangible asset representing the value of the assumed core deposit customer base of Sonoma based on Management’s evaluation of the cost of such deposits relative to alternative funding sources. In determining the value of the identifiable intangible asset, Management used significant estimates including average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other significant estimates. Management used quoted market prices to determine the fair value of investment securities, Federal Home Loan Bank (“FHLB”) advances and other borrowings which were purchased and assumed. The acquired Sonoma operations were fully integrated into the Company’s traditional operating systems and practices in February 2011. First quarter 2011 results include expenses related to the integration of the former Sonoma of $393 thousand after tax, equivalent to $0.01 diluted earnings per share.

Net Income

Following is a summary of the components of net income for the periods indicated:
             
  Three months ended 
  March 31,  December 31, 
  2011  2010  2010 
  (In thousands, except per share data) 
Net interest income (FTE) $54,993  $57,029  $56,412 
Provision for loan losses  (2,800)  (2,800)  (2,800)
Noninterest income  14,743   15,470   15,143 
Noninterest expense  (31,323)  (32,031)  (31,513)
          
Income before taxes (FTE)  35,613   37,668   37,242 
Income tax provision (FTE)  (13,231)  (14,092)  (13,511)
          
Net income $22,382  $23,576  $23,731 
          
             
Average diluted common shares  29,225   29,596   29,341 
Diluted earnings per common share $0.77  $0.80  $0.81 
Average total assets $4,940,998  $4,812,924  $5,032,157 
Net income to average total assets (annualized)  1.84%  1.99%  1.87%

  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
  (In thousands, except per share data) 
Net interest income (FTE) $55,837  $56,573  $110,830  $113,602 
Provision for loan losses  (2,800)  (2,800)  (5,600)  (5,600)
Noninterest income  15,292   15,770   30,035   31,240 
Noninterest expense  (34,309)  (32,095)  (65,632)  (64,126)
Income  before taxes (FTE)  34,020   37,448   69,633   75,116 
Income tax provision (FTE)  (12,751)  (13,887)  (25,982)  (27,979)
Net income $21,269  $23,561  $43,651  $47,137 
                 
Average diluted common shares  28,923   29,568   29,073   29,582 
Diluted earnings per common share $0.74  $0.80  $1.50  $1.59 
                 
Average total assets $4,927,849  $4,731,270  $4,934,387  $4,771,872 
Net income to average total assets (annualized)  1.73%  2.00%  1.78%  1.99%
Net income to average common stockholders' equity (annualized)  15.64%  18.24%  16.14%  18.54%

Net income for the firstsecond quarter of 2011 was $1.2$2.3 million or 5.1%9.7% less than the same quarter of 2010, the net result of declines in net interest income (FTE) and noninterest income and the $2.1 million settlement accrual, partially offset by decreases in noninterest expense andlower income tax provision (FTE). A $2.0 million$736 thousand or 3.6%1.3% decrease in net interest income (FTE) was mostly attributed to lower yields on earning assets and lower average balances of loans, and lower yields on earning assets, partially offset by higher average balances of investments lower average balances of short-term borrowings and lower rates paid on interest-bearing liabilities. The provision for loan losses remained the same, reflecting Management’sManagement's evaluation of losses inherent in the loan portfolio not covered by loss-sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) and purchased loan credit-default discounts. Noninterest income decreased $727$478 thousand mainly due to lower service charges on deposit accounts. Noninterest expense decreased $708 thousandincreased $2.2 million mostly due to lower personnel expenses.the $2.1 million settlement accrual.
- 31 -

Comparing the first quarterhalf of 2011 to the fourth quarterfirst half of 2010, net income decreased $1.3$3.5 million or 7.4%, primarily due to lower net interest income (FTE) and, lower noninterest income and the $2.1 million settlement accrual, partially offset by decreasesa decrease in noninterest expense and income tax provision (FTE). The lower net interest income (FTE) was primarily caused by lower yields on interest earning assets, a lower average volume of loans and lower yields on interest earning assets,higher average balances of interest-bearing liabilities, partially offset by higher average balances of investments lower average balances of interest-bearing liabilities and lower rates paid on thoseinterest-bearing liabilities. The provision for loan losses remained the same, reflecting Management’sManagement's evaluation of losses inherent in the loan portfolio not covered by loss-sharing agreements with the FDIC and purchased loan credit-default discounts. Noninterest income decreased $400 thousand$1.2 million largely due to lower service charges on deposit accounts. Noninterest expense declined $190 thousand.increased $1.5 million mostly due to the $2.1 million settlement accrual.

- 29 -


Net Interest Income

Following is a summary of the components of net interest income for the periods indicated:
             
  Three months ended 
  March 31,  December 31, 
  2011  2010  2010 
  (In thousands) 
Interest and fee income $52,494  $56,003  $54,871 
Interest expense  (2,303)  (3,534)  (3,065)
FTE adjustment  4,802   4,560   4,606 
          
Net interest income (FTE) $54,993  $57,029  $56,412 
          
             
Average earning assets $4,153,110  $4,111,345  $4,164,013 
Net interest margin (FTE) (annualized)  5.35%  5.60%  5.39%

  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
  (In thousands) 
Interest and fee income $53,088  $55,078  $105,582  $111,081 
Interest expense  (2,153)  (3,145)  (4,456)  (6,679)
FTE adjustment  4,902   4,640   9,704   9,200 
  Net interest income (FTE) $55,837  $56,573  $110,830  $113,602 
                 
Average earning assets $4,156,226  $4,033,831  $4,154,676  $4,072,374 
Net interest margin (FTE) (annualized)  5.38%  5.62%  5.37%  5.61%

Net interest income (FTE) decreased during the firstsecond quarter of 2011 by $2.0 million$736 thousand or 3.6%1.3% from the same period in 2010 to $55.0$55.8 million, mainly due to lower yields on earning assets (down 0.34%) and lower average balances of loans (down $126$123 million) and lower yields on earning assets (down 0.38%), partially offset by higher average balances of investments (up $168 million), lower average balances of short-term borrowings (down $109$246 million) and lower rates paid on interest-bearing liabilities (down 0.16%).

Comparing the first quarterhalf of 2011 with the fourth quarterfirst half of 2010, net interest income (FTE) decreased $1.4$2.8 million or 2.5%2.4%, primarily due to lower yields on interest earning assets (down 0.35%), a lower average volume of loans (down $88$125 million) and lower yields on interest earning assets (down 0.11%)higher average balances of interest-bearing liabilities (up $62 million), partially offset by higher average balances of investments (up $77 million), lower average balances of interest-bearing liabilities (down $94$207 million) and lower rates paid on interest-bearing liabilities (down 0.07%0.17%).

Yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market. Economic conditions and deleveraging by businesses and individuals have reduced loan volumes, placing greater reliance on lower-yielding investment securities. Rates on interest-bearing deposits and borrowings have declined to offset some of the decline in asset yields.

At March 31,June 30, 2011, purchased FDIC covered loans represented 23 percent of the Company’s loan portfolio. Under the terms of the FDIC loss-sharing agreements, the FDIC is obligated to reimburse the Bank 80 percent of loan interest income foregone on covered loans. Such reimbursements are limited to the lesser of 90 days contractual interest or actual unpaid contractual interest at the time a principal loss is recognized in respect to the underlying loan. The term of the loss-sharing agreement on residential real estate assets is ten years, while the term for loss-sharing on non-residential real estate assets is five years with respect to losses and eight years with respect to loss recoveries.
Interest and Fee Income

Interest and fee income (FTE) for the firstsecond quarter of 2011 decreased $3.3$1.7 million or 5.4%2.9% from the same period in 2010. The decrease was caused by lower average balances of loans (down $126 million) and lower yields on earning assets, (down 0.38%), partially offset by higher average balances of investments (up $168 million).investments. The total average balances of loans declined due to decreases in the average balances of taxable commercial loans (down $71$88 million), residential real estate loans (down $49 million), indirect auto loans (down $26$40 million) and tax-exempt commercial loans (down $19$21 million), partially offset by a $13 million increaseincreases in the average balancebalances of commercial real estate loans.personal credit lines (up $19 million) and construction loans (up $10 million). The average investment portfolio increased largely due to higher average balances of U.S. Government sponsored entities (up $144$119 million), municipal securities (up $105 million) and corporate securities (up $75 million) and municipal securities (up $70

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$73 million), partially offset by declines in the average balances of collateralized mortgage obligations (down $66$10 million) and residential mortgage backed securities (down $56$46 million). The average yield on the Company’sCompany's earning assets decreased from 5.95%5.93% in the firstsecond quarter of 2010 to 5.57%5.59% in the corresponding period of 2011. The composite yield on loans declined 0.2%0.15% to 5.97%.6.03% in the second quarter 2011 compared to the corresponding period of 2010. Nonperforming loans are included in average loan volumes used to compute loan yields; fluctuations in nonaccrual loan volumes impact loan yields. The loan portfolio yield fell due to declines in yields on construction loans (down 1.29%), residential real estate loans (down 0.51%), indirect auto loans (down 0.66%), tax-exempt commercial loans (down 0.4%) and commercial real estate loans (down 0.06%), partially offset by increases in yields on taxable commercial loans (up 0.43%) and personal credit lines (up 0.53%). The investment portfolio yield decreased 0.66%0.6% to 4.70%4.68%. Decreases in yields on collateralized mortgage obligations (down 0.75%), residential mortgage backed securities (down 0.26%), municipal securities (down 0.19%) were partially offset by increases in yields on corporate securities (up 0.61%) and U.S. government sponsored entities (up 0.12%). The decline in loan and investment yields is primarily due to relatively low market rates and competitive loan pricing.

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Comparing the first quarterhalf of 2011 with the fourth quarterfirst half of 2010, interest and fee income (FTE) was down $2.2$5.0 million or 3.7%4.2%. The decrease resulted from a lower average volume of loans and lower yields on interest earning assets, (down 0.11%), partially offset by higher average balances of investments. Average interest earning assets decreased $11 million or 0.3% in the first quarter of 2011 compared with the fourth quarter of 2010 due to an $88 million decrease in average loans and a $77 million increase in average investments. The decrease in theA lower average balance of the loan portfolio was mostly attributable to decreases in average balances of commercial real estate loans (down $32 million), taxable commercial loans (down $23$80 million), residential real estate loans (down $12$44 million), tax-exempt commercial loans (down $5 million), direct consumer loans (down $7$20 million) and indirect auto loans (down $5$12 million)., partially offset by a $19 million increase in the average balance of personal credit lines. The average investment portfolio increased mostly due to higher average balances of municipal securities (up $45 million) and U.S. government sponsored entity obligations (up $40$131 million), municipal securities (up $87 million) and corporate securities (up $74 million), partially offset by decreases in collateralized mortgage obligations (down $38 million) and residential mortgage backed securities (down $51 million). The average yield on earning assets for the first quarterhalf of 2011 was 5.57%5.59% compared with 5.68%5.94% in the fourth quarterfirst half of 2010. The loan portfolio yield for the first quarterhalf of 2011 decreased 0.18% compared with the fourth quarterfirst half of 2010 wasprimarily due to lower yields on construction loans (down 0.85%), residential real estate loans (down 0.51%), indirect auto loans (down 0.58%) and commercial real estate loans (down 0.13%), partially offset by 0.06%increases in yields on taxable commercial loans (up 0.18%) and personal credit lines (up 0.36%). The investment portfolio yield declined from 5.32% in the first half of 2010 to 4.69% in the first half of 2011 mainly due to decreases in yields on collateralized mortgage obligations (down 0.46%), residential mortgage backed securities (down 0.28%) and municipal securities (down 0.17%), partially offset by corporate securities (up 0.5%)
Interest Expense

Interest expense in the firstsecond quarter of 2011 decreased $1.2 million$992 thousand or 34.8%31.5% compared with the same period in 2010. The decrease was attributable to lower average balances of short-term borrowings (down $109 million) and time deposits (down $64 million), and lower rates paid on interest-bearing liabilities (down 0.16%). Average interest-bearing liabilities increased $25 million or 0.9% due and a shift from higher costing term repurchase agreements and time deposits less than $100 thousand to increases in average balanceslow-cost checking and savings accounts. Such deposits represented 79% of interest-bearingtotal deposits (up $100 million) and assumed Sonoma FHLB advances (up $33 million). Partially offsetting the increase was a $109 million decline in the second quarter 2011 compared with 77% in the second quarter 2010. Lower average balancebalances of short-term borrowed funds due(down $103 million) and time deposits less than $100 thousand (down $33 million) were partially offset by higher average balances of Federal Home Loan Bank advances (up $38 million), preferred money market savings (up $66 million), money market savings (up $54 million), money market checking accounts (up $39 million) and regular savings (up $37 million). Lower average balances of short-term borrowed funds were attributable to repayment of term repurchase agreements of $100 million in December of 2010. Higher average balances of interest-bearing deposits were attributable to increases in average balances of money market savings (up $60 million), money market checking accounts (up $53 million), preferred money market savings (up $29 million), regular savings (up $23 million), partially offset by a $56 million decrease in average balances of time deposits less than $100 thousand. The average rate paid on interest-bearing liabilities decreased from 0.5%0.46% in the firstsecond quarter of 2010 to 0.34%0.3% in the same quarter of 2011. Rates on interest-bearing deposits decreased 0.1%0.08% to 0.29%0.27% primarily due to decreases in rates paid on time deposits less than $100 thousand (down 0.14%), time deposits $100 thousand or more (down 0.07%0.2%) and preferred money market savings (down 0.31%), partially offset by higher rates paid on time deposits less than $100 thousand (up 0.18%). Rates on short-term borrowed funds decreased 0.76%. Rates on Federal Home Loan Bank advances also declined 0.95%. Rates on debt financing payable declined 3.37%3.3% due to the adjustment of the premium amortization on a $10 million subordinated note, which the Company intends to redeem in August 2011. The redemption premium will approximate 5 percent of the $10 million principal amount.

Comparing the first quarterhalf of 2011 with the fourth quarterfirst half of 2010, interest expense declined $762 thousand$2.2 million or 24.9%33.3%, due to lower average balances of interest-bearing liabilities (down $94 million) and lower rates paid on interest-bearing liabilities, (down 0.07%). Averagepartially offset by higher average balances of interest-bearing liabilities during the first quarterliabilities. Higher average balances of 2011 fell primarily due to declines in theFederal Home Loan Bank advances (up $36 million), money market savings (up $57 million), preferred money market savings (up $48 million), money market checking accounts (up $46 million) and regular savings (up $30 million) were partially offset by lower average balances of short-term borrowed funds (down $71$106 million) and time deposits less than $100 thousand (down $16$44 million), money market savings (down $16 million), partially offset by a $25 million increase in the average balance of preferred money market savings.. Lower average balances of short-term borrowed funds were attributable to repayment of term repurchase agreements of $100 million in December of 2010.

Rates paid on interest-bearing liabilities averaged 0.34%0.31% during the first quarterhalf of 2011 compared with 0.41%0.48% for the fourth quarter of 2010. The average rate paid on interest-bearing deposits declined 0.01% to 0.29% in the first quarter of 2011 compared with the fourth quarterhalf of 2010 mainly due to lower rates on time deposits over $100 thousand (down 0.17%), money market savings (down 0.05%0.16%) and ,

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preferred money market savings (down 0.12%0.32%). Lower rates on, short-term borrowed funds (down 0.76%), Federal Home Loan Bank advances (down 0.51%) and debt financing and notes payable (down 3.35%3.34%) contributed to the reduction, partially offset by a 0.06% increase in rates paid on interest-bearing liabilities.time deposits less than $100 thousand. Rates on debt financing payable declined 3.35% due to the adjusted premium amortization described in the preceding paragraph.
Net Interest Margin (FTE)

The following summarizes the components of the Company’sCompany's net interest margin for the periods indicated:
             
  Three months ended 
  March 31,  December 31, 
  2011  2010  2010 
             
Yield on earning assets (FTE)  5.57%  5.95%  5.68%
Rate paid on interest-bearing liabilities  0.34%  0.50%  0.41%
          
Net interest spread (FTE)  5.23%  5.45%  5.27%
Impact of noninterest-bearing funds  0.12%  0.15%  0.12%
          
Net interest margin (FTE)  5.35%  5.60%  5.39%
          

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  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
             
Yield on earning assets (FTE)  5.59%  5.93%  5.59%  5.94%
Rate paid on interest-bearing liabilities  0.30%  0.46%  0.31%  0.48%
  Net interest spread (FTE)  5.29%  5.47%  5.28%  5.46%
Impact of noninterest bearing demand deposits  0.09%  0.15%  0.09%  0.15%
    Net interest margin (FTE)  5.38%  5.62%  5.37%  5.61%
                 
During the firstsecond quarter of 2011, the net interest margin (FTE) decreased 0.25%0.24% compared with the same period in 2010. Yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market. Economic conditions and deleveraging by businesses and individuals have reduced loan volumes, placing greater reliance on lower-yielding investment securities. Rates on interest-bearing deposits and borrowings have declined to offset some of the decline in asset yields. Lower yields on earning assets were partially offset by lower rates paid on interest-bearing liabilities and resulted in a 0.22%0.18% decrease in net interest spread (FTE). The net interest margin contribution of noninterest-bearing demand deposits reducedincreased the net interest margin (FTE) to 5.35%5.38%. The net interest spreadmargin (FTE) in the first quarterhalf of 2011 was 5.23%5.37% compared with 5.27%5.61% in the fourth quarterfirst half of 2010, the net result of a 0.11%0.35% decrease in earning asset yields, partially offset by lower cost of interest-bearing liabilities (down 0.07%0.17%). The margin contribution from noninterest bearing funding sources remaineddemand deposits declined from 0.15% in the same from the fourth quarterfirst half of 2010 to 0.09% in the first quarterhalf of 2011.






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Summary of Average Balances, Yields/Rates and Interest Differential

The following tables present, for the periods indicated, information regarding the Company’sCompany's consolidated average assets, liabilities and shareholders’shareholders' equity, the amount of interest income from average earning assets and the resulting annualized yields, and the amount of interest expense paid on average interest-bearing liabilities and the resulting annualized rate paid. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate (FTE).
             
  For the three months ended 
  March 31, 2011 
          Yields 
      Interest  Earned/ 
  Average  Income/  Rates 
  Balance  Expense  Paid 
  (In thousands) 
Assets:            
Money market assets and funds sold $677  $   %
Investment securities:            
Available for sale            
Taxable  436,494   2,466   2.26%
Tax-exempt (1)  269,076   4,213   6.26%
Held to maturity            
Taxable  122,672   1,291   4.21%
Tax-exempt (1)  453,884   7,093   6.25%
Loans:            
Commercial:            
Taxable  485,005   7,465   6.24%
Tax-exempt (1)  153,862   2,500   6.59%
Commercial real estate  1,251,610   19,929   6.46%
Real estate construction  75,114   946   5.11%
Real estate residential  327,313   3,355   4.10%
Consumer  577,403   8,038   5.65%
           
Total loans (1)  2,870,307   42,233   5.97%
           
Total Interest earning assets (1)  4,153,110  $57,296   5.57%
Other assets  787,888         
            
Total assets $4,940,998         
            
             
Liabilities and shareholders’ equity            
Deposits:            
Noninterest bearing demand $1,463,075  $   %
Savings and interest-bearing transaction  1,793,314   671   0.15%
Time less than $100,000  334,172   413   0.50%
Time $100,000 or more  548,238   806   0.60%
           
Total interest-bearing deposits  2,675,724   1,890   0.29%
Short-term borrowed funds  110,848   62   0.22%
Federal Home Loan Bank advances  57,771   151   1.05%
Debt financing and notes payable  26,318   200   3.05%
           
Total interest-bearing liabilities  2,870,661  $2,303   0.34%
Other liabilities  62,059         
Shareholders’ equity  545,203         
            
Total liabilities and shareholders’ equity $4,940,998         
            
Net interest spread (1) (2)          5.23%
Net interest income and interest margin (1) (3)     $54,993   5.35%
           

(1)Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2)Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.

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 For the three months ended  For the three months ended 
 March 31, 2010  June 30, 2011 
 Yields        Yields 
 Interest Earned/     Interest  Earned/ 
 Average Income/ Rates  Average  Income/  Rates 
 Balance Expense Paid  Balance  Expense  Paid 
 (In thousands)  (In thousands) 
Assets:          
Money market assets and funds sold $640 $1  0.63% $205  $-   -%
Investment securities:             
Available for sale             
Taxable 247,466 2,151  3.48%  467,322   2,914   2.49%
Tax-exempt (1) 156,484 2,604  6.66%  271,889   4,242   6.24%
Held to maturity             
Taxable 206,445 2,277  4.41%  139,411   1,309   3.76%
Tax-exempt (1) 503,682 7,906  6.28%  476,305   7,405   6.22%
Loans:             
Commercial:             
Taxable 555,940 8,616  6.29%  457,659   7,619   6.68%
Tax-exempt (1) 172,850 2,664  6.25%  149,459   2,436   6.54%
Commercial real estate 1,238,344 20,294  6.65%  1,222,393   20,017   6.57%
Real estate construction 67,459 925  5.56%  67,323   771   4.59%
Real estate residential 376,254 4,345  4.62%  319,323   3,171   3.97%
Consumer 585,781 8,780  6.08%  584,937   8,106   5.56%
     
Total loans (1) 2,996,628 45,624  6.17%  2,801,094   42,120   6.03%
     
Total interest earning assets (1) 4,111,345 $60,563  5.95%
Total Interest earning assets (1)  4,156,226  $57,990   5.59%
Other assets 701,579   771,623         
   
Total assets $4,812,924  $4,927,849         
               
 
Liabilities and shareholders’ equity 
Liabilities and shareholders' equity            
Deposits:             
Noninterest bearing demand $1,379,797 $  % $1,466,754  $-   -%
Savings and interest-bearing transaction 1,629,009 956  0.24%  1,815,513   647   0.14%
Time less than $100,000 390,551 617  0.64%  318,235   548   0.69%
Time $100,000 or more 555,942 915  0.67%  543,247   582   0.43%
     
Total interest-bearing deposits 2,575,502 2,488  0.39%  2,676,995   1,777   0.27%
Short-term borrowed funds 219,558 537  0.98%  103,177   47   0.18%
Federal Home Loan Bank advances 24,600 84  1.37%  48,248   128   1.05%
Debt financing and notes payable 26,484 425  6.42%  26,007   201   3.08%
     
Total interest-bearing liabilities 2,846,144 $3,534  0.50%  2,854,427  $2,153   0.30%
Other liabilities 79,577   61,031         
Shareholders’ equity 507,406 
   
Total liabilities and shareholders’ equity $4,812,924 
   
Shareholders' equity  545,637         
Total liabilities and shareholders' equity $4,927,849         
Net interest spread (1) (2)  5.45%          5.29%
Net interest income and interest margin (1) (3) $57,029  5.60%     $55,837   5.38%
     
(1)Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2)Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.

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  For the three months ended 
  December 31, 2010 
          Yields 
      Interest  Earned/ 
  Average  Income/  Rates 
  Balance  Expense  Paid 
  (In thousands) 
Assets:            
Money market assets and funds sold $769  $   %
Investment securities:            
Available for sale            
Taxable  381,597   2,341   2.45%
Tax-exempt (1)  220,167   3,513   6.38%
Held to maturity            
Taxable  143,244   1,522   4.25%
Tax-exempt (1)  460,141   7,172   6.23%
Loans:            
Commercial:            
Taxable  507,629   8,480   6.63%
Tax-exempt (1)  158,954   2,597   6.48%
Commercial real estate  1,283,836   20,526   6.34%
Real estate construction  78,247   944   4.79%
Real estate residential  339,772   3,564   4.20%
Consumer  589,657   8,818   5.93%
           
Total loans (1)  2,958,095   44,929   6.03%
           
Total earning assets (1)  4,164,013  $59,477   5.68%
Other assets  868,144         
            
Total assets $5,032,157         
            
             
Liabilities and shareholders’ equity            
Deposits:            
Noninterest bearing demand $1,468,098  $   %
Savings and interest-bearing transaction  1,785,075   818   0.18%
Time less than $100,000  349,689   345   0.39%
Time $100,000 or more  556,635   839   0.60%
           
Total interest-bearing deposits  2,691,399   2,002   0.30%
Short-term borrowed funds  181,349   454   0.98%
Federal Home Loan Bank advances  65,868   187   1.11%
Debt financing and notes payable  26,383   422   6.40%
           
Total interest-bearing liabilities  2,964,999  $3,065   0.41%
Other liabilities  61,856         
Shareholders’ equity  537,204         
            
Total liabilities and shareholders’ equity $5,032,157         
            
Net interest spread (1) (2)          5.27%
Net interest income and interest margin (1) (3)     $56,412   5.39%
           
(1) Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(1)Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2)Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.
(2) Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.

(3) Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.
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  For the three months ended 
  June 30, 2010 
        Yields 
     Interest  Earned/ 
  Average  Income/  Rates 
  Balance  Expense  Paid 
  (In thousands) 
Assets:         
Money market assets and funds sold $703  $-   -%
Investment securities:            
  Available for sale            
    Taxable  266,180   2,156   3.24%
    Tax-exempt (1)  169,137   2,800   6.62%
  Held to maturity            
    Taxable  186,367   2,043   4.38%
    Tax-exempt (1)  486,929   7,636   6.27%
Loans:            
  Commercial:            
    Taxable  545,959   8,511   6.25%
    Tax-exempt (1)  170,341   2,948   6.94%
  Commercial real estate  1,224,442   20,240   6.63%
  Real estate construction  57,514   843   5.88%
  Real estate residential  358,887   4,016   4.48%
  Consumer  567,372   8,525   6.03%
    Total loans (1)  2,924,515   45,083   6.18%
    Total earning assets (1)  4,033,831  $59,718   5.93%
Other assets  697,439         
             
    Total assets $4,731,270         
             
Liabilities and shareholders' equity            
Deposits:            
  Noninterest bearing demand $1,384,249  $-   -%
  Savings and interest-bearing            
    transaction  1,619,319   877   0.22%
  Time less than $100,000  350,890   449   0.51%
  Time $100,000 or more  541,213   854   0.63%
     Total interest-bearing deposits  2,511,422   2,180   0.35%
Short-term borrowed funds  206,313   491   0.94%
Federal Home Loan Bank advances  10,273   52   2.00%
Debt financing and notes payable  26,450   422   6.38%
    Total interest-bearing liabilities  2,754,458  $3,145   0.46%
Other liabilities  74,435         
Shareholders' equity  518,128         
             
    Total liabilities and shareholders' equity $4,731,270         
             
Net interest spread (1) (2)          5.47%
             
Net interest income and interest margin (1) (3)     $56,573   5.62%
(1) Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.

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  For the six months ended 
  June 30, 2011 
        Yields 
     Interest  Earned/ 
  Average  Income/  Rates 
  Balance  Expense  Paid 
  (In thousands) 
Assets:         
Money market assets and funds sold $440  $-   -%
Investment securities:            
  Available for sale            
    Taxable  451,994   5,379   2.38%
    Tax-exempt (1)  270,490   8,455   6.25%
  Held to maturity            
    Taxable  131,087   2,601   3.97%
    Tax-exempt (1)  465,156   14,498   6.23%
Loans:            
  Commercial:            
    Taxable  471,256   15,084   6.45%
    Tax-exempt (1)  151,648   4,936   6.56%
  Commercial real estate  1,236,921   39,945   6.51%
  Real estate construction  71,197   1,717   4.86%
  Real estate residential  323,296   6,527   4.04%
  Consumer  581,191   16,144   5.60%
    Total loans (1)  2,835,509   84,353   6.00%
    Total earning assets (1)  4,154,676  $115,286   5.59%
Other assets  779,711         
    Total assets $4,934,387         
             
Liabilities and shareholders' equity            
Deposits:            
  Noninterest bearing demand $1,464,925  $-   -%
  Savings and interest-bearing transaction  1,804,475   1,318   0.15%
  Time less than $100,000  326,159   1,040   0.64%
  Time $100,000 or more  545,729   1,309   0.48%
     Total interest-bearing deposits  2,676,363   3,667   0.28%
Short-term borrowed funds  106,991   109   0.20%
Federal Home Loan Bank advances  52,983   279   1.05%
Debt financing and notes payable  26,161   401   3.06%
    Total interest-bearing liabilities  2,862,498  $4,456   0.31%
Other liabilities  61,543         
Shareholders' equity  545,421         
    Total liabilities and shareholders' equity $4,934,387         
Net interest spread (1) (2)          5.28%
Net interest income and interest margin (1) (3)     $110,830   5.37%
(1) Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.

- 37 -


  For the six months ended 
  June 30, 2010 
     Interest  Rates 
  Average  Income/  Earned/ 
  Balance  Expense  Paid 
  (In thousands) 
Assets:         
Money market assets and funds sold $672  $1   0.30%
Investment securities:            
  Available for sale            
    Taxable  256,874   4,307   3.35%
    Tax-exempt (1)  162,846   5,404   6.64%
  Held to maturity            
    Taxable  196,350   4,321   4.40%
    Tax-exempt (1)  495,260   15,541   6.28%
Loans:            
  Commercial:            
    Taxable  550,923   17,127   6.27%
    Tax-exempt (1)  171,588   5,612   6.60%
  Commercial real estate  1,231,354   40,534   6.64%
  Real estate construction  62,459   1,769   5.71%
  Real estate residential  367,523   8,360   4.55%
  Consumer  576,525   17,305   6.05%
    Total loans (1)  2,960,372   90,707   6.18%
    Total earning assets (1)  4,072,374  $120,281   5.94%
Other assets  699,498         
             
    Total assets $4,771,872         
             
Liabilities and shareholders' equity            
Deposits:            
  Noninterest bearing demand $1,382,036  $-   -%
  Savings and interest-bearing            
    transaction  1,624,137   1,833   0.23%
  Time less than $100,000  370,611   1,066   0.58%
  Time $100,000 or more  548,537   1,769   0.65%
     Total interest-bearing deposits  2,543,285   4,668   0.37%
Short-term borrowed funds  212,898   1,028   0.96%
Federal Home Loan Bank advances  17,397   136   1.56%
Debt financing and notes payable  26,467   847   6.40%
    Total interest-bearing liabilities  2,800,047  $6,679   0.48%
Other liabilities  76,993         
Shareholders' equity  512,796         
             
    Total liabilities and shareholders' equity $4,771,872         
             
Net interest spread (1) (2)          5.46%
             
Net interest income and interest margin (1) (3)     $113,602   5.61%
(1) Interest and rates calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning assets.
- 38 -

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 asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.
             
  Three months ended March 31, 2011 
  compared with 
  Three months ended March 31, 2010 
  Volume  Rate  Total 
  (In thousands) 
Interest and fee income:            
Money market assets and funds sold $  $(1) $(1)
Investment securities:            
Available for sale            
Taxable  1,235   (920)  315 
Tax-exempt (1)  1,767   (158)  1,609 
Held to maturity            
Taxable  (886)  (100)  (986)
Tax-exempt (1)  (778)  (35)  (813)
Loans:            
Commercial:            
Taxable  (1,092)  (59)  (1,151)
Tax-exempt (1)  (303)  139   (164)
Commercial real estate  216   (581)  (365)
Real estate construction  100   (79)  21 
Real estate residential  (531)  (459)  (990)
Consumer  (124)  (618)  (742)
          
Total loans (1)  (1,734)  (1,657)  (3,391)
          
Total decrease in interest and fee income (1)  (396)  (2,871)  (3,267)
          
             
Interest expense:            
Deposits:            
Savings and interest-bearing transaction  89   (374)  (285)
Time less than $100,000  (81)  (123)  (204)
Time $100,000 or more  (13)  (96)  (109)
          
Total interest-bearing deposits  (5)  (593)  (598)
          
Short-term borrowed funds  (186)  (289)  (475)
Federal Home Loan Bank advances  91   (24)  67 
Debt financing and notes payable  (3)  (222)  (225)
          
Total decrease in interest expense  (103)  (1,128)  (1,231)
          
Decrease in Net Interest Income (1) $(293)  ($1,743) $(2,036)
          

(1)Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
  Three months ended June 30, 2011 
  compared with 
  Three months ended June 30, 2010 
  Volume  Rate  Total 
  (In thousands) 
Interest and fee income:         
Money market assets and funds sold $-  $-  $- 
Investment securities:            
  Available for sale            
    Taxable  1,340   (582)  758 
    Tax-exempt (1)  1,611   (169)  1,442 
  Held to maturity            
    Taxable  (468)  (266)  (734)
    Tax-exempt (1)  (166)  (65)  (231)
Loans:            
  Commercial:            
    Taxable  (1,442)  550   (892)
    Tax-exempt (1)  (347)  (165)  (512)
  Commercial real estate  (34)  (189)  (223)
  Real estate construction  130   (202)  (72)
  Real estate residential  (418)  (427)  (845)
  Consumer  258   (677)  (419)
    Total loans (1)  (1,853)  (1,110)  (2,963)
    Total increase (decrease) in interest and fee income (1)  464   (2,192)  (1,728)
             
Interest expense:            
Deposits:            
  Savings and interest-bearing            
    transaction  97   (327)  (230)
  Time less than $100,000  (45)  144   99 
  Time $100,000 or more  3   (275)  (272)
     Total interest-bearing deposits  55   (458)  (403)
Short-term borrowed funds  (170)  (274)  (444)
Federal Home Loan Bank advances  111   (35)  76 
Debt financing and notes payable  (7)  (214)  (221)
   Total decrease in interest expense  (11)  (981)  (992)
Increase (decrease) in Net Interest Income (1) $475  $(1,211) $(736)

(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
- 3639 -


             
  Three months ended March 31, 2011 
  compared with 
  Three months ended December 31, 2010 
  Volume  Rate  Total 
  (In thousands) 
Interest and fee income:            
Money market assets and funds sold $  $  $ 
Investment securities:            
Available for sale            
Taxable  301   (176)  125 
Tax-exempt (1)  760   (60)  700 
Held to maturity            
Taxable  (218)  (13)  (231)
Tax-exempt (1)  (108)  29   (79)
Loans:            
Commercial:            
Taxable  (538)  (477)  (1,015)
Tax-exempt (1)  (139)  42   (97)
Commercial real estate  (959)  362   (597)
Real estate construction  (59)  61   2 
Real estate residential  (150)  (59)  (209)
Consumer  (362)  (418)  (780)
          
Total loans (1)  (2,207)  (489)  (2,696)
          
Total decrease in interest and fee income (1)  (1,472)  (709)  (2,181)
          
             
Interest expense:            
Deposits:            
Savings and interest-bearing transaction  (12)  (135)  (147)
Time less than $100,000  (25)  93   68 
Time $100,000 or more  (31)  (2)  (33)
          
Total interest-bearing deposits  (68)  (44)  (112)
          
Short-term borrowed funds  (134)  (258)  (392)
Federal Home Loan Bank advances  (26)  (10)  (36)
Debt financing and notes payable  (6)  (216)  (222)
          
Total decrease in interest expense  (234)  (528)  (762)
          
Decrease in Net Interest Income (1) $(1,238) $(181) $(1,419)
          
(1)Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
  Six months ended June 30, 2011 
  compared with 
  Six months ended June 30, 2010 
  Volume  Rate  Total 
  (In thousands) 
Interest and fee income:         
Money market assets and funds sold $-  $(1) $(1)
Investment securities:            
  Available for sale            
    Taxable  2,570   (1,498)  1,072 
    Tax-exempt (1)  3,377   (326)  3,051 
  Held to maturity            
    Taxable  (1,327)  (393)  (1,720)
    Tax-exempt (1)  (939)  (104)  (1,043)
Loans:            
  Commercial:            
    Taxable  (2,538)  495   (2,043)
    Tax-exempt (1)  (649)  (27)  (676)
  Commercial real estate  183   (772)  (589)
  Real estate construction  230   (282)  (52)
  Real estate residential  (948)  (885)  (1,833)
  Consumer  139   (1,300)  (1,161)
    Total loans (1)  (3,583)  (2,771)  (6,354)
Total increase (decrease) in interest and fee income (1)  98   (5,093)  (4,995)
             
Interest expense:            
Deposits:            
  Savings and interest-bearing            
    transaction  186   (701)  (515)
  Time less than $100,000  (135)  109   (26)
  Time $100,000 or more  (9)  (451)  (460)
     Total interest-bearing deposits  42   (1,043)  (1,001)
Short-term borrowed funds  (355)  (564)  (919)
Federal Home Loan Bank advances  576   (433)  143 
Debt financing and notes payable  (10)  (436)  (446)
   Total increase (decrease) in interest expense  253   (2,476)  (2,223)
Decrease in Net Interest Income (1) $(155) $(2,617) $(2,772)
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.

Provision for Loan Losses

The Company manages credit costs by consistently enforcing conservative underwriting and administration procedures and aggressively pursuing collection efforts with troubled debtors. The Company recorded the purchased County loans at estimated fair value upon acquisition as of February 6, 2009. Further, County loans purchased from the FDIC are “covered” by loss-sharing agreements the Company entered with the FDIC. Due to the loss-sharing agreements and fair value recognition, the Company did not record a provision for loan losses during the first threesix months of 2011 related to such loans covered by the FDIC loss-sharing agreements. The Company recorded purchased Sonoma loans at estimated fair value upon acquisition as of August 20, 2010. Due to the fair value recognition, the Company did not record a provision for loan losses during the first threesix months of 2011 related to purchased Sonoma loans. In Management’s judgment, the acquisition date loan fair value discounts remaining at March 31,June 30, 2011 represent appropriate loss estimates for default risk inherent in the purchased loans. The Company provided $2.8 million and $5.6 million for loan losses related to originated loans in the first quarter and first half of 2011, the first and fourth quarters ofrespectively, unchanged from comparable periods in 2010. The provision reflects Management’sManagement's assessment of credit risk in the originated loan portfolio for each of the periods presented. For further information regarding credit risk, the FDIC loss-sharing agreements, net credit losses and the allowance for loan losses, see Note 5 and the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this report.

- 3740 -


Noninterest Income

The following table summarizes the components of noninterest income for the periods indicated.
             
  Three months ended 
  March 31,  December 31, 
  2011  2010  2010 
  (In thousands) 
             
Service charges on deposit accounts $7,521  $8,742  $7,984 
Merchant credit card fees  2,171   2,221   2,427 
Debit card fees  1,201   1,174   1,210 
ATM fees and interchange  935   891   931 
Other service fees  691   636   744 
Trust fees  493   381   447 
Check sale income  220   230   218 
Safe deposit rental  169   162   174 
Financial services commissions  29   149   164 
Other noninterest income  1,313   884   844 
          
Total $14,743  $15,470  $15,143 
          
  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
  (In thousands) 
             
Service charges on deposit accounts $7,577  $8,629  $15,098  $17,371 
Merchant processing services  2,391   2,176   4,562   4,397 
Debit card  1,283   1,245   2,484   2,419 
ATM processing fees  997   1,021   1,932   1,912 
Other service fees  721   600   1,411   1,235 
Trust fees  482   448   975   829 
Check sale income  212   224   432   454 
Safe deposit rental  168   164   337   326 
Financial services commissions  117   223   146   372 
Other  1,344   1,040   2,658   1,925 
  Total $15,292  $15,770  $30,035  $31,240 
Noninterest income for the firstsecond quarter of 2011 declined by $727$478 thousand or 4.7%3.0% from the same period in 2010. Service charges on deposits decreased $1.2$1.1 million or 14.0%12.2% primarily due to declines in fees charged on overdrawn and insufficient funds accounts (down $1.0 million)$929 thousand) and deficit fees charged on analyzed accounts (down $232$114 thousand). New regulations over overdraft fees were adopted July 1, 2010 and limited the Bank’s ability to assess overdraft fees. Financial services commissions decreased $120$106 thousand. Other categories of noninterest income contributed to partially offset the decrease. Merchant processing services income increased $215 thousand mainly due to increased transaction volumes. Other noninterest income rose $304 thousand mostly due to ACH service fee income and an increase in letters of credit fee income.

In the first half of 2011, noninterest income decreased $1.2 million or 3.9% compared with the first half of 2010. Service charges on deposits decreased $2.3 million or 13.1% due to declines in fees charged on overdrawn and insufficient funds accounts (down $1.9 million) and deficit fees charged on analyzed accounts (down $346 thousand). Financial services commissions decreased $226 thousand due to the transition to a new provider for sales of mutual funds and annuities. Increases in trust fees and otherOther categories of noninterest income contributed to partially offset the decrease. A $112Merchant processing services income increased $165 thousand increase in trust fees was attributablemainly due to new trust accounts.higher transaction volumes. Other noninterest income rose $429increased $733 thousand mostlyprimarily due to a $400 thousand gain on sale of other assets.
In the first quarter of 2011, noninterestincreases in income decreased $400 thousand or 2.6% compared with the fourth quarter of 2010. Service charges on deposits decreased $463 thousand or 5.8% due to declines in fees charged on overdrawn and insufficient funds accounts (down $405 thousand) and deficit fees charged on analyzed accounts. Merchant credit card fees declined $256 thousand or 10.5% mainly due to seasonally lower transaction volumes. Financial services commissions decreased $135 thousand due to the transition to a new provider for sales of mutual funds and annuities. Offsetting the decrease was a $469 thousand increase in other noninterest income which mainly resulted from recoveries of charged-off purchased loans and ACH service fee income.






- 3841 -


Noninterest Expense

The following table summarizes the components of noninterest expense for the periods indicated.
             
  Three months ended 
  March 31,  December 31, 
  2011  2010  2010 
  (In thousands) 
             
Salaries and related benefits $15,075  $15,892  $14,899 
Occupancy  4,025   3,777   4,073 
Outsourced data processing services  2,456   2,240   2,329 
Equipment  933   1,051   1,091 
Amortization of identifiable intangibles  1,548   1,598   1,622 
FDIC insurance assessments  1,220   1,320   1,320 
Courier service  843   907   859 
Professional fees  850   663   896 
Postage  368   475   289 
Loan expense  394   418   391 
Telephone  435   389   448 
Stationery and supplies  323   350   329 
Operational losses  248   220   213 
Advertising/public relations  171   211   250 
In-house meetings  183   175   192 
Customer checks  176   172   157 
OREO expense  145   150   243 
Correspondent service charges  30   102   8 
Other noninterest expense  1,900   1,921   1,904 
          
Total $31,323  $32,031  $31,513 
          
             
Average full time equivalent staff  1,001   1,032   1,006 
Noninterest expense to revenues (FTE)  44.92%  44.18%  44.04%

  Three months ended  Six months ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
  (In thousands) 
             
Salaries and related benefits $14,913  $15,476  $29,988  $31,368 
Occupancy  4,050   3,822   8,075   7,599 
Outsourced data processing services  2,122   2,202   4,578   4,442 
Settlements  2,100   -   2,100   23 
Amortization of identifiable intangibles  1,480   1,540   3,028   3,138 
Professional fees  1,453   867   2,303   1,530 
Equipment  1,038   1,116   1,971   2,167 
OREO expense  990   314   1,135   464 
Courier service  852   903   1,695   1,810 
FDIC insurance assessments  740   1,260   1,960   2,580 
Loan expense  544   475   938   893 
Telephone  428   406   863   795 
Postage  363   454   731   929 
Operational losses  341   158   589   378 
Stationery and supplies  323   330   646   680 
In-house meetings  178   184   361   359 
Customer checks  167   162   343   333 
Advertising and public relations  161   266   332   476 
Correspondent service charges  32   136   62   238 
Other noninterest expense  2,034   2,024   3,934   3,924 
Total $34,309  $32,095  $65,632  $64,126 
                 
Average full time equivalent staff  987   1,018   994   1,025 
Noninterest expense to revenues (FTE)  48.23%  44.37%  46.59%  44.27%
Noninterest expense increased $2.2 million or 6.9% in the three months ended March 31, 2011 include $679 thousand related to pre-integration costs for the acquired Sonoma Valley Bank, primarily outsourced data processing and personnel costs. SVB operations were fully integrated in February 2011. Noninterest expense decreased $708 thousand or 2.2% in the firstsecond quarter 2011 compared with the same period in 2010 primarily due to lower personnel expenses.the $2.1 million in litigation settlement accruals. OREO expenses were $676 thousand higher in the three months ended June 30, 2011 due to payment of delinquent property taxes on real estate repossessed during the period and recognition of declines in value based on recent appraisals. Professional fees increased $586 thousand due to legal fees related to nonperforming assets and general corporate matters. Occupancy expense increased $228 thousand primarily due to a $256 thousand increase in rental of bank premises net of sublease income. Operational losses increased $183 thousand due to increased branch robberies and fraudulent deposit account and debit card activity. Other categories of noninterest expense contributed to offset the increase. Salaries and related benefits decreased $817$563 thousand primarily due to a reduction in salaries attributable to fewer employees, decreases in incentives and other benefits partially offset by higher group health insurance costs and annual merit increases in salaries. FDIC insurance assessments declined $520 thousand due to new assessment rules effective April 1, 2011. Advertising and public relations expense decreased $105 thousand due to cost control.

Noninterest expense increased $1.5 million or 5.1%2.3% in the first half of 2011 compared with the same period in 2010 primarily due to the $2.1 million in litigation settlement accruals. The first half of 2011 results also included $679 thousand related to pre-integration costs for the acquired Sonoma, primarily outsourced data processing and personnel costs. Sonoma operations were fully integrated in February 2011. Professional fees increased $773 thousand due to legal fees related to nonperforming assets and general corporate matters. OREO expenses were $671 thousand higher in the six months ended June 30, 2011 due to payment of delinquent property taxes on real estate repossessed during the period and recognition of declines in value based on recent appraisals. Occupancy expense increased $476 thousand primarily due to a $533 thousand increase in rental of bank premises net of sublease income. Outsourced data processing services expense increased $136 thousand mainly due to merger deconversion costs for Sonoma operations. Other categories of noninterest expense contributed to offset the increase. Salaries and related benefits decreased $1.4 million primarily due to a reduction in regular salaries attributable to fewer employees, and decreases in payroll taxes, incentives, bonuses and other benefits partially offset by annual merit increases andSVB pre-integration costs, higher

- 42 -

payroll taxes, higher group health insurance costs.costs and annual merit increases in salaries. FDIC insurance assessments declined $620 thousand due to new assessment rules effective April 1, 2011 and a decline in the assessment base. Postage decreased $198 thousand. Equipment expense declined $118$196 thousand or 11.2% primarily due to lower repairs and maintenance expenses. The Company expects FDIC insurance assessments (including assessments for FICO bond debt service) of approximately $700Advertising/public relations expense decreased $144 thousand in the second quarter 2011 based on application of new assessment rules effective April 1, 2011. Postage decreased $107 thousand or 22.5%. Occupancy expense increased $248 thousand or 6.6% primarily due to increases in rent. Outsourced data processing services expense increased $216 thousand or 9.6% mostly due to merger deconversion costs for Sonoma operations. Professional fees increased $187 thousand or 28.2% mainly due to higher legal expenses relating to delinquent loans and foreclosed assets.
In the first quarter of 2011, noninterest expense decreased $190 thousand or 0.6% compared with the fourth quarter of 2010. Equipmentcost control. Courier service expense declined $158$115 thousand. Amortization of identifiable intangible assets declined $110 thousand or 14.5% primarily due to lower repairs and maintenance expenses. Salaries and related benefits increased $176 thousand or 1.2% primarily due to higher payroll taxes and annual merit increases, offset in part by decreases in salaries, incentives, bonuses and other benefits. Outsourced data processing services expense increased mostly due to merger deconversion costs for Sonoma operations.as intangible assets are amortized on a declining balance method.

Provision for Income Tax

During the firstsecond quarter of 2011, the Company recorded income tax expense (FTE) of $13.2$12.8 million compared with $14.1 million and $13.5$13.9 million for the first and fourth quarterssecond quarter of 2010, respectively.2010. The current quarter provision represents an effective tax rate (FTE) of 37.2%37.5%, compared with 37.4% and 36.3%37.1% for the second quarter of 2010.

The income tax provision (FTE) was $26.0 million for the first and fourth quarterssix months of 2010, respectively.2011 compared with $28.0 million for the corresponding period of 2010. The first half of 2011 effective tax rate was 37.3% compared to 37.2% for the same period of 2010.

- 39 -


Loan Portfolio Credit Risk

The risk that loan customers do not repay loans granted by the Bank is the most significant risk to the Company. 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. In measuring and managing credit risk, the Company adheres to the following practices.
The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated management attention to maximize collection.

·  The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated management attention to maximize collection.
The Bank maintains two loan administration offices whose sole responsibility is to manage and collect classified loans.
·  The Bank maintains two loan administration offices whose sole responsibility is to manage and collect classified loans.
Classified loans with higher levels of credit risk are further designated as “nonaccrual loans.” Management places loans on nonaccrual status when full collection of contractual interest and principal payments is in doubt. Interest previously accrued on loans placed on nonaccrual status is charged against interest income, net of estimated FDIC reimbursements under loss-sharingloss- sharing agreements. The Company does not accrue interest income on nonaccrual loans. 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 or covered by FDIC loss-sharing agreements. “Nonperforming assets” include nonaccrual loans, loans 90 or more days past due and still accruing, and repossessed loan collateral.

On February 6, 2009, the Bank purchased loans and repossessed loan collateral of the former County Bank from the FDIC. This purchase transaction included loss-sharing agreements with the FDIC wherein the FDIC and the Bank share losses on the purchased assets. The loss-sharing agreements significantly reduce the credit risk of these purchased assets. In evaluating credit risk, Management separates the Bank’s total loan portfolio between those loans qualifying under the FDIC loss-sharing agreements (referred to as “purchased covered loans”) and loans not qualifying under the FDIC loss-sharing agreements (referred to as “purchased non-covered loans” and “originated loans”). At March 31,June 30, 2011, purchased covered loans totaled $660$623 million, or 23 percent of total loans, originated loans totaled $2.0 billion, or 7071 percent of total loans and purchased non-covered loans totaled $187$165 million, or 76 percent of total loans.

The amount of gross interest income that would have been recorded if all nonaccrual purchased covered loans had been current in accordance with their original terms while outstanding was $688$608 thousand in the first quarter of 2011 and $1.3 million and $860 thousand in the firstsecond quarter and first half of 2011, respectively, compared with $1.1 million and $2.4 million for the fourthsecond quarter and first half of 2010, respectively. The amount of interest income that was recognized on nonaccrual purchased covered loans from all cash payments made induring the first quarter ofthree and six months ended June 30, 2011, was $503 thousand,totaled $1.4 million and $1.9 million, respectively, compared with $1.5 million and $730 thousand$3.0 million for the second quarter and first and fourth quartershalf of 2010, respectively. There were no cash payments received whichthat were applied against the book balance of  nonaccrual purchased covered loans outstanding at March 31, June 30,

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2011 March 31, 2010in the second quarter and December 31,first half of 2011. Similarly, there were no cash payments received that were applied against the book balance of  nonaccrual purchased covered loans outstanding at June 30, 2010 in the second quarter and first quarter 2011, the first quarter 2010 and the fourth quarter 2010, respectively.half of 2010.
The amount of gross interest income that would have been recorded if all nonaccrual purchased non-covered loans had been current in accordance with their original terms while outstanding was $686$639 thousand and $1.3 million in the second quarter and first quarterhalf of 2011, compared with $650 thousand in the fourth quarter of 2010.respectively. The amount of interest income that was recognized on nonaccrual purchased non-covered loans from cash payments made in the second quarter and first quarterhalf of 2011 was $171$374 thousand compared with $24and $659 thousand for the fourth quartersecond and first half of 2010.2011, respectively. There were no cash payments received whichthat were applied against the book balance of nonaccrual purchased non-covered loans outstanding at March 31,June 30, 2011 in the second quarter and first quarterhalf of 2011. The amount of cash payments received, which were applied against the book balance of nonaccrual purchased non-covered loans outstanding at December 31, 2010 totaled $510 thousand in the fourth quarter 2010.

The amount of gross interest income that would have been recorded if all nonaccrual originated loans had been current in accordance with their original terms while outstanding was $311$341 thousand and $651 thousand in the second quarter and first quarterhalf of 2011, respectively, compared with $298$315 thousand and $307$613 thousand for the second quarter and first and fourth quartershalf of 2010, respectively. The amount of interest income that was recognized on nonaccrual originated loans from all cash payments made induring the first quarter ofthree and six months ended June 30, 2011, was $118totaled $297 thousand and $361 thousand, respectively, compared with $131$301 thousand and $197$432 thousand, respectively, for the second quarter and first and fourth quartershalf of 2010, respectively. There were no cash payments received whichthat were applied against the book balance of nonaccrual originated loans outstanding at March 31,June 30, 2011 March 31, 2010in the second quarter and December 31,first half of 2011. Similarly, there were no cash payments received that were applied against the book balance of nonaccrual originated loans outstanding at June 30, 2010 in the second quarter and first quarterhalf of 2010.

The Company had one restructured construction loan of $3.2 million as of June 30, 2011 the first quarter 2010 and the fourth quarter 2010, respectively.

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which was on nonaccrual status. The Company had no restructured loans as of March 31, 2011 and December 31, 2010.
Management believes the overall credit quality of the loan portfolio is reasonably stable; however, 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, 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.

Purchased Covered Loans and Repossessed Loan Collateral (Purchased Covered Assets)

Purchased covered loans and repossessed loan collateral qualify under loss-sharing agreements with the FDIC. Under the terms of the loss-sharing agreements, the FDIC absorbs 80 percent of losses and shares in 80 percent of loss recoveries on the first $269 million in losses on purchased covered assets (“First Tier”), and absorbs 95 percent of losses and shares in 95 percent of loss recoveries if losses on purchased covered assets exceed $269 million (“Second Tier”). The term of the loss-sharing agreement on residential real estate assets is ten years, while the term for loss-sharing on non-residential real estate assets is five years with respect to losses and eight years with respect to loss recoveries.

The purchased covered assets are primarily located in the California Central Valley, including Merced County. This geographic area currently has some of the weakest economic conditions within California and has experienced significant declines in real estate values. Management expects higher loss rates on purchased covered assets than on originated assets.

The Bank recorded purchased covered assets at estimated fair value on the February 6, 2009 acquisition date. The credit risk discount ascribed to the $1.2 billion acquired loan and repossessed loan collateral portfolio was $161 million representing estimated losses inherent in the assets at the acquisition date. The Bank also recorded a related receivable from the FDIC in the amount of $129 million representing estimated FDIC reimbursements under the loss-sharing agreements.

The maximum risk to future earnings if First Tier losses exceed Management’s estimated $161 million in recognized losses under the FDIC loss-sharing agreements follows (dollars in thousands):
First Tier Loss Coverage $269,000 
Less: Recognized credit risk discount  161,203 
Exposure to under-estimated risk within First Tier  107,797 
Bank loss-sharing percentage 20 percent 
First Tier risk to Bank, pre-tax $21,559 
First Tier risk to Bank, after-tax $12,494 

Management has judged the likelihood of experiencing losses of a magnitude to trigger Second Tier FDIC reimbursement as remote. The Bank’s maximum after-tax exposure to Second Tier losses is $17$16 million as of March 31,June 30, 2011, which would be realized only if all covered assets at March 31,June 30, 2011 generated no future cash flows.

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Purchased covered assets have declined since the acquisition date, and losses have been offset against the estimated credit risk discount. Purchased covered assets totaled $681$647 million at March 31,June 30, 2011, net of a credit risk discount of $57$56 million, compared to $715 million at December 31, 2010, net of a credit risk discount of $62 million. Purchased covered assets are evaluated for risk classification without regard to FDIC indemnification such that Management can identify purchased covered assets with potential payment problems and devote appropriate credit administration practices to maximize collections. Purchased covered assets classified without regard to FDIC indemnification totaled $203$192 million and $195 million at March 31,June 30, 2011 and December 31, 2010, respectively. FDIC indemnification limits the Company’s loss exposure to covered classified assets.
In Management’s judgment, the credit risk discount recognized for the purchased assets remains adequate as an estimate of credit risk inherent in purchased covered assets as of March 31, 2011. In the event credit risk deteriorates beyond that estimated by Management, losses in excess of the credit risk discount would be recognized as an expense, net of related FDIC loss indemnification.
Allowance for Credit Losses

The Company’s allowance for credit losses represents Management’s estimate of credit losses inherent in the loan portfolio. In evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments 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. Further, the carrying value of purchased loans includes fair value discounts assigned at the time of purchase under the provisions of FASB ASC 805, Business Combinations, and FASB ASC 310-30, Loans or Debt Securities with Deteriorated Credit Quality. Management determined the credit default fair value discounts assigned to purchased loans remained adequate as an estimate of credit losses inherent in purchased loans as of March 31,June 30, 2011. The allowance for credit losses represents Management’s estimate of credit losses in excess of these principal reductions.

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The Company’sCompany's allowance for credit losses is maintained at a level considered adequateappropriate to provide for losses that can be estimated based upon specific and general conditions. These include conditions unique to individual borrowers, as well as overall credit loss experience, the amount of past due, nonperforming loans and classified loans, FDIC loss-sharing coverage relative to purchased covered loan carrying amounts,indemnification, recommendations of regulatory authorities, prevailing economic conditions and other factors. A portion of the allowance is specifically allocated to impaired loans whose full collectibility is uncertain. Such allocations are determined by Management based on loan-by-loan analyses. A second allocation is based in part on quantitative analyses of historical credit loss experience, in which criticized and classified credit balances identified through an independent internal credit review process are analyzed using a linear regression model to determine standard loss rates. The results of this analysis are applied to current criticized and classified loan balances to allocate the allowance to the respective segments of the loan portfolio. In addition, loans with similar characteristics not usually criticized using regulatory guidelines are analyzed based on the historical loss rates and delinquency trends, grouped by the number of days the payments on these loans are delinquent. Given currently weak economic conditions, Management is applying further analysis to consumer loans. Current levels of indirect automobile loan losses are compared to initial allowance allocations and, based on Management judgment, additional allocations are applied, if needed, to estimatedestimate losses. For residential real estate loans, Management is comparing ultimate loss rates on foreclosed residential real estate properties and applying such loss rates to nonaccrual residential real estate loans. Based on this analysis, Management exercises judgment in allocating additional allowance if deemed appropriate to estimatedestimate losses on residential real estate loans. Last, allocations are made to non-criticized and non-classified commercial and commercial real estate loans based on historical loss rates and other statistical data.

The remainder of the allowance is considered to be unallocated. The unallocated allowance is established to provide for probable losses that have been incurred as of the reporting date but not reflected in the allocated allowance. It addresses additional qualitative factors consistent with Management’sManagement's analysis of the level of risks inherent in the loan portfolio, which are related to the risks of the Company’sCompany's general lending activity. Included in the unallocated allowance is the risk of losses that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in  loan charge-off history (external factors). The external factors evaluated by the Company include: economic and business conditions, external competitive issues, and other factors. Also included in the unallocated allowance is the risk of losses attributable to general attributes of the Company’sCompany's loan portfolio and credit administration (internal factors). The internal factors evaluated by the Company include: loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, concentrations of credit, and other factors. By their nature, these risks are not readily allocable to any specific loan category in a statistically meaningful manner and are difficult to quantify with a specific number. Management assigns a range of estimated risk to the qualitative risk factors described above based on Management’sManagement's judgment as to the level of risk, and assigns a quantitative risk factor from the range of loss estimates to determine the appropriate level of the unallocated portion of the allowance. Management considers the $37.0$35.7 million allowance for credit losses to be adequate as a reserve against originated credit losses inherent in the loan portfolio as of March 31,June 30, 2011.

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The following table presents the allocation of the allowance for credit losses:
                 
  At March 31,  At December 31, 
  2011  2010 
  (In thousands) 
      Originated Loans      Originated Loans 
  Allocation of the  as Percent of Total  Allocation of the  as Percent of Total 
  Allowance Balance  Originated Loans  Allowance Balance  Originated Loans 
Commercial $9,847   23% $9,878   23%
Commercial real estate  10,359   38%  9,607   38%
Real estate construction  2,430   1%  3,559   1%
Real estate residential  377   15%  617   15%
Consumer  4,597   23%  6,982   23%
Unallocated portion  9,404      7,686    
             
Total $37,014   100% $38,329   100%
             

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  At June 30,  At December 31, 
  2011  2010 
  (In thousands) 
     Originated Loans     Originated Loans 
  Allocation of the  as Percent of Total  Allocation of the  as Percent of Total 
  Allowance Balance  Originated Loans  Allowance Balance  Originated Loans 
Commercial $8,501   22% $9,878   23%
Commercial real estate  10,274   38%  9,607   38%
Real estate construction  4,064   1%  3,559   1%
Real estate residential  466   15%  617   15%
Consumer  3,669   24%  6,982   23%
Unallocated portion  8,727   --   7,686   -- 
Total $35,701   100% $38,329   100%
The allocation to loan portfolio segments changed from December 31, 2010 to March 31,June 30, 2011. The decrease in allocation for originated commercial loans was substantially attributable to a decrease in classified originated loans. The increase in allocation for originated commercial real estate loans was substantially attributable to an increaseincreases in classified originated loans partially offset by lower commitments.and impaired originated loans. The decreaseincrease in allocation to originated real estate construction loans reflects first quarter 2011 loan charge-offs.was substantially attributable to increases in classified originated loans and impaired originated loans. The decrease in allocation to originated consumer loans decreased duewas substantially attributable to Management’s judgment regarding the appropriate allocation based on recent charge-offsanticipated levels of originated consumer loan chargeoffs and delinquency trends. The unallocated portion of the allowance for credit losses increased $1.7$1.0 million from December 31, 2010 to March 31,June 30, 2011.

The unallocated allowance is established to provide for probable losses that have been incurred, but not reflected in the allocated allowance. At March 31,June 30, 2011 and December 31, 2010, Management’sManagement's evaluations of the unallocated portion of the allowance for credit losses attributed significant risk levels to developing economic and business conditions ($1.81.7 million and $1.2 million, respectively), external competitive issues ($0.7 million and $0.6 million, respectively), internal credit administration considerations ($1.61.5 million and $1.2 million, respectively), and delinquency and problem loan trends ($2.82.6 million and $2.5 million, respectively). The change in the amounts allocated to the above qualitative risk factors was based upon Management’sManagement's judgment, review of trends in its originated loan portfolio, extent of migration of previously non-criticized originated loans to criticized status, levels of the allowance allocated to portfolio segments, and current economic conditions in its marketplace. Based on Management’sManagement's analysis and judgment, the amount of the unallocated portion of the allowance for credit losses was $9.4$8.7 million at March 31,June 30, 2011, compared to $7.7 million at December 31, 2010.
Asset/Liability and Market Risk Management

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

Interest Rate Risk

Interest rate risk is a significant market risk affecting the Company. Interest rate risk results from many factors. Assets and liabilities may mature or reprice at different times. Assets and liabilities may reprice 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 assets or liabilities may shorten or lengthen as interest rates change. In addition, interest rates may have an impact on loan demand, demand for various deposit products, credit losses, and other sourceselements of earnings such as account analysis fees on commercial deposit accounts and correspondent bank service charges.

In adjusting the Company’sCompany's asset/liability position, 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 general interest rates, the relationship between long and short term interest rates, market conditions and competitive factors, Management may adjust the Company’sCompany's interest rate risk position in order to manage its net interest margin and net interest income. The Company’sCompany's results of operations and net portfolio values remain subject to changes in interest rates and to fluctuations in the difference between long and short term interest rates.

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The Company’s asset and liability position ranged from “neutral” to slightly “asset sensitive” at March 31,June 30, 2011, depending on the interest rate assumptions applied to the simulation model employed by Management to measure interest rate risk. A “neutral” position results in similar amounts of change in interest income and interest expense resulting from application of assumed interest rate changes. A slightly “asset sensitive” position results in a slightly larger increase in interest income than in interest expense resulting from application of assumed interest rate changes. Management’s simulation modeling is currently biased toward rising interest rates. Management continues to monitor the interest rate environment as well as economic conditions and other factors it deems relevant in managing the Company’sCompany's exposure to interest rate risk.

Management assesses interest rate risk by comparing the Company’sCompany's most likely earnings plan with various earnings models using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. For example, using the current composition of the Company’sCompany's balance sheet and assuming no change in the federal funds rate and no change in the 10 year Constant Maturity Treasury Bond yield during the same period, earnings are not estimated to change by a meaningful amount compared to the Company’sCompany's most likely net income plan for the twelve months ending March 31,June 30, 2012. Using the current composition of the Company’sCompany's balance sheet and assuming an increase of 100 basis points (“bp”) in the federal funds rate and an increase of 60 bp in the 10 year Constant Maturity Treasury Bond yield during the same period, earnings are not estimated to change by a meaningful amount compared to the Company’sCompany's most likely net income plan for the twelve months ending March 31,June 30, 2012. Simulation estimates depend on, and will change with, the size and mix of the actual and projected balance sheet at the time of each simulation. In the current operating environment, Management’s objective is to maintain a “neutral” to slightly “asset sensitive” interest rate risk position. 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’sCompany's Board of Directors.

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Market Risk - Equity Markets

Equity price risk can affect the Company. As an example, any preferred or common stock holdings, as permitted by banking regulations, can fluctuate in value. Management regularly assesses the extent and duration of any declines in market value, the causes of such declines, the likelihood of a recovery in market value, and its intent to hold securities until a recovery in value occurs. Declines in value of preferred or common stock holdings that are deemed “other than temporary” could result in loss recognition in the Company’sCompany's income statement.

Fluctuations in the Company’sCompany's common stock price can impact the Company’sCompany's financial results in several ways. First, the Company has regularly repurchased and retired its common stock; the market price paid to retire the Company’sCompany's common stock can affect the level of the Company’s shareholders’Company's shareholders' equity, cash flows and shares outstanding for purposes of computing earnings per share. Second, the Company’sCompany's common stock price impacts the number of dilutive equivalent shares used to compute diluted earnings per share. Third, fluctuations in the Company’sCompany'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. Finally, the amount of compensation expense associated with share based compensation fluctuates with changes in and the volatility of the Company’sCompany's common stock price.

Market Risk - Other

Market values of loan collateral can directly impact the level of loan charge-offs and the provision for loan losses. 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’sCompany's business activities.
Liquidity and Funding

The Company’sCompany's routine sources of liquidity are operating earnings, investment securities, consumer and other loans, deposits, and other borrowed funds. During the first quarterhalf of 2011, the Company’s operating activities generated $32.5$61.8 million in liquidity providing most of the funds to pay common shareholders $10.5$20.9 million in dividends, fund $12.0$31.7 million in stock repurchases and reduce short-term borrowings by $13$15.7 million.
During the first quarterhalf of 2010, operating cash flows provided $35.3$38.0 million. The Company paid $21.1 million to pay for $10.5 million in common shareholder dividends and $4.8used $17.2 million in repurchases ofto repurchase and retire common stock.

During the first quarterhalf of 2010,2011, investment securities provided $61.7$164.8 million in liquidity from paydowns and maturities, to purchase securities of $53.5 million, and loans provided $89.8$146.4 million in liquidity from scheduled payments and maturities, net of loan fundings. OtherFirst half of 2011 liquidity provided most of the funds to purchase securities of $294.9 million and to meet a net reduction in deposits totaling

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$43.8 million. During the first half of 2010, investment securities provided $147.0 million in liquidity from paydowns and maturities to purchase securities of $149.5 million, and loans provided $145.4 million in liquidity from scheduled payments and maturities, net of loan fundings. First half of 2010 liquidity provided funds to meet a net reduction in deposits totaling $168.1 million and a reduction in short-term borrowed funds, primarily FHLB advances which declined $75.2 million. During the first half of 2011, other sources of cash from investing activities include proceeds of $20$5.3 million under FDIC loss-sharing agreements.agreements compared with $29.8 million in the first half of 2010.
The Company projects $62.2$44.5 million in additional liquidity from investment security paydowns and maturities during the three months ending JuneSeptember 30, 2011. At March 31,June 30, 2011, $280.6$327.4 million in residential collateralized mortgage obligations (“CMOs”) and residential mortgage backed securities (“MBSs”) were held in the Company’sCompany's investment portfolios. None of the CMOs or MBSs are backed by sub-prime mortgages. The residential CMOs and MBSs provided $31.2$20.7 million in liquidity from paydowns during the three months ended March 31,June 30, 2011. At March 31,June 30, 2011, indirect automobile loans totaled $405.0$417.1 million, which were experiencing stable monthly principal payments of approximately $16.5$16.3 million during the firstsecond quarter of 2011.

The Company held $1.3$1.4 billion in total investment securities at March 31,June 30, 2011. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At March 31,June 30, 2011, such collateral requirements totaled approximately $883.1$880.6 million. At March 31,June 30, 2011, $741.6$705.1 million of the Company’sCompany's investment securities were classified as “available-for-sale”, and as such, could provide additional liquidity if sold, subject to the Company’sCompany's ability to meet continuing collateral requirements.

In addition, at March 31,June 30, 2011, the Company had customary lines for overnight borrowings from other financial institutions in excess of $700 million, under which $-0- millionnone was outstanding. Additionally, the Company has access to borrowing from the Federal Reserve. The Company’sCompany's short-term debt rating from Fitch Ratings is F1. The Company’sCompany's long-term debt rating from Fitch Ratings is A with a stable outlook. Management expects the Company could access additional long-term debt financing if desired. In Management’sManagement's judgment, the Company’sCompany's liquidity position is strong and asset liquidations or additional long-term debt are considered unnecessary to meet the ongoing liquidity needs of the Company.

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The Company’s short-term borrowed funds primarily represent customer depository funds transferred to borrowings under repurchase agreements the Bank enters with its customers who desire additional yield. Such repurchase agreements are collateralized with the Bank’s investment securities. Fluctuations in the balance of short-term borrowings is affected by Bank customers’ liquidity levels, rates offered by the Bank on repurchase agreements relative to competitive financial instruments, and other factors. Short-term borrowed funds averaged $107 million during the six months ended June 30, 2011.

The Company anticipates maintaining its cash levels in the remainder of 2011. Loan demand from credit-worthy borrowers  will be dictated by economic and competitive conditions in the remainder of 2011. The Company 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 deposit balances is subject to heightened competition, the success of the Company’sCompany's sales efforts, delivery of superior customer service, new regulations and market conditions. Changes in interest rates, most notably rising interest rates, could impact deposit volumes in the future. Depending on economic conditions, interest rate levels, and a variety of other conditions, deposit growth may be used to fund loans, to reduce borrowings or purchase investment securities. However, due to concerns such as uncertainty in the general economic environment, competition and political uncertainty, loan demand and levels of customer deposits are not certain. Shareholder dividends are expected to continue subject to the Board’sBoard's discretion and continuing evaluation of capital levels, earnings, asset quality and other factors.

Westamerica Bancorporation (“("Parent Company”Company") is a separate entity and apart from Westamerica Bank (“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 outstanding debt. Substantially all of the Parent Company’sCompany's revenues are obtained from subsidiary dividends and service fees. Payment of dividends to the Parent Company by the Bank is limited under California law. The amount that can be paid in any calendar year, without prior approval from the state regulatory agency, cannot exceed the net profits (as defined) for the preceding three calendar years less distributions in that period. The Company believes that such restriction will not have an impact on the Parent Company’sCompany's ability to meet its ongoing cash obligations.

Capital Resources

The Company has historically generated high levels of earnings, which provides a means of raising capital. The Company’sCompany's net income as a percentage of average common equity (“return on common equity” or “ROE”) was 16.6%16.1% (annualized) in the first quarterhalf of 2011, 18.1% in 2010 and 25.8% in 2009. The Company also raises capital as employees exercise stock options, which are awarded as a part of the Company’sCompany's executive compensation programs to reinforce shareholders’shareholders' interests in the

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Management of the Company. Capital raised through the exercise of stock options totaled $3.0$3.3 million in the first quarterhalf of 2011, $16.7 million in 2010 and $9.6 million in 2009.
The Company paid dividends totaling $10.5$20.9 million in the first quarterhalf of 2011, $42.1 million in 2010 and $41.1 million in 2009, which represent dividends per share of $0.36,$0.72, $1.44 and $1.41, respectively. The Company’sCompany's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends gives the Company resources to finance growth and maintain appropriate levels of shareholders’shareholders' equity. In the absence of profitable growth opportunities, the Company has repurchased and retired its common stock as another means to return capital to shareholders. The Company repurchased and retired 239640 thousand shares of common stock valued at $12.0$31.7 million in the first quarterhalf of 2011, 533 thousand shares valued at $28.7 million in 2010 and 42 thousand shares valued at $2.0 million in 2009. Share repurchases were restricted to amounts conducted in coordination with employee benefit programs under the terms of the February 13, 2009 issuance of preferred stock to the Treasury; such restrictions were removed with full redemption of the preferred stock in November 2009.

The Company’sCompany's primary capital resource is shareholders’shareholders' equity, which increased $5.6$4.1 million or 1.0%0.7% during the first quarterhalf of 2011 primarily due to $22.4$43.7 million in net income, and $3.0$3.3 million in issuance of stock in connection with exercises of employee stock options and an $8.1 million increase in unrealized gains on securities available for sale, offset by $10.5$20.9 million in dividends paid and $12.0$31.7 million in stock repurchases.

Capital to Risk-Adjusted Assets

The following summarizes the regulatory ratios of capital to risk-adjusted assets for the Company on the dates indicated:
                     
              Minimum  Well-capitalized 
  At March 31,  At December 31,  Regulatory  by Regulatory 
  2011  2010  2010  Requirement  Definition 
                     
Tier I Capital  14.47%  13.91%  14.21%  4.00%  6.00%
Total Capital  15.79%  15.21%  15.50%  8.00%  10.00%
Leverage ratio  8.68%  8.21%  8.44%  4.00%  5.00%

           Minimum  Well-capitalized 
  At June 30,  At December 31,  Regulatory  by Regulatory 
  2011  2010  2010  Requirement  Definition 
                
Tier I Capital  14.58%  14.42%  14.21%  4.00%  6.00%
Total Capital  15.88%  15.72%  15.50%  8.00%  10.00%
Leverage ratio  8.57%  8.53%  8.44%  4.00%  5.00%

The risk-basedCompany’s regulatory capital ratios declined from June 30, 2010 to December 31, 2010 as the Bank utilized excess capital to finance the acquisition of Sonoma assets on August 20, 2010. The Company’s regulatory capital ratios increased at March 31, 2011 compared with March 31, 2010, due to higher retained earnings, partially offset by an increase in risk-weighted assets. The risk-based capital ratios increased at March 31, 2011, compared withfrom December 31, 2010 to June 30, 2011 due to increased retained earnings and a decreasedecline in risk-weighted assets. As described in Note 10, the Company intends to retire a $10 million subordinated note in August 2011. Such debt qualifies as regulatory capital. Management intends to use cash earnings to retire the debt. FDIC-covered assets are included in the 20% risk-weight category until the loss-sharing agreements terminate; the residential loss-sharing agreement expires February 6, 2019 and the non-residential loss-sharing agreement expires (as to losses) February 6, 2014.

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The following summarizes the regulatory ratios of capital to risk-adjusted assets for the Bank on the dates indicated:
                     
              Minimum  Well-capitalized 
  At March 31,  At December 31,  Regulatory  by Regulatory 
  2011  2010  2010  Requirement  Definition 
                     
Tier I Capital  13.99%  13.65%  13.87%  4.00%  6.00%
Total Capital  15.48%  15.14%  15.33%  8.00%  10.00%
Leverage ratio  8.35%  8.01%  8.19%  4.00%  5.00%

           Minimum  Well-capitalized 
  At June 30,  At December 31,  Regulatory  by Regulatory 
  2011  2010  2010  Requirement  Definition 
                
Tier I Capital  14.23%  13.90%  13.87%  4.00%  6.00%
Total Capital  15.75%  15.38%  15.33%  8.00%  10.00%
Leverage ratio  8.32%  8.17%  8.19%  4.00%  5.00%

The risk-basedBank’s regulatory capital ratios remained steady from June 30, 2010 to December 31, 2010; the Bank retained its earnings from the third quarter 2010, rather than paying a dividend to the Company, and utilized the increased capital to finance the acquisition of Sonoma assets on August 20, 2010. The Bank’s regulatory capital ratios increased at March 31, 2011, compared with March 31, 2010 due to higher retained earnings, partially offset by an increase in risk-weighted assets. The risk-based capital ratios increased at March 31, 2011, compared withfrom December 31, 2010 to June 30, 2011 due to increased retained earnings and a decreasedecline in risk-weighted assets.

The Company and the Bank intend to maintain regulatory capital in excess of the highest regulatory standard, referred to as “well capitalized.” The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, securities valuations, 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 to maintain regulatory capital

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levels exceeding the “well capitalized” standard and pay quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be undertaken with the approval of the Company’sCompany's Board of Directors. Interest rate risk as discussed above is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange risk, equity price risk and commodity price risk, are not significant in the normal course of the Company’sCompany's business activities.

Item 4.
Controls and Procedures
Item 4. Controls and Procedures

The Company’sCompany's principal executive officer and principal financial officer have evaluated the effectiveness of the Company’sCompany'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 March 31,June 30, 2011. Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’sCompany's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and are effective in ensuring that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to Management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. The evaluation did not identify any change in the Company’sCompany's internal control over financial reporting that occurred during the quarter ended March 31,June 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
Item 1. Legal Proceedings

Due to the nature of its business, the Company is subject to various threatened or filed legal cases resulting from loan collection efforts, transaction processing for deposit accounts including the order of posting transactions and the assessment of overdraft fees, and employment practices. Like many banks, the Bank is a defendant in a lawsuit alleging it improperly assessed  overdraft fees on deposit accounts due to the order in which it processed payments against such deposit accounts. The Bank has reached a preliminary mediated settlement of this matter which is subject to court approval. The Company establishes a liability for contingent litigation losses for any legal matter when payments associated with the claims become probable and the costs can be reasonably estimated. The Bank has accrued a liability for the preliminary mediated settlement. Legal costs related to covered assets are eighty percent indemnified under loss-sharing agreements with the FDIC if certain conditions are met.

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Item 1A.
Risk Factors
Item 1A. Risk Factors

The Company’s Form 10-K as of December 31, 2010 includes detailed disclosure about the risks faced by the Company’s business; such risks have not materially changed since the Form 10-K was filed, except as described below:

Japanese Disaster

During the first quarter 2011, Japan experienced a devastating earthquake and resultant tsunami. The tsunami reached the California coastline, but caused limited damage. The Company’s loan customers are generally small businesses and professionals whose business activities are primarily located in Northern and Central California. These customers in the aggregate have some, but not a significant amount of reliance on trade with Asian countries. Management does not expect any significant impact on the Company’s financial results due to this disaster. However, additional shocks could occur, including, but not limited to harmful radiation from the damaged nuclear power plants. Further, economic imbalances are likely to exist such as heightened demand for non-nuclear sources of energy for Japan, supply chain disruptions affecting international manufacturing processes, food shortages, demand for liquidity, and other possible repercussions. These imbalances could affect asset values such as, but not limited to, investment securities, energy and commodities. Significant changes in assets values could impact the financial condition of the Company.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Previously reported on Form 8-K.
(b) None
(c) Issuer Purchases of Equity Securities

The table below sets forth the information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of common stock during the quarter ended March 31,June 30, 2011.
                 
          (c)  (d) 
          Total Number  Maximum Number 
          of Shares  of Shares that May 
  (a)  (b)  Purchased as Part of  Yet Be Purchased 
  Total Number of  Average Price  Publicly Announced  Under the Plans 
Period Shares Purchased  Paid per Share  Plans or Programs*  or Programs 
  (In thousands, except per share data) 
January 1 through January 31  45  $50.48   45   1,822 
February 1 through February 28  104   50.39   104   1,718 
March 1 through March 31  90   50.57   90   1,628 
             
Total  239  $50.47   239   1,628 
             
*Includes 1 thousand, 5 thousand and 5 thousand shares purchased in January, February and March, respectively, by the Company in private transactions with the independent administrator of the Company’s Tax Deferred Savings/Retirement Plan (ESOP). The Company includes the shares purchased in such transactions within the total number of shares authorized for purchase pursuant to the currently existing publicly announced program.
Period
(a)
Total Number of
Shares Purchased
(b)
Average Price
Paid per Share
(c)
Total 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 per share data)
     
April 1
through
April 30
71$50.27711,557
May 1
through
May 31
12849.801281,429
June 1
through
June 30
20248.072021,227
Total401$49.014011,227
* Includes 4 thousand, 5 thousand and 8 thousand shares purchased in April, May and June, respectively, by the Company in private transactions with the independent administrator of the Company's Tax Deferred Savings/Retirement Plan (ESOP). The Company includes the shares purchased in such transactions within the total number of shares authorized for purchase pursuant to the currently existing publicly announced program.

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 to meet stock performance, option plans, and other ongoing requirements.

Shares were repurchased during the firstsecond quarter of 2011 pursuant to a program approved by the Board of Directors on August 26, 2010, authorizing the purchase of up to 2 million shares of the Company’s common stock from time to time prior to September 1, 2011.

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Item 3.
Defaults upon Senior Securities
Item 3. Defaults upon Senior Securities

None

Item 4.
Reserved
Item 4. Reserved

Item 5.
Other Information
Item 5. Other Information
(a)Submission
In light of Matters to a Vote of Security Holders
Proxies for the Annual Meetingvote of shareholders held on Aprilthe issue at the 2011 annual meeting, on July 28, 2011, were solicited pursuant Regulation 14Athe Company’s Board of Directors adopted a resolution to include an annual non-binding shareholder vote regarding compensation for named executive officers in the Securities Exchange Act of 1934. Company’s annual proxy.

Item 6. Exhibits

The Report of Inspector of election indicates that 25,595,099 shares ofexhibit list required by this item is incorporated by reference to the Common Stock of the Company, out of 29,009,907 shares outstanding on the February 28, 2011 record date, were present, in person or by proxy, at the meeting. The following matters were submitted to a vote of the shareholders:Exhibit Index filed with this report.
1. Election of Directors:
                 
Nominee For  Withheld  Non-Votes  Uncast 
Etta Allen  21,251,050   125,789   4,218,260   0 
Louis E. Bartolini  21,258,106   118,102   4,218,260   630 
E.Joseph Bowler  20,012,819   1,364,020   4,218,260   0 
Arthur C. Latno, Jr.  18,551,866   2,824,973   4,218,260   0 
Patrick D. Lynch  21,258,802   118,036   4,218,260   0 
Catherine C. MacMillan  21,267,903   108,936   4,218,260   0 
Ronald A. Nelson  21,272,342   104,497   4,218,260   0 
David L. Payne  20,973,142   403,693   4,218,260   3 
Edward B. Sylvester  21,223,963   152,875   4,218,260   0 
2. Approval of Selection of KPMG as Company’s Independent Auditors for Fiscal Year 2011
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For Against Abstain Non-Votes Uncast
25,118,343 149,734 327,022 0 0

3. Approval of a Non-Binding Advisory Vote on Executive Compensation
         
For Against Abstain Non-Votes Uncast
20,821,827 232,668 322,343 4,218,260 0
SIGNATURES
4. Approval of a Non-Binding Advisory Vote on the frequency of the advisory vote on executive compensation
           
Every year Every 2 years Every 3 years Abstain Non-Votes Uncast
13,001,244 367,019 7,420,881 587,694 4,218,260 0
Item 6.
Exhibits
Exhibit 31.1:Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2:Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1:Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2:Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
WESTAMERICA BANCORPORATION
(Registrant)
/s/ JOHN “ROBERT” THORSON
John “Robert” Thorson
Senior Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)

WESTAMERICA BANCORPORATION
(Registrant)



/s/ JOHN "ROBERT" THORSON
John "Robert" Thorson
Senior Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)

Date: MayAugust 2, 2011


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Exhibit 31.1:Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2:Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1:Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2:Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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

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

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



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