WABC 10-Q Quarter ended Sept. 30, 2017

- 2 -

- 3 -

		At September 30,				At December 31,
		2017				2016
		(In thousands)
Assets:
Cash and due from banks		$	561,757			$	462,271
Investment securities available for sale			2,090,477				1,890,758
Investment securities held to maturity, with fair values of: $1,208,279 at September 30, 2017 and $1,340,741 at December 31, 2016			1,204,240				1,346,312
Loans			1,284,782				1,352,711
Allowance for loan losses			(23,628	)			(25,954	)
Loans, net of allowance for loan losses			1,261,154				1,326,757
Other real estate owned			1,426				3,095
Premises and equipment, net			35,507				36,566
Identifiable intangibles, net			4,605				6,927
Goodwill			121,673				121,673
Other assets			164,969				171,724
Total Assets		$	5,445,808			$	5,366,083
Liabilities:
Noninterest-bearing deposits		$	2,128,342			$	2,089,443
Interest-bearing deposits			2,606,238				2,615,298
Total deposits			4,734,580				4,704,741
Short-term borrowed funds			66,337				59,078
Other liabilities			40,934				40,897
Total Liabilities			4,841,851				4,804,716
Contingencies (Note 10)
Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,319 at September 30, 2017 and 25,907 at December 31, 2016			425,655				404,606
Deferred compensation			1,533				1,533
Accumulated other comprehensive loss			(3,433	)			(10,074	)
Retained earnings			180,202				165,302
Total Shareholders' Equity			603,957				561,367
Total Liabilities and Shareholders' Equity		$	5,445,808			$	5,366,083

- 4 -

		For the Three Months								For the Nine Months
		Ended September 30,
		2017				2016				2017				2016
		(In thousands, except per share data)
Interest and Loan Fee Income:
Loans		$	15,082			$	16,968			$	46,330			$	52,904
Investment securities available for sale			11,347				8,796				32,305				24,855
Investment securities held to maturity			6,716				7,704				20,997				23,083
Total Interest and Loan Fee Income			33,145				33,468				99,632				100,842
Interest Expense:
Deposits			461				512				1,395				1,586
Short-term borrowed funds			12				11				34				30
Total Interest Expense			473				523				1,429				1,616
Net Interest and Loan Fee Income			32,672				32,945				98,203				99,226
Reversal of Provision for Loan Losses			-				(3,200	)			(1,900	)			(3,200	)
Net Interest and Loan Fee Income After Reversal of Provision for Loan Losses			32,672				36,145				100,103				102,426
Noninterest Income:
Service charges on deposit accounts			4,989				5,303				14,857				15,790
Merchant processing services			2,153				1,532				6,080				4,699
Debit card fees			1,784				1,587				4,851				4,724
Trust fees			718				686				2,136				2,004
ATM processing fees			684				600				1,914				1,860
Other service fees			652				671				1,964				1,951
Financial services commissions			148				118				484				411
Other noninterest income			1,420				1,101				4,042				3,590
Total Noninterest Income			12,548				11,598				36,328				35,029
Noninterest Expense:
Salaries and related benefits			12,816				13,063				38,867				39,067
Occupancy			3,665				3,749				10,807				10,546
Outsourced data processing services			2,383				2,114				6,710				6,375
Furniture and equipment			1,242				1,211				3,764				3,611
Amortization of identifiable intangibles			760				867				2,322				2,642
Professional fees			512				1,693				1,533				3,183
Courier service			451				451				1,310				1,458
Other real estate owned			221				(206	)			54				(487	)
Other noninterest expense			2,064				3,146				7,758				10,780
Total Noninterest Expense			24,114				26,088				73,125				77,175
Income Before Income Taxes			21,106				21,655				63,306				60,280
Provision for income taxes			6,089				6,027				17,441				15,880
Net Income		$	15,017			$	15,628			$	45,865			$	44,400
Average Common Shares Outstanding			26,309				25,641				26,260				25,558
Average Diluted Common Shares Outstanding			26,404				25,687				26,379				25,595
Per Common Share Data:
Basic earnings		$	0.57			$	0.61			$	1.75			$	1.74
Diluted earnings			0.57				0.61				1.74				1.73
Dividends paid			0.39				0.39				1.17				1.17

- 5 -

		For the Three Months								For the Nine Months
		Ended September 30,
		2017				2016				2017				2016
		(In thousands)
Net income		$	15,017			$	15,628			$	45,865			$	44,400
Other comprehensive income (loss):
Changes in unrealized gains and losses on securities available for sale			4,179				(4,992	)			11,413				14,319
Deferred tax (expense) benefit			(1,757	)			2,099				(4,799	)			(6,020	)
Changes in unrealized gains and losses on securities available for sale, net of tax			2,422				(2,893	)			6,614				8,299
Post-retirement benefit transition obligation amortization			15				15				45				45
Deferred tax expense			(6	)			(6	)			(18	)			(18	)
Post-retirement benefit transition obligation amortization, net of tax			9				9				27				27
Total other comprehensive income (loss)			2,431				(2,884	)			6,641				8,326
Total comprehensive income		$	17,448			$	12,744			$	52,506			$	52,726

- 6 -

														Accumulated
		Common												Other
		Shares				Common				Deferred				Comprehensive				Retained
		Outstanding				Stock				Compensation				Income (loss)				Earnings				Total
		(In thousands)
Balance, December 31, 2015			25,528			$	378,858			$	2,578			$	675			$	150,094			$	532,205
Net income for the period																			44,400				44,400
Other comprehensive income															8,326								8,326
Exercise of stock options			258				11,588																11,588
Tax benefit increase upon exercise and expiration of stock options							199																199
Restricted stock activity			15				1,798				(1,045	)											753
Stock based compensation							1,142																1,142
Stock awarded to employees			1				75																75
Retirement of common stock			(137	)			(2,059	)											(3,721	)			(5,780	)
Dividends																			(29,912	)			(29,912	)
Balance, September 30, 2016			25,665			$	391,601			$	1,533			$	9,001			$	160,861			$	562,996
Balance, December 31, 2016			25,907			$	404,606			$	1,533			$	(10,074	)		$	165,302			$	561,367
Net income for the period																			45,865				45,865
Other comprehensive income															6,641								6,641
Exercise of stock options			403				18,988																18,988
Restricted stock activity			13				707																707
Stock based compensation							1,368																1,368
Stock awarded to employees			2				76																76
Retirement of common stock			(6	)			(90	)											(224	)			(314	)
Dividends																			(30,741	)			(30,741	)
Balance, September 30, 2017			26,319			$	425,655			$	1,533			$	(3,433	)		$	180,202			$	603,957

- 7 -

		For the Nine Months
		Ended September 30,
		2017				2016
		(In thousands)
Operating Activities:
Net income		$	45,865			$	44,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18,807				14,211
Reversal of provision for loan losses			(1,900	)			(3,200	)
Net amortization of deferred loan cost (fees)			34				(281	)
Decrease in interest income receivable			713				475
Life insurance premiums paid			(126	)			(126	)
Increase in other assets			(2,088	)			(627	)
Increase in income taxes payable			2,461				403
Decrease in net deferred tax asset			895				3,258
Tax benefit increase upon exercise and expiration of stock options			-				(199	)
Stock option compensation expense			1,368				1,142
Decrease in interest expense payable			(8	)			(19	)
(Decrease) increase in other liabilities			(1,142	)			143
Net writedown of premises and equipment			60				21
Net gain on sale of foreclosed assets			(72	)			(1,182	)
Writedown of foreclosed assets			219				759
Net Cash Provided by Operating Activities			65,086				59,178
Investing Activities:
Net repayments of loans			69,319				171,573
Net (payments) receipts under FDIC (1) indemnification agreements			(63	)			3,180
Purchases of investment securities available for sale			(433,525	)			(812,697	)
Proceeds from sale/maturity/calls of securities available for sale			238,888				632,795
Purchases of investment securities held to maturity			-				(246,956	)
Proceeds from maturity/calls of securities held to maturity			135,208				141,770
Purchases of premises and equipment			(1,980	)			(1,299	)
Net change in FRB (2) stock			1				-
Proceeds from sale of foreclosed assets			1,521				7,143
Net Cash Provided by (Used in) Investing Activities			9,369				(104,491	)
Financing Activities:
Net change in deposits			29,839				104,211
Net change in short-term borrowings			7,259				3,330
Exercise of stock options			18,988				11,588
Tax benefit increase upon exercise and expiration of stock options			-				199
Retirement of common stock			(314	)			(5,780	)
Common stock dividends paid			(30,741	)			(29,912	)
Net Cash Provided by Financing Activities			25,031				83,636
Net Change In Cash and Due from Banks			99,486				38,323
Cash and Due from Banks at Beginning of Period			462,271				433,044
Cash and Due from Banks at End of Period		$	561,757			$	471,367
Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Loan collateral transferred to other real estate owned		$	-			$	488
Securities purchases pending settlement			811				171
Supplemental disclosure of cash flow activities:
Interest paid for the period			1,437				1,635
Income tax payments for the period			14,657				14,032

- 8 -

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and nine months ended September 30, 2017 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, 2016.

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, 2016. 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 loan losses accounting to be the accounting area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance for loan losses is included in the “Provision for Loan Losses,” “Loan Portfolio Credit Risk” and “Allowance for Loan Losses” discussion below. Certain amounts in prior periods have been reclassified to conform to the current presentation.

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.

Recently Adopted Accounting Standards

FASB Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, was issued March 30, 2016. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. The Company adopted the ASU provisions effective January 1, 2017, which has the potential to create volatility in the book tax provision at the time nonqualified stock options are exercised or expire. During the first nine months of 2017, 403 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction exceeding related share based compensation by $ 1.6 million. The first nine months of 2017 income tax provision was $ 688 thousand lower than would have been under accounting standards prior to the adoption of ASU 2016-09. The Company elected to account for forfeitures as they occur.

Recently Issued Accounting Standards

FASB ASU 2014-09 , Revenue (Topic 606): Revenue from Contracts with Customers, was issued May 2014. The ASU specifies a standardized approach for revenue recognition across industries and transactions. The scope of the ASU does not include revenue streams covered by other ASU topics; thus, Topic 606 does not apply to revenue related to financial instruments, guarantees and leases, such as the Company’s net interest income.

Approximately 73% of our revenue, including all of our net interest income and a portion of our noninterest income, is out of scope of the guidance. The contracts that are in scope of the guidance are primarily related to service charges and fees on deposit accounts, merchant processing fees, trust fees and other service charges, commissions and fees. We have created an implementation team that is analyzing the individual contracts in scope to determine if our current accounting will change. This review is expected be completed in the fourth quarter of 2017.

The Company will be required to adopt the ASU on January 1, 2018. The Company intends to adopt the accounting standard during the first quarter of 2018, as required. The Company has not yet selected a transition method. The Company’s preliminary analysis suggests that the adoption of this accounting standard is not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2016-01 , Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, was issued January 2016. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

The Company will be required to adopt the ASU provisions on January 1, 2018, and for those equity securities with readily determinable fair values, the Company plans to elect the retrospective transition approach with a cumulative effect adjustment to the balance sheet and for those equity securities that do not have readily determinable fair values, the Company plans to elect the prospective transition approach. The adoption of this accounting standard on the Company’s consolidated financial statements will be subject to the price volatility of the equity investments.

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 will be required to adopt the ASU provisions January 1, 2019, and plans to elect the modified retrospective transition approach. Management is evaluating the impact that the ASU will have on the Company’s financial statements. As of December 31, 2016, the Company leased 61 of its operating facilities; the remaining minimum lease payments were $20.8 million. The Company does not expect a material change in noninterest expenses upon adoption of the new standard.

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 available-for-sale debt securities 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 is evaluating the impact that the ASU will have on the Company’s consolidated financial statements. The ultimate adjustment to the allowance for loan losses will be accomplished through an offsetting after-tax adjustment to shareholders’ equity. Management expects the Company and the Bank to meet all regulatory capital adequacy requirements to which they are subject following adoption of the new standard. Economic conditions and the composition of the Company’s loan portfolio at the time of adoption will influence the extent of the adopting accounting adjustment.

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 will shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Company will be required to adopt the ASU provisions on January 1, 2019. Management is evaluating the impact the ASU will have on the Company’s financial statements.

- 10 -

Note 3: Investment Securities

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

[The remainder of this page intentionally left blank]

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

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

Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities. At September 30, 2017 and December 31, 2016, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

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

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

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates 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. 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 investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of September 30, 2017.

The fair values of the investment 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 securities declines. As a result, other than temporary impairments may occur in the future.

As of September 30, 2017, $ 771,257 thousand of investment securities were pledged to secure public deposits and short-term borrowed funds. As of December 31, 2016, $768,845  thousand of investment securities were pledged to secure public deposits and short-term borrowed funds.

An analysis of gross unrealized losses of investment securities available for sale follows:

An analysis of gross unrecognized losses  of investment securities held to maturity follows:

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:

Note 4: Loans and Allowance for Loan Losses

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

Total loans outstanding reported above include loans purchased from the FDIC of $ 90,708 thousand and $121,210 thousand at September 30, 2017 and December 31, 2016, respectively. Loans purchased from the FDIC were separately reported in prior periods and have been reclassified into their respective categories in the current presentation.

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

The following summarizes activity in the allowance for loan losses:

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

[The remainder of this page intentionally left blank]

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter. 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 the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

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

Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

[The remainder of this page intentionally left blank]

The following tables summarize loans by delinquency and nonaccrual status:

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2017 and December 31, 2016.

The following summarizes impaired loans:

Impaired loans include troubled debt restructured loans. Impaired loans at September 30, 2017, included $ 12,365 thousand of restructured loans, $ 5,044 thousand of which were on nonaccrual status. Impaired loans at December 31, 2016, included $12,381 thousand of restructured loans, $5,302 thousand of which were on nonaccrual status.

[The remainder of this page intentionally left blank]

The following table provides information on troubled debt restructurings:

During the three and nine months ended September 30, 2017, the Company modified one loan with a carrying value of $ 50 thousand and four loans with a carrying value of $ 699 thousand, respectively, that were considered troubled debt restructurings. The four concessions granted in the first nine months of 2017 consisted of modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market terms. During the three and nine months ended September 30, 2016, the Company modified zero loans and four loans with a total carrying value of $4,843 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the four restructurings completed in the first nine months of 2016 consisted of three modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market terms and one court order requiring under-market terms. During the three and nine months ended September 30, 2017, one troubled debt restructured loan with a carrying value of $58 thousand was charged off. There were no chargeoffs related to troubled debt restructurings made during the three and nine months ended September 30, 2016. During the three and nine months ended September 30, 2017 and 2016, 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 September 30, 2017 and December 31, 2016.

There were no loans held for sale at September 30, 2017 and December 31, 2016.

At September 30, 2017 and December 31, 2016, the Company held total other real estate owned (OREO) of $ 1,426 thousand net of reserve of $ 1,905 thousand and $3,095 thousand net of reserve of $1,816 thousand, respectively, of which $-0-  thousand was foreclosed residential real estate properties or covered OREO at both dates. There were no consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2017 and December 31, 2016.