Westamerica Sanctions Buyback

Westamerica Bancorp. (WABC - Analyst Report) announced that its board of directors has authorized a new share repurchase program, under which the company will be able to repurchase up to 2 million common shares through September 1, 2012.

The recent buyback program represents about 7% of Westamerica’s stock outstanding as of June 30, 2011. It will allow the company to repurchase common stock through the open market or privately held negotiations.

Earlier on August 26, 2010, Westamerica’s board of directors had authorized a repurchase of up to 2 million shares by September 1, 2011. Under this plan, the company repurchased 640,000 shares worth $32.0 million during the first half of 2011.

Concurrent with the recent announcement of the share repurchase plan, Westamerica also declared a quarterly cash dividend of 36 cents per share. The dividend is payable on August 19 to the shareholders of record at the close of business on August 8.

According to Westamerica, the share repurchase program would help the company flexibly manage its capital. Additionally, the company’s stable credit quality, substantial profitability and strong capital position would support the buyback plan.

We expect continued synergies from Westamerica’s conservative credit culture and sound balance sheet. Once the market rebounds to a more conducive operating environment, the company will be able to capitalize on opportunities leading to increased top and bottom-line growths. Further, the new share repurchase authorization raises our hopes for enhanced investor confidence.

However, a weak interest rate environment and low investment returns will restrict Westamerica’s bottom-line improvement significantly in the near term.

Westamerica currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. One of the peers of the company, Western Alliance Bancorporation (WAL - Snapshot Report) also retains a Zacks # 3 Rank (short-term ‘Hold’ rating).

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