WESTAMERICA BANCORPORATION - Quarter Report: 2019 March (Form 10-Q)

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 March 31, 2019

☐

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		(I.R.S. Employer
Incorporation or Organization)		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

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. (Check one):

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 ☒

Securities registered pursuant to Section 12(b) of the Exchange 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 the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

Title of Class		Shares outstanding as of April 30, 2019
Common Stock,		26,929,915
No Par Value

TABLE OF CONTENTS

		Page
Forward Looking Statements		3

PART I - FINANCIAL INFORMATION

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	29

Item 3	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4	Controls and Procedures	49

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	49

Item 1A	Risk Factors	49

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3	Defaults upon Senior Securities	50

Item 4	Mine Safety Disclosures	50

Item 5	Other Information	50

Item 6	Exhibits	50

Signatures		51

Exhibit Index		52

Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		53

Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		54

Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350		55

Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350		56

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FORWARD-LOOKING STATEMENTS

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

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (13) changes in the securities markets and (14) 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 the Company's annual report on Form 10-K for the year ended December 31, 2018, 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.

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PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	At March 31, 2019			At December 31, 2018
	(In thousands)
Assets:
Cash and due from banks	$	421,788		$	420,284
Equity securities		1,771			1,747
Debt securities available for sale		2,702,240			2,654,670
Debt securities held to maturity, with fair values of:
$920,603 at March 31, 2019 and $971,445 at December 31, 2018		923,190			984,609
Loans		1,204,844			1,207,202
Allowance for loan losses		(20,477	)		(21,351	)
Loans, net of allowance for loan losses		1,184,367			1,185,851
Other real estate owned		43			350
Premises and equipment, net		33,934			34,507
Identifiable intangibles, net		1,619			1,929
Goodwill		121,673			121,673
Other assets		165,336			162,906
Total Assets	$	5,555,961		$	5,568,526

Liabilities:
Noninterest-bearing deposits	$	2,179,803		$	2,243,251
Interest-bearing deposits		2,612,781			2,623,588
Total deposits		4,792,584			4,866,839
Short-term borrowed funds		58,317			51,247
Other liabilities		48,293			34,849
Total Liabilities		4,899,194			4,952,935

Contingencies (Note 10)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding: 26,901 at March 31, 2019 and 26,730 at December 31, 2018		455,304			448,351
Deferred compensation		771			1,395
Accumulated other comprehensive loss		(11,249	)		(39,996	)
Retained earnings		211,941			205,841
Total Shareholders' Equity		656,767			615,591
Total Liabilities andShareholders' Equity	$	5,555,961		$	5,568,526

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the Three Months Ended March 31,
	2019		2018
	(In thousands, except per share data)
Interest and Fee Income:
Loans	$	14,797	$	14,697
Equity securities		98		85
Debt securities available for sale		17,521		13,551
Debt securities held to maturity		5,329		6,174
Interest-bearing cash		1,738		1,808
Total Interest and Fee Income		39,483		36,315
Interest Expense:
Deposits		485		450
Short-term borrowed funds		9		9
Total Interest Expense		494		459
Net Interest and Fee Income		38,989		35,856
Provision for Loan Losses		-		-
Net Interest and Fee Income After Provision For Loan Losses		38,989		35,856
Noninterest Income:
Service charges on deposit accounts		4,504		4,752
Merchant processing services		2,558		2,420
Debit card fees		1,507		1,605
Trust fees		717		743
ATM processing fees		633		664
Other service fees		577		631
Financial services commissions		101		114
Equity securities gains (losses)		24		(36	)
Other noninterest income		958		1,062
Total Noninterest Income		11,579		11,955
Noninterest Expense:
Salaries and related benefits		13,108		13,351
Occupancy and equipment		5,048		4,691
Outsourced data processing services		2,369		2,340
Professional fees		665		785
Courier service		442		463
Amortization of identifiable intangibles		310		570
Other noninterest expense		3,241		3,822
Total Noninterest Expense		25,183		26,022
Income Before Income Taxes		25,385		21,789
Provision for income taxes		5,739		4,283
Net Income	$	19,646	$	17,506

Average Common Shares Outstanding		26,841		26,532
Average Diluted Common Shares Outstanding		26,912		26,665
Per Common Share Data:
Basic earnings	$	0.73	$	0.66
Diluted earnings		0.73		0.66
Dividends paid		0.40		0.40

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

	For the Three Months Ended March 31,
	2019			2018
	(In thousands)
Net income	$	19,646		$	17,506
Other comprehensive income (loss):
Changes in net unrealized losses on debt securities available for sale		40,813			(32,846	)
Deferred tax (expense) benefit		(12,066	)		9,709
Changes in net unrealized losses on debt securities available for sale, net of tax		28,747			(23,137	)
Total comprehensive income (loss)	$	48,393		$	(5,631	)

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

	Common Shares Outstanding		Common Stock		Deferred Compensation			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total
	(In thousands)

Balance, December 31, 2017		26,425	$	431,734	$	1,533		$	(16,832	)	$	173,804		$	590,239
Cumulative effect of equity securities losses reclassified									142			(142	)		-
Adjusted Balance, January 1, 2018		26,425		431,734		1,533			(16,690	)		173,662			590,239
Reclass stranded tax effects resulting from the Tax Cuts and Jobs Act									(3,625	)		3,625			-
Net income for the period												17,506			17,506
Other comprehensive loss									(23,137	)					(23,137	)
Exercise of stock options		166		7,534											7,534
Stock based compensation				525											525
Stock awarded to employees		-		24											24
Dividends												(10,608	)		(10,608	)
Balance, March 31, 2018		26,591	$	439,817	$	1,533		$	(43,452	)	$	184,185		$	582,083

Balance, December 31, 2018		26,730	$	448,351	$	1,395		$	(39,996	)	$	205,841		$	615,591
Cumulative effect of bond premium amortization adjustment, net of tax												(2,801	)		(2,801	)
Adjusted Balance, January 1, 2019		26,730		448,351		1,395			(39,996	)		203,040			612,790
Net income for the period												19,646			19,646
Other comprehensive income									28,747						28,747
Shares issued from stock warrant exercise, net of repurchase		51													-
Exercise of stock options		120		5,771											5,771
Restricted stock activity				624		(624	)								-
Stock based compensation				541											541
Stock awarded to employees		-		17											17
Dividends												(10,745	)		(10,745	)
Balance, March 31, 2019		26,901	$	455,304	$	771		$	(11,249	)	$	211,941		$	656,767

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Three Months Ended March 31,
	2019			2018
	(In thousands)
Operating Activities:
Net income	$	19,646		$	17,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization/accretion		4,809			1,643
Net amortization of deferred net loan fees		(215	)		(40	)
Decrease in interest income receivable		1,887			1,019
Increase in income taxes payable		1,575			4,302
Decrease (increase) in deferred tax asset		3,175			(20	)
(Increase) decrease in other assets		(1,952	)		2,473
Stock option compensation expense		541			525
Increase in interest expense payable		8			15
Decrease in other liabilities		(6,013	)		(984	)
Equity securities (gains) losses		(24	)		36
Writedown of premises and equipment		-			1
Net Cash Provided by Operating Activities		23,437			26,476

Investing Activities:
Net repayments of loans		1,836			59,959
Purchases of debt securities available for sale		(219,414	)		(279,327	)
Proceeds from sale/maturity/calls of debt securities available for sale		210,429			86,218
Proceeds from maturity/calls of debt securities held to maturity		57,461			44,577
Purchases of premises and equipment		(393	)		(1,413	)
Proceeds from sale of foreclosed assets		307			50
Net Cash Provided by (Used in) Investing Activities		50,226			(89,936	)

Financing Activities:
Net change in deposits		(74,255	)		40,254
Net change in short-term borrowings		7,070			6,885
Exercise of stock options/issuance of shares		5,771			7,534
Common stock dividends paid		(10,745	)		(10,608	)
Net Cash (Used in) Provided by Financing Activities		(72,159	)		44,065
Net Change In Cash and Due from Banks		1,504			(19,395	)
Cash and Due from Banks at Beginning of Period		420,284			575,002
Cash and Due from Banks at End of Period	$	421,788		$	555,607

Supplemental Cash Flow Disclosures:
Supplemental disclosure of noncash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	19,444		$	-
Amount recognized upon initial adoption of ASU 2016-02 included above		15,325			-
Loan collateral transferred to other real estate owned		-			-
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		1,750			-
Interest paid for the period		486			444
Income tax payments for the period		-			-

See accompanying notes to unaudited consolidated financial statements.

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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 months ended March 31, 2019 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, 2018.

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, 2018. 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.

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

Certain amounts in prior periods have been reclassified to conform to the current presentation.

Recently Adopted Accounting Standards

In the three months ended March 31, 2019, the Company adopted the following new accounting guidance:

FASB ASU 2016-02, Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP.

The Company adopted the ASU provisions effective January 1, 2019, and elected the modified retrospective transition approach. The Company elected the package of practical expedients provided in the ASU, which allowed the Company to rely on lease classification determinations made under prior accounting guidance and forego reevaluation of (i) whether any existing contracts are or contain a lease, (ii) whether existing leases are operating or finance leases, and (iii) the initial direct cost for any existing leases. The Company also elected to combine lease and non-lease components and exempt short-term leases with an original term of one year or less from on-balance sheet recognition. The implementing entry recognized a lease liability of $15.3 million and right-of-use asset of $15.3 million for facilities leases. The change in occupancy and equipment expense was not material.

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FASB ASU 2017-08, Receivables – Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, was issued March 2017. The ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Company adopted the ASU provisions on January 1, 2019. The implementing entry reduced the carrying value of investment securities, specifically obligations of states and political subdivisions, by $3.1 million and reduced retained earnings by $2.8 million, net of tax. The change in premium amortization method was not material to revenue recognition.

FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, was issued August 2017. The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU also provides for a one-time reclassification of prepayable assets from held-to-maturity (HTM) to available for sale (AFS) regardless of derivative use.

The Company adopted the ASU provisions on January 1, 2019. 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. The Company evaluated the prepayable assets in the HTM portfolio and did not effect a one-time reclassification of prepayable assets from HTM to the AFS upon implementation.

Recently Issued Accounting Standards

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

The Company will be required to adopt the ASU provisions on January 1, 2020. Management has evaluated available data, defined portfolio segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management has preliminarily measured historical loss rates for each portfolio segment. The ultimate adjustment to the allowance for loan losses will be accomplished through an offsetting after-tax adjustment to shareholders’ equity. Management has also segmented debt securities held to maturity, selected methods to estimate losses for each segment, and preliminarily measured a loss estimate. Economic conditions and the composition of the Company’s loan portfolio and debt securities held to maturity at the time of adoption will influence the extent of the adopting accounting adjustment. Management expects to develop an aggregate loss estimate by December 31, 2019.

FASB ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, was issued August 2018. The ASU is part of the disclosure framework project, where the primary focus is to improve the effectiveness of disclosures in the financial statements. The ASU removes, modifies and adds disclosure requirements related to Fair Value Measurements.

The provisions of the ASU are effective January 1, 2020 with the option to early adopt any removed or modified disclosures upon issuance of the ASU. The Company early adopted the provisions to remove and/or modify relevant disclosures in Note 11 to the consolidated financial statements. The requirement to include additional disclosures will be adopted by the Company January 1, 2020. The additional disclosures will not affect the financial results upon adoption.

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Note 3: Investment Securities

Effective January 1, 2018, upon adoption of ASU 2016-01, equity securities included in the Company’s available for sale portfolio of $1,800 thousand were reclassified to equity securities. The reclassification of equity securities resulted in recording a cumulative effect adjustment to decrease retained earnings by $142 thousand, net of tax.

The market value of equity securities was $1,771 thousand and $1,747 thousand at March 31, 2019 and December 31, 2018, respectively. During the three months ended March 31, 2019, the Company recognized gross unrealized holding gains of $24 thousand in earnings. During the three months ended March 31, 2018, the Company recognized gross unrealized holding losses of $36 thousand in earnings.

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 cumulative other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At March 31, 2019	(In thousands)
Debt securities available for sale
U.S. Treasury securities	$	109,000	$	54	$	-		$	109,054
Securities of U.S. Government sponsored entities		167,234		91		(1,586	)		165,739
Agency residential mortgage-backed securities (MBS)		945,117		3,599		(18,693	)		930,023
Non-agency residential MBS		111		1		-			112
Agency commercial MBS		1,860		-		(23	)		1,837
Securities of U.S. Government entities		1,091		-		(10	)		1,081
Obligations of states and political subdivisions		169,947		2,817		(711	)		172,053
Corporate securities		1,323,850		6,881		(8,390	)		1,322,341
Total debt securities available for sale		2,718,210		13,443		(29,413	)		2,702,240
Debt securities held to maturity
Agency residential MBS		427,387		364		(9,269	)		418,482
Non-agency residential MBS		3,124		63		-			3,187
Obligations of states and political subdivisions		492,679		6,367		(112	)		498,934
Total debt securities held to maturity		923,190		6,794		(9,381	)		920,603
Total	$	3,641,400	$	20,237	$	(38,794	)	$	3,622,843

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At December 31, 2018	(In thousands)
Debt securities available for sale
U.S. Treasury securities	$	139,572	$	5	$	(3	)	$	139,574
Securities of U.S. Government sponsored entities		167,228		65		(3,275	)		164,018
Agency residential mortgage-backed securities (MBS)		883,715		595		(30,439	)		853,871
Non-agency residential MBS		113		1		-			114
Agency commercial MBS		1,869		-		(27	)		1,842
Securities of U.S. Government entities		1,128		-		(9	)		1,119
Obligations of states and political subdivisions		180,220		1,856		(2,985	)		179,091
Corporate securities		1,337,608		1,075		(23,642	)		1,315,041
Total debt securities available for sale		2,711,453		3,597		(60,380	)		2,654,670
Debt securities held to maturity
Agency residential MBS		447,332		249		(14,129	)		433,452
Non-agency residential MBS		3,387		40		-			3,427
Obligations of states and political subdivisions		533,890		3,403		(2,727	)		534,566
Total debt securities held to maturity		984,609		3,692		(16,856	)		971,445
Total	$	3,696,062	$	7,289	$	(77,236	)	$	3,626,115

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

	At March 31, 2019
	Debt Securities Available for Sale				Debt Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Maturity in years:
1 year or less	$	280,961	$	280,891	$	88,062	$	88,138
Over 1 to 5 years		1,357,380		1,354,969		186,922		188,819
Over 5 to 10 years		94,223		96,091		216,663		220,913
Over 10 years		38,558		38,317		1,032		1,064
Subtotal		1,771,122		1,770,268		492,679		498,934
MBS		947,088		931,972		430,511		421,669
Total	$	2,718,210	$	2,702,240	$	923,190	$	920,603

	At December 31, 2018
	Debt Securities Available for Sale				Debt Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Maturity in years:
1 year or less	$	262,418	$	261,976	$	86,172	$	86,148
Over 1 to 5 years		1,438,849		1,414,020		214,137		213,829
Over 5 to 10 years		85,817		85,877		232,544		233,515
Over 10 years		38,672		36,970		1,037		1,074
Subtotal		1,825,756		1,798,843		533,890		534,566
MBS		885,697		855,827		450,719		436,879
Total	$	2,711,453	$	2,654,670	$	984,609	$	971,445

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. At March 31, 2019 and December 31, 2018, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

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

	Debt Securities Available for Sale At March 31, 2019
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment		Fair		Unrealized			Investment		Fair		Unrealized			Investment		Fair		Unrealized
	Positions		Value		Losses			Positions		Value		Losses			Positions		Value		Losses
	($ in thousands)
Securities of U.S. Government sponsored entities		-	$	-	$	-			10	$	120,648	$	(1,586	)		10	$	120,648	$	(1,586	)
Agency residential MBS		1		176		-			58		645,183		(18,693	)		59		645,359		(18,693	)
Agency commercial MBS		-		-		-			1		1,837		(23	)		1		1,837		(23	)
Securities of U.S. Government entities		-		-		-			2		1,081		(10	)		2		1,081		(10	)
Obligations of states and political subdivisions		6		5,215		(15	)		52		54,137		(696	)		58		59,352		(711	)
Corporate securities		4		17,527		(30	)		84		832,548		(8,360	)		88		850,075		(8,390	)
Total		11	$	22,918	$	(45	)		207	$	1,655,434	$	(29,368	)		218	$	1,678,352	$	(29,413	)

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

	Debt Securities Held to Maturity At March 31, 2019
	No. of		Less than 12 months				No. of		12 months or longer					No. of		Total
	Investment		Fair		Unrecognized		Investment		Fair		Unrecognized			Investment		Fair		Unrecognized
	Positions		Value		Losses		Positions		Value		Losses			Positions		Value		Losses
	($ in thousands)
Agency residential MBS		3	$	201	$	-		80	$	399,404	$	(9,269	)		83	$	399,605	$	(9,269	)
Obligations of states and political subdivisions		-		-		-		62		55,801		(112	)		62		55,801		(112	)
Total		3	$	201	$	-		142	$	455,205	$	(9,381	)		145	$	455,406	$	(9,381	)

The unrealized losses on the Company’s debt securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates debt securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. One corporate bond with a carrying value of $15.0 million and a market value of $14.3 million at March 31, 2019, is rated below investment grade. 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 does not intend to sell any debt securities and has concluded that it is more likely than not that it will not be required to sell the debt securities prior to recovery of the amortized cost basis. Therefore, the Company does not consider these debt securities to be other-than-temporarily impaired as of March 31, 2019.

The fair values of the debt securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for debt securities declines. As a result, other than temporary impairments may occur in the future.

As of March 31, 2019 and December 31, 2018, the Company had debt securities pledged to secure public deposits and short-term borrowed funds of $716,434 thousand and $728,161 thousand, respectively.

- 13 -

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

	Debt Securities Available for Sale At December 31, 2018
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment		Fair		Unrealized			Investment		Fair		Unrealized			Investment		Fair		Unrealized
	Positions		Value		Losses			Positions		Value		Losses			Positions		Value		Losses
	($ in thousands)
U.S. Treasury securities		2	$	54,805	$	(3	)		-	$	-	$	-			2	$	54,805	$	(3	)
Securities of U.S. Government sponsored entities		1		990		(5	)		9		117,963		(3,270	)		10		118,953		(3,275	)
Agency residential MBS		8		107,497		(507	)		58		640,210		(29,932	)		66		747,707		(30,439	)
Agency commercial MBS		1		1,842		(27	)		-		-		-			1		1,842		(27	)
Securities of U.S. Government entities		-		-		-			2		1,119		(9	)		2		1,119		(9	)
Obligations of states and political subdivisions		32		26,452		(166	)		71		67,121		(2,819	)		103		93,573		(2,985	)
Corporate securities		38		308,157		(3,403	)		79		722,740		(20,239	)		117		1,030,897		(23,642	)
Total		82	$	499,743	$	(4,111	)		219	$	1,549,153	$	(56,269	)		301	$	2,048,896	$	(60,380	)

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

	Debt Securities Held to Maturity At December 31, 2018
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment		Fair		Unrecognized			Investment		Fair		Unrecognized			Investment		Fair		Unrecognized
	Positions		Value		Losses			Positions		Value		Losses			Positions		Value		Losses
	($ in thousands)
Agency residential MBS		16	$	8,495	$	(34	)		78	$	412,574	$	(14,095	)		94	$	421,069	$	(14,129	)
Non-agency residential MBS		1		26		-			-		-		-			1		26		-
Obligations of states and political subdivisions		97		83,633		(271	)		142		151,546		(2,456	)		239		235,179		(2,727	)
Total		114	$	92,154	$	(305	)		220	$	564,120	$	(16,551	)		334	$	656,274	$	(16,856	)

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

	For the Three Months Ended March 31,
	2019		2018
	(In thousands)

Taxable	$	18,633	$	14,935
Tax-exempt from regular federal income tax		4,315		4,875
Total interest income from investment securities	$	22,948	$	19,810

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

At December 31, 2018, the Company had $5,713 thousand in residential real estate secured loans which are indemnified from loss by the FDIC up to eighty percent of principal; the indemnification expired February 6, 2019.

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

	At March 31, 2019		At December 31, 2018
	(In thousands)
Commercial	$	276,357	$	275,080
Commercial Real Estate		584,221		580,480
Construction		3,555		3,982
Residential Real Estate		41,798		44,866
Consumer Installment & Other		298,913		302,794
Total	$	1,204,844	$	1,207,202

Total loans outstanding reported above include loans purchased from the FDIC of $55,757 thousand and $58,247 thousand at March 31, 2019 and December 31, 2018, respectively.

Changes in the accretable yield for purchased loans were as follows:

	For the Three Months Ended March 31, 2019			For the Year Ended December 31, 2018
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	182		$	738
Reclassification from nonaccretable difference		1,103			1,119
Accretion		(141	)		(1,675	)
Balance at the end of the period	$	1,144		$	182

Accretion	$	(141	)	$	(1,675	)
Change in FDIC indemnification		-			2
(Increase) in interest income	$	(141	)	$	(1,673	)

The following summarizes activity in the allowance for loan losses:

	Allowance for Loan Losses For the Three Months Ended March 31, 2019
	Commercial			Commercial Real Estate		Construction			Residential Real Estate			Consumer Installment and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,311		$	3,884	$	1,465		$	869		$	5,645		$	3,177	$	21,351
(Reversal) provision		125			31		(612	)		(608	)		792			272		-
Chargeoffs		(23	)		-		-			-			(1,368	)		-		(1,391	)
Recoveries		93			12		-			-			412			-		517
Total allowance for loan losses	$	6,506		$	3,927	$	853		$	261		$	5,481		$	3,449	$	20,477

	Allowance for Loan Losses For the Three Months Ended March 31, 2018
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	7,746		$	3,849		$	335		$	995		$	6,418		$	3,666	$	23,009
(Reversal) provision		(17	)		(25	)		(160	)		(87	)		37			252		-
Chargeoffs		(41	)		-			-			-			(1,365	)		-		(1,406	)
Recoveries		829			-			-			-			649			-		1,478
Total allowance for loan losses	$	8,517		$	3,824		$	175		$	908		$	5,739		$	3,918	$	23,081

- 15 -

The allowance for loan losses and recorded investment in loans evaluated for impairment were as follows:

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At March 31, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	2,715	$	-	$	-	$	-	$	-	$	-	$	2,715
Collectively evaluated for impairment		3,791		3,927		853		261		5,481		3,449		17,762
Total	$	6,506	$	3,927	$	853	$	261	$	5,481	$	3,449	$	20,477
Carrying value of loans:
Individually evaluated for impairment	$	9,763	$	6,750	$	-	$	197	$	116	$	-	$	16,826
Collectively evaluated for impairment		266,594		577,471		3,555		41,601		298,797		-		1,188,018
Total	$	276,357	$	584,221	$	3,555	$	41,798	$	298,913	$	-	$	1,204,844

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At December 31, 2018
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	2,752	$	-	$	-	$	-	$	-	$	-	$	2,752
Collectively evaluated for impairment		3,559		3,884		1,465		869		5,645		3,177		18,599
Total	$	6,311	$	3,884	$	1,465	$	869	$	5,645	$	3,177	$	21,351
Carrying value of loans:
Individually evaluated for impairment	$	9,944	$	8,438	$	-	$	717	$	143	$	-	$	19,242
Collectively evaluated for impairment		265,136		572,042		3,982		44,149		302,651		-		1,187,960
Total	$	275,080	$	580,480	$	3,982	$	44,866	$	302,794	$	-	$	1,207,202

The Company’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Company’s subsidiary, Westamerica Bank (the “Bank”) maintains a Loan Review Department which reports directly to the Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans and validates management assigned credit risk grades on evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” 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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- 16 -

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

	Credit Risk Profile by Internally Assigned Grade At March 31, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	266,405	$	572,937	$	3,555	$	41,601	$	297,781	$	1,182,279
Substandard		9,952		11,284		-		197		584		22,017
Doubtful		-		-		-		-		204		204
Loss		-		-		-		-		344		344
Total	$	276,357	$	584,221	$	3,555	$	41,798	$	298,913	$	1,204,844

	Credit Risk Profile by Internally Assigned Grade At December 31, 2018
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	264,634	$	567,578	$	3,982	$	43,112	$	300,553	$	1,179,859
Substandard		10,446		12,902		-		1,754		1,556		26,658
Doubtful		-		-		-		-		135		135
Loss		-		-		-		-		550		550
Total	$	275,080	$	580,480	$	3,982	$	44,866	$	302,794	$	1,207,202

Credit risk profile reflects internally assigned grades of purchased covered loans without regard to FDIC indemnification on $5,713 thousand residential real estate and consumer loans at December 31, 2018. The indemnification expired February 6, 2019.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status At March 31, 2019
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	275,577	$	747	$	21	$	-	$	12	$	276,357
Commercial real estate		579,041		1,308				-		3,872		584,221
Construction		3,555		-		-		-		-		3,555
Residential real estate		41,798		-		-		-		-		41,798
Consumer installment and other		295,179		2,626		598		394		116		298,913
Total	$	1,195,150	$	4,681	$	619	$	394	$	4,000	$	1,204,844

	Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2018
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	274,045	$	781	$	254	$	-	$	-	$	275,080
Commercial real estate		574,853		617		785		-		4,225		580,480
Construction		3,982		-		-		-		-		3,982
Residential real estate		43,372		789		189		-		516		44,866
Consumer installment and other		297,601		3,408		1,107		551		127		302,794
Total	$	1,193,853	$	5,595	$	2,335	$	551	$	4,868	$	1,207,202

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2019 and December 31, 2018.

- 17 -

The following summarizes impaired loans:

	Impaired Loans
	At March 31, 2019						At December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no related allowance recorded:
Commercial	$	706	$	706	$	-	$	755	$	759	$	-
Commercial real estate		6,750		8,197		-		8,438		10,373		-
Residential real estate		197		227		-		717		747		-
Consumer installment and other		116		151		-		270		377		-
Total with no related allowance recorded		7,769		9,281		-		10,180		12,256		-

With an allowance recorded:
Commercial		9,057		9,057		2,715		9,189		9,189		2,752
Commercial real estate		-		-		-		-		-		-
Total with an allowance recorded		9,057		9,057		2,715		9,189		9,189		2,752
Total	$	16,826	$	18,338	$	2,715	$	19,369	$	21,445	$	2,752

Impaired loans include troubled debt restructured loans. Impaired loans at March 31, 2019, included $7,505 thousand of restructured loans, $3,670 thousand of which were on nonaccrual status. Impaired loans at December 31, 2018, included $8,579 thousand of restructured loans, $4,225 thousand of which were on nonaccrual status.

	Impaired Loans For the Three Months Ended March 31,
	2019				2018
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)
Commercial	$	9,848	$	167	$	10,897	$	175
Commercial real estate		6,893		147		13,755		215
Residential real estate		198		3		207		4
Consumer installment and other		132		-		357		3
Total	$	17,071	$	317	$	25,216	$	397

The following tables provide information on troubled debt restructurings:

	Troubled Debt Restructurings At March 31, 2019
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	($ in thousands)
Commercial		4	$	2,274	$	760	$	17
Commercial real estate		6		8,367		6,548		-
Residential real estate		1		241		197		-
Total		11	$	10,882	$	7,505	$	17

- 18 -

	Troubled Debt Restructurings At December 31, 2018
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	($ in thousands)
Commercial		4	$	2,274	$	811	$	19
Commercial real estate		8		9,237		7,568		-
Residential real estate		1		241		200		-
Total		13	$	11,752	$	8,579	$	19

During the three months ended March 31, 2019 and March 31, 2018, the Company did not modify any loans that were considered troubled debt restructurings. There were no chargeoffs related to troubled debt restructurings made during the three months ended March 31, 2019 and March 31, 2018. During the three months ended March 31, 2019 and 2018, no troubled debt restructured loans defaulted within 12 months of the modification date. A troubled debt restructuring is considered to be in default when payments are ninety days or more past due.

There were no loans restricted due to collateral requirements at March 31, 2019 and December 31, 2018.

There were no loans held for sale at March 31, 2019 and December 31, 2018.

At March 31, 2019 and December 31, 2018, the Company held total other real estate owned (OREO) of $43 thousand net of reserve of $-0- thousand and $350 thousand net of reserve of $-0- thousand, respectively, of which $-0- was foreclosed residential real estate properties or covered OREO at both dates. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $178 thousand at March 31, 2019 and $516 thousand at December 31, 2018.

Note 5: Concentration of Credit Risk

Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not exceed the following limitations: (a) unsecured loans shall not exceed 15 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank, or (b) secured and unsecured loans in all shall not exceed 25 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank. At March 31, 2019, the Bank did not have credit extended to any one entity exceeding these limits. At March 31, 2019, the Bank had 36 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 $51,175 thousand and $53,891 thousand at March 31, 2019 and December 31, 2018, 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 March 31, 2019, the Bank held corporate bonds in 78 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 March 31, 2019		At December 31, 2018
	(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		56,725		56,083
Net deferred tax asset		27,332		42,256
Right-of-use asset		17,891		-
Limited partnership investments		9,343		10,219
Interest receivable		23,947		25,834
Prepaid assets		4,373		4,658
Other assets		11,498		9,629
Total other assets	$	165,336	$	162,906

⁽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. class B common stock which have transfer restrictions; the carrying value is $-0- thousand. On July 5, 2018, Visa Inc. announced a new conversion rate applicable to its class B common stock resulting from its June 28, 2018 deposit of funds into its litigation escrow account. This funding reduced the conversion rate of class B common stock into class A common stock, which is unrestricted and trades actively on the New York Stock Exchange, to 1.6298 per share. Visa Inc. class A common stock had a closing price of $156.19 per share on March 31, 2019, the last day of stock market trading for the first quarter 2019. The ultimate value of the Company’s Visa Inc. class B shares is subject to the extent of Visa Inc.’s future litigation escrow fundings, the resulting conversion rate to class A common stock, and current and future trading restrictions on the class B common stock.

The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At March 31, 2019, this investment totaled $9,343 thousand and $4,773 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2018, this investment totaled $10,219 thousand and $4,799 thousand of this amount represented outstanding equity capital commitments. At March 31, 2019, the $4,773 thousand of outstanding equity capital commitments are expected to be paid as follows, $601 thousand in the remainder of 2019, $2,026 thousand in 2020, $138 thousand in 2021, $261 thousand in 2022, $134 thousand in 2023, $1,041 thousand in 2024 and $572 thousand in 2025 or thereafter.

The amounts recognized in net income for these investments include:

	For the Three Months Ended March 31,
	2019		2018
	(In thousands)
Investment loss included in pre-tax income	$	600	$	600
Tax credits recognized in provision for income taxes		266		336

- 20 -

Other liabilities consisted of the following:

	At March 31, 2019		At December 31, 2018
	(In thousands)
Operating lease liability	$	17,891	$	-
Other liabilities		30,402		34,849
Total other liabilities	$	48,293	$	34,849

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 5 years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional 5 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 March 31, 2019.

As of March 31, 2019, the company recorded a lease liability of $17,891 thousand and a right-of-use asset of $17,891 thousand, respectively. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were 4.15 years and 3.01 percent, respectively, at March 31, 2019. The company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of March 31, 2019.

Total lease costs during the three months ended March 31, 2019, of $1,705 thousand 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 three months ended March 31, 2019.

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

	Minimum future lease payments At March 31, 2019
	(In thousands)
Remaining 9 months of 2019	$	4,786
2020		5,076
2021		3,381
2022		2,580
2023		1,938
Thereafter		1,230
Total minimum lease payments		18,991
Less: discount		(1,100	)
Present value of lease liability	$	17,891

Minimum future rental payments under noncancelable operating leases as of December 31, 2018, prior to adoption of ASU 2016-02, are as follows:

	Minimum future rental payments
	(In thousands)
2019	$	5,996
2020		4,409
2021		2,741
2022		1,921
2023		1,223
Thereafter		1,044
Total minimum lease payments	$	17,334

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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 months ended March 31, 2019 and year ended December 31, 2018. 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 months ended March 31, 2019 and year ended December 31, 2018 no such adjustments were recorded.

The carrying values of goodwill were:

	At March 31, 2019		At December 31, 2018
	(In thousands)
Goodwill	$	121,673	$	121,673

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

	At March 31, 2019					At December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Core Deposit Intangibles	$	56,808	$	(55,189	)	$	56,808	$	(54,879	)

As of December 31, 2018, the current period and estimated future amortization expense for identifiable intangible assets was:

	Total Core Deposit Intangibles
		(In thousands)
For the Three Months ended March 31, 2019 (actual)	$	310
Estimate for the remainder of year ending December 31, 2019		228
Estimate for year ending December 31, 2020		287
2021		269
2022		252
2023		236
2024		222

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Note 8: Deposits and Borrowed Funds

The following table provides additional detail regarding deposits.

	Deposits
	At March 31, 2019		At December 31, 2018
	(In thousands)
Noninterest-bearing	$	2,179,803	$	2,243,251
Interest-bearing:
Transaction		941,379		929,346
Savings		1,482,187		1,498,991
Time deposits less than $100 thousand		100,066		102,654
Time deposits $100 thousand through $250 thousand		61,684		64,512
Time deposits more than $250 thousand		27,465		28,085
Total deposits	$	4,792,584	$	4,866,839

Demand deposit overdrafts of $1,350 thousand and $980 thousand were included as loan balances at March 31, 2019 and December 31, 2018, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $82 thousand in the three months ended March 31, 2019 and $97 thousand in the three months ended March 31, 2018.

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 March 31, 2019		At December 31, 2018
Repurchase agreements:	(In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities	$	74,857	$	73,803
Agency residential MBS		57,953		58,380
Corporate securities		92,977		91,837
Total collateral carrying value	$	225,787	$	224,020
Total short-term borrowed funds	$	58,317	$	51,247

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. Equity securities and 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, impaired loans, 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.

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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, asset-backed securities, and municipal bonds.

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 conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; debt securities selected for OTTI analysis include all debt securities at a market price below 95 percent of par value. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.

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

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 March 31, 2019
	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)
Equity securities
Mutual funds	$	1,771	$	-	$	1,771	$	-
Total equity securities		1,771		-		1,771		-
Debt securities available for sale
U.S. Treasury securities		109,054		109,054		-		-
Securities of U.S. Government sponsored entities		165,739		-		165,739		-
Agency residential MBS		930,023		-		930,023		-
Non-agency residential MBS		112		-		112		-
Agency commercial MBS		1,837		-		1,837		-
Securities of U.S. Government entities		1,081		-		1,081		-
Obligations of states and political subdivisions		172,053		-		172,053		-
Corporate securities		1,322,341		-		1,322,341		-
Total debt securities available for sale		2,702,240		109,054		2,593,186		-
Total	$	2,704,011	$	109,054	$	2,594,957	$	-

⁽¹⁾There were no transfers in to or out of level 3 during the three months ended March 31, 2019.

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	At December 31, 2018
	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)
Equity securities
Mutual funds	$	1,747	$	-	$	1,747	$	-
Total equity securities		1,747		-		1,747		-
Debt securities available for sale
U.S. Treasury securities		139,574		139,574		-		-
Securities of U.S. Government sponsored entities		164,018		-		164,018		-
Agency residential MBS		853,871		-		853,871		-
Non-agency residential MBS		114		-		114		-
Agency commercial MBS		1,842		-		1,842		-
Securities of U.S. Government entities		1,119		-		1,119		-
Obligations of states and political subdivisions		179,091		-		179,091		-
Corporate securities		1,315,041		-		1,315,041		-
Total debt securities available for sale		2,654,670		139,574		2,515,096		-
Total	$	2,656,417	$	139,574	$	2,516,843	$	-

⁽¹⁾There were no transfers in to or out of level 3 during the year ended December 31, 2018.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at March 31, 2019 and December 31, 2018, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

									For the Three Months Ended
	At March 31, 2019								March 31, 2019
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Other real estate owned	$	43	$	-	$	-	$	43	$	-
Impaired loans:
Commercial		6,342		-		-		6,342		-
Commercial real estate		4,100		-		-		4,100		-
Residential real estate		197		-		-		197		-
Consumer installment and other		77		-		-		77		-
Total assets measured at fair value on a nonrecurring basis	$	10,759	$	-	$	-	$	10,759	$	-

									For the Year Ended
	At December 31, 2018								December 31, 2018
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Other real estate owned	$	350	$	-	$	-	$	350	$	-
Impaired loans:
Commercial		6,437		-		-		6,437		-
Commercial real estate		3,870		-		-		3,870		(240	)
Total assets measured at fair value on a nonrecurring basis	$	10,657	$	-	$	-	$	10,657	$	(240	)

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Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less 10% for selling costs, generally. Level 3 includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real property and other business asset collateral where a specific reserve has been established or a chargeoff has been recorded. Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification as foreclosed assets. The unobservable inputs and qualitative information about the unobservable inputs are not presented as the inputs were not developed by the Company.

Disclosures about Fair Value of Financial Instruments

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

Cash and Due from Banks Cash and due from banks represent U.S. dollar denominated coin and currency, deposits at the Federal Reserve Bank and correspondent banks, and amounts being settled with other banks to complete the processing of customers’ daily transactions. Collectively, the Federal Reserve Bank and financial institutions operate in a market in which cash and due from banks transactions are processed continuously in significant daily volumes honoring the face value of the U.S. dollar.

Equity Securities The fair values of equity securities were estimated using quoted prices as describe above for Level 2 valuation.

Debt Securities Held to Maturity The fair values of debt securities were estimated using quoted prices as described above for Level 1 and Level 2 valuation.

Loans Loans are valued using the exit price notion. The Company uses a net present value of cash flows methodology that seeks to incorporate interest rate, credit, liquidity and prepayment risks in the fair market value estimation. Inputs to the calculation include market rates for similarly offered products, market interest rate projections, credit spreads, estimated credit losses and prepayment assumptions.

Deposit Liabilities Deposits with no stated maturity such as checking accounts, savings accounts and money market accounts can be readily converted to cash or used to settle transactions at face value through the broad financial system operated by the Federal Reserve Banks and financial institutions. The fair value of deposits with no stated maturity is equal to the amount payable on demand. The fair value of time deposits was estimated using a net present value of cash flows methodology, incorporating market interest rate projections and rates on alternative funding sources.

Short-Term Borrowed Funds The carrying amount of securities sold under agreement to repurchase and other short-term borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected realization.

The 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.

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	At March 31, 2019
	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	$	421,788	$	421,788	$	421,788	$	-	$	-
Debt securities held to maturity		923,190		920,603		-		920,603		-
Loans		1,184,367		1,213,251		-		-		1,213,251

Financial Liabilities:
Deposits	$	4,792,584	$	4,788,497	$	-	$	4,603,369	$	185,128
Short-term borrowed funds		58,317		58,317		-		58,317		-

	At December 31, 2018
	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	$	420,284	$	420,284	$	420,284	$	-	$	-
Debt securities held to maturity		984,609		971,445		-		971,445		-
Loans		1,185,851		1,184,770		-		-		1,184,770

Financial Liabilities:
Deposits	$	4,866,839	$	4,862,668	$	-	$	4,671,588	$	191,080
Short-term borrowed funds		51,247		51,247		-		51,247		-

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. 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 $271,945 thousand at March 31, 2019 and $278,598 thousand at December 31, 2018. 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 $2,772 thousand at March 31, 2019 and $2,772 thousand at December 31, 2018. The Company had no commitments outstanding for commercial and similar letters of credit at March 31, 2019 and December 31, 2018. The Company had $550 thousand and $75 thousand in outstanding full recourse guarantees to a 3^rd party credit card company at March 31, 2019 and December 31, 2018, respectively. The Company had a reserve for unfunded commitments of $2,308 thousand at March 31, 2019 and December 31, 2018, 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. In the third quarter 2018, the Company achieved a mediated settlement to dismiss a lawsuit and accrued a liability for $3,500 thousand; the liability was paid in the first quarter 2019.

The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to 2017 to some customers. The Company estimates the probable amount of these obligations will be $5,542 thousand and accrued a liability for such amount in 2017; the estimated liability is subject to revision.

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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 Ended
	March 31,
	2019		2018
	(In thousands, except per share data)
Net income (numerator)	$	19,646	$	17,506
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)		26,841		26,532
Basic earnings per common share	$	0.73	$	0.66
Diluted earnings per common share
Weighted average number of common shares outstanding - basic		26,841		26,532
Add common stock equivalents for options		71		133
Weighted average number of common shares outstanding - diluted (denominator)		26,912		26,665
Diluted earnings per common share	$	0.73	$	0.66

For the three months ended March 31, 2019 and 2018, options to purchase 463 thousand and 491 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

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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 Ended
	March 31,						December 31,
	2019			2018			2018
	(In thousands, except per share data)
Net Interest and Fee Income (FTE)⁽¹⁾	$	40,247		$	37,275		$	40,288
Provision for Loan Losses		-			-			-
Noninterest Income		11,579			11,955			11,897
Noninterest Expense		25,183			26,022			25,787
Income Before Income Taxes (FTE)⁽¹⁾		26,643			23,208			26,398
Provision for Income Taxes (FTE)⁽¹⁾		6,997			5,702			7,343
Net Income	$	19,646		$	17,506		$	19,055

Average Common Shares Outstanding		26,841			26,532			26,729
Average Diluted Common Shares Outstanding		26,912			26,665			26,815
Common Shares Outstanding at Period End		26,901			26,591			26,730

Per Common Share:
Basic Earnings	$	0.73		$	0.66		$	0.71
Diluted Earnings		0.73			0.66			0.71
Book Value Per Common Share		24.41			21.89			23.03

Financial Ratios:
Return On Assets		1.42	%		1.28	%		1.33	%
Return On Common Equity		12.16	%		11.57	%		11.70	%
Net Interest Margin (FTE)⁽¹⁾		3.12	%		2.89	%		3.06	%
Net Loan (Recoveries) Losses to Average Loans		0.29	%		(0.02	)%		0.23	%
Efficiency Ratio⁽²⁾		48.6	%		52.9	%		49.4	%

Average Balances:
Assets	$	5,611,762		$	5,564,705		$	5,680,321
Loans		1,205,656			1,243,750			1,189,744
Investments		3,689,852			3,479,463			3,692,951
Deposits		4,834,690			4,828,352			4,917,901
Shareholders' Equity		655,380			613,860			646,129

Period End Balances:
Assets	$	5,555,961		$	5,551,036		$	5,568,526
Loans		1,204,844			1,228,584			1,207,202
Investments		3,627,201			3,468,021			3,641,026
Deposits		4,792,584			4,867,867			4,866,839
Shareholders' Equity		656,767			582,083			615,591

Capital Ratios at Period End:
Total Risk Based Capital		17.49	%		16.53	%		16.17	%
Tangible Equity to Tangible Assets		9.82	%		8.42	%		9.04	%

Dividends Paid Per Common Share	$	0.40		$	0.40		$	0.40
Common Dividend Payout Ratio		55	%		61	%		56	%

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).

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Financial Overview

Westamerica Bancorporation and subsidiaries’ (collectively, the “Company”) reported first quarter 2019 net income of $19.6 million or $0.73 diluted earnings per common share. First quarter 2019 results compare to net income of $17.5 million or $0.66 diluted earnings per common share for the first quarter 2018 and $19.1 million or $0.71 diluted earnings per common share for the fourth quarter 2018.

The Company’s principal source of revenue is net interest and loan fee income, which represents interest and fees earned on loans and investment securities (“earning assets”) reduced by interest paid on deposits and other borrowings (“interest-bearing liabilities”). Market interest rates declined considerably following the recession of 2008 and 2009. Interest rates remained historically low through 2016 as the monetary policy of the Federal Open Market Committee (the “FOMC”) was highly accommodative. During this period, Management avoided originating long-dated, low-yielding loans given the potential impact of such assets on forward earning potential; as a result, loans declined and investment securities increased. The changed composition of the earning assets and low market interest rates pressured the net interest margin to lower levels. The FOMC began removing monetary stimulus in December 2016 and has increased the federal funds rate by 2.00 percent to 2.50 percent through March 2019, although longer-term rates have not increased by a similar magnitude. This recent increase in market interest rates has begun benefiting the Company’s earning asset yields. However, the rising market rates have not resulted in higher rates paid on deposits. The funding source of the Company’s earning assets is primarily customer deposits. The Company’s long-term strategy includes maximizing checking and savings deposits as these types of deposits are lower-cost and less sensitive to changes in interest rates compared to time deposits. During the three months ended March 31, 2019 the average volume of checking and savings deposits was 96.0 percent of average total deposits. Net interest income (FTE) was $40.2 million for the first quarter 2019, compared with $40.3 million for the fourth quarter 2018 and $37.3 million for the first quarter 2018. The increase in net interest income (FTE) in the first quarter 2019 is due to higher asset yields.

Credit quality remained solid with nonperforming assets totaling $4.4 million at March 31, 2019 compared with $5.8 million at December 31, 2018 and $7.8 million at March 31, 2018. The Company did not recognize a provision for loan losses in the three months ended March 31, 2019.

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

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2018 Form 10-K) are fundamental to understanding the Company’s results of operations and financial condition.

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Net Income

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

	For the Three Months Ended
	March 31,						December 31,
	2019			2018			2018
	(In thousands, except per share data)
Net interest and loan fee income (FTE)	$	40,247		$	37,275		$	40,288
Provision for loan losses		-			-			-
Noninterest income		11,579			11,955			11,897
Noninterest expense		25,183			26,022			25,787
Income before taxes (FTE)		26,643			23,208			26,398
Income tax provision (FTE)		6,997			5,702			7,343
Net income	$	19,646		$	17,506		$	19,055

Average diluted common shares		26,912			26,665			26,815
Diluted earnings per common share	$	0.73		$	0.66		$	0.71

Average total assets	$	5,611,762		$	5,564,705		$	5,680,321
Net income to average total assets (annualized)		1.42	%		1.28	%		1.33	%
Net income to average common shareholders' equity (annualized)		12.16	%		11.57	%		11.70	%

Net income for the first quarter 2019 was $2.1 million more than the same quarter of 2018. Net interest and loan fee income (FTE) increased $3.0 million in the first quarter 2019 compared with the first quarter 2018 mainly due to higher averages of investments and higher yield on earning assets, partially offset by lower average balances of loans. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. Noninterest expense decreased $839 thousand in the first quarter 2019 compared with the same period in 2018 due to lower personnel costs, professional fees and amortization of intangible assets, offset in part by higher occupancy and equipment expenses. Income tax provision (FTE) increased $1.3 million compared with the first quarter 2018 due to higher pretax income. The income tax provisions (FTE) for the first quarter 2019 and the first quarter 2018 include tax benefits of $284 thousand and $451 thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation expenses recognized in the financial statements.

Comparing the first quarter 2019 with the fourth quarter 2018 net income increased $591 thousand. Net interest and loan fee (FTE) income decreased $41 thousand due to lower average balances of earning assets, offset by higher yield on interest earning assets. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. In the first quarter 2019 noninterest expense decreased $604 thousand compared with the fourth quarter 2018 due to lower occupancy and equipment expenses, amortization of intangible assets and operating losses on limited partnership investments. Income tax provision (FTE) decreased $346 thousand in the first quarter 2019 compared with the fourth quarter 2018. The income tax provisions (FTE) for the first quarter 2019 and the fourth quarter 2018 include tax benefits of $284 thousand and $7 thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation expenses recognized in the financial statements.

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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 Ended
	March 31,						December 31,
	2019			2018			2018
	(In thousands)
Interest and loan fee income	$	39,483		$	36,315		$	39,448
Interest expense		494			459			514
Net interest and loan fee income		38,989			35,856			38,934
FTE adjustment		1,258			1,419			1,354
Net interest and loan fee income (FTE)	$	40,247		$	37,275		$	40,288

Average earning assets	$	5,184,978		$	5,161,144		$	5,270,708
Net interest margin (FTE) (annualized)		3.12	%		2.89	%		3.06	%

Net interest and loan fee income (FTE) increased $3.0 million in the first quarter 2019 compared with the first quarter 2018 mainly due to higher averages of investments (up $210 million) and higher yield on earning assets (up 0.23%), partially offset by lower average balances of loans (down $38 million).

Comparing the first quarter 2019 with the fourth quarter 2018 net interest and loan fee income (FTE) decreased $41 thousand due to lower average balances of earning assets (down $86 million), offset by higher yield on interest earning assets (up 0.06%).

The annualized net interest margin (FTE) increased to 3.12% in the first quarter 2019 from 2.89% in the first quarter 2018 and 3.06% in the fourth quarter 2018. The net interest margin (FTE) increased in the first quarter, reflecting earning assets repriced to higher yield.

The Company’s funding costs were 0.04% in the first quarter 2019, unchanged from the first and fourth quarters 2018. Average balances of time deposits declined $36 million from the first quarter 2018 to the first quarter 2019. Average balances of checking and saving deposits accounted for 96.0% of average total deposits in the first quarter 2019 compared with 95.3% in the first quarter 2018 and 95.9% in the fourth quarter 2018.

Net Interest Margin (FTE)

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

	For the Three Months Ended
	March 31,						December 31,
	2019			2018			2018

Yield on earning assets (FTE)		3.16	%		2.93	%		3.10	%
Rate paid on interest-bearing liabilities		0.08	%		0.07	%		0.08	%
Net interest spread (FTE)		3.08	%		2.86	%		3.02	%
Impact of noninterest-bearing funds		0.04	%		0.03	%		0.04	%
Net interest margin (FTE)		3.12	%		2.89	%		3.06	%

The FOMC increased the federal funds rate between December 2016 and December 2018. In the first quarter 2019 the yield on earning assets increased compared with the first and fourth quarters of 2018 as earning assets repriced to higher yield. Rates on interest-bearing liabilities were kept low by reducing the volume of higher-cost time deposits and maintaining steady rates paid on checking and savings deposits.

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Summary of Average Balances, Yields/Rates and Interest Differential

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

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

	For the Three Months Ended March 31, 2019
	Average Balance		Interest Income/ Expense		Yields/ Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,009,046	$	18,633		2.48	%
Tax-exempt ⁽¹⁾		680,806		5,462		3.21	%
Total investments ⁽¹⁾		3,689,852		24,095		2.61	%
Loans:
Taxable		1,153,980		14,378		5.05	%
Tax-exempt ⁽¹⁾		51,676		530		4.16	%
Total loans ⁽¹⁾		1,205,656		14,908		5.01	%
Total interest-bearing cash		289,470		1,738		2.40	%
Total Interest-earning assets ⁽¹⁾		5,184,978		40,741		3.16	%
Other assets		426,784
Total assets	$	5,611,762

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,204,232	$	-		-	%
Savings and interest-bearing transaction		2,438,558		337		0.06	%
Time less than $100,000		109,104		66		0.24	%
Time $100,000 or more		82,796		82		0.40	%
Total interest-bearing deposits		2,630,458		485		0.07	%
Short-term borrowed funds		59,226		9		0.06	%
Total interest-bearing liabilities		2,689,684		494		0.08	%
Other liabilities		62,466
Shareholders' equity		655,380
Total liabilities and shareholders' equity	$	5,611,762
Net interest spread ^{(1) (2)}						3.08	%
Net interest and fee income and interest margin ^{(1) (3)}			$	40,247		3.12	%

⁽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 Three Months Ended March 31, 2018
	Average Balance		Interest Income/ Expense		Yields/ Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	2,709,643	$	14,935		2.20	%
Tax-exempt ⁽¹⁾		769,820		6,169		3.21	%
Total investments ⁽¹⁾		3,479,463		21,104		2.43	%
Loans:
Taxable		1,184,715		14,223		4.87	%
Tax-exempt ⁽¹⁾		59,035		599		4.11	%
Total loans ⁽¹⁾		1,243,750		14,822		4.83	%
Interest-bearing cash		437,931		1,808		1.52	%
Total Interest-earning assets ⁽¹⁾		5,161,144		37,734		2.93	%
Other assets		403,561
Total assets	$	5,564,705

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,156,626	$	-		-	%
Savings and interest-bearing transaction		2,443,561		282		0.05	%
Time less than $100,000		125,020		71		0.23	%
Time $100,000 or more		103,145		97		0.38	%
Total interest-bearing deposits		2,671,726		450		0.07	%
Short-term borrowed funds		62,501		9		0.06	%
Total interest-bearing liabilities		2,734,227		459		0.07	%
Other liabilities		59,992
Shareholders' equity		613,860
Total liabilities and shareholders' equity	$	5,564,705
Net interest spread ^{(1) (2)}						2.86	%
Net interest and fee income and interest margin ^{(1) (3)}			$	37,275		2.89	%

⁽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 Three Months Ended December 31, 2018
	Average Balance		Interest Income/ Expense		Yields/ Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	2,973,286	$	18,003		2.42	%
Tax-exempt ⁽¹⁾		719,665		5,913		3.29	%
Total investments ⁽¹⁾		3,692,951		23,916		2.59	%
Loans:
Taxable		1,137,229		14,364		5.01	%
Tax-exempt ⁽¹⁾		52,515		530		4.00	%
Total loans ⁽¹⁾		1,189,744		14,894		4.97	%
Total interest-bearing cash		388,013		1,992		2.23	%
Total Interest-earning assets ⁽¹⁾		5,270,708		40,802		3.10	%
Other assets		409,613
Total assets	$	5,680,321

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,280,174	$	-		-	%
Savings and interest-bearing transaction		2,438,034		351		0.06	%
Time less than $100,000		113,552		70		0.24	%
Time $100,000 or more		86,141		85		0.39	%
Total interest-bearing deposits		2,637,727		506		0.08	%
Short-term borrowed funds		53,643		8		0.06	%
Total interest-bearing liabilities		2,691,370		514		0.08	%
Other liabilities		62,648
Shareholders' equity		646,129
Total liabilities and shareholders' equity	$	5,680,321
Net interest spread ^{(1) (2)}						3.02	%
Net interest and fee income and interest margin ^{(1) (3)}			$	40,288		3.06	%


⁽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 March 31, 2019
	Compared with
	For the Three Months Ended March 31, 2018
	Volume			Yield/Rate		Total
	(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	1,650		$	2,048	$	3,698
Tax-exempt ⁽¹⁾		(713	)		6		(707	)
Total investments ⁽¹⁾		937			2,054		2,991
Loans:
Taxable		(369	)		524		155
Tax-exempt ⁽¹⁾		(75	)		6		(69	)
Total loans ⁽¹⁾		(444	)		530		86
Total interest-bearing cash		(632	)		562		(70	)
Total (decrease) increase in interest and loan fee income ⁽¹⁾		(139	)		3,146		3,007
(Decrease) increase in interest expense:
Deposits:
Savings and interest-bearing transaction		(1	)		56		55
Time less than $100,000		(9	)		4		(5	)
Time $100,000 or more		(19	)		4		(15	)
Total interest-bearing deposits		(29	)		64		35
Short-term borrowed funds		-			-		-
Total (decrease) increase in interest expense		(29	)		64		35
(Decrease) increase in net interest and loan fee income ⁽¹⁾	$	(110	)	$	3,082	$	2,972

⁽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 Three Months Ended March 31, 2019
	Compared with
	For the Three Months Ended December 31, 2018
	Volume			Yield/Rate			Total
	(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	217		$	413		$	630
Tax-exempt ⁽¹⁾		(319	)		(132	)		(451	)
Total investments ⁽¹⁾		(102	)		281			179
Loans:
Taxable		9			5			14
Tax-exempt ⁽¹⁾		(12	)		12			0
Total loans ⁽¹⁾		(3	)		17			14
Total interest-bearing cash		(455	)		201			(254	)
Total (decrease) increase in interest and loan fee income ⁽¹⁾		(560	)		499			(61	)
(Decrease) increase in interest expense:
Deposits:
Savings and interest-bearing transaction		-			(14	)		(14	)
Time less than $100,000		(4	)		-			(4	)
Time $100,000 or more		(4	)		1			(3	)
Total interest-bearing deposits		(8	)		(13	)		(21	)
Short-term borrowed funds		1			-			1
Total decrease in interest expense		(7	)		(13	)		(20	)
(Decrease) increase in net interest and loan fee income ⁽¹⁾	$	(553	)	$	512		$	(41	)


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

Provision for Loan Losses

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

The Company provided no provision for loan losses in the first quarter of 2019 and the first and fourth quarters of 2018. Classified loans declined $5 million during the period from December 31, 2018 to March 31, 2019. Nonperforming loans were $4 million at March 31, 2019 compared with $6 million at March 31, 2018 and $5 million at December 31, 2018. These factors were reflected in Management’s evaluation of credit quality, the level of the provision for loan losses, and the adequacy of the allowance for loan losses at March 31, 2019. For further information regarding credit risk, net credit losses and the allowance for loan losses, see the “Loan Portfolio Credit Risk” and “Allowance for Loan 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 Ended
	March 31,					December 31,
	2019		2018			2018
	(In thousands)

Service charges on deposit accounts	$	4,504	$	4,752		$	4,496
Merchant processing services		2,558		2,420			2,440
Debit card fees		1,507		1,605			1,685
Trust fees		717		743			737
ATM processing fees		633		664			703
Other service fees		577		631			620
Financial services commissions		101		114			112
Equity securities (losses) gains		24		(36	)		14
Other noninterest income		958		1,062			1,090
Total	$	11,579	$	11,955		$	11,897

Noninterest income for the first quarter 2019 decreased by $376 thousand from the same period in 2018. Service charges on deposit accounts decreased $248 thousand due to declines in overdraft fees and analyzed accounts. The decreases were partially offset by a $138 thousand increase in merchant processing services.

In the first quarter 2019, noninterest income decreased $318 thousand compared with the fourth quarter 2018. Debit card fees decreased $178 thousand due to seasonally higher transaction volumes in the fourth quarter 2018. Merchant processing services fees increased $118 thousand.

Noninterest Expense

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

	For the Three Months Ended
	March 31,				December 31,
	2019		2018		2018
	(In thousands)

Salaries and related benefits	$	13,108	$	13,351	$	13,055
Occupancy and equipment		5,048		4,691		5,314
Outsourced data processing services		2,369		2,340		2,299
Professional fees		665		785		565
Amortization of identifiable intangibles		310		570		447
Courier service		442		463		446
Other noninterest expense		3,241		3,822		3,661
Total	$	25,183	$	26,022	$	25,787

Noninterest expense decreased $839 thousand in the first quarter 2019 compared with the same period in 2018. Salaries and related benefits decreased $243 thousand primarily due to lower employee benefits. Amortization of intangibles decreased $260 thousand as assets are amortized on a declining balance method. Professional fees decreased $120 thousand due to lower legal fees. The decreases were partially offset by a $357 thousand increase in occupancy and equipment expenses.

In the first quarter 2019 noninterest expense decreased $604 thousand compared with the fourth quarter 2018 due to lower occupancy and equipment expenses (down $266 thousand), amortization of intangible assets (down $137 thousand) and operating losses on limited partnership investments (down $100 thousand).

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Provision for Income Tax

The Company’s income tax provision (FTE) was $7.0 million for the first quarter 2019 compared with $7.3 million for the fourth quarter 2018 and $5.7 million for the first quarter 2018, representing effective tax rates (FTE) of 26.3%, 27.8% and 24.6%, respectively. The lower effective tax rates for the first quarter 2019 and first quarter 2018 are due to tax benefits of $284 thousand and $451 thousand, respectively, compared with $7 thousand for the fourth quarter 2018 for tax deductions from the exercise of employee stock options which exceed related compensation expense recognized in the financial statements.

Investment Portfolio

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

Management has managed the investment securities portfolio in response to deposit growth and loan volume declines. The carrying value of the Company’s investment securities portfolio was $3.6 billion at March 31, 2019 and December 31, 2018.

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 March 31, 2019, substantially all of the Company’s investment securities continue to be investment grade rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’s procedures for evaluating investments in securities are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. There have been no significant differences in the Company’s internal analyses compared with the ratings assigned by the third party credit rating agencies.

At March 31, 2019, the market value of equity securities was $1,771 thousand. During the three months ended March 31, 2019, the Company recognized gross unrealized holding gains of $24 thousand in earnings. At December 31, 2018, the market value of equity securities was $1,747 thousand. During the three months ended December 31, 2018, the Company recognized gross unrealized holding gains of $14 thousand in earnings.

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

	At March 31, 2019					At December 31, 2018
	Market value		As a percent of total corporate securities			Market value		As a percent of total corporate securities
	($ in thousands)
Financial	$	533,966		40	%	$	531,512		40	%
Utilities		200,654		15	%		197,568		15	%
Consumer, Non-cyclical		167,641		13	%		169,851		13	%
Industrial		154,022		12	%		152,636		12	%
Technology		105,087		8	%		105,324		8	%
Consumer, Cyclical		59,695		4	%		58,430		5	%
Communications		50,311		4	%		49,642		4	%
Basic Materials		30,828		2	%		30,410		2	%
Energy		20,137		2	%		19,668		1	%
Total Corporate securities	$	1,322,341		100	%	$	1,315,041		100	%

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

At March 31, 2019, the Company’s investment securities portfolios included securities issued by 552 state and local government municipalities and agencies located within 42 states. The largest exposure to any one municipality or agency was $9.3 million (fair value) represented by eight general obligation bonds.

	At March 31, 2019
	Amortized Cost		Fair Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	103,852	$	105,903
Texas		45,416		45,609
New Jersey		33,523		33,823
Washington		24,046		24,536
Other (35 states)		252,552		254,880
Total general obligation bonds	$	459,389	$	464,751

Revenue bonds:
California	$	31,909	$	32,332
Kentucky		19,242		19,445
Colorado		14,324		14,614
Washington		12,524		12,884
Indiana		11,982		12,117
Iowa		10,875		10,911
Other (28 states)		102,381		103,933
Total revenue bonds	$	203,237	$	206,236
Total obligations of states and political subdivisions	$	662,626	$	670,987

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At December 31, 2018, the Company’s investment securities portfolios included securities issued by 583 state and local government municipalities and agencies located within 43 states. The largest exposure to any one municipality or agency was $9.3 million (fair value) represented by eight general obligation bonds.

	At December 31, 2018
	Amortized Cost		Fair Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	104,607	$	105,730
Texas		56,653		56,286
New Jersey		35,501		35,527
Minnesota		29,609		29,593
Other (35 states)		267,402		266,136
Total general obligation bonds	$	493,772	$	493,272

Revenue bonds:
California	$	35,164	$	35,399
Kentucky		19,320		19,328
Colorado		14,564		14,539
Washington		13,034		13,228
Iowa		13,202		13,052
Indiana		12,007		12,034
Other (28 states)		113,047		112,805
Total revenue bonds	$	220,338	$	220,385
Total obligations of states and political subdivisions	$	714,110	$	713,657

At March 31, 2019 and December 31, 2018, the revenue bonds in the Company’s investment securities portfolios were issued by state and local government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from 22 revenue sources at March 31, 2019 and December 31, 2018. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

	At March 31, 2019
	Amortized Cost		Fair Value
	(In thousands)
Revenue bonds by revenue source:
Water	$	45,476	$	46,347
Sales tax		25,995		26,485
Sewer		24,040		24,457
Lease (renewal)		16,994		17,192
College & University		12,572		12,637
Other (17 sources)		78,160		79,118
Total revenue bonds by revenue source	$	203,237	$	206,236

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	At December 31, 2018
	Amortized Cost		Fair Value
	(In thousands)
Revenue bonds by revenue source:
Water	$	46,326	$	46,671
Sales tax		28,264		28,517
Sewer		28,335		28,502
Lease (renewal)		17,013		17,051
College & University		13,919		13,714
Other (17 sources)		86,481		85,930
Total revenue bonds by revenue source	$	220,338	$	220,385

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

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

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 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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Nonperforming Assets

	At March 31,				At December 31,
	2019		2018		2018
	(In thousands)

Nonperforming nonaccrual loans	$	330	$	2,030	$	998
Performing nonaccrual loans		3,670		4,110		3,870
Total nonaccrual loans		4,000		6,140		4,868
Accruing loans 90 or more days past due		394		255		551
Total nonperforming loans		4,394		6,395		5,419
Other real estate owned		43		1,376		350
Total nonperforming assets	$	4,437	$	7,771	$	5,769

Nonperforming assets have declined at March 31, 2019 compared with March 31, 2018 due to payoffs, chargeoffs and sale of Other Real Estate Owned. At March 31, 2019, one loan secured by commercial real estate with a balance of $3.7 million was on nonaccrual status. The remaining six nonaccrual loans held at March 31, 2019 had an average carrying value of $55 thousand and the largest carrying value was $202 thousand.

Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as the interest rate environment, economic conditions, 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 Loan Losses

The Company’s allowance for loan losses represents Management’s estimate of loan losses inherent in the loan portfolio. In evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments 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 following table summarizes the allowance for loan losses, chargeoffs and recoveries for the periods indicated:

	For the Three Months Ended
	March 31,						December 31,
	2019			2018			2018
	(In thousands)
Analysis of the Allowance for Loan Losses
Balance, beginning of period	$	21,351		$	23,009		$	22,027
Provision for loan losses		-			-			-
Loans charged off:
Commercial		(23	)		(41	)		(88	)
Consumer installment and other		(1,368	)		(1,365	)		(1,109	)
Total chargeoffs		(1,391	)		(1,406	)		(1,197	)
Recoveries of loans previously charged off:
Commercial		93			829			95
Commercial real estate		12			-			-
Consumer installment and other		412			649			426
Total recoveries		517			1,478			521
Net loan (losses) recoveries		(874	)		72			(676	)
Balance, end of period	$	20,477		$	23,081		$	21,351

Net loan losses (recoveries) as a percentage of average total loans (annualized)		0.29	%		(0.02	)%		0.23	%

- 43 -

The Company's allowance for loan losses is maintained at a level considered appropriate to provide for losses that can be estimated based upon specific and general conditions. These include conditions unique to individual borrowers, as well as overall loan loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. A portion of the allowance is individually allocated to impaired loans whose full collectability of principal is uncertain. Such allocations are determined by Management based on loan-by-loan analyses. The Company evaluates for impairment all loans with outstanding principal balances in excess of $500 thousand which are classified or on nonaccrual status and all “troubled debt restructured” loans. The remainder of the loan portfolio is collectively evaluated for impairment based in part on quantitative analyses of historical loan loss experience of loan portfolio segments to determine standard loss rates for each segment. The loss rate for each loan portfolio segment reflects both the historical loss experience during a look-back period and a loss emergence period. Liquidating purchased consumer installment loans are evaluated separately by applying historical loss rates to forecasted liquidating principal balances to measure losses inherent in this portfolio segment. The loss rates are applied to segmented loan balances to allocate the allowance to the segments of the loan portfolio.

The remainder of the allowance is considered to be unallocated. The unallocated allowance is established to provide for probable losses that have been incurred as of the reporting date but not reflected in the allocated allowance. The unallocated allowance addresses additional qualitative factors consistent with Management's analysis of the level of risks inherent in the loan portfolio, which are related to the risks of the Company's general lending activity. Included in the unallocated allowance is the risk of losses that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in loan chargeoff history (external factors). The primary external factor evaluated by the Company and the judgmental amount of unallocated reserve assigned by Management as of March 31, 2019 is economic and business conditions $0.5 million. Also included in the unallocated allowance is the risk of losses attributable to general attributes of the Company's loan portfolio and credit administration (internal factors). The internal factors evaluated by the Company and the judgmental amount of unallocated reserve assigned by Management are: loan review system $0.9 million, adequacy of lending Management and staff $0.9 million and concentrations of credit $1.1 million.

	Allowance for Loan Losses
	For the Three Months Ended March 31, 2019
	Commercial			Commercial Real Estate		Construction			Residential Real Estate			Consumer Installment and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,311		$	3,884	$	1,465		$	869		$	5,645		$	3,177	$	21,351
(Reversal) provision		125			31		(612	)		(608	)		792			272		-
Chargeoffs		(23	)		-		-			-			(1,368	)		-		(1,391	)
Recoveries		93			12		-			-			412			-		517
Total allowance for loan losses	$	6,506		$	3,927	$	853		$	261		$	5,481		$	3,449	$	20,477

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
	At March 31, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	2,715	$	-	$	-	$	-	$	-	$	-	$	2,715
Collectively evaluated for impairment		3,791		3,927		853		261		5,481		3,449		17,762
Total	$	6,506	$	3,927	$	853	$	261	$	5,481	$	3,449	$	20,477
Carrying value of loans:
Individually evaluated for impairment	$	9,763	$	6,750	$	-	$	197	$	116	$	-	$	16,826
Collectively evaluated for impairment		266,594		577,471		3,555		41,601		298,797		-		1,188,018
Total	$	276,357	$	584,221	$	3,555	$	41,798	$	298,913	$	-	$	1,204,844

The allowance for loan losses ascribed to construction loans decreased based on a reduced level of credit exposure relative to real property values. The allowance for loan losses ascribed to residential real estate loans declined due to Management’s evaluation of collateral values and loan amortization.

Management considers the $20.5 million allowance for loan losses to be adequate as a reserve against probable incurred loan losses in the loan portfolio as of March 31, 2019.

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

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

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

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

The Company’s asset and liability position was slightly “asset sensitive” at March 31, 2019, depending on the interest rate assumptions applied to each simulation model. An “asset sensitive” position results in a slightly larger change in interest income than in interest expense resulting from application of assumed interest rate changes.

At March 31, 2019, Management’s measurements of estimated changes in net interest income were:

Static Simulation:

Assumed Immediate Parallel Shift in Interest Rates			-1.00	%		0.00	%		+1.00%
First Year Change in Net Interest Income			-7.50	%		0.00	%		+5.30%

Dynamic Simulation:

Assumed Change in Interest Rates Over 1 Year			-1.00	%		0.00	%		+1.00%
First Year Change in Net Interest Income			-3.60	%		0.00	%		+2.80%

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.

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.

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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 loan 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 recognize other than temporary impairment charges. Other types of market risk, such as foreign currency exchange risk, are not significant in the normal course of the Company's business activities.

Liquidity and Funding

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

In recent years, the Company's deposit base has provided the majority of the Company's funding requirements. This relatively stable and low-cost source of funds, along with shareholders' equity, provided 98 percent of funding for average total assets in the quarter ended March 31, 2019 and the year ended December 31, 2018. The stability of the Company’s funding from customer deposits is in part reliant on the confidence clients have in the Company. The Company places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity.

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing loans. The Company's investment securities portfolio provides a substantial secondary source of liquidity. The Company held $3.6 billion in total investment securities at March 31, 2019. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At March 31, 2019, such collateral requirements totaled approximately $716 million.

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

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

- 46 -

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

The Bank’s dividends paid to the Parent Company, proceeds from the exercise of stock options, and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $11 million in the first quarter 2019 and $43 million in 2018, and retire common stock in the amount of $524 thousand in 2018. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not have an impact on the Parent Company's ability to meet its ongoing cash obligations.

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”) has been 12.2% in the first quarter 2019 and 11.3% in 2018. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $6 million in the first quarter 2019 and $13 million in 2018.

The Company paid common dividends totaling $11 million in the first quarter 2019 and $43 million in 2018, which represent dividends per common share of $0.40 and $1.60, 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 earnings to shareholders. The Company repurchased and retired 9 thousand shares valued at $524 thousand in 2018.

The Company's primary capital resource is shareholders' equity, which was $657 million at March 31, 2019 compared with $616 million at December 31, 2018. The Company's ratio of equity to total assets was 11.82% at March 31, 2019 and 11.05% at December 31, 2018.

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, unanticipated asset devaluations, and significant operational lapses. 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

On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for all banking organizations. The rule’s provisions which most affected the regulatory capital requirements of the Company and the Bank:

Introduced a new “Common Equity Tier 1” capital measurement,

Established higher minimum levels of capital,

Introduced a “capital conservation buffer,”

Increased the risk-weighting of certain assets, and

Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.

Under the final rule, a banking organization that is not subject to the “advanced approaches rule” may make a one-time election not to include most elements of Accumulated Other Comprehensive Income, including net-of-tax unrealized gains and losses on debt securities available for sale, in regulatory capital. Neither the Company nor the Bank is subject to the “advanced approaches rule” and both made the election not to include most elements of Accumulated Other Comprehensive Income in regulatory capital.

- 47 -

Banking organizations that are not subject to the “advanced approaches rule” began complying with the final rule on January 1, 2015; on such date, the Company and the Bank became subject to the revised definitions of regulatory capital, the new minimum regulatory capital ratios, and various regulatory capital adjustments and deductions according to transition provisions and timelines. All banking organizations began calculating standardized total risk-weighted assets on January 1, 2015. The transition period for the capital conservation buffer for all banking organizations began on January 1, 2016 and ended January 1, 2019, when the 2.5% capital conservation buffer was fully implemented. Any bank subject to the rule which is unable to maintain its “capital conservation buffer” above the minimum regulatory capital ratios will be restricted in the payment of discretionary executive compensation and shareholder distributions, such as dividends and share repurchases.

The final rule did not supersede provisions of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) requiring federal banking agencies to take prompt corrective action (PCA) to resolve problems of insured depository institutions. The final rule revised the PCA thresholds to incorporate the higher minimum levels of capital, including the “common equity tier 1” ratio.

The capital ratios for the Company and the Bank under the new capital framework are presented in the tables below, on the dates indicated.

										To Be
										Well-capitalized
							Required for			Under Prompt
	At March 31, 2019						Capital Adequacy			Corrective Action
	Company			Bank			Purposes			Regulations (Bank)

Common Equity Tier I Capital		16.78	%		13.03	%		7.00	%⁽¹⁾		6.50	%
Tier I Capital		16.78	%		13.03	%		8.50	%⁽¹⁾		8.00	%
Total Capital		17.49	%		13.94	%		10.50	%⁽¹⁾		10.00	%
Leverage Ratio		9.87	%		7.62	%		4.00	%		5.00	%

⁽¹⁾ Includes 2.5% capital conservation buffer.

													To Be
							Required for						Well-capitalized
							Capital Adequacy Purposes						Under Prompt
	At December 31, 2018						Effective			Effective			Corrective Action
	Company			Bank			January 1, 2018			January 1, 2019			Regulations (Bank)

Common Equity Tier I Capital		16.30	%		13.01	%		6.375	%⁽²⁾		7.00	%⁽³⁾		6.50	%
Tier I Capital		16.30	%		13.01	%		7.875	%⁽²⁾		8.50	%⁽³⁾		8.00	%
Total Capital		17.03	%		13.94	%		9.875	%⁽²⁾		10.50	%⁽³⁾		10.00	%
Leverage Ratio		9.51	%		7.55	%		4.000	%		4.00	%		5.00	%

⁽²⁾ Includes 1.875% capital conservation buffer.

⁽³⁾ Includes 2.5% capital conservation buffer.

In June 2016, the Financial Accounting Standards Board issued an update to the accounting standards for credit losses known as the "Current Expected Credit Losses" (CECL) methodology, which replaces the existing incurred loss methodology for certain financial assets. The Company intends to timely adopt the CECL methodology January 1, 2020, which involves an implementing accounting entry to retained earnings. In December 2018, the federal bank regulatory agencies approved a final rule which became effective April 1, 2019 modifying their regulatory capital rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of implementing the CECL methodology. The Company has not determined whether it will elect the three year phase in period for the day-one regulatory capital effects. See Note 1 to the consolidated financial statements, “Summary of Significant Accounting Policies: Recently Issued Accounting Standards” for more information on the CECL methodology.

- 48 -

The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other factors. Based on current capital projections, the Company and the Bank expect to maintain regulatory capital levels exceeding the highest effective regulatory standard and pay quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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.

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) of the Securities Exchange Act of 1934, as amended, as of March 31, 2019.

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 March 31, 2019 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

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. None of these proceedings is expected to have a material adverse impact upon the Company’s business, financial position or results of operations. In 2018, the Company achieved a mediated settlement to dismiss a lawsuit and accrued a liability for $3,500 thousand; the liability was paid in the first quarter 2019. The Company has determined that it will be obligated to provide refunds of revenue recognized in years prior to 2017 to some customers. The Company estimates the probable amount of these obligations will be $5,542 thousand and accrued a liability for such amount in 2017; the estimated liability is subject to revision.

Item 1A. Risk Factors

The Company’s Form 10-K as of December 31, 2018 includes detailed disclosure about the risks faced by the Company’s business; such risks have not materially changed since the Form 10-K was filed.

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

(a) None

(b) None

- 49 -

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), of common stock during the quarter ended March 31, 2019.

	2019
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)
January 1 through January 31		-	$	-		-		1,750
February 1 through February 28		-		-		-		1,750
March 1 through March 31		-		-		-		1,750
Total		-	$	-		-		1,750

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

No shares were repurchased during the period January 1, 2019 through March 31, 2019. A program approved by the Board of Directors on July 26, 2018 authorizes the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2019.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.

[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)