WESTAMERICA BANCORPORATION (WABC)

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

-30-

Financial Overview

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $27.4 million or $1.17 diluted earnings per common share (“EPS”) in the three months ended, June 30, 2026 compared with net income of $29.1 million or $1.12 EPS in the three months ended June 30, 2025. The Company reported net income of $54.7 million or $2.30 EPS for the six months ended June 30, 2026. The Company reported net income of $60.1 million or $2.29 EPS for the six months ended June 30, 2025.

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) maintained the target federal funds rate range of 3.50 to 3.75 percent in June 2026 after a 0.25 percent cut in December 2025. The FOMC press release in June 2026 stated, “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.” The interest rate paid on reserve balances at the Federal Reserve Bank remained at 3.65 percent after a 0.25 percent cut in December 2025. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

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

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

The Company’s significant accounting policies (see Note 1 “Summary of Significant Accounting Policies” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and Note 2 “Accounting Policies” to the unaudited consolidated financial statements in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition.

[The remainder of this page intentionally left blank]

-31-

Net Income

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

Net income for the three months ended June 30, 2026 decreased $1.7 million compared with the three months ended June 30, 2025 primarily due to lower net interest and loan fee income (FTE) and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $1.9 million in the three months ended June 30, 2026 compared with the three months ended June 30, 2025 primarily due to lower average balances of loans and interest-bearing cash and lower yield on interest-bearing cash, partially offset by higher average balances of investment securities. Based on the results of its current expected credit losses (“CECL”) model and Management’s estimate of credit losses over the remaining life of its loans, the Company provided no provision for credit losses in the three months ended June 30, 2026 and in the three months ended June 30, 2025. Noninterest income for the three months ended June 30, 2026 was relatively equal compared with the three months ended June 30, 2025. Merchant processing services and trust fee income was higher in the three months ended June 30, 2026, partially offset by lower debit card fee income and the three months ended June 30, 2025 included bank owned life insurance gains. Noninterest expense for the three months ended June 30, 2026 increased compared with the three months ended June 30, 2025 primarily due to increases in salaries and related benefits, professional fees and estimated limited partnership operating losses. The tax rate (FTE) was 25.8% for the three months ended June 30, 2026 and 26.1% for the three months ended June 30, 2025.

Net income for the six months ended June 30, 2026 decreased $5.4 million compared with the six months ended June 30, 2025 primarily due to lower net interest and loan fee income (FTE), lower noninterest income and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $5.6 million in the six months ended June 30, 2026 compared with the six months ended June 30, 2025 primarily due to lower average balances of loans, interest-bearing cash, and lower yield on investment securities and interest-bearing cash, partially offset by higher average balances of investment securities. B

[Excerpt truncated for page length; source filing is linked above.]

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

The following financial information for the three years ended December 31, 2025 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with those statements, notes and other information included elsewhere herein.

[The remainder of this page intentionally left blank]

-20-

The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 50 through 88, as well as with the other information presented throughout this Report.

Critical Accounting Policies

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

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

Financial Overview

The Company reported net income of $116.2 million or $4.52 diluted earnings per common share (“EPS”) in 2025 compared with net income of $138.6 million or $5.20 EPS in 2024 and net income of $161.8 million or $6.06 EPS in 2023. 2025 results included a $550 thousand reversal of provision for credit losses and a $208 thousand bank owned life insurance gain, which increased EPS $0.02. 2024 results included a $202 thousand bank owned life insurance gain and a $1.4 million gain on sale of other assets, equivalent to combined EPS of $0.04. 2023 results included a $1.2 million reversal of provision for credit losses, net of a $400 thousand provision for credit losses and a $279 thousand bank owned life insurance gain, equivalent to combined EPS of $0.04.

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) decided to maintain the target federal funds rate range of 3.50 to 3.75 percent in January 2026 after a 0.25 percent cut in December 2025. The FOMC press release in January stated, “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the long run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.” The interest rate paid on reserve balances at the Federal Reserve Bank remained at 3.65 percent after a 0.25 percent cut in December 2025. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

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

-21-

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

The Company’s significant accounting policies (see Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements below) are fundamental to understanding the Company’s results of operations and financial condition. In the year ended December 31, 2025 and December 31, 2024, the Company adopted the following new accounting guidance:

FASB ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, was issued December 14, 2023. The ASU enhances the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The ASU primarily re

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]