Westamerica Bancorp.’s third quarter 2012 earnings of 73 cents per share were in line with the Zacks Consensus Estimate. Yet, this compared unfavorably with the prior-quarter earnings of 75 cents and the prior-year quarter earnings of 79 cents.
Sequential results were adversely impacted by a fall in net interest income. However, decline in operating expenses and higher fee income as well as the improving credit quality and stable capital ratios were the positives during the quarter.
Westamerica reported a net income of $20.0 million, down 4.8% from $21.0 million in the prior quarter and 10.7% from $22.4 million in the prior-year quarter.
Westamerica’s total revenue came in at $63.3 million compared with $63.9 million in the previous quarter and $69.9 million in the year-ago quarter. Total revenue was also at par with the Zacks Consensus Estimate.
On a fully-taxable equivalent basis, net interest income (NII) fell 3.2% sequentially and 10.9% year over year to $48.7 million. Both declines came on the back of lower yields on loans and investment securities along with reduced loan volumes, partly offset by lower interest expenses.
Net interest margin was 4.67% in the quarter under review, down 22 basis points (bps) sequentially and 65 bps year over year.
Non-interest income was $14.6 million in the reported quarter, rising 8.1% from $13.5 million in the prior quarter but plummeting 3.8% from $15.2 million in the year-ago quarter. The sequential surge was mainly driven by higher financial services commissions and trust fees. On the year-over-year basis, fee income was hurt by lower service charges on deposits as well as ATM processing fees.
Non-interest expenses fell 0.3% sequentially and 6.7% year over year to $29.3 million in the quarter under review. The declines were primarily attributable to reduction in salaries & benefits expenses.
Efficiency ratio stood at 46.2%, slightly rising from 46.0% in the prior quarter and 44.9% in the previous-year quarter. The increase in efficiency ratio indicates deterioration in profitability.
During the reported quarter, Westamerica’s credit quality continued to show a marked improvement. Provision for loan losses remained flat, sequentially as well as on a year-over-year basis, at $2.8 million. Moreover, nonperforming assets were $71.5 million at September 30, 2012, down 9.9% from $79.3 million at June 30, 2012 and 33.7% from $107.8 million at September 30, 2011.
Profitability metrics reflected a modestly cautious outlook. Westamerica’s annualized return on assets was 1.63% as of September 30, 2012 compared with 1.69% as of June 30, 2012 and 1.81% as of September 30, 2011. Moreover, as of September 30, 2012, the annualized return on common equity was 14.7% against 15.6% as of June 30, 2012 and 16.4% as of September 30, 2011.
As of September 30, 2012, total regulatory capital ratio came in at 16.22% compared with 15.74% as of June 30, 2012 and 15.41% as of September 30, 2011. Further, tier I capital ratio as a percentage of risk-adjusted assets was 14.96% against 14.46% in the prior quarter-end and 14.11% in the previous-year quarter end.
Share Repurchase Update
In July, Westamerica announced a new share repurchase program, under which the company will be able to repurchase up to 2 million common shares through September 1, 2013. During the reported quarter, the company repurchased 270,000 shares worth approximately $12.6 million, at an average price of $46.63 per share.
Further, in the first nine months of 2012, Westamerica bought back 836,000 share worth $38.67 million.
We believe that a weak interest rate scenario and low investment returns will restrict any significant bottom-line improvement in the near term. Nevertheless, 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.
Currently, Westamerica retains a Zacks #4 Rank, which translates into a short-term Sell rating. Also, considering the fundamentals, we are maintaining a long-term ‘Underperform’ recommendation on the shares.
Among Westamerica’s peers, Columbia Banking System Inc. (COLB - Snapshot Report) is slated to release its third quarter results on October 25.