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Westamerica Reports in Line

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Westamerica Bancorp. reported its first-quarter 2012 earnings of 75 cents per share, in line with the Zacks Consensus Estimate. However, the result was slightly down compared with 77 cents recorded in both the prior quarter and prior-year quarter.

Results in the quarter were impacted by a lower top line. Nevertheless, a fall in operating expenses along with an improving credit quality were the positives for Westamerica.

Westamerica reported a net income of $21.0 million compared with $21.8 million in the prior quarter and $22.4 million in the prior-year quarter.

Quarter in Detail

Westamerica’s total revenue came in at $66.4 million compared with $68.2 million in the previous quarter and $69.7 million in the year-ago quarter. Total revenue marginally lagged the Zacks Consensus Estimate of $67.0 million.

On a fully-taxable equivalent basis, Westamerica’s net interest income fell 3.1% sequentially and 6.0% year over year to $51.7 million. The decline from the prior quarter was attributable to lower yields on loans and investment securities, along with reduced loan volumes.

Net interest margin in the reported quarter stood at 5.12%, down 12 basis points (bps) sequentially and 23 bps year over year.

Westamerica’s non-interest income was $14.7 million in the reported quarter, dipping 1.3% from $14.9 million in the prior quarter and in line with the year-ago quarter. The sequential decrease was mainly due to lower merchant processing services and debit card fees.

Non-interest expenses decreased 2.1% sequentially and 4.1% year over year to $30.0 million in the quarter under review. The sequential decline was primarily attributable to reduction in professional fees and other real estate owned expenses. However, these were partly mitigated by higher salaries as well as benefits expenses and deposit insurance assessment fees.

Efficiency ratio stood at 45.3%, slightly rising from 44.9% reported in both the prior quarter and previous-year quarter. The increase in efficiency ratio indicates deterioration in profitability.

Credit Quality

During the quarter, Westamerica’s credit quality showed an improvement. Provision for loan losses remained flat, sequentially as well as on a year-over-year basis, at $2.8 million.

Annualized net loan losses, as a percentage of average originated loans, was 0.69%, up 16 bps sequentially but down 14 bps year over year. Further, nonperforming assets were $80.9 million at March 31, 2012, down from $101.0 million at December 31, 2011 and $132.9 million at March 31, 2011.

Profitability and Capital Ratios

Profitability metrics reflected a modestly cautious outlook. Westamerica’s annualized return on assets was 1.68% as of March 31, 2012 compared with 1.84% as of March 31, 2012. Likewise, annualized return on common equity declined to 15.5% from 16.6% in the prior-year period.

At March 31, 2012, total regulatory capital ratios for Westamerica Bancorp and its subsidiary, Westamerica Bank, were 16.1% and 15.6% respectively, exceeding the requirement of 10%, to be well capitalized as per the regulatory standards.

Share Repurchase Update

In the third quarter of 2011, Westamerica had announced a new share repurchase program, under which it will be able to repurchase up to 2 million common shares through September 1, 2012. During the first quarter 2012, the company repurchased 249,000 shares worth approximately $11.7 million, at an average price of $46.86.

Our Viewpoint

We believe that a weak interest rate environment and low investment returns will restrict any significant bottom-line improvement in the near term. However, we anticipate continued synergies from Westamerica’s strong expense discipline, conservative credit culture and a sound balance sheet. Once the market rebounds to a more conducive operating environment, the company will be able to capitalize on opportunities.

One of Westamerica’s peers, Columbia Banking System Inc. (COLB - Free Report) is slated to release its first-quarter results on April 25.

Westamerica currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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