WABC Better than Expected

On July 14, 2009, Westamerica Bancorp (WABC - Analyst Report) reported its second quarter 2009 results, after market open. Net income applicable to common shareholders was $22.1 million, versus $52.2 million in the prior quarter.

Results benefited from an increase in the net interest income mainly due to the County Bank acquisition. Diluted earnings came in at $0.75 per common share and included FDIC’s insurance assessment of $3.2 million, compared to only $0.2 million in the prior quarter. Excluding the FDIC’s insurance assessment, we arrive at core earnings of $0.82 per share, two cents ahead of our estimate.

Net interest income on a fully taxable equivalent (FTE) basis was $62.3 million for the second quarter of 2009, up from $59.4 million in prior quarter and from $49.7 million in the prior-year quarter. NIM for the quarter was 5.34%, flat from 5.35% in prior quarter but up from 5.16% in the prior-year quarter.

Non-interest income for the quarter was $16.4 million, up from $15.1 million (excluding the FAS 141R gain) in the prior quarter and from $14.3 million (excluding $18.2 million in net losses from securities) in the prior-year quarter.

Non-interest expense was $38.7 million for the second quarter of 2009, up from $34.1 million for the prior quarter and $26.3 million for the prior-year quarter.

Credit quality deteriorated during the quarter with loan loss provisions having increased 44.4% sequentially and 333.3% year-over-year to $2.6 million. Net loan losses also increased to $3.3 million or 0.56% of average loans, compared to 0.42% and 0.31%, respectively, for the prior and prior-year quarters.  



At June 30, 2009, WABC’s tangible common equity-to-asset ratio and total regulatory-capital ratio improved to 6.3% and 15.9%, respectively. Book value at June 30, 2009 was $16.31 per share, up from $14.21 per share at June 30, 2008 and from $15.73 per share at March 31, 2009.

We believe that WABC should continue to trade at a sizeable premium to its peers, given its strong capital levels and superior credit metrics. These positives mainly result from its minimal exposure to the housing loans. The company also indicated its intention to redeem the TARP funds shortly.  However, we anticipate some moderation in the credit quality in the coming quarters mainly due to the commercial real estate portfolio of the bank.

As such, we are maintaining our Hold recommendation on the shares.