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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)                  

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

For the quarterly period ended June 30, 2025

 

or

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from __________ to __________.     

                                               

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

California 94-2156203

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

1108 FIFTH AVENUE, SAN RAFAEL, California 94901

(Address of Principal Executive Offices) (Zip Code)

 

Registrant's Telephone Number, Including Area Code (707) 863-6000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

WABC

The Nasdaq Stock Market, LLC

 

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.

 

Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Yes ☑ No ☐

                                                                                  

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

 

Large accelerated filer ☑

Accelerated filer ☐

 Non-accelerated filer ☐  

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

 

Title of Class

Common Stock,

No Par Value

Shares outstanding as of July 31, 2025

25,461,854

 

 
 

  

 

TABLE OF CONTENTS

 

 

 

 Page   

Forward Looking Statements

3
PART I - FINANCIAL INFORMATION     4
Item 1

Financial Statements

4
 

Notes to Unaudited Consolidated Financial Statements

9
Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

31
Item 3

Quantitative and Qualitative Disclosures about Market Risk

55
Item 4

Controls and Procedures

55

PART II - OTHER INFORMATION

 55
Item 1

Legal Proceedings

55
Item 1A

Risk Factors

55
Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

55
Item 3

Defaults upon Senior Securities 

56
Item 4

Mine Safety Disclosures 

56
Item 5

Other Information

56
Item 6

Exhibits

56

Signatures

57

 

 

 
- 2 -
 

 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, future credit quality and performance, the appropriateness of the allowance for credit losses, loan growth or reduction, mitigation of risk in the Company’s loan and investment securities portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, stock repurchases, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", “estimates”, "intends", "targeted", "projected", “forecast”, "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

These forward-looking statements are based on the current knowledge and belief of the management (“Management”) of Westamerica Bancorporation (the “Company”) and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated.

 

These factors include but are not limited to (1) the length and severity of any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset values 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 civil unrest, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate environment and monetary policy; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments, particularly the impact of rising interest rates on the Company’s securities portfolio; (11) asset/liability management risks; (12) liquidity risks including the impact of recent adverse developments in the banking industry; (13) the effect of climate change, natural disasters, including earthquakes, hurricanes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (14) changes in the securities markets; (15) the impacts of tariffs, sanctions and trade policies of the United States and its global trading partners and uncertainty regarding the same; (16) inflation and (17) the outcome of contingencies, such as legal proceedings. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.

 

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to Part II – Item 1A “Risk Factors” of this report and other risk factors discussed elsewhere in the Company's annual report on Form 10-K for the year ended December 31, 2024, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.

 

 

- 3 -
 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1 Financial Statements

 

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  

Assets:

                

Cash and due from banks

   $ 626,437     $ 601,494  

Debt securities available for sale

     3,226,449       3,395,810  

Debt securities held to maturity, net of allowance for credit losses of

$1 at June 30, 2025 and December 31, 2024 (Fair value of $817,719 at June 30, 2025 and $807,838 at December 31, 2024)

     834,439       844,634  

Loans

     748,264       820,300  

Allowance for credit losses on loans

     (13,787 )     (14,780 )

Loans, net of allowance for credit losses on loans

     734,477       805,520  

Premises and equipment, net

     25,850       26,133  

Identifiable intangibles, net

     19       125  

Goodwill

     121,673       121,673  

Other assets

     255,725       280,885  

Total Assets

   $ 5,825,069     $ 6,076,274  
                 

Liabilities:

                

Noninterest-bearing deposits

   $ 2,175,841     $ 2,333,389  

Interest-bearing deposits

     2,571,694       2,678,461  

Total deposits

     4,747,535       5,011,850  

Securities sold under repurchase agreements

     101,210       120,322  

Other liabilities

     54,541       54,145  

Total Liabilities

     4,903,286       5,186,317  
                 
Contingencies (Note 10)                
                 

Shareholders' Equity:

                
Common stock and additional paid-in-capital                

Common stock (no par value), authorized: 150,000 shares issued and outstanding: 25,587 at June 30, 2025 and 26,708 at December 31, 2024

     456,929       476,471  

Deferred compensation

     35       35  

Accumulated other comprehensive loss

     (116,747 )     (168,104 )

Retained earnings

     581,566       581,555  

Total Shareholders' Equity

     921,783       889,957  

Total Liabilities and Shareholders' Equity

   $ 5,825,069     $ 6,076,274  

 

See accompanying notes to unaudited consolidated financial statements.

                

 

- 4 -
 
 

 

WESTAMERICA BANCORPORATION

  

CONSOLIDATED STATEMENTS OF INCOME

  

(Unaudited)

  
                                   
     

For the Three Months

    

For the Six Months

  
     

Ended June 30,

  
     

2025

    

2024

    

2025

    

2024

  
     

(In thousands, except per share data)

  

Interest and Loan Fee Income:

                                

Loans

   $ 10,523     $ 11,354     $ 21,192     $ 22,678  

Equity securities

     195       175       390       349  

Debt securities available for sale

     31,028       43,927       64,458       90,170  

Debt securities held to maturity

     8,448       8,655       16,942       17,377  

Interest-bearing cash

     7,273       4,961       13,976       7,244  

Total Interest and Loan Fee Income

     57,467       69,072       116,958       137,818  

Interest Expense:

                                  

Deposits

     3,045       2,460       6,274       4,566  

Bank Term Funding Program borrowings

     -       2,692       -       3,535  

Securities sold under repurchase agreements

     144       155       311       207  
 Total Interest Expense     3,189       5,307       6,585       8,308  

Net Interest and Loan Fee Income

     54,278       63,765       110,373       129,510  

(Reversal of) Provision for Credit Losses

     -       -       (550 )     300  

Net Interest and Loan Fee Income After

                                

(Reversal of) Provision for Credit Losses

     54,278       63,765       110,923       129,210  

Noninterest Income:

                                  

Service charges on deposit accounts

     3,368       3,469       6,749       6,939  

Merchant processing services

     2,687       2,733       5,420       5,240  

Debit card fees

     1,664       1,706       3,245       3,249  

Trust fees

     867       811       1,766       1,605  

ATM processing fees

     482       540       945       1,131  

Other service fees

     450       450       879       888  

Bank owned life insurance gains

     106       -       208       -  

Other noninterest income

     691       791       1,424       1,545  
Total Noninterest Income     10,315       10,500       20,636       20,597  

Noninterest Expense:

                                  

Salaries and related benefits

     12,303       12,483       24,429       25,069  

Occupancy and equipment

     5,154       5,158       10,192       10,198  

Outsourced data processing services

     2,709       2,511       5,406       5,047  

Limited partnership operating losses

     915       1,440       1,830       2,880  

Courier service

     687       686       1,375       1,335  

Professional fees

     386       362       781       764  

Other noninterest expense

     3,375       3,490       6,643       6,936  
Total Noninterest Expense     25,529       26,130       50,656       52,229  

Income Before Income Taxes

     39,064       48,135       80,903       97,578  

Provision for income taxes

     9,998       12,673       20,800       25,699  

Net Income

   $ 29,066     $ 35,462     $ 60,103     $ 71,879  
                                   

Average Common Shares Outstanding

     25,889       26,680       26,263       26,677  

Average Diluted Common Shares Outstanding

     25,889       26,681       26,263       26,678  

Per Common Share Data:

                                  

Basic earnings

   $ 1.12     $ 1.33     $ 2.29     $ 2.69  

Diluted earnings

     1.12       1.33       2.29       2.69  

Dividends paid

     0.46       0.44       0.90       0.88  

 

See accompanying notes to unaudited consolidated financial statements.

                                

 

- 5 -
 
 

 

WESTAMERICA BANCORPORATION

  

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  

(Unaudited)

  
                                 
   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands)

  

Net income

   $ 29,066     $ 35,462     $ 60,103     $ 71,879  

Other comprehensive income (loss):

                                

Changes in net unrealized losses on debt securities available for sale

     28,424       (629 )     72,913       (9,964 )

Deferred tax (expense) benefit

     (8,403 )     186       (21,556 )     2,946  

Changes in net unrealized losses on debt securities available for sale, net of tax

     20,021       (443 )     51,357       (7,018 )

Total comprehensive income

   $ 49,087     $ 35,019     $ 111,460     $ 64,861  

 

See accompanying notes to unaudited consolidated financial statements.

                                

 

 

- 6 -
 
 

 

WESTAMERICA BANCORPORATION

  

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

  

(Unaudited)

  
                                                 
           

Common

            

Accumulated

                  
   

Common

    

Stock and

            

Other

                  
   

Shares

    

Additional

    

Deferred

    

Comprehensive

    

Retained

          
   

Outstanding

    

Paid-in Capital

    

Compensation

    

(Loss) Income

    

Earnings

    

Total

  
   

(In thousands except dividend per share)

  

Balance, March 31, 2025

     26,360     $ 470,809     $ 35     $ (136,768 )   $ 589,062     $ 923,138  

Net income for the period

                                     29,066       29,066  

Other comprehensive income

                             20,021               20,021  

Stock based compensation

     -       300                               300  

Stock awarded to employees

     -       9                               9  

Excise tax on net common stock

                                                

Repurchase

             (384 )                             (384 )

Retirement of common stock

     (773 )     (13,805 )                     (24,542 )     (38,347 )

Dividends ($0.46 per share)

                                     (12,020 )     (12,020 )

Balance, June 30, 2025

     25,587     $ 456,929     $ 35     $ (116,747 )   $ 581,566     $ 921,783  
                                                 

Balance, December 31, 2024

     26,708     $ 476,471     $ 35     $ (168,104 )   $ 581,555     $ 889,957  

Net income for the period

                                     60,103       60,103  

Other comprehensive income

                             51,357               51,357  

Restricted stock activity

     12       623                               623  

Stock based compensation

     -       600                               600  

Stock awarded to employees

     1       50                               50  

Excise tax on net common stock

                                                

Repurchase

             (563 )                             (563 )

Retirement of common stock

     (1,134 )     (20,252 )                     (36,320 )     (56,572 )

Dividends ($0.90 per share)

                                     (23,772 )     (23,772 )

Balance, June 30, 2025

     25,587     $ 456,929     $ 35     $ (116,747 )   $ 581,566     $ 921,783  
                                                 

Balance, March 31, 2024

     26,678     $ 473,954     $ 35     $ (196,857 )   $ 514,559     $ 791,691  

Net income for the period

                                     35,462       35,462  

Other comprehensive loss

                             (443 )             (443 )

Exercise of stock options

     5       203                               203  

Stock based compensation

     -       409                               409  

Stock awarded to employees

     -       17                               17  

Dividends ($0.44 per share)

                                     (11,739 )     (11,739 )

Balance, June 30, 2024

     26,683     $ 474,583     $ 35     $ (197,300 )   $ 538,282     $ 815,600  
                                                 

Balance, December 31, 2023

     26,671     $ 473,136     $ 35     $ (190,282 )   $ 490,005     $ 772,894  

Net income for the period

                                     71,879       71,879  

Other comprehensive loss

                             (7,018 )             (7,018 )

Exercise of stock options

     5       203                               203  

Restricted stock activity

     11       505                               505  

Stock based compensation

     -       773                               773  

Stock awarded to employees

     -       48                               48  

Retirement of common stock

     (4 )     (82 )                     (128 )     (210 )

Dividends ($0.88 per share)

                                     (23,474 )     (23,474 )

Balance, June 30, 2024

     26,683     $ 474,583     $ 35     $ (197,300 )   $ 538,282     $ 815,600  

 

See accompanying notes to unaudited consolidated financial statements

 

- 7 -
 
 

 

WESTAMERICA BANCORPORATION

  

CONSOLIDATED STATEMENTS OF CASH FLOWS

  

(Unaudited)

  
   

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

  
   

(In thousands)

  

Operating Activities:

                

Net income

   $ 60,103     $ 71,879  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation and amortization/accretion

     4,221       5,816  

(Reversal of) provision for credit losses

     (550 )     300  

Stock option compensation expense

     600       773  

Amortization of deferred loan cost (fees)

     161       (306 )

Bank owned life insurance gains

     (208 )     -  

Net change in:

                

Interest income receivable

     4,435       4,234  

Income taxes payable

     (376 )     (11,555 )

Deferred income taxes

     4,465       3,000  

Other assets

     (56 )     (48 )

Interest expense payable

     141       3,711  

Other liabilities

     (7,025 )     (6,558 )

Net Cash Provided by Operating Activities

     65,911       71,246  
                 

Investing Activities:

                

Net repayments of loans

     71,432       33,851  

Proceeds from bank owned life insurance policies

     904       -  

Purchases of debt securities available for sale

     (88,992 )     (4,767 )

Proceeds from maturity/calls of debt securities available for sale

     327,019       299,754  

Proceeds from maturity/calls of debt securities held to maturity

     13,374       20,612  

Purchases of premises and equipment

     (934 )     (583 )

Net Cash Provided by Investing Activities

     322,803       348,867  
                 

Financing Activities:

                

Net change in:

                

Deposits

     (264,315 )     (342,827 )

Short-term borrowings

     (19,112 )     242,005  

Exercise of stock options

     -       203  

Retirement of common stock

     (56,572 )     (210 )

Common stock dividends paid

     (23,772 )     (23,474 )

Net Cash Used in Financing Activities

     (363,771 )     (124,303 )

Net Change in Cash and Due from Banks

     24,943       295,810  

Cash and Due from Banks at Beginning of Period

     601,494       190,314  

Cash and Due from Banks at End of Period

   $ 626,437     $ 486,124  
                 

Supplemental Cash Flow Disclosures:

                

Supplemental disclosure of non cash activities:

                

Right-of-use assets acquired in exchange for operating lease liabilities

   $ 5,360     $ 2,970  

Securities purchases pending settlement

     -       9,051  

Supplemental disclosure of cash flow activities:

                

Cash paid for amounts included in operating lease liabilities

     3,271       3,269  

Interest paid for the period

     6,444       4,597  

Income tax payments for the period

     16,710       34,255  

 

See accompanying notes to unaudited consolidated financial statements.

                

 

- 8 -
 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1: Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. 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 June 30, 2025 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's Annual Report on Form 10-K for the year ended December 31, 2024.

 

 

Note 2: Accounting Policies         

 

The most significant accounting policies followed by the Company are presented 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, 2024. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions. Certain risks, uncertainties and other factors, including those discussed in “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q.

 

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, the impacts of tariffs, international trade tensions, and climate changes on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities. These recent events and concerns could adversely affect the Company’s ability to effectively fund its operations. Any one or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects. The extent of the impact on the Company’s results of operations, cash flow, liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted. Furthermore, the effects could have a material impact on the Company’s results of operations and heighten many of the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

 

Application of accounting principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants a writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair value is generally determined based on an exit price at which an asset or liability could be exchanged in a current transaction, other than in a forced or liquidation sale. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. Certain amounts in previous periods have been reclassified to conform to current presentation.

 

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

 

- 9 -
 

  

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

 

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

 

To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated in a manner like that used for loans held for investment. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit loss on each security in the held-to-maturity portfolio that does not share common risk characteristics with any of the pools of debt securities is individually evaluated and a reserve for credit losses is established based on the Company’s consideration of the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero. Therefore, for those securities, the Company does not record expected credit losses.

 

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

 

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

 

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

 

Nonmarketable Equity Securities. Nonmarketable equity securities include securities that are not publicly traded, such as Visa Class B-1 common stock, and securities acquired to meet regulatory requirements, such as Federal Reserve Bank stock, which are restricted. These restricted securities are accounted for under the cost method and are included in other assets. The Company reviews those assets accounted for under the cost method at least quarterly. The Company’s review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its business model and any exit strategy. When the review indicates that impairment exists the asset value is reduced to fair value. The Company recognizes the estimated loss in noninterest income. See Note 6 to the unaudited consolidated financial statements for additional information related to nonmarketable equity securities.

 

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

 

- 10 -
 

  

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

 

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

 

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

 

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

 

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

 

- 11 -
 

  

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

 

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

 

Operating Segments. While the chief decision maker monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

Recently Adopted Accounting Standards

 

FASB ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, was issued November 27, 2023. The ASU requires disclosure of certain significant segment expenses and other items, the title and position of the chief operating decision maker and information about how the reported measures of segment profit or loss are used in assessing segment performance. The ASU became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

Recently Issued Accounting Standards

 

FASB ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, was issued December 14, 2023. The ASU enhances the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The ASU primarily requires additional disclosures as part of the reconciliation of the effective tax rate to statutory tax rate, the amount of income taxes paid, net of refunds received, and income tax expense disaggregated between federal and state jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

 

FASB ASU 2024-03, Income Statement - Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, was issued November 4, 2024. The amendments are intended to improve income statement expense disclosure requirement, primarily through enhanced disclosures about certain costs and expenses included in income statement expense captions. The amendments are effective for annual reporting periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the amendments on our financial statement disclosures upon adoption.

 

 

Note 3: Investment Securities

 

The Company uses its investment securities portfolio to manage interest rate risk, provide liquidity (including the ability to meet regulatory requirements), generate interest and dividend income, and as collateral for public deposits and wholesale funding sources. The Company’s investment securities portfolio includes debt securities classified as held to maturity and available for sale. While the Company intends to hold its investment securities to maturity, it may sell available for sale investment securities in response to structural changes in the balance sheet and related interest rate risk and to meet liquidity requirements, among other factors.

 

- 12 -
 

  

An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of accumulated other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, before allowance for credit losses of $1 thousand at June 30, 2025 and December 31, 2024, follows. In accordance with GAAP, unrealized gains and losses on held to maturity securities have not been recognized in the Company’s financial statements.

 

   

At June 30, 2025

  
           

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Fair

  
   

Cost

    

Gains

    

Losses

    

Value

  
   

(In thousands)

  

Debt securities available for sale:

                                

Agency residential mortgage-backed securities ("MBS")

   $ 208,198     $ 1     $ (12,921 )   $ 195,278  

Agency commercial MBS

     95,966       364       (65 )     96,265  

Securities of U.S. Government sponsored entities

     312,417       27       (10,541 )     301,903  

Obligations of states and political subdivisions

     61,987       8       (1,160 )     60,835  

Corporate securities

     1,931,579       -       (139,558 )     1,792,021  

Collateralized loan obligations

     782,050       385       (2,288 )     780,147  

Total debt securities available for sale

     3,392,197       785       (166,533 )     3,226,449  

Debt securities held to maturity:

                                

Agency residential MBS

     49,878       23       (2,887 )     47,014  

Obligations of states and political subdivisions

     45,716       8       (131 )     45,593  

Corporate securities

     738,846       1,162       (14,896 )     725,112  

Total debt securities held to maturity

     834,440       1,193       (17,914 )     817,719  

Total

   $ 4,226,637     $ 1,978     $ (184,447 )   $ 4,044,168  

 

 

   

At December 31, 2024

  
           

Gross

    

Gross

          
   

Amortized

    

Unrealized

    

Unrealized

    

Fair

  
   

Cost

    

Gains

    

Losses

    

Value

  
   

(In thousands)

  

Debt securities available for sale:

                                

Agency residential MBS

   $ 229,050     $ 1     $ (17,991 )   $ 211,060  

Agency commercial MBS

     7,098       -       (132 )     6,966  

Securities of U.S. Government sponsored entities

     311,201       1       (19,085 )     292,117  

U.S. Treasury Securities

     4,945       10       -       4,955  

Obligations of states and political subdivisions

     63,878       9       (1,701 )     62,186  

Corporate securities

     2,031,144       127       (195,334 )     1,835,937  

Collateralized loan obligations

     987,155       642       (5,208 )     982,589  

Total debt securities available for sale

     3,634,471       790       (239,451 )     3,395,810  

Debt securities held to maturity:

                                

Agency residential MBS

     57,927       23       (4,218 )     53,732  

Obligations of states and political subdivisions

     51,261       12       (377 )     50,896  

Corporate securities

     735,447       -       (32,237 )     703,210  

Total debt securities held to maturity

     844,635       35       (36,832 )     807,838  

Total

   $ 4,479,106     $ 825     $ (276,283 )   $ 4,203,648  

 

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- 13 -
 

  

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

 

   

At June 30, 2025

  
   

Debt Securities Available

    

Debt Securities Held

  
   

for Sale

    

to Maturity

  
   

Amortized

    

Fair

    

Amortized

    

Fair

  
   

Cost

    

Value

    

Cost

    

Value

  
   

(In thousands)

  

Maturity in years:

                                

1 year or less

   $ 126,847     $ 126,010     $ 26,288     $ 26,218  

Over 1 to 5 years

     1,207,932       1,150,997       400,042       399,891  

Over 5 to 10 years

     971,204       877,752       358,232       344,596  

Subtotal

     2,305,983       2,154,759       784,562       770,705  

Collateralized loan obligations

     782,050       780,147       -       -  

Agency residential MBS

     208,198       195,278       49,878       47,014  

Agency commercial MBS

     95,966       96,265       -       -  

Total

   $ 3,392,197     $ 3,226,449     $ 834,440     $ 817,719  

 

 

   

At December 31, 2024

  
   

Debt Securities Available

    

Debt Securities Held

  
   

for Sale

    

to Maturity

  
   

Amortized

    

Fair

    

Amortized

    

Fair

  
   

Cost

    

Value

    

Cost

    

Value

  
   

(In thousands)

  

Maturity in years:

                                

1 year or less

   $ 124,667     $ 124,448     $ 13,508     $ 13,468  

Over 1 to 5 years

     993,874       940,578       347,566       342,500  

Over 5 to 10 years

     1,292,627       1,130,169       425,634       398,138  

Subtotal

     2,411,168       2,195,195       786,708       754,106  

Collateralized loan obligations

     987,155       982,589       -       -  

Agency residential MBS

     229,050       211,060       57,927       53,732  

Agency commercial MBS

     7,098       6,966       -       -  

Total

   $ 3,634,471     $ 3,395,810     $ 844,635     $ 807,838  

 

Expected amortizing principal payments of collateralized loan obligations can differ from actual cash flows because the securities can be called and paid-off. Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities.

 

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- 14 -
 

  

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

 

   

Debt Securities Available for Sale

  
   

At June 30, 2025

  
   

No. of

    

Less than 12 months

    

No. of

    

12 months or longer

    

No. of

    

Total

  
   

Investment

            

Unrealized

    

Investment

            

Unrealized

    

Investment

            

Unrealized

  
   

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

  
   

($ in thousands)

  

Agency residential MBS

     9     $ 17,873     $ (549 )     102     $ 177,288     $ (12,372 )     111     $ 195,161     $ (12,921 )

Agency commercial MBS

     6       26,624       (65 )     -       -       -       6       26,624       (65 )

Securities of U.S.
Government 

sponsored
entities

     2       6,512       (2 )     19       285,159       (10,539 )     21       291,671       (10,541 )
Obligations of states
and
political
subdivisions		     4       4,649       (15 )     39       49,443       (1,145 )     43       54,092       (1,160 )

Corporate securities

     -       -       -       132       1,792,021       (139,558 )     132       1,792,021       (139,558 )

Collateralized loan
obligations

     7       93,767       (191 )     22       187,138       (2,097 )     29       280,905       (2,288 )

Total

     28     $ 149,425     $ (822 )     314     $ 2,491,049     $ (165,711 )     342     $ 2,640,474     $ (166,533 )

 

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

 

   

Debt Securities Held to Maturity

  
   

At June 30, 2025

  
   

No. of

    

Less than 12 months

    

No. of

    

12 months or longer

    

No. of

    

Total

  
   

Investment

            

Unrecognized

    

Investment

            

Unrecognized

    

Investment

            

Unrecognized

  
   

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

  
   

($ in thousands)

  

Agency residential MBS

     -     $ -     $ -       69     $ 46,038     $ (2,887 )     69     $ 46,038     $ (2,887 )
Obligations of states
and
political
subdivisions		     11       8,534       (8 )     24       22,673       (123 )     35       31,207       (131 )

Corporate securities

     10       51,063       (234 )     34       452,940       (14,662 )     44       504,003       (14,896 )

Total

     21     $ 59,597     $ (242 )     127     $ 521,651     $ (17,672 )     148     $ 581,248     $ (17,914 )

 

Based upon the Company’s June 30, 2025 evaluation, the unrealized losses on debt securities were caused by market conditions for these types of securities. Market interest rates are currently higher than the book yield of the securities, causing declines in bond values generally. The Company continually monitors interest rate changes, risk premium spread changes, credit rating changes for issuers of bonds owned, collateralized loan obligations’ collateral levels, and corporate bond issuers’ common stock price changes. All collateralized loan obligations, obligations of states and political subdivisions, and corporate securities were investment grade rated at June 30, 2025.

 

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

 

The Company evaluates held to maturity corporate securities individually, monitoring each issuer’s financial condition, profitability, cash flows and credit rating agency conclusions. The Company has evaluated each issuer’s historical financial performance and ability to service debt payments, including throughout and following the 2008-2009 recession. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero.

 

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

 

As of June 30, 2025 and December 31, 2024, the Company’s debt securities pledged had a carrying value of $1,935,926 thousand and $2,049,954 thousand, respectively, primarily to secure public deposits, Federal Reserve Bank borrowings and securities sold under repurchase agreements.

 

- 15 -
 

  

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

 

   

Debt Securities Available for Sale

  
   

At December 31, 2024

  
   

No. of

    

Less than 12 months

    

No. of

    

12 months or longer

    

No. of

    

Total

  
   

Investment

            

Unrealized

    

Investment

            

Unrealized

    

Investment

            

Unrealized

  
   

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

  
   

($ in thousands)

  

Agency residential MBS

     12     $ 18,030     $ (471 )     103     $ 192,963     $ (17,520 )     115     $ 210,993     $ (17,991 )

Agency commercial MBS

     2       6,966       (132 )     -       -       -       2       6,966       (132 )

Securities of U.S.
Government 
sponsored
entities

     3       12,085       (53 )     19       275,467       (19,032 )     22       287,552       (19,085 )
Obligations of states
and
political
subdivisions		     2       2,764       (21 )     40       51,759       (1,680 )     42       54,523       (1,701 )

Corporate securities

     -       -       -       138       1,824,327       (195,334 )     138       1,824,327       (195,334 )

Collateralized loan
obligations

     3       26,825       (15 )     32       309,249       (5,193 )     35       336,074       (5,208 )

Total

     22     $ 66,670     $ (692 )     332     $ 2,653,765     $ (238,759 )     354     $ 2,720,435     $ (239,451 )

 

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

 

   

Debt Securities Held to Maturity

  
   

At December 31, 2024

  
   

No. of

    

Less than 12 months

    

No. of

    

12 months or longer

    

No. of

    

Total

  
   

Investment

            

Unrecognized

    

Investment

            

Unrecognized

    

Investment

            

Unrecognized

  
   

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

    

Positions

    

Fair Value

    

Losses

  
   

($ in thousands)

  

Agency residential MBS

     -     $ -     $ -       80     $ 52,771     $ (4,218 )     80     $ 52,771     $ (4,218 )

Obligations of states
and
political
subdivisions

     24       15,822       (78 )     26       25,814       (299 )     50       41,636       (377 )

Corporate securities

     23       251,790       (4,230 )     35       451,420       (28,007 )     58       703,210       (32,237 )

Total

     47     $ 267,612     $ (4,308 )     141     $ 530,005     $ (32,524 )     188     $ 797,617     $ (36,832 )

 

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

 

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

 

   

For the Six Months Ended June 30,

  
   

2025

    

2024

  
   

(In thousands)

  

Allowance for credit losses:

                

Beginning balance

   $ 1     $ 1  

Provision

     -       -  

Chargeoffs

     -       -  

Recoveries

     -       -  

Total ending balance

   $ 1     $ 1  

 

Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At June 30, 2025, no credit loss allowance was assigned to corporate securities held to maturity.

 

- 16 -
 

  

The following table summarizes the amortized cost of debt securities held to maturity at June 30, 2025, aggregated by credit rating:

 

   

Credit Risk Profile by Credit Rating

  
   

At June 30, 2025

  
   

AAA/AA/A

    

BBB+/BBB

    

Not Rated

    

Total

  
   

(In thousands)

  

Agency residential MBS

   $ 49,423     $ -     $ 455     $ 49,878  

Obligations of states and political subdivisions

     45,716       -       -       45,716  

Corporate securities

     556,117       182,729       -       738,846  

Total

   $ 651,256     $ 182,729     $ 455     $ 834,440  

 

There were no debt securities held to maturity on nonaccrual status or past due 30 days or more as of June 30, 2025.

 

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

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands)

  
                                 

Taxable

   $ 38,847     $ 51,804     $ 80,127     $ 105,949  

Tax-exempt from regular federal income tax

     824       953       1,663       1,947  

Total interest income from investment securities

   $ 39,671     $ 52,757     $ 81,790     $ 107,896  

 
 

Note 4: Loans, Allowance for Credit Losses and Other Real Estate Owned

 

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

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  
                 

Commercial

   $ 111,160     $ 127,276  

Commercial real estate

     486,463       507,900  

Construction

     -       5,064  

Residential real estate

     7,709       8,274  

Consumer installment & other

     142,932       171,786  

Total

   $ 748,264     $ 820,300  

 

The following summarizes activity in the allowance for credit losses:

 

   

Allowance for Credit Losses

  
   

For the Three Months Ended June 30, 2025

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 4,411     $ 6,165     $ 247     $ 26     $ 3,065     $ 13,914  

Provision (reversal)

     1,157       (5 )     (247 )     (2 )     (903 )     -  

Chargeoffs

     (28 )     -       -       -       (924 )     (952 )

Recoveries

     9       14       -       -       802       825  

Total allowance for credit losses

   $ 5,549     $ 6,174     $ -     $ 24     $ 2,040     $ 13,787  

 

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- 17 -
 

  
   

Allowance for Credit Losses

  
   

For the Six Months Ended June 30, 2025

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 4,197     $ 6,034     $ 247     $ 22     $ 4,280     $ 14,780  

Provision (reversal)

     1,116       304       (247 )     2       (1,725 )     (550 )

Chargeoffs

     (38 )     (191 )     -       -       (2,449 )     (2,678 )

Recoveries

     274       27       -       -       1,934       2,235  

Total allowance for credit losses

   $ 5,549     $ 6,174     $ -     $ 24     $ 2,040     $ 13,787  

 

The allowance for credit losses for commercial loans increased in the three and six months ended June 30, 2025 primarily due to an increase in estimated credit losses over the remaining life of individually evaluated loans totaling $3.6 million. The allowance for credit losses for consumer installment and other loans decreased in the three and six months ended June 30, 2025 primarily due to a decrease in estimated future credit losses based on improved delinquency and net charge-off trends and declining loan balances, primarily indirect auto loans.

 

   

Allowance for Credit Losses

  
   

For the Three Months Ended June 30, 2024

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 3,765     $ 5,758     $ 242     $ 22     $ 6,092     $ 15,879  

Provision (reversal)

     148       32       1       2       (183 )     -  

Chargeoffs

     (28 )     -       -       -       (1,513 )     (1,541 )

Recoveries

     11       132       -       -       1,471       1,614  

Total allowance for credit losses

   $ 3,896     $ 5,922     $ 243     $ 24     $ 5,867     $ 15,952  

 

   

Allowance for Credit Losses

  
   

For the Six Months Ended June 30, 2024

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 4,216     $ 5,925     $ 245     $ 26     $ 6,455     $ 16,867  

(Reversal) provision

     (315 )     (180 )     (2 )     (2 )     799       300  

Chargeoffs

     (28 )     -       -       -       (3,516 )     (3,544 )

Recoveries

     23       177       -       -       2,129       2,329  

Total allowance for credit losses

   $ 3,896     $ 5,922     $ 243     $ 24     $ 5,867     $ 15,952  

 

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

 

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- 18 -
 

  

The following summarizes the credit risk profile by internally assigned grade:

 

   

Credit Risk Profile by Internally Assigned Grade

  
   

At June 30, 2025

  
                           

Consumer

        
         

Commercial

           Residential     Installment and        
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Other

    

Total

  
   

(In thousands)

  

Grade:

                                                

Pass

   $ 106,338     $ 475,528     $ -     $ 7,501     $ 140,831     $ 730,198  

Substandard

     1,187       10,935       -       208       1,721       14,051  

Doubtful

     3,635       -       -       -       59       3,694  

Loss

     -       -       -       -       321       321  

Total

   $ 111,160     $ 486,463     $ -     $ 7,709     $ 142,932     $ 748,264  

 

   

Credit Risk Profile by Internally Assigned Grade

  
   

At December 31, 2024

  
                           

Consumer

        
         

Commercial

           Residential     Installment and        
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Other

    

Total

  
   

(In thousands)

  

Grade:

                                                

Pass

   $ 122,958     $ 489,522     $ -     $ 7,984     $ 169,251     $ 789,715  

Substandard

     4,318       18,378       5,064       290       1,817       29,867  

Doubtful

     -       -       -       -       192       192  

Loss

     -       -       -       -       526       526  

Total

   $ 127,276     $ 507,900     $ 5,064     $ 8,274     $ 171,786     $ 820,300  

 

The following tables summarize loans by delinquency and nonaccrual status:

 

   

Summary of Loans by Delinquency and Nonaccrual Status

  
   

At June 30, 2025

  
         

30-59 Days

    

60-89 Days

    

Past Due 90

              
   

Current and

     Past Due and     Past Due and     Days or More              
   

Accruing

    

Accruing

    

Accruing

    

and Accruing

    

Nonaccrual

    

Total Loans

  
   

(In thousands)

  

Commercial

   $ 107,035     $ 440     $ 50     $ -     $ 3,635     $ 111,160  

Commercial real estate

     484,829       716       -       -       918       486,463  

Construction

     -       -       -       -       -       -  

Residential real estate

     7,709       -       -       -       -       7,709  

Consumer installment and other

     139,441       2,603       477       411       -       142,932  

Total

   $ 739,014     $ 3,759     $ 527     $ 411     $ 4,553     $ 748,264  

 

   

Summary of Loans by Delinquency and Nonaccrual Status

  
   

At December 31, 2024

  
         

30-59 Days

    

60-89 Days

    

Past Due 90

              
   

Current and

     Past Due and     Past Due and     Days or More              
   

Accruing

    

Accruing

    

Accruing

    

and Accruing

    

Nonaccrual

    

Total Loans

  
   

(In thousands)

  

Commercial

   $ 126,538     $ 700     $ 28     $ -     $ 10     $ 127,276  

Commercial real estate

     506,588       1,121       -       -       191       507,900  

Construction

     5,064       -       -       -       -       5,064  

Residential real estate

     8,274       -       -       -       -       8,274  

Consumer installment and other

     166,875       3,493       884       534       -       171,786  

Total

   $ 813,339     $ 5,314     $ 912     $ 534     $ 201     $ 820,300  

 

At June 30, 2025, $2.3 million was allocated as allowance for credit losses to two loans totaling $3.6 million on nonaccrual status. There was no allowance for credit losses allocated to loans on nonaccrual status as of December 31, 2024.

 

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2025 or December 31, 2024.

 

- 19 -
 

  

There were no loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025 and June 30, 2024.

 

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral dependent are reassessed quarterly. Loans that were considered collateral dependent at June 30, 2025 included the following: eight commercial real estate loans totaling $10.2 million secured by real property and $301 thousand of indirect consumer installment loans secured by personal property. There were no other collateral dependent loans at June 30, 2025. Loans that were considered collateral dependent at December 31, 2024 included the following: nine commercial real estate loans totaling $17.6 million secured by real property and $503 thousand of indirect consumer installment loans secured by personal property. There were no other collateral dependent loans at December 31, 2024.

 

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

 

   

At June 30, 2025

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2021

    

2022

    

2023

    

2024

    

2025

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Commercial loans by grade:

                                                  

Pass

   $ 23,468     $ 5,809     $ 10,364     $ 7,945     $ 17,765     $ 21,724     $ 87,075     $ 19,263     $ 106,338  

Substandard

     240       -       -       -       -       647       887       300       1,187  

Doubtful

     -       2,835       -       -       -       -       2,835       800       3,635  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 23,708     $ 8,644     $ 10,364     $ 7,945     $ 17,765     $ 22,371     $ 90,797     $ 20,363     $ 111,160  
                                                                         

Current gross chargeoffs on commercial loans:

                                  

For the three months ended June 30, 2025

                                            
    $ -     $ -     $ -     $ 5     $ -     $ -     $ 5     $ 23     $ 28  

For the six months ended June 30, 2025

                                            
      -       -       -       5       -       -       5       33       38  

 

 

   

At December 31, 2024

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2020

    

2021

    

2022

    

2023

    

2024

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Commercial loans by grade:

                                                  

Pass

   $ 18,752     $ 8,542     $ 18,539     $ 12,388     $ 14,776     $ 19,399     $ 92,396     $ 30,562     $ 122,958  

Substandard

     266       -       2,835       -       -       -       3,101       1,217       4,318  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 19,018     $ 8,542     $ 21,374     $ 12,388     $ 14,776     $ 19,399     $ 95,497     $ 31,779     $ 127,276  
                                                                         

Current gross chargeoffs on commercial loans:

                                        

For the year ended December 31, 2024

                                            
    $ 59     $ -     $ -     $ -     $ -     $ -     $ 59     $ 224     $ 283  

 

 

   

At June 30, 2025

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2021

    

2022

    

2023

    

2024

    

2025

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Commercial real estate loans by grade:

                                          

Pass

   $ 240,659     $ 57,699     $ 47,326     $ 41,627     $ 70,283     $ 17,934     $ 475,528     $ -     $ 475,528  

Substandard

     10,017       -       918       -       -       -       10,935       -       10,935  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 250,676     $ 57,699     $ 48,244     $ 41,627     $ 70,283     $ 17,934     $ 486,463     $ -     $ 486,463  
                                                                         

Current gross chargeoffs on commercial real estate loans:

                                      

For the three months ended June 30, 2025

                                          
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

For the six months ended June 30, 2025

                                      
      191       -       -       -       -       -       191       -       191  

 

[The remainder of this page intentionally left blank]

 

 

- 20 -
 

  
   

At December 31, 2024

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2020

    

2021

    

2022

    

2023

    

2024

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Commercial real estate loans by grade:

                                          

Pass

   $ 197,160     $ 65,384     $ 63,697     $ 49,117     $ 43,091     $ 71,073     $ 489,522     $ -     $ 489,522  

Substandard

     17,409       969       -       -       -       -       18,378       -       18,378  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 214,569     $ 66,353     $ 63,697     $ 49,117     $ 43,091     $ 71,073     $ 507,900     $ -     $ 507,900  
                                                                         

Current gross chargeoffs on commercial real estate loans:

                                      

For the year ended December 31, 2024

                                    
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

 

   

At June 30, 2025

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2021

    

2022

    

2023

    

2024

    

2025

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Residential real estate loans by grade:

                                          

Pass

   $ 7,501     $ -     $ -     $ -     $ -     $ -     $ 7,501     $ -     $ 7,501  

Substandard

     208       -       -       -       -       -       208       -       208  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 7,709     $ -     $ -     $ -     $ -     $ -     $ 7,709     $ -     $ 7,709  
                                                                         

Current gross chargeoffs on residential real estate loans:

                                

For the three months ended June 30, 2025

                                      
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

For the six months ended June 30, 2025

                                    
      -       -       -       -       -       -       -       -       -  

 

 

   

At December 31, 2024

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2020

    

2021

    

2022

    

2023

    

2024

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Residential real estate loans by grade:

                                          

Pass

   $ 7,984     $ -     $ -     $ -     $ -     $ -     $ 7,984     $ -     $ 7,984  

Substandard

     290       -       -       -       -       -       290       -       290  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ 8,274     $ -     $ -     $ -     $ -     $ -     $ 8,274     $ -     $ 8,274  
                                                                         

Current gross chargeoffs on residential real estate loans:

                                

For the year ended December 31, 2024

                                      
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

 

   

At June 30, 2025

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2021

    

2022

    

2023

    

2024

    

2025

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Construction loans by grade:

                                            

Pass

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Substandard

     -       -       -       -       -       -       -       -       -  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         

Current gross chargeoffs on construction loans:

                                      

For the three months ended June 30, 2025

                                      
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

For the six months ended June 30, 2025

                                      
      -       -       -       -       -       -       -       -       -  

 

 

   

At December 31, 2024

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2020

    

2021

    

2022

    

2023

    

2024

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

  

Construction loans by grade:

                                          

Pass

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Substandard

     -       -       -       -       -       -       -       5,064       5,064  

Doubtful

     -       -       -       -       -       -       -       -       -  

Loss

     -       -       -       -       -       -       -       -       -  

Total

   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ 5,064     $ 5,064  
                                                                         

Current gross chargeoffs on construction loans:

                                    

For the year ended December 31, 2024

                                    
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

- 21 -
 

  

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

 

   

At June 30, 2025

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2021

    

2022

    

2023

    

2024

    

2025

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

          

Consumer installment and other loans by delinquency and nonaccrual status:

                            

Current

   $ 11,121     $ 24,912     $ 38,896     $ 22,083     $ 20,514     $ 7,667     $ 125,193     $ 14,248     $ 139,441  

30-59 days past due

     270       701       903       327       224       63       2,488       115       2,603  

60-89 days past due

     56       101       119       65       84       -       425       52       477  

Past due 90 days or more

     31       16       132       34       83       5       301       110       411  

Nonaccrual

     -       -       -       -       -       -       -       -       -  

Total

   $ 11,478     $ 25,730     $ 40,050     $ 22,509     $ 20,905     $ 7,735     $ 128,407     $ 14,525     $ 142,932  
                                                                         

Current gross chargeoffs on consumer installment and other loans:

                              

For the three months ended June 30, 2025

                            
    $ 75     $ 127     $ 349     $ 99     $ 248     $ -     $ 898     $ 26     $ 924  

For the six months ended June 30, 2025

                                    
      130       527       894       366       451       -       2,368       81       2,449  

 

 

   

At December 31, 2024

  
                                                           

Line of

          
                                                           

Credit

          
   

Term Loans Amortized Cost Basis by Origination Year

    

Total

    

Amortized

          
   

Prior

    

2020

    

2021

    

2022

    

2023

    

2024

    

Term Loans

    

Cost Basis

    

Total

  
   

(In thousands)

          

Consumer installment and other loans by delinquency and nonaccrual status:

                              

Current

   $ 6,068     $ 12,464     $ 32,608     $ 48,694     $ 26,805     $ 24,522     $ 151,161     $ 15,714     $ 166,875  

30-59 days past due

     173       201       949       1,392       385       263       3,363       130       3,493  

60-89 days past due

     33       36       184       256       91       120       720       164       884  

Past due 90 days or more

     -       38       129       200       149       -       516       18       534  

Nonaccrual

     -       -       -       -       -       -       -       -       -  

Total

   $ 6,274     $ 12,739     $ 33,870     $ 50,542     $ 27,430     $ 24,905     $ 155,760     $ 16,026     $ 171,786  
                                                                         

Current gross chargeoffs on consumer installment and other loans:

                                

For the year ended December 31, 2024

                            
    $ 246     $ 388     $ 2,376     $ 1,843     $ 913     $ 162     $ 5,928     $ 463     $ 6,391  

 

There were no loans held for sale at June 30, 2025 and December 31, 2024.

 

The Company held no other real estate owned (OREO) at June 30, 2025 and December 31, 2024. At June 30, 2025 and December 31, 2024, there were no consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process.

 

 

Note 5: Concentration of Credit Risk

 

Under the California Financial Code, credit extended to any one person at any one time shall not exceed the following limitations: (a) unsecured credits shall not exceed 15 percent of the sum of the Bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures, or (b) secured and unsecured credits in all shall not exceed 25 percent of the sum of the Bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures. At June 30, 2025, the Bank did not have credit extended to any one entity exceeding these limits. At June 30, 2025, the Bank had 23 lending relationships each with aggregate amounts of $5 million or more. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 4, the Company had loan commitments related to real estate loans of $23,679 thousand and $26,292 thousand at June 30, 2025 and December 31, 2024, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At June 30, 2025, the Bank held corporate bonds in 107 issuing entities that exceeded $5 million for each issuer.

 

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Note 6: Other Assets and Other Liabilities

 

Other assets consisted of the following:

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  

Cost method equity investments:

                

Federal Reserve Bank stock (1)

   $ 14,069     $ 14,069  

Other investments

     158       158  

Total cost method equity investments

     14,227       14,227  

Life insurance cash surrender value

     69,472       68,578  

Net deferred tax asset

     63,638       88,606  

Right-of-use asset

     20,375       17,985  

Limited partnership investments

     31,721       28,551  

Interest receivable

     40,171       44,606  

Prepaid assets

     4,779       5,697  

Other assets

     11,342       12,635  

Total other assets

   $ 255,725     $ 280,885  

 

(1)

A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank (FRB) in its district in a sum equal to six percent of the bank’s paid-up capital stock and surplus. One-half of the amount of the bank's subscription shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System.

 

The Company owns 211 thousand shares of Visa Inc. (“Visa”) Class B-1 common stock, which have transfer restrictions; the carrying value is $-0- thousand. Following the resolution of certain litigation involving Visa, shares of Visa’s Class B-1 stock will convert to shares of Visa Class A common stock based on a conversion factor (1.5609 as of June 30, 2025), which is periodically adjusted to reflect Visa’s ongoing litigation costs. Given the transfer restrictions and continuing uncertainty regarding the likelihood, ultimate timing and eventual conversion of Visa Class B-1 common stock for shares of Visa Class A common stock or other marketable classes of Visa common stock, these shares are not considered to have a readily determinable fair value and have no carrying value. Visa Class A common stock trades on the New York Stock Exchange and had a closing price of $355.05 per share on June 30, 2025, the last trading day for the second quarter 2025. The ultimate value of the Company’s Visa Class B-1 shares is subject to the extent of Visa’s future litigation escrow fundings, the resulting conversion rate to Visa Class A common stock, and current and future transfer restrictions on the Visa Class B-1 common stock. At June 30, 2025, the Company did not record an adjustment to the carrying value of the Visa Class B-1 shares.

 

The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At June 30, 2025, these investments totaled $31,721 thousand and $11,838 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2024, these investments totaled $28,551 thousand and $11,368 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At June 30, 2025, the $11,838 thousand of outstanding equity capital commitments are expected to be paid as follows: $3,326 thousand in the remainder of 2025, $4,688 thousand in 2026, $2,569 thousand in 2027, $348 thousand in 2028, $396 thousand in 2029 and or $511 thousand in 2030 and thereafter.

 

The amounts recognized in net income for these investments include:

 

   

For the Three Months Ended

    

For the Six Months Ended

  
   

June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands)

  

Investment loss included in pre-tax income

   $ 915     $ 1,440     $ 1,830     $ 2,880  

Tax credits recognized in provision for income taxes

     975       975       1,950       1,950  

 

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Other liabilities consisted of the following:

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  

Operating lease liability

   $ 20,375     $ 17,985  

Other liabilities

     34,166       36,160  

Total other liabilities

   $ 54,541     $ 54,145  

 

The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of five years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional five year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of June 30, 2025.

 

As of June 30, 2025, the Company’s lease liability and right-of-use asset were $20,375 thousand. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were 3.8 years and 3.67%, respectively, at June 30, 2025. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of June 30, 2025.

 

Total lease costs were $1,691 thousand and $3,371 thousand in the three and six months ended June 30, 2025, respectively, and were recorded within occupancy and equipment expense. Total lease costs were $1,679 thousand and $3,357 thousand in the three and six months ended June 30, 2024, respectively, and were recorded within occupancy and equipment expense. The Company did not have any material short-term or variable leases costs or sublease income during the six months ended June 30, 2025 and June 30, 2024.

 

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

 

   

Minimum
future lease
payments

  
   

At June 30,

  
   

2025

  
   

(In thousands)

  

The remainder of 2025

   $ 3,256  

2026

     5,771  

2027

     5,003  

2028

     4,083  

2029

     2,463  

Thereafter

     1,357  

Total minimum lease payments

     21,933  

Less: discount

     (1,558 )

Present value of lease liability

   $ 20,375  

 

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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 evaluated for impairment at least annually. The Company did not recognize impairment during the three and six months ended June 30, 2025 and the year ended December 31, 2024, as no triggering events occurred during such periods. 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 three and six months ended June 30, 2025 and the year ended December 31, 2024, no such adjustments were recorded.

 

The carrying values of goodwill were:

 

   

At June 30, 2025

    

At December 31, 2024

  
   

(In thousands)

  

Goodwill

   $ 121,673     $ 121,673  

 

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

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Gross

            

Gross

          
   

Carrying

    

Accumulated

    

Carrying

    

Accumulated

  
   

Amount

    

Amortization

    

Amount

    

Amortization

  
   

(In thousands)

  

Core deposit intangibles

   $ 56,808     $ (56,789 )   $ 56,808     $ (56,683 )

 

As of June 30, 2025, the current period and estimated future amortization expense for identifiable intangible assets, to be fully amortized in 2025, was:

 

   

Total

  
   

Core

  
   

Deposit

  
   

Intangibles

  
   

(In thousands)

  

For the six months ended June 30, 2025 (actual)

   $ 106  

The remainder of 2025

     19  

  
 

Note 8: Deposits and Borrowed Funds

 

The following table provides additional detail regarding deposits.

 

   

Deposits

  
   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  

Noninterest-bearing

   $ 2,175,841     $ 2,333,389  

Interest-bearing:

                

Transaction

     894,774       953,863  

Savings

     1,603,974       1,642,360  

Time deposits less than $100 thousand

     43,659       47,585  

Time deposits $100 thousand through $250 thousand

     20,877       25,368  

Time deposits more than $250 thousand

     8,410       9,285  

Total deposits

   $ 4,747,535     $ 5,011,850  

 

Demand deposit overdrafts of $612 thousand and $591 thousand were included as loan balances at June 30, 2025 and December 31, 2024, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $14 thousand and $31 thousand for the three and six months ended June 30, 2025, respectively, and $20 thousand and $41 thousand for the three and six months ended June 30, 2024, respectively.

 

- 25 -
 

  

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

 

   

Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings

  
   

Remaining Contractual Maturity of the Agreements

  
   

Overnight and Continuous

  
   

At June 30,

    

At December 31,

  
   

2025

    

2024

  

Repurchase agreements:

   (In thousands)  

Collateral securing borrowings:

                

Agency residential MBS

   $ 19,668     $ 21,284  

Corporate securities

     372,072       412,921  

Total collateral carrying value

   $ 391,740     $ 434,205  

Total short-term borrowed funds

   $ 101,210     $ 120,322  

 

At June 30, 2025, the Company had access to borrowing from the Federal Reserve up to $703,398 thousand based on the collateral pledged at June 30, 2025. The Company had a $60,000 thousand line of credit with a correspondent bank at June 30, 2025. There were no borrowings from the Federal Reserve Bank or correspondent banks at June 30, 2025. At June 30, 2025, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,683,788 thousand.

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

- 26 -
 

  

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

 

Assets Recorded at Fair Value on a Recurring Basis

 

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

 

   

At June 30, 2025

  
   

Fair Value

    

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

    

Significant Other Observable Inputs
(Level 2)

    

Significant Unobservable Inputs
(Level 3) (1)

  
   

(In thousands)

  

Debt securities available for sale:

                                

Agency residential MBS

   $ 195,278     $ -     $ 195,278     $ -  

Agency commercial MBS

     96,265       -       96,265       -  

Securities of U.S. Government sponsored entities

     301,903       -       301,903       -  

Obligations of states and political subdivisions

     60,835       -       60,835       -  

Corporate securities

     1,792,021       -       1,792,021       -  

Collateralized loan obligations

     780,147       -       780,147       -  

Total debt securities available for sale

   $ 3,226,449     $ -     $ 3,226,449     $ -  

 

(1)

There were no transfers into or out of level 3 during the six months ended June 30, 2025.

 

   

At December 31, 2024

  
   

Fair Value

    

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

    

Significant Other Observable Inputs
(Level 2)

    

Significant Unobservable Inputs
(Level 3) (1)

  
   

(In thousands)

  

Debt securities available for sale:

                                

Agency residential MBS

   $ 211,060     $ -     $ 211,060     $ -  

Agency commercial MBS

     6,966       -       6,966       -  

Securities of U.S. Government sponsored entities

     292,117       -       292,117       -  

U.S. Treasury securities

     4,955       4,955       -       -  

Obligations of states and political subdivisions

     62,186       -       62,186       -  

Corporate securities

     1,835,937       -       1,835,937       -  

Collateralized loan obligations

     982,589       -       982,589       -  

Total debt securities available for sale

   $ 3,395,810     $ 4,955     $ 3,390,855     $ -  

 

(1)

There were no transfers into or out of level 3 during the year ended December 31, 2024.

 

 

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Assets Recorded at Fair Value on a Nonrecurring Basis

 

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheets at June 30, 2025, 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. No assets that were recorded in the balance sheets were measured at fair value on a nonrecurring basis at December 31, 2024.

  
                                   

For the Six

  
                                   

Months Ended

  
   

At June 30, 2025

    

June 30, 2025

  
   

Carrying Value

    

Level 1

    

Level 2

    

Level 3

    

Total Losses

  
   

(In thousands)

  

Loans:

                                        

Commercial

   $ 1,340     $ -     $ -     $ 1,340     $ -  

Total assets measured at fair value on a nonrecurring basis

   $ 1,340     $ -     $ -     $ 1,340     $ -  

 

Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices or estimated liquidation values of loan collateral, generally. The unobservable inputs and qualitative information about the inputs are not presented as the inputs were not developed by the Company.

 

Disclosures about Fair Value of Financial Instruments

 

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

 

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

 

   

At June 30, 2025

  
   

Carrying Amount

    

Estimated Fair Value

    

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

    

Significant Other Observable Inputs
(Level 2)

    

Significant Unobservable Inputs
(Level 3)

  

Financial Assets:

   (In thousands)  

Cash and due from banks

   $ 626,437     $ 626,437     $ 626,437     $ -     $ -  

Debt securities held to maturity

     834,439       817,719       -       817,719       -  

Loans

     734,477       733,349       -       -       733,349  
                                         

Financial Liabilities:

                                        

Deposits

   $ 4,747,535     $ 4,745,041     $ -     $ 4,674,589     $ 70,452  

Securities sold under repurchase agreements

     101,210       101,210       -       101,210       -  

 

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- 28 -
 

  
   

At December 31, 2024

  
   

Carrying Amount

    

Estimated Fair Value

    

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

    

Significant Other Observable Inputs
(Level 2 )

    

Significant Unobservable Inputs
(Level 3 )

  

Financial Assets:

   (In thousands)  

Cash and due from banks

   $ 601,494     $ 601,494     $ 601,494     $ -     $ -  

Debt securities held to maturity

     844,634       807,838       -       807,838       -  

Loans

     805,520       795,849       -       -       795,849  
                                         

Financial Liabilities:

                                        

Deposits

   $ 5,011,850     $ 5,007,644     $ -     $ 4,929,612     $ 78,032  

Securities sold under repurchase agreements

     120,322       120,322       -       120,322       -  

 

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

 

 

Note 10: Commitments and Contingent Liabilities

 

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are equity based and not unconditionally cancellable by the Company aggregated $23,679 thousand at June 30, 2025 and $26,292 thousand at December 31, 2024. 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 $178,332 thousand at June 30, 2025 and $171,672 thousand at December 31, 2024. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers’ short-term financing requirements and must meet the Company’s normal credit policies and collateral requirements. Financial and performance standby letters of credit outstanding totaled $562 thousand at June 30, 2025 and $1,926 thousand at December 31, 2024. The Company had no commitments for commercial and similar letters of credit at June 30, 2025 or at December 31, 2024. The Company had $1,000 thousand in outstanding full recourse guarantees to a third party credit card company at June 30, 2025 and December 31, 2024, respectively. The Company had a $201 thousand reserve for certain unfunded loan commitments at June 30, 2025 and December 31, 2024, respectively. The reserve for unfunded commitments is included in other liabilities.

 

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

 

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- 29 -
 

  
 

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 by the average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period plus the impact of common stock equivalents.

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands, except per share data)

  

Net income applicable to common equity (numerator)

   $ 29,066     $ 35,462     $ 60,103     $ 71,879  

Basic earnings per common share

                                

Weighted average number of common shares outstanding - basic (denominator)

     25,889       26,680       26,263       26,677  

Basic earnings per common share

   $ 1.12     $ 1.33     $ 2.29     $ 2.69  

Diluted earnings per common share

                                

Weighted average number of common shares outstanding - basic

     25,889       26,680       26,263       26,677  

Add common stock equivalents for options

     -       1       -       1  

Weighted average number of common shares outstanding - diluted (denominator)

     25,889       26,681       26,263       26,678  

Diluted earnings per common share

   $ 1.12     $ 1.33     $ 2.29     $ 2.69  

 

For the three and six months ended June 30, 2025, options to purchase 1,266 thousand and 1,268 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

 

For the three and six months ended June 30, 2024, options to purchase 1,101 thousand and 1,005 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

 

 

Note 12: Operating Segments

 

The Company’s reportable segment is determined by the Chief Financial Officer, who is the designated chief decision maker, based upon information provided about the Company’s products and services offered, primarily banking operations. Loans, investments, and deposits provide revenues in the banking operation. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operations. While the chief decision-maker monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis as reflected in the consolidated financial statements contained in this report. The consolidated net income is used to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation.

 

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

 

WESTAMERICA BANCORPORATION

 

  

FINANCIAL SUMMARY

  
                                 
   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands, except per share data)

  

Net Interest and Loan Fee Income (FTE) (1)

   $ 54,562     $ 64,100     $ 110,952     $ 130,194  

(Reversal of) Provision for Credit Losses

     -       -       (550 )     300  

Noninterest Income

     10,315       10,500       20,636       20,597  

Noninterest Expense

     25,529       26,130       50,656       52,229  

Income Before Income Taxes (FTE) (1)

     39,348       48,470       81,482       98,262  

Income Tax Provision (FTE) (1)

     10,282       13,008       21,379       26,383  

Net Income

   $ 29,066     $ 35,462     $ 60,103     $ 71,879  
                                 

Average Common Shares Outstanding

     25,889       26,680       26,263       26,677  

Average Diluted Common Shares Outstanding

     25,889       26,681       26,263       26,678  

Common Shares Outstanding at Period End

     25,587       26,683                  
                                 

Per Common Share:

                                

Basic Earnings

   $ 1.12     $ 1.33     $ 2.29     $ 2.69  

Diluted Earnings

     1.12       1.33       2.29       2.69  

Book Value

     36.03       30.57                  
                                 

Financial Ratios:

                                

Return on Assets

     1.93 %     2.18 %     1.98 %     2.21 %

Return on Common Equity

     11.24 %     14.39 %     11.58 %     14.77 %

Net Interest Margin (FTE) (1)

     3.85 %     4.15 %     3.87 %     4.23 %

Net Loan (Chargeoffs) Recoveries to Average Loans

     (0.07 )%     0.04 %     (0.12 )%     (0.29 )%

Efficiency Ratio (2)

     39.3 %     35.0 %     38.5 %     34.6 %
                                 

Average Balances:

                                

Assets

   $ 6,042,100     $ 6,549,203     $ 6,114,310     $ 6,537,562  

Loans

     762,216       838,016       775,999       845,785  

Investment Securities

     4,236,303       4,944,191       4,315,494       5,021,365  

Deposits

     4,841,803       5,202,620       4,899,856       5,290,840  

Shareholders' Equity

     1,037,185       990,927       1,046,504       978,384  
                                 

Period End Balances:

                                

Assets

   $ 5,825,069     $ 6,312,145                  

Loans

     748,264       831,842                  

Investment Securities

     4,060,889       4,560,187                  

Deposits

     4,747,535       5,131,440                  

Shareholders' Equity

     921,783       815,600                  
                                 

Capital Ratios at Period End:

                                

Total Risk Based Capital

     23.44 %     21.07 %                

Tangible Equity to Tangible Assets

     14.03 %     11.21 %                
                                 

Dividends Paid Per Common Share

   $ 0.46     $ 0.44     $ 0.90     $ 0.88  

Common Dividend Payout Ratio

     41 %     33 %     39 %     33 %

 

The above financial summary has been derived from the Company's unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading "Financial Ratios" are annualized with the exception of the efficiency ratio.

 

(1)

Yields on securities and certain loans have been adjusted upward to an FTE basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.

 

(2)

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

 

 

- 31 -
 

 

Financial Overview

 

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

 

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) reduced the federal funds rate by 0.25 percent to the range of 4.25 to 4.50 percent in December 2024 and maintained the same target range for the federal funds rate through June 2025. The FOMC press release in June stated, “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment remains low, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the long run. Uncertainty around the economic outlook has diminished but remains elevated.” The interest rate paid on reserve balances at the Federal Reserve Bank was 4.40% as of June 30, 2025. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

 

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, the impacts of tariffs, international trade tensions, and climate changes on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities. These events and concerns could adversely affect the Company’s ability to effectively fund its operations. Any one or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects. The extent of the impact on the Company’s results of operations, cash flow, liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted.

 

The Company presents its net interest margin and net interest income on a fully taxable equivalent (“FTE”) basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain municipal loans and securities that are federally tax exempt. The Company’s tax exempt loans and securities composition may not be similar to that of other banks, therefore in order to reflect the impact of the federally tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks, the Company presents its net interest margin and net interest income on an FTE basis.

 

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

 

FASB ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, was issued November 27, 2023. The ASU requires disclosure of certain significant segment expenses and other items, the title and position of the chief operating decision maker and information about how the reported measures of segment profit or loss are used in assessing segment performance. The ASU became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

 

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- 32 -
 

 

Net Income         

 

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

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands, except per share data)

  

Net interest and loan fee income (FTE)

   $ 54,562     $ 64,100     $ 110,952     $ 130,194  

(Reversal of) provision for credit losses

     -       -       (550 )     300  

Noninterest income

     10,315       10,500       20,636       20,597  

Noninterest expense

     25,529       26,130       50,656       52,229  

Income before taxes (FTE)

     39,348       48,470       81,482       98,262  

Income tax provision (FTE)

     10,282       13,008       21,379       26,383  

Net income

   $ 29,066     $ 35,462     $ 60,103     $ 71,879  
                                 

Average diluted common shares

     25,889       26,681       26,263       26,678  

Diluted earnings per common share

   $ 1.12     $ 1.33     $ 2.29     $ 2.69  
                                 

Average total assets

   $ 6,042,100     $ 6,549,203     $ 6,114,310     $ 6,537,562  

Net income to average total assets (annualized)

     1.93 %     2.18 %     1.98 %     2.21 %

Net income to average common shareholders' equity (annualized)

     11.24 %     14.39 %     11.58 %     14.77 %

 

Net income for the three months ended June 30, 2025 decreased $6.4 million compared with the three months ended June 30, 2024 primarily due to decreased net interest and loan fee income (FTE), partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $9.5 million in the three months ended June 30, 2025 compared with the three months ended June 30, 2024 due to lower average balances of investment debt securities and loans, lower yield on investment debt securities and interest-bearing cash, and higher rate on interest-bearing deposits, partially offset by higher average balances of interest-bearing cash and lower average balances of bank term funding program borrowings. Based on the results of its current expected credit losses (“CECL”) model and Management’s estimate of credit losses over the remaining life of its loans, the Company provided no provision for credit losses in the three months ended June 30, 2025. With $73 thousand of net loan recoveries in the second quarter 2024 and $1.6 million in nonperforming loans at June 30, 2024, the Company provided no provision for credit losses in the three months ended June 30, 2024. Noninterest income in the three months ended June 30, 2025 decreased $185 thousand compared with the three months ended June 30, 2024 primarily due to lower income from service charges on deposits accounts, ATM processing fees, merchant processing services and debit card fees, partially offset by higher income from trust fees and a $106 thousand bank owned life insurance gain. Noninterest expense in the three months ended June 30, 2025 decreased $601 thousand compared with the three months ended June 30, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments, partially offset by an increase in outsourced data processing services expense. The tax rate (FTE) was 26.1% for the three months ended June 30, 2025 and 26.8% for the three months ended June 30, 2024.

 

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

 

- 33 -
 

 

Net Interest and Loan Fee Income (FTE)                                    

 

Following is a summary of the components of net interest and loan fee income (FTE) for the periods indicated:

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

($ in thousands)

  

Interest and loan fee income

   $ 57,467     $ 69,072     $ 116,958     $ 137,818  

Interest expense

     3,189       5,307       6,585       8,308  

FTE adjustment

     284       335       579       684  

Net interest and loan fee income (FTE)

   $ 54,562     $ 64,100     $ 110,952     $ 130,194  
                                 

Average earning assets

   $ 5,652,443     $ 6,145,626     $ 5,723,246     $ 6,132,497  

Net interest margin (FTE) (annualized)

     3.85 %     4.15 %     3.87 %     4.23 %

 

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

 

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

 

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

 

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

 

 

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- 34 -
 

 

Net Interest Margin (FTE)

 

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

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
                                 

Yield on earning assets (FTE)

     4.07 %     4.50 %     4.11 %     4.50 %

Rate paid on interest-bearing liabilities

     0.48 %     0.71 %     0.49 %     0.56 %

Net interest spread (FTE)

     3.59 %     3.79 %     3.62 %     3.94 %

Impact of noninterest-bearing demand deposits

     0.26 %     0.36 %     0.25 %     0.29 %

Net interest margin (FTE)

     3.85 %     4.15 %     3.87 %     4.23 %

 

The Company’s yield on earning assets during the three months and six months ended June 30, 2025 decreased compared with the three months and six months ended June 30, 2024. The Company’s yield on earning assets has been primarily affected by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio, and interest-bearing cash. The CLOs have interest coupons that change once every three months by the amount of change in the three-month SOFR base rate. The average balances and yields of CLOs for the three months ended June 30, 2025 was $793 million yielding 6.19% and $854 million yielding 6.25% for the six months ended June 30, 2025. The average balances and yields of CLOs were $1,347 million yielding 7.23% for the three months ended June 30, 2024 and $1,404 million yielding 7.23% for the six months ended June 30, 2024. The interest-bearing cash yield changes by the amount of change in the overnight federal funds rate on the effective date declared by the FOMC. The average balance and yields of interest-bearing cash for the three months and six months ended June 30, 2025 were $654 million yielding 4.40% and $632 million yielding 4.40%, respectively. The average balance and yields of interest-bearing cash for the three months and six months ended June 30, 2024 were $363 million yielding 5.40% and $265 million yielding 5.40%, respectively. The Company has other earning assets with variable yields such as commercial loans and lines of credit, consumer lines of credit and adjustable rate residential real estate loans, which are included in “other taxable loans” in the following “Summary of Average Balances, Yields/Rates and Interest Differential.”

 

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- 35 -
 

 

Summary of Average Balances, Yields/Rates and Interest Differential

 

The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on nonaccrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the federal statutory tax rate of 21 percent.

 

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

 

   

For the Three Months Ended June 30, 2025

  
           

Interest

          
   

Average

    

Income/

    

Yields/

  
   

Balance

    

Expense

    

Rates

  
   

($ in thousands)

  

Assets

                        

Investment securities:

                        

Taxable

   $ 4,128,578     $ 38,847       3.75 %

Tax-exempt (1)

     107,725       1,040       3.86 %

Total investments (1)

     4,236,303       39,887       3.75 %

Loans:

                        

Taxable

     730,250       10,263       5.64 %

Tax-exempt (1)

     31,966       328       4.11 %

Total loans (1)

     762,216       10,591       5.57 %

Total interest-bearing cash

     653,924       7,273       4.40 %

Total interest-earning assets (1)

     5,652,443       57,751       4.07 %

Other assets

     389,657                  

Total assets

   $ 6,042,100                  
                         

Liabilities and shareholders' equity

                        

Noninterest-bearing demand

   $ 2,245,077     $ -       - %

Savings and interest-bearing transaction

     2,520,212       2,994       0.48 %

Time less than $100,000

     49,208       37       0.30 %

Time $100,000 or more

     27,306       14       0.21 %

Total interest-bearing deposits

     2,596,726       3,045       0.47 %

Securities sold under repurchase agreements

     96,779       144       0.60 %

Total interest-bearing liabilities

     2,693,505       3,189       0.48 %

Other liabilities

     66,333                  

Shareholders' equity

     1,037,185                  

Total liabilities and shareholders' equity

   $ 6,042,100                  

Net interest spread (1) (2)

                     3.59 %

Net interest and fee income and interest margin (1) (3)

           $ 54,562       3.85 %

 

(1)

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

 

(2)

Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

 

(3)

Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

- 36 -
 

 

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

 

   

For the Three Months Ended June 30, 2024

  
           

Interest

          
   

Average

    

Income/

    

Yields/

  
   

Balance

    

Expense

    

Rates

  
   

($ in thousands)

  

Assets

                        

Investment securities:

                        

Taxable

   $ 4,811,465     $ 51,804       4.31 %

Tax-exempt (1)

     132,726       1,201       3.62 %

Total investments (1)

     4,944,191       53,005       4.27 %

Loans:

                        

Taxable

     796,903       11,021       5.56 %

Tax-exempt (1)

     41,113       420       4.11 %

Total loans (1)

     838,016       11,441       5.49 %

Total interest-bearing cash

     363,419       4,961       5.40 %

Total interest-earning assets (1)

     6,145,626       69,407       4.50 %

Other assets

     403,577                  

Total assets

   $ 6,549,203                  
                         

Liabilities and shareholders' equity

                        

Noninterest-bearing demand

   $ 2,485,023     $ -       - %

Savings and interest-bearing transaction

     2,624,509       2,391       0.37 %

Time less than $100,000

     58,367       49       0.34 %

Time $100,000 or more

     34,721       20       0.23 %

Total interest-bearing deposits

     2,717,597       2,460       0.36 %

Bank term funding program borrowings

     200,000       2,692       5.40 %

Securities sold under repurchase agreements

     84,189       155       0.74 %

Total interest-bearing liabilities

     3,001,786       5,307       0.71 %

Other liabilities

     71,467                  

Shareholders' equity

     990,927                  

Total liabilities and shareholders' equity

   $ 6,549,203                  

Net interest spread (1) (2)

                     3.79 %

Net interest and fee income and interest margin (1) (3)

           $ 64,100       4.15 %

 

(1)

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

 

(2)

Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

 

(3)

Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

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- 37 -
 

 

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

 

   

For the Six Months Ended June 30, 2025

  
           

Interest

          
   

Average

    

Income/

    

Yields/

  
   

Balance

    

Expense

    

Rates

  
   

($ in thousands)

  

Assets

                        

Investment securities:

                        

Taxable

   $ 4,205,881     $ 80,127       3.80 %

Tax-exempt (1)

     109,613       2,099       3.83 %

Total investments (1)

     4,315,494       82,226       3.80 %

Loans:

                        

Taxable

     742,489       20,644       5.61 %

Tax-exempt (1)

     33,510       691       4.12 %

Total loans (1)

     775,999       21,335       5.54 %

Total interest-bearing cash

     631,753       13,976       4.40 %

Total interest-earning assets (1)

     5,723,246       117,537       4.11 %

Other assets

     391,064                  

Total assets

   $ 6,114,310                  
                         

Liabilities and shareholders' equity

                        

Noninterest-bearing demand

   $ 2,268,936     $ -       - %

Savings and interest-bearing transaction

     2,552,270       6,168       0.49 %

Time less than $100,000

     50,273       75       0.30 %

Time $100,000 or more

     28,377       31       0.22 %

Total interest-bearing deposits

     2,630,920       6,274       0.48 %

Securities sold under repurchase agreements

     100,670       311       0.62 %

Total interest-bearing liabilities

     2,731,590       6,585       0.49 %

Other liabilities

     67,280                  

Shareholders' equity

     1,046,504                  

Total liabilities and shareholders' equity

   $ 6,114,310                  

Net interest spread (1) (2)

                     3.62 %

Net interest and fee income and interest margin (1) (3)

           $ 110,952       3.87 %

 

(1)

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

 

(2)

Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

 

(3)

Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

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

 

   

For the Six Months Ended June 30, 2024

  
           

Interest

          
   

Average

    

Income/

    

Yields/

  
   

Balance

    

Expense

    

Rates

  
   

($ in thousands)

  

Assets

                        

Investment securities:

                        

Taxable

   $ 4,885,409     $ 105,949       4.34 %

Tax-exempt (1)

     135,956       2,455       3.61 %

Total investments (1)

     5,021,365       108,404       4.30 %

Loans:

                        

Taxable

     804,161       22,005       5.50 %

Tax-exempt (1)

     41,624       849       4.10 %

Total loans (1)

     845,785       22,854       5.43 %

Total interest-bearing cash

     265,347       7,244       5.40 %

Total interest-earning assets (1)

     6,132,497       138,502       4.50 %

Other assets

     405,065                  

Total assets

   $ 6,537,562                  
                         

Liabilities and shareholders' equity

                        

Noninterest-bearing demand

   $ 2,508,702     $ -       - %

Savings and interest-bearing transaction

     2,687,259       4,427       0.33 %

Time less than $100,000

     59,452       98       0.33 %

Time $100,000 or more

     35,427       41       0.24 %

Total interest-bearing deposits

     2,782,138       4,566       0.33 %

Bank term funding program borrowings

     131,291       3,535       5.40 %

Securities sold under repurchase agreements

     65,247       207       0.64 %

Total interest-bearing liabilities

     2,978,676       8,308       0.56 %

Other liabilities

     71,800                  

Shareholders' equity

     978,384                  

Total liabilities and shareholders' equity

   $ 6,537,562                  

Net interest spread (1) (2)

                     3.94 %

Net interest and fee income and interest margin (1) (3)

           $ 130,194       4.23 %

 

(1)

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

 

(2)

Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

 

(3)

Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

 

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Summary of Changes in Interest Income and Expense due to Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid

 

The following tables set forth a summary of the changes in interest income and interest expense due to changes in average assets and liability balances (volume) and changes in average interest yields/rates for the periods indicated. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.

 

Summary of Changes in Interest Income and Expense

 

   

For the Three Months Ended June 30, 2025

  
   

Compared with

  
   

For the Three Months Ended June 30, 2024

  
   

Volume

    

Yield/Rate

    

Total

  
   

(In thousands)

  

(Decrease) increase in interest and loan fee income:

                        

Investment securities:

                        

Taxable

   $ (7,352 )   $ (5,605 )   $ (12,957 )

Tax-exempt (1)

     (226 )     65       (161 )

Total investments (1)

     (7,578 )     (5,540 )     (13,118 )

Loans:

                        

Taxable

     (906 )     148       (758 )

Tax-exempt (1)

     (92 )     -       (92 )

Total loans (1)

     (998 )     148       (850 )

Total interest-bearing cash

     3,966       (1,654 )     2,312  

Total decrease in interest and loan fee income (1)

     (4,610 )     (7,046 )     (11,656 )

(Decrease) increase in interest expense:

                        

Deposits:

                        

Savings and interest-bearing transaction

     (95 )     698       603  

Time less than $100,000

     (8 )     (4 )     (12 )

Time $100,000 or more

     (4 )     (2 )     (6 )

Total interest-bearing deposits

     (107 )     692       585  

Bank term funding program borrowings

     (2,692 )     -       (2,692 )

Securities sold under repurchase agreements

     23       (34 )     (11 )

Total (decrease) increase in interest expense

     (2,776 )     658       (2,118 )

Decrease in net interest and loan fee income (1)

   $ (1,834 )   $ (7,704 )   $ (9,538 )

 

(1)

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

 

 

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Summary of Changes in Interest Income and Expense

 

   

For the Six Months Ended June 30, 2025

  
   

Compared with

  
   

For the Six Months Ended June 30, 2024

  
   

Volume

    

Yield/Rate

    

Total

  
   

(In thousands)

  

(Decrease) increase in interest and loan fee income:

                        

Investment securities:

                        

Taxable

   $ (14,737 )   $ (11,085 )   $ (25,822 )

Tax-exempt (1)

     (476 )     120       (356 )

Total investments (1)

     (15,213 )     (10,965 )     (26,178 )

Loans:

                        

Taxable

     (1,747 )     386       (1,361 )

Tax-exempt (1)

     (162 )     4       (158 )

Total loans (1)

     (1,909 )     390       (1,519 )

Total interest-bearing cash

     9,931       (3,199 )     6,732  

Total decrease in interest and loan fee income (1)

     (7,191 )     (13,774 )     (20,965 )

(Decrease) increase in interest expense:

                        

Deposits:

                        

Savings and interest-bearing transaction

     (223 )     1,964       1,741  

Time less than $100,000

     (15 )     (8 )     (23 )

Time $100,000 or more

     (8 )     (2 )     (10 )

Total interest-bearing deposits

     (246 )     1,954       1,708  

Bank term funding program borrowings

     (3,535 )     -       (3,535 )

Securities sold under repurchase agreements

     112       (8 )     104  

Total (decrease) increase in interest expense

     (3,669 )     1,946       (1,723 )

Decrease in net interest and loan fee income (1)

   $ (3,522 )   $ (15,720 )   $ (19,242 )

 

(1)

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

 

Provision for Credit Losses

 

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

 

Based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity, the Company provided no provision for credit losses in the second quarter of 2025 and during the six months ended June 30, 2025, the Company recorded a $550 thousand reversal of provision for credit losses, which was included in the first quarter of 2025. With $73 thousand of net loan recoveries in the second quarter 2024 and $1.6 million in nonperforming loans at June 30, 2024, the Company provided no provision for credit losses in the second quarter of 2024 and during the six months ended June 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter of 2024. For further information regarding credit risk, net credit losses, and the allowance for credit losses, see the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this Report.

 

 

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Noninterest Income

 

The following table summarizes the components of noninterest income for the periods indicated.

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands)

  
                                 

Service charges on deposit accounts

   $ 3,368     $ 3,469     $ 6,749     $ 6,939  

Merchant processing services

     2,687       2,733       5,420       5,240  

Debit card fees

     1,664       1,706       3,245       3,249  

Trust fees

     867       811       1,766       1,605  

ATM processing fees

     482       540       945       1,131  

Other service fees

     450       450       879       888  

Bank owned life insurance gains

     106       -       208       -  

Other noninterest income

     691       791       1,424       1,545  

Total

   $ 10,315     $ 10,500     $ 20,636     $ 20,597  

 

Noninterest income for the three months ended June 30, 2025 decreased $185 thousand compared with the three months ended June 30, 2024 primarily due to lower income from service charges on deposits accounts, ATM processing fees, merchant processing services and debit card fees, partially offset by higher income from trust fees and a $106 thousand bank owned life insurance gain.

 

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

 

Noninterest Expense

 

The following table summarizes the components of noninterest expense for the periods indicated.

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

(In thousands)

  
                                 

Salaries and related benefits

   $ 12,303     $ 12,483     $ 24,429     $ 25,069  

Occupancy and equipment

     5,154       5,158       10,192       10,198  

Outsourced data processing services

     2,709       2,511       5,406       5,047  

Limited partnership operating losses

     915       1,440       1,830       2,880  

Courier service

     687       686       1,375       1,335  

Professional fees

     386       362       781       764  

Other noninterest expense

     3,375       3,490       6,643       6,936  

Total

   $ 25,529     $ 26,130     $ 50,656     $ 52,229  

 

Noninterest expense for the three months ended June 30, 2025 decreased $601 thousand compared with the three months ended June 30, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments, partially offset by an increase in outsourced data processing services expense.

 

Noninterest expense for the six months ended June 30, 2025 decreased $1.6 million compared with the six months ended June 30, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments, partially offset by an increase in outsourced data processing services expense.

 

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Provision for Income Tax

 

The Company’s income tax provision (FTE) was $10.3 million for the three months ended June 30, 2025 and $21.4 million for the six months ended June 30, 2025 compared with $13.0 million for the three months ended June 30, 2024 and $26.4 million for the six months ended June 30, 2024. The effective tax rates (FTE) were 26.1% and 26.2%, for the three and six months ended June 30, 2025, respectively, compared with 26.8% for both the three and six months ended June 30, 2024.

 

Investment Securities Portfolio

 

The Company maintains an investment securities portfolio consisting of securities issued by U.S. Treasury, U.S. Government sponsored entities, state and political subdivisions, corporations and banks. The Company had no marketable equity securities at June 30, 2025 and December 31, 2024.

 

Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.1 billion at June 30, 2025 and $4.2 billion at December 31, 2024. The following table lists debt securities in the Company’s portfolio by type as of the dates indicated. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of $1 thousand at June 30, 2025 and December 31, 2024. Debt securities available for sale are listed at fair value.

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Carrying Value

    

As a percent of total investment securities

    

Carrying Value

    

As a percent of total investment securities

  
   

($ in thousands)

  

Securities of U.S. Government sponsored entities

   $ 301,903       7 %   $ 292,117       7 %

Agency residential mortgage-backed securities ("MBS")

     245,156       6 %     268,987       6 %

Agency commercial MBS

     96,265       2 %     6,966       - %

U.S. Treasury securities

     -       - %     4,955       - %

Obligations of states and political subdivisions

     106,551       3 %     113,447       3 %

Corporate securities

     2,530,867       63 %     2,571,384       61 %

Collateralized loan obligations

     780,147       19 %     982,589       23 %

Total

   $ 4,060,889       100 %   $ 4,240,445       100 %
                                 

Debt securities available for sale

   $ 3,226,449             $ 3,395,810          

Debt securities held to maturity

     834,440               844,635          

Total

   $ 4,060,889             $ 4,240,445          

 

Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, liquidity, and the level of interest rate risk to which the Company is exposed. These evaluations may cause Management to change the level of funds the Company deploys into investment securities and change the composition of the Company’s investment securities portfolio.

 

At June 30, 2025, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’s procedures for evaluating investments in securities are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance.

 

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The Company had corporate securities as shown below at the dates indicated:

 

   

Corporate securities

  
   

At June 30, 2025

    

At December 31, 2024

  
   

Amortized

    

Fair

    

Amortized

    

Fair

  
   

Cost

    

Value

    

Cost

    

Value

  
   

(In thousands)

  

Debt securities available for sale

   $ 1,931,579     $ 1,792,021     $ 2,031,144     $ 1,835,937  

Debt securities held to maturity

     738,846       725,112       735,447       703,210  

Total corporate securities

   $ 2,670,425     $ 2,517,133     $ 2,766,591     $ 2,539,147  

 

The following table summarizes total corporate securities by credit rating:

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Fair value

    

As a percent of total corporate securities

    

Fair value

    

As a percent of total corporate securities

  
   

($ in thousands)

  

AA-

   $ 75,648       3 %   $ 72,569       3 %

A+

     257,710       10 %     256,906       10 %

A

     373,832       15 %     353,434       14 %

A-

     779,743       31 %     807,698       32 %

BBB+

     649,400       26 %     634,118       25 %

BBB

     380,800       15 %     414,422       16 %

Total corporate securities

   $ 2,517,133       100 %   $ 2,539,147       100 %

 

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

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Fair value

    

As a percent of total corporate securities

    

Fair value

    

As a percent of total corporate securities

  
   

($ in thousands)

  

Financial

   $ 1,428,451       57 %   $ 1,450,675       57 %

Utilities

     284,321       11 %     275,551       11 %

Industrial

     219,610       9 %     212,587       8 %

Consumer, Non-cyclical

     172,048       7 %     169,311       7 %

Communications

     130,512       5 %     154,358       6 %

Basic Materials

     102,024       4 %     100,617       4 %

Energy

     71,037       3 %     69,320       3 %

Technology

     62,382       2 %     61,008       2 %

Consumer, Cyclical

     46,748       2 %     45,720       2 %

Total corporate securities

   $ 2,517,133       100 %   $ 2,539,147       100 %

 

 

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The following table summarizes total corporate securities by the location of the issuers’ headquarters; all the corporate securities are denominated in United States dollars:

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Fair value

    

As a percent of total corporate securities

    

Fair value

    

As a percent of total corporate securities

  
   

($ in thousands)

  

United States of America

   $ 1,789,573       71 %   $ 1,767,669       70 %

Canada

     199,532       8 %     192,122       8 %

Japan

     155,523       6 %     167,624       7 %

United Kingdom

     111,791       5 %     139,648       5 %

France

     79,790       3 %     92,970       4 %

Switzerland

     75,362       3 %     73,424       3 %

Netherlands

     36,843       2 %     35,425       1 %

Australia

     25,114       1 %     24,700       1 %

Belgium

     17,118       1 %     19,726       1 %

Germany

     13,347       - %     12,891       - %

Jersey

     13,140       - %     12,948       - %

Total corporate securities

   $ 2,517,133       100 %   $ 2,539,147       100 %

 

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

 

   

At June 30, 2025

    

At December 31, 2024

  
   

Fair value

    

As a percent of total foreign corporate securities

    

Fair value

    

As a percent of total foreign corporate securities

  
   

($ in thousands)

  

Financial

   $ 615,794       85 %   $ 659,403       86 %

Energy

     33,059       5 %     32,041       4 %

Consumer, Cyclical

     26,487       4 %     25,839       3 %

Basic Materials

     25,114       3 %     24,700       3 %

Consumer, Non-cyclical

     17,118       2 %     19,726       3 %

Utilities

     9,988       1 %     9,769       1 %

Total foreign corporate securities

   $ 727,560       100 %   $ 771,478       100 %

 

The Company’s $780 million (fair value) in collateralized loan obligations at June 30, 2025, consist of investments in 77 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

 

   

At June 30, 2025

  
   

Amortized

    

Fair

  
   

Cost

    

Value

  
   

(In thousands)

  

AAA

   $ 258,472     $ 257,649  

AA

     523,578       522,498  

Total

   $ 782,050     $ 780,147  

 

 

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The Company’s $983 million (fair value) in collateralized loan obligations at December 31, 2024, consist of investments in 96 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

 

   

At December 31, 2024

  
   

Amortized

    

Fair

  
   

Cost

    

Value

  
   

(In thousands)

  

AAA

   $ 312,710     $ 311,650  

AA

     674,445       670,939  

Total

   $ 987,155     $ 982,589  

 

See Note 3 to the unaudited consolidated financial statements for additional information related to the investment securities.

 

Loan Portfolio Credit Risk

 

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

 

The Company closely monitors the markets in which it conducts its lending operations and follows a strategy to control exposure to loans with high credit risk. The Bank’s organizational structure separates the functions of business development and loan underwriting; Management believes this segregation of duties avoids inherent conflicts of combining business development and loan approval functions. In measuring and managing credit risk, the Company adheres to the following practices:

 

 

●

The Bank maintains a Loan Review Department which reports directly to the audit committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans to challenge the credit risk grades assigned by Management, using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated Management attention in order to maximize collection.

 

 

●

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

 

Classified loans with higher levels of credit risk are further designated as “nonaccrual loans.” Management places classified loans on nonaccrual status when full collection of contractual interest and principal payments is in doubt. Uncollected interest previously accrued on loans placed on nonaccrual status is reversed as a charge against interest income. The Company does not accrue interest income on loans following placement on nonaccrual status. Interest payments received on nonaccrual loans are applied to reduce the carrying amount of the loan unless the carrying amount is well secured by loan collateral. “Nonperforming assets” include nonaccrual loans, loans 90 or more days past due and still accruing, and repossessed loan collateral (commonly referred to as “Other Real Estate Owned”).

 

 

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- 46 -
 

 

Nonperforming Loans

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

    

2024

  
   

(In thousands)

  
                         

Nonperforming nonaccrual loans

   $ -     $ 971     $ 201  

Performing nonaccrual loans

     4,553       -       -  

Total nonaccrual loans

     4,553       971       201  

Accruing loans 90 or more days past due

     411       580       534  

Total nonperforming loans

   $ 4,964     $ 1,551     $ 735  

 

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

 

Allowance for Credit Losses

 

The following table summarizes allowance for credit losses at the dates indicated:

 

   

At June 30,

    

At December 31,

  
   

2025

    

2024

  
   

(In thousands)

  
                 

Allowance for credit losses on loans

   $ 13,787     $ 14,780  

Allowance for credit losses on held to maturity debt securities

     1       1  

Total allowance for credit losses

   $ 13,788     $ 14,781  
                 

Allowance for unfunded credit commitments

   $ 201     $ 201  

 

Allowance for Credit Losses on Debt Securities Held to Maturity

 

Management segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. The Company has evaluated each issuer’s historical financial performance and ability to service debt payments throughout and following the 2008-2009 recession. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero. At June 30, 2025, no credit loss allowance was assigned to corporate securities held to maturity based on evaluation of each individual issuer’s historical financial performance throughout full business cycles. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Allowance for credit losses related to debt securities held to maturity was $1 thousand related to municipal securities at June 30, 2025 and December 31, 2024, reflecting the expected credit losses on debt securities held to maturity.

 

Allowance for Credit Losses on Loans

 

The Company’s allowance for credit losses on loans represents Management’s estimate of forecasted credit losses in the loan portfolio based on the current expected credit loss model. In evaluating credit risk for loans, Management measures the loss potential of the carrying value of loans. As described above, payments received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected.

 

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

 

- 47 -
 

 

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

 

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

 

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

 

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

 

 

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- 48 -
 

 

The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated.

 

   

For the Three Months

    

For the Six Months

  
   

Ended June 30,

  
   

2025

    

2024

    

2025

    

2024

  
   

($ in thousands)

  

Analysis of the allowance for credit losses

                                

Balance, beginning of period

   $ 13,914     $ 15,879     $ 14,780     $ 16,867  

Reversal of provision for credit losses

     -       -       (550 )     300  

Loans charged off

                                

Commercial

     (28 )     (28 )     (38 )     (28 )

Commercial real estate

     -       -       (191 )     -  

Consumer installment and other

     (924 )     (1,513 )     (2,449 )     (3,516 )

Total chargeoffs

     (952 )     (1,541 )     (2,678 )     (3,544 )

Recoveries of loans previously charged off

                                

Commercial

     9       11       274       23  

Commercial real estate

     14       132       27       177  

Consumer installment and other

     802       1,471       1,934       2,129  

Total recoveries

     825       1,614       2,235       2,329  

Net loan (chargeoffs) recoveries

     (127 )     73       (443 )     (1,215 )

Balance, end of period

   $ 13,787     $ 15,952     $ 13,787     $ 15,952  
                                 

Net loan (chargeoffs) recoveries as a percentage of average total loans (annualized)

     (0.07 )%     0.04 %     (0.12 )%     (0.29 )%

 

The Company's allowance for credit losses on loans is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers, as well as overall loan loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing and forecasted economic conditions, or credit protection agreements and other factors. Loans that share common risk characteristics are segregated into pools based on common characteristics, which are primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. Loans that do not share risk characteristics with other loans in the pools are evaluated individually. See Note 2 “Accounting Policies” to the unaudited consolidated financial statements for additional information.

 

The following summarizes activity in the allowance for credit losses:

 

   

Allowance for Credit Losses

  
   

For the Three Months Ended June 30, 2025

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 4,411     $ 6,165     $ 247     $ 26     $ 3,065     $ 13,914  

Provision (reversal)

     1,157       (5 )     (247 )     (2 )     (903 )     -  

Chargeoffs

     (28 )     -       -       -       (924 )     (952 )

Recoveries

     9       14       -       -       802       825  

Total allowance for credit losses

   $ 5,549     $ 6,174     $ -     $ 24     $ 2,040     $ 13,787  

 

   

Allowance for Credit Losses

  
   

For the Six Months Ended June 30, 2025

  
                                   

Consumer

          
           

Commercial

            

Residential

    

Installment

          
   

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

and Other

    

Total

  
   

(In thousands)

  

Allowance for credit losses:

                                                

Balance at beginning of period

   $ 4,197     $ 6,034     $ 247     $ 22     $ 4,280     $ 14,780  

Provision (reversal)

     1,116       304       (247 )     2       (1,725 )     (550 )

Chargeoffs

     (38 )     (191 )     -       -       (2,449 )     (2,678 )

Recoveries

     274       27       -       -       1,934       2,235  

Total allowance for credit losses

   $ 5,549     $ 6,174     $ -     $ 24     $ 2,040     $ 13,787  

 

Management considers the $13.8 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of June 30, 2025.

 

See Note 4 to the unaudited consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, allowance for credit losses on loans, and other real estate owned.

 

- 49 -
 

 

Climate-Related Financial Risk

 

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

 

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

 

The Company monitors the climate risks of its loan customers. Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. At June 30, 2025, the Company had $13 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields and volatile commodity prices without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles are not considered to be material risks to the Company’s automobile lending practices. The Company considers climate risk in its underwriting of corporate bonds, and avoids purchasing bonds of issuers, which, in Management’s judgement, have elevated climate risk.

 

While the Company follows risk management practices related to climate risk, the Company may experience financial losses due to climate risk despite these precautions.

 

Asset/Liability and Market Risk Management

 

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

 

Interest Rate Risk

 

Interest rate risk is a significant market risk affecting the Company. Many factors affect the Company’s exposure to interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Financial instruments may mature or re-price at different times. Financial instruments may re-price at the same time but by different amounts. Short-term and long-term market interest rates may change by different amounts. The timing and amount of cash flows of various financial instruments may change as interest rates change. In addition, the changing levels of interest rates may have an impact on bond portfolio volumes, accumulated other comprehensive (loss) income, loan demand and demand for various deposit products.

 

The Company’s earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States government and its agencies, particularly the FOMC. The monetary policies of the FOMC can influence the overall demand for loans and growth of deposits and the level of interest rates earned on loans and investment securities and paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.

 

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

 

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

 

- 50 -
 

 

The Company’s asset and liability position was generally “asset sensitive” at June 30, 2025, based on the interest rate assumptions applied to the simulation model. An “asset sensitive” position results in a larger change in interest income than in interest expense resulting from application of assumed interest rate changes. However, in the dynamic simulation, an assumed decline in interest rates is expected to result in improved deposit balances funding higher earning asset levels. Further, in the dynamic simulation, no change in interest rates is expected to result in a decline in net interest income as asset yields remain stable and deposit costs rise as the Bank negotiates deposit rates with customers in the current environment.

 

At June 30, 2025, Management’s most recent measurements of estimated changes in net interest income were:

 

     

Dynamic Simulation (1)

    

Static Simulation (2)

  

Change in Interest Rates

    

First Year Change in Net Interest Income

  

+ 2.0%

    

+ 5.5%

    

+ 14.1%

  

+ 1.0%

    

+ 2.8%

    

+ 7.0%

  
0.0%     - 3.1%     0.0%  
- 1.0%     - 3.4%     - 7.8%  
- 2.0%     - 7.6%     - 15.5%  

 

(1)

Balance sheet composition changes; Assumed change in interest rates over 1 year

 

(2)

Balance sheet composition unchanged; Assumed immediate change in interest rates

 

Simulation estimates depend on, and will change with, the size and mix of the actual and projected composition of financial instruments at the time of each simulation. Assumptions made in the simulation may not materialize and unanticipated events and circumstances may occur. In addition, the simulation does not take into account any future actions Management may undertake to mitigate the impact of interest rate changes, loan prepayment estimates and spread relationships, which may change regularly.

 

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

 

Market Risk - Equity Markets

 

Equity price risk can affect the Company. Preferred or common stock holdings, as permitted by banking regulations, can fluctuate in value. Changes in value of preferred or common stock holdings are recognized in the Company's income statement.

 

Fluctuations in the Company's common stock price can impact the Company's financial results in several ways. First, the Company has at times repurchased and retired its common stock; the market price paid to retire the Company's common stock affects the level of the Company's shareholders' equity, cash flows and shares outstanding. Second, the Company's common stock price impacts the number of dilutive equivalent shares used to compute diluted earnings per share. Third, fluctuations in the Company's common stock price can motivate holders of options to purchase Company common stock through the exercise of such options thereby increasing the number of shares outstanding and potentially adding volatility to the book tax provision. Finally, the amount of compensation expense and tax deductions associated with share based compensation fluctuates with changes in and the volatility of the Company's common stock price.

 

Market Risk - Other

 

Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for credit losses. The financial condition and liquidity of debtors issuing bonds and debtors whose mortgages or other obligations are securitized can directly impact the credit quality of the Company’s investment securities portfolio requiring the Company to establish or increase reserves for expected credit losses. Other types of market risk, such as foreign currency exchange risk, are not significant in the normal course of the Company's business activities.

 

- 51 -
 

 

Liquidity and Funding

 

The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Bank's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Bank achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Bank's liquidity position is enhanced by its ability to raise additional funds as needed by borrowing from correspondent banks or in the wholesale markets, or by selling debt securities available for sale.

 

In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This low-cost source of funds, along with shareholders' equity, provided 97% of funding for average total assets for the six months ended June 30, 2025 and 96% for the year ended December 31, 2024. The Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit risk and capital management practices and by maintaining an appropriate level of liquidity.

 

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

 

The following table shows the time remaining to maturity of the Company’s estimated amounts of uninsured time deposits with a balance greater than $250,000 per depositor per category:

 

   

At June 30, 2025

  
   

(In thousands)

  

Three months or less

   $ 1,951  

Over three through six months

     1,800  

Over six through twelve months

     351  

Over twelve months

     58  

Total

   $ 4,160  

 

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, and principal and interest payments from debt securities and loans. At June 30, 2025, the Company had $626,437 thousand in cash balances. During the twelve months ending June 30, 2026, the Company expects to receive $288,000 thousand in principal payments from its debt securities. If additional operational liquidity is required, the Company can pledge debt securities as collateral for borrowing purposes; at June 30, 2025, the Company’s debt securities which qualify as collateral for borrowing totaled $3,522,823 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain depository customers; at June 30, 2025, the Company had pledged $715,788 thousand in debt securities for depository customers. In the ordinary course of business, the Company pledges debt securities as collateral for borrowing from the Federal Reserve Bank; at June 30, 2025, the Company had pledged $703,398 thousand in debt securities at the Federal Reserve Bank. During the three months ended June 30, 2025, the Company’s average borrowings from the Federal Reserve Bank and other correspondent banks were $-0- thousand, respectively, and at June 30, 2025, the Company had no borrowings from the Federal Reserve Bank or other correspondent banks. At June 30, 2025, the Company had access to borrowing from the Federal Reserve Bank up to $703,398 thousand based on collateral pledged at June 30, 2025. At June 30, 2025, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,683,788 thousand. Debt securities eligible as collateral are shown at market value unless noted otherwise:

 

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- 52 -
 

 

   

At June 30, 2025

  
   

(in thousands)

  

Debt Securities Eligible as Collateral:

        

Corporate Securities

   $ 2,517,133  

Collateralized Loan Obligations rated AAA

     257,649  

Obligations of States and Political Subdivisions

     106,428  

Agency Mortgage Backed Securities

     339,710  

Securities of U.S. Government Sponsored Entities

     301,903  

Total Debt Securities Eligible as Collateral

   $ 3,522,823  
         

Debt Securities Pledged as Collateral:

        

Debt Securities Pledged at the Federal Reserve Bank

   $ (703,398 )

Deposits by Public Entities

     (715,788 )

Securities Sold under Repurchase Agreements

     (412,956 )

Other

     (6,893 )

Total Debt Securities Pledged as Collateral

   $ (1,839,035 )
         

Estimated Debt Securities Available to Pledge

   $ 1,683,788  

 

Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. The Bank performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress testing, the Bank assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows considers the composition of the Bank’s deposit base, including any concentration of deposits, non-deposit funding such as short-term borrowings, and unfunded lending commitments. The composition of the Bank’s deposits is considered including the broad industry and geographic diversification in the Bank’s market area. The Bank evaluates its stock of highly liquid assets to meet the assumed higher levels of outflows. Highly liquid assets include cash and amounts due from other banks from daily transaction settlements, reduced by branch cash needs and any Federal Reserve Bank reserve requirements, and investment securities based on regulatory guidelines. Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank. However, no assurance can be given the Bank will not experience a period of reduced liquidity.

 

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

 

Westamerica Bancorporation ("Parent Company") is a separate entity apart from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of dividends declared for its shareholders, and interest and principal on any outstanding debt. The Parent Company had no debt at June 30, 2025. Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees.

 

The Bank’s dividends paid to the Parent Company and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $24 million in the six months ended June 30, 2025 and $47 million in the year ended December 31, 2024 and retire common stock in the amounts of $57 million in the six months ended June 30, 2025 and $210 thousand in the year ended December 31, 2024. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not impact Parent Company's ability to meet its ongoing cash obligations. The Parent Company’s cash balance was $262 million at June 30, 2025 and $263 million at December 31, 2024.

 

Capital Resources

 

The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) was 11.6% (annualized) for the six months ended June 30, 2025 and 13.8% for the year ended December 31, 2024. The Company also raises capital as employees exercise stock options. Capital was not raised through the exercise of stock options in the six months ended June 30, 2025 while $1.5 million was raised through the exercise of stock options in the year ended December 31, 2024.

 

- 53 -
 

 

The Company paid common dividends totaling $24 million in the six months ended June 30, 2025 and $47 million in the year ended December 31, 2024, which represent dividends per common share of $0.90 and $1.76, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return capital to shareholders. The Company retired 1.1 million shares valued at $57 million in the six months ended June 30, 2025 and 4 thousand shares valued at $210 thousand in the year ended December 31, 2024.

 

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

 

The Company performs capital stress tests on a periodic basis to evaluate the sustainability of its capital. Under the stress testing, the Company assumes various scenarios such as deteriorating economic and operating conditions, and unanticipated asset devaluations. The Company measures the impact of these scenarios on its earnings and capital. Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the Company. However, no assurance can be given the Bank or Company will not experience a period of reduced earnings or a reduction in capital from unanticipated events and circumstances.

 

Capital to Risk-Adjusted Assets

 

The capital ratios for the Company and the Bank under current regulatory capital standards are presented in the tables below, on the dates indicated. For Common Equity Tier I Capital, Tier 1 Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.”

 

                           

To Be

  
                           

Well-capitalized

  
                   

Required for

    

Under Prompt

  
   

At June 30, 2025

    

Capital Adequacy

    

Corrective Action

  
   

Company

    

Bank

    

Purposes

    

Regulations (Bank)

  
                                 

Common Equity Tier I Capital

     23.09 %     15.61 %     7.00 %     6.50 %

Tier I Capital

     23.09 %     15.61 %     8.50 %     8.00 %

Total Capital

     23.44 %     16.12 %     10.50 %     10.00 %

Leverage Ratio

     15.49 %     10.43 %     4.00 %     5.00 %

 

                           

To Be

  
                           

Well-capitalized

  
                   

Required for

    

Under Prompt

  
   

At December 31, 2024

    

Capital Adequacy

    

Corrective Action

  
   

Company

    

Bank

    

Purposes

    

Regulations (Bank)

  
                                 

Common Equity Tier I Capital

     22.46 %     15.33 %     7.00 %     6.50 %

Tier I Capital

     22.46 %     15.33 %     8.50 %     8.00 %

Total Capital

     22.82 %     15.84 %     10.50 %     10.00 %

Leverage Ratio

     15.30 %     10.41 %     4.00 %     5.00 %

 

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

 

- 54 -
 

 

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 permitted with the approval of the Company’s Board of Directors.

 

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

 

Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business.

 

Item 4. Controls and Procedures

 

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of June 30, 2025.

 

Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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

 

Item 1A. Risk Factors

 

The Company’s Annual Report on Form 10-K for the year ended December 31, 2024 includes detailed disclosure about the risks faced by the Company’s business.

 

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

 

(a) None

(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 Westamerica Bancorporation or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of common stock during the three months ended June 30, 2025.

 

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2025

  

Period

  

(a) Total Number of Shares Purchased

    

(b) Average Price Paid per Share

    

(c) Number of Shares Purchased as Part of Publicly Announced Plans or Programs

    

(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

  
   

(In thousands, except price paid)

  

April 1 through April 30

     179     $ 47.92       179       1,465  

May 1 through May 31

     594       50.12       594       871  

June 1 through June 30

     -       -       -       871  

Total

     773     $ 49.61       773       871  

 

The Company may repurchase shares of its common stock in the open market from time to time to optimize the Company’s use of equity capital and enhance shareholder value and with the intention of lessening the dilutive impact of issuing new shares under stock option plans, and other ongoing requirements.

 

The Company repurchased 773 thousand shares of its common stock during the three months ended June 30, 2025 pursuant to a program approved by the Board of Directors on February 27, 2025 authorizing the purchase of up to 2,000 thousand shares of common stock from time to time prior to March 31, 2026.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

Item 5. Other Information

 

Rule 10b5-1 Trading Plans

 

During the quarter ended June 30, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S‑K.
 

 

Item 6. Exhibits

 

Exhibit No.

Description of Exhibit
   
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 101.INS XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
   
Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document
   
Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
Exhibit 101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document
   
Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
Exhibit 104. The Cover page of Westamerica Bancorporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline XBRL (contained in Exhibit 101)

 

[The remainder of this page intentionally left blank]

 

 

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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 thereunto duly authorized.

 

WESTAMERICA BANCORPORATION
(Registrant)
 
 
/s/ Anela Jonas
Anela Jonas
Senior Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
 
Date: August 6, 2025

 

 

 

 

 

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ATTACHMENTS / EXHIBITS

ATTACHMENTS / EXHIBITS

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EXHIBIT 32.1

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