Westamerica Bancorporation (WABC)

Regional bank Westamerica Bancorporation (NASDAQ:WABC) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, but sales fell by 13.6% year on year to $64 million. Its GAAP profit of $1.12 per share was 4.2% above analysts’ consensus estimates.

Company Overview

Founded in 1884 and serving communities from Mendocino County in the north to Kern County in the south, Westamerica Bancorporation (NASDAQ:WABC) provides banking services to individuals and small businesses throughout Northern and Central California.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Westamerica Bancorporation competes with other California regional banks such as Bank of Marin Bancorp (NASDAQ:BMRC), TriCo Bancshares (NASDAQ:TCBK), and SVB Financial Group (NASDAQ:SIVB), as well as larger national banks with California operations including Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and JPMorgan Chase (NYSE:JPM).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Thankfully, Westamerica Bancorporation’s 5.3% annualized revenue growth over the last five years was decent. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Westamerica Bancorporation’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 9.4% over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Westamerica Bancorporation’s revenue fell by 13.6% year on year to $64 million but beat Wall Street’s estimates by 2.4%.

Net interest income made up 83.3% of the company’s total revenue during the last five years, meaning Westamerica Bancorporation barely relies on non-interest income to drive its overall growth.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Westamerica Bancorporation’s efficiency ratio has swelled by 8.4 percentage points, going from 45.2% to 39.1%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

In Q3, Westamerica Bancorporation’s efficiency ratio was 40.3%, falling short of analysts’ expectations by 50 basis points (100 basis points = 1 percentage point). This result was 4.9 percentage points worse than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Westamerica Bancorporation’s EPS grew at a spectacular 9.9% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Westamerica Bancorporation, its two-year annual EPS declines of 12.8% mark a reversal from its (seemingly) healthy five-year trend. We hope Westamerica Bancorporation can return to earnings growth in the future.

In Q3, Westamerica Bancorporation reported EPS of $1.12, down from $1.31 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.2%. Over the next 12 months, Wall Street expects Westamerica Bancorporation’s full-year EPS of $4.59 to shrink by 12.9%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

Westamerica Bancorporation’s TBVPS grew at a mediocre 4.3% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 27.8% annually over the last two years from $19.75 to $32.26 per share.

Over the next 12 months, Consensus estimates call for Westamerica Bancorporation’s TBVPS to grow by 5.6% to $34.07, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Westamerica Bancorporation has averaged a Tier 1 capital ratio of 21.4%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Westamerica Bancorporation has averaged an ROE of 16.7%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Westamerica Bancorporation has a strong competitive moat.

It was encouraging to see Westamerica Bancorporation beat analysts’ revenue and EPS expectations this quarter. We were also happy its net interest income outperformed Wall Street’s estimates. On the other hand, net interest margin was just in line and efficiency ratio missed slightly. Overall, this print was still solid. The stock remained flat at $45.80 immediately after reporting.

Updated: December 4, 2025 at 11:24 PM EST

Before deciding whether to buy Westamerica Bancorporation or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Westamerica Bancorporation isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its improving efficiency ratio shows the business has become more productive, the downside is its projected EPS for the next year is lacking. On top of that, its declining net interest margin shows its loan book is becoming less profitable.

Westamerica Bancorporation’s P/B ratio based on the next 12 months is 1.3x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $53 on the company (compared to the current share price of $48.15).