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Westamerica Bancorp’s (WABC - Analyst Report) third-quarter 2013 earnings came in at 63 cents per share, missing the Zacks Consensus Estimate and the prior-quarter earnings by a penny. Further, this compared unfavorably with the year-ago earnings of 73 cents.

Results were adversely affected by a substantial fall in net interest income, partially offset by a drop in operating expenses. Credit quality failed to show any marked improvement and loan balances declined. Further, profitability ratios deteriorated.

Westamerica reported net income of $16.7 million, down 2.3% from the prior quarter.

Performance in Detail

Westamerica’s total revenue (net of interest expense) came in at $55.6 million, down 2.2% from the previous quarter.

On a fully-taxable equivalent basis, net interest income (NII) fell 3.3% sequentially to $41.2 million. The decline was due to lower yields on loans and investment securities and reduced loan volumes, partially offset by declining interest expenses. Further, net interest margin declined 11 basis points (bps) sequentially to 4.01%.

Non-interest income totaled $14.4 million in the reported quarter, compared with $14.3 million in the prior quarter. Lower merchant processing services costs, debit card fees, ATM processing fees, trust fees, financial services commissions were offset by an increase in other income.

Non-interest expenses dipped 1.5% sequentially to $27.8 million. The fall was primarily attributable to a decline in personnel and loan administration costs.

Westamerica’s average loans declined 4.6% from the prior quarter to $1.9 billion as of Sep 30, 2013. However, total average deposits were $4.1 billion, in line with the prior quarter.

Credit Quality

Westamerica’s credit quality was mixed during the quarter. Provision for loan losses remained stable compared with the prior quarter at $1.8 million. Nonperforming assets were $51.9 million as of Sep 30, 2013, up 3.0% from $50.4 million as of Jun 30, 2013.

Capital and Profitability Ratios

Westamerica’s capital ratios depicted mixed results and profitability ratios deteriorated. As of Sep 30, 2013, total regulatory capital ratio came in at 15.99%, up from 15.98% as of Jun 30, 2013. Further, Tier I capital ratio as a percentage of risk-adjusted assets was 14.59%, down from 14.64% in the prior-quarter end.

Westamerica’s annualized return on assets was 1.37% as of Sep 30, 2013, compared with 1.42% as of Jun 31, 2013. As of Sep 30, 2013, annualized return on common equity was 12.4% against 12.7% as of Jun 30, 2013.

Share Repurchase

In the reported quarter, the company repurchased 191,000 shares at an average price of $48.48 per share.

Our Viewpoint

Westamerica’s strong expense control initiatives, conservative credit culture and a solid capital position are expected to act as tailwinds. However, a still weak interest rate scenario and low investment returns are expected to deter any significant bottom-line improvement in the near term.

Currently, Westamerica carries a Zacks Rank #4 (Sell).

Among other west banks, SVB Financial Group (SIVB - Analyst Report) is expected to report its results on Oct 21, while Bank of Hawaii Corporation (BOH - Snapshot Report) and Zions Bancorp. (ZION - Analyst Report) are scheduled to report on Oct 28 and Oct 21, respectively.
 

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