Westamerica Q3 Earnings In Line, Shares Down

Lower operating expenses drove Westamerica Bancorp’s (WABC -Analyst Report) third-quarter 2014 earnings of 58 cents per share. The figure was in line with the Zacks Consensus Estimate, but lower than 63 cents earned in the year-ago quarter.

Westamerica’s share price fell about 1.4% following the earnings release, reflecting subdued investor response.

A decline in revenue was offset by lower non-interest income expenses and a fall in provision for loan losses. While asset quality continued to remain impressive, deterioration in capital and profitability ratios acted as headwinds.

Westamerica reported net income of $15.2 million, down 9.5% from the prior-year quarter.

Performance in Detail

On a fully-taxable equivalent (FTE) basis, Westamerica’s total revenue (net of interest expense) came in at $51.0 million, down 8.4% from the prior-year quarter.

Net interest and fee income on FTE basis fell 8.1% year over year to $37.9 million. Further, net interest margin slipped 35 basis points (bps) year over year to 3.66%.

Non-interest income totaled $13.1 million, down 9.5% from the year-ago quarter. The fall was due to a decrease in all the components, except for debit card fees, trust fees and financial services commissions.

Non-interest expenses fell 4.1% year over year to $26.6 million. The decrease was primarily caused by lower other real estate owned expenses, amortization of Identifiable Intangibles and professional fees, partially offset by a rise in furniture & equipment costs.

Westamerica’s average loans declined 7.5% year over year to $1.76 billion as of Sep 30, 2014. However, average deposits were $4.30 billion, up 4.2% from the prior-year quarter figure of $4.13 billion.

Credit Quality

Westamerica’s credit quality showed a marked improvement in the quarter. Provision for loan losses declined 66.7% year over year to $0.6 million. Non-performing assets were $26.0 million as of Sep 30, 2014, down 49.9% from $51.9 million as of Sep 30, 2013.

Capital and Profitability Ratios

Westamerica’s capital and profitability ratios deteriorated. As of Sep 30, 2014, total regulatory capital ratio came in at 15.03%, down from 15.99% as of Sep 30, 2013. Also, Tier I capital ratio was 13.61%, down from 14.59% at the prior-year quarter end.

Annualized return on assets of 1.21% as of Sep 30, 2014 was lower than 1.37% as of Sep 30, 2013. Likewise, annualized return on common equity was 11.5%, against 12.4% as of Sep 30, 2013.

Share Repurchase

In the reported quarter, the company repurchased nearly 175,000 shares for $8.5 million.

Our Viewpoint

We believe that sluggish economic recovery and the low interest rate scenario will continue to limit Westamerica’s top-line growth. However, declining expenses and an improving credit quality remain its strengths. At the same time, we expect continued synergies from the company’s conservative credit culture as well as stable balance sheet and liquidity position.

Currently, Westamerica carries a Zacks Rank #3 (Hold).

Among other West banks, Zions Bancorporation (ZION - Analyst Report) is slated to report on Oct 20, while SVB Financial Group (SIVB - Analyst Report) and City National Corporation (CYN - Snapshot Report) are scheduled to report on Oct 23.

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