Westamerica's Third-Quarter Net Interest Margin Widens
The Northern California bank posted a 3.81% fully-taxable-equivalent net interest margin, 4 basis points above the second quarter, as loan yields lifted and net interest income (FTE) reached $53.5 million.
Westamerica Bancorporation (WABC), parent of Westamerica Bank, generated net interest income on a fully taxable equivalent basis of $53.5 million in the third quarter of 2026, up from $52.7 million in the second quarter, as the annualized net interest margin widened 4 basis points to 3.81%.
The margin move was the quarter’s clearest operating inflection. The annualized yield on earning assets rose to 4.07% from 4.01% in the prior quarter, while the annualized cost of funding interest-earning loans, bonds and cash ticked up to 0.26% from 0.24%. Chairman, President and CEO David Payne said excess cash from stable deposit balances was invested in higher interest-earning securities, and that the company recognized no provision for credit losses.
That yield lift sat against a shrinking loan book. Average total loans fell to $661.3 million from $682.9 million, with consumer loans down to $100.1 million, commercial real estate to $457.9 million and commercial loans to $103.4 million. Investment securities rose to $4.66 billion, and loans-to-deposits slipped to 13.7% from 14.2%. Average earning assets were $5.59 billion.
Average total deposits edged up to $4.81 billion. Noninterest demand was $2.17 billion, savings $1.66 billion, and demand deposits were 45.1% of the total. Interest-bearing transaction deposits were $920 million and time deposits $62 million. Short-term borrowings, all securities sold under repurchase agreements, averaged $143.3 million.
Net income was $28.2 million, or $1.22 a share, versus $27.4 million and $1.17 a share in the second quarter. Average common shares outstanding were 23.1 million. Return on average common equity was 11.5% annualized. The company again recognized no provision for credit losses, matching the zero provision in the second quarter. The allowance for credit losses on loans ended at $10.5 million, and net ACLL losses were $277 thousand.
Credit quality improved. Nonperforming loans declined to $476 thousand from $808 thousand at June 30, 2026, and nonperforming loans to total loans fell to 0.07% from 0.12%. Nonaccrual loans were $330 thousand. The ACLL-to-loans ratio was 1.60%.
Noninterest income increased to $10.7 million from $10.3 million, led by merchant processing services of $3.27 million on a one-time termination fee and higher transaction volumes, and trust fees of $1.03 million. Debit card fees were $1.40 million. Service charges on deposit accounts were $3.44 million. Total revenue (FTE) was $64.2 million.
Noninterest expense was $26.2 million. Occupancy and equipment rose to $5.44 million and professional fees to $0.71 million, partially offset by lower salaries and benefits of $12.39 million. The efficiency ratio (FTE) improved to 40.8% from 41.3%. Payne said the company spent 41% of revenue on operating costs.
Capital return slowed. The company retired 51 thousand common shares in the third quarter, versus 753 thousand in the second quarter, and paid a $0.48 dividend. Tangible common equity was 11.78% at September 30, 2026. Shareholders’ equity was $789.7 million. Common shares outstanding were 23.1 million. Payne said capital ratios remain at historically high levels exceeding the highest regulatory guidelines.
The mix of the balance sheet still favored securities over loans. Available-for-sale debt securities averaged $3.84 billion, including $1.41 billion of agency mortgage-backed securities and $1.91 billion of corporate securities. Held-to-maturity debt securities averaged $802 million. Interest-bearing cash averaged $277 million. Loans-to-deposits of 13.7% left the bulk of the deposit base parked in the securities portfolio, the structure Payne tied to the 0.26% funding cost and the 3.81% margin.
The quarter’s earnings lift was therefore a combination of a wider spread on a securities-heavy book, a zero credit-loss provision, and a smaller share count after the $0.48 dividend. Nonperforming loans of $476 thousand and an ACLL of $10.5 million left credit costs minimal. Merchant processing, including the one-time termination fee, and trust fees supplied the noninterest-income step-up. Occupancy, equipment and professional fees absorbed most of the expense increase, while salaries and benefits eased. The 51 thousand share retirements marked a pause in the buyback pace after 753 thousand in the second quarter. Tangible common equity of 11.78% and shareholders’ equity of $789.7 million framed the capital position Payne described as above the highest regulatory guidelines.