Westamerica Meets Expectations - Analyst Blog

Westamerica Bancorp. (WABC) reported its fourth quarter earnings of 81 cents per share, in line with the Zacks Consensus Estimate. However, earnings were two pennies higher than 79 cents reported in the prior-year quarter.

Results for the reported quarter were aided by a decline in non-interest expenses. However, decreases in both interest and non-interest incomes were the headwinds.

For full year 2010, earnings came in at $3.21 per share, in line with the Zacks Consensus Estimate. However, this compares unfavorably with $4.14 in 2009.

During the reported quarter, net income applicable to common equity was $23.7 million, up 1.6% from $23.3 million in the prior-year quarter. For the full year, net income was $94.6 million, down from $121.5 million in 2009.

Quarter in Detail

Westamerica's total revenue came in at $71.6 million, down 4.1% from $74.6 million in the prior-year quarter. However, total revenue surpassed the Zacks Consensus Estimate of $71.0 million.

On a fully-taxable equivalent basis, Westamerica's net interest income was $56.4 million, down 4.3% from $58.9 million in the year-ago quarter. The year-over-year decline was mainly due to a lower net interest margin and weak loan volumes.

Net interest margin (NIM) fell 15 basis points (bps) sequentially and 11 bps year over year to 5.39%. The sequential decline in NIM was primarily due to a fall in investment securities yields.

Westamerica's non-interest income was $15.1 million in the quarter, flat sequentially but down 3.5% on a year-over-year basis. The decline in non-interest income resulted from a substantial decrease in service charges on deposits due to new overdraft regulations which were effective July 1, 2010.

Non-interest expense was $31.5 million, flat sequentially but down 4.0% from the year-ago quarter, reflecting Westamerica's strong expense management.The decline was mainly due to a decrease in salaries & benefits expenses, equipment costs, postage, professional fees and operational losses. The company's full time equivalent staff dropped 4.7% year over year to 1,006 members.

Efficiency ratio of 44.0% increased from 43.9% in the prior quarter, but remained flat on a year-over-year basis. The increase in efficiency ratio indicates deterioration in profitability.

Credit Quality

Credit quality was mixed during the quarter. Provision for loan losses remained flat sequentially but declined 15.2% year over year to $2.8 million.

Annualized net loan losses as a percentage of average originated loans increased to 1.03% from 0.83% in the prior quarter and 0.88% in the year-ago quarter. However, nonperforming assets were $143.7 million at December 31, 2010, down from $161.7 million at September 30, 2010, but up from $142.0 million at December 31, 2009.

Profitability and Capital Ratios

Profitability metrics reflect a modestly cautious outlook. Westamerica's annualized return on assets decreased to 1.87% from 1.95% in the prior quarter but improved from 1.85% in the year-ago quarter. Annualized return on common equity declined to 17.5% from 17.9% in the prior quarter and 18.8% in the year-ago quarter.

At December 31, 2010, total regulatory capital ratios for Westamerica Bancorp and its subsidiary, Westamerica Bank, were 15.5% and 15.3%, respectively, exceeding the 10% requirement to be well capitalized as per regulatory standards.

Our Viewpoint

We expect continued synergies from Westamerica's strong expense discipline, conservative credit culture and sound balance sheet. However, a weak interest rate environment and low investment returns will restrict significant bottom-line improvement in the near term.

Going forward, however, we believe that the company has the capacity to capitalize on the opportunities once the market rebounds to a more conducive operating environment, leading to an increase in both top and bottom-line growth.

Westamerica currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold' rating. Considering the company's fundamentals, we maintain a long-term “Neutral” recommendation on the shares.

Westamerica's peer company Western AllianceBancorp. (WAL) is scheduled to release its fourth quarter and full year results on January 26.

 
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