Westamerica Q1 Earnings in Line, Down Y/Y - Analyst Blog

A consistent decline in expenses and lower provisions drove Westamerica Bancorp's WABC first-quarter 2014 earnings of 58 cents per share. The reported figure was in line with the Zacks Consensus Estimate and lower than 64 cents earned in the year-ago quarter.

Westamerica's share price rose marginally following the earnings release, reflecting subdued investor response. The stock closed at $51.50, declining from $51.36 in the previous day.

Westamerica's top line remained under pressure, owing to declines in both net interest income and fee income. Further, deterioration in capital as well as profitability ratios were headwinds for the quarter. Nevertheless, reduced expenses and lower provision for loan losses along with improving credit quality were the positives.

Westamerica reported net income of $15.3 million, down 11.4% 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 $51.9 million, down 10.8% from the prior-year quarter.

Net interest income (NII) on FTE basis fell 11.3% year over year to $38.9 million. The decline was due to lower yields on loans and investment securities as well as reduced loan volumes, partially offset by decreased interest expenses. Further, net interest margin decreased 44 basis points (bps) year over year to 3.83%.

Non-interest income totaled $13.0 million in the reported quarter, down 9.0% from the prior-year quarter. The fall was owing to a decrease in all the components, except for debit card fees that recorded a 3.5% rise.

Non-interest expenses fell 6.3% year over year to $26.9 million. The decrease was primarily due a significant decline in other real estate owned expenses, partially offset by higher furniture and equipment costs.

Westamerica's average loans declined 12.3% year over year to $1.8 billion as of Mar 31, 2014. However, average deposits were $4.20 billion, up slightly from the prior-year quarter figure of $4.19 billion.

Credit Quality

Westamerica's credit quality showed a marked improvement this quarter. Provision for loan losses declined 64.3% year over year to $1.0 million. Nonperforming assets were $30.0 million as of Mar 31, 2014, down 43.4% from $52.9 million as of Mar 31, 2013.

Capital and Profitability Ratios

Westamerica's capital ratios and profitability ratios deteriorated. As of Mar 31, 2014, total regulatory capital ratio as a percentage of risk-adjusted assets came in at 15.19%, down from 15.99% as of Mar 31, 2013. Further, Tier I capital ratio as a percentage of risk-adjusted assets was 13.74%, down from 14.71% at the prior-year quarter end.

Westamerica's annualized return on assets of 1.27% as of Mar 31, 2014 was lower than 1.43% as of Mar 31, 2013. Likewise, annualized return on common equity was 11.6% against 12.9% as of Mar 31, 2013.

Share Repurchase

In the reported quarter, the company repurchased 437,000 shares at an average price of $51.93 per share.

Our Viewpoint

We believe that the sluggish economic recovery and low interest rate scenario will continue to limit Westamerica's top-line growth. However, declining expenses and an improving credit quality remain the company's strengths.

Currently, Westamerica carries a Zacks Rank #2 (Buy).

Among other West banks, Glacier Bancorp, Inc. GBCI and SVB Financial Group SIVB are slated to report on Apr 21 and Apr 24, respectively, while BofI Holding, Inc. BOFI is expected to release third quarter fiscal 2014 earnings results on May 6.