Westamerica Bancorp. (WABC) reported first-quarter earnings per share of 80 cents, beating the Zacks Consensus Estimate and prior-quarter profit of 79 cents. However, earnings was lower than $1.80 per share reported in the year-ago quarter. In the year-ago quarter, Westamerica recorded an acquisition gain and tax refund that combined to increase earnings by $1 per share. Excluding this, earnings was in line with the year-ago quarter.
Overall results reflected increase in provision for loan losses, decrease in interest and non-interest income and increase in non-covered non-performing assets. These were partially offset by decrease in operating expenses, low cost of funding on loan and investment portfolios along with risk reduction in loan portfolio.
During the reported quarter, net income applicable to common equity was $23.6 million, down from $52.2 million in the year-ago quarter but marginally up from $23.3 million in the prior-quarter.
On a fully-taxable equivalent basis, Westamerica’s net interest income was $57 million, down from $59.4 million in the year-ago period and from $58.9 million in the prior quarter. Low levels of interest-earning assets and weak loan volumes due to sluggish economic conditions and de-leveraging by businesses and individuals justified the decline. However, total non-interest expense decreased 5.1% year over year and 2.5% from prior quarter to $32 million. Westamerica’s full time equivalent staff decreased 9.8% year over year and 2.3% from prior quarter to 1,032 members.
As well, interest expense decreased significantly by 26.9% year over year and 17.8% from prior quarter to $3.5 million. The decline in interest expenses helped net interest margin (NIM) to grow to 5.6% from 5.35% in the year-ago quarter and 5.50% in the prior quarter.
Credit metrics deteriorated from year-ago quarter but showed some improvement, compared to the prior quarter. Provision for loan losses increased substantially by 55.6% year over year but declined 15.1% from prior quarter to $2.8 million. Annualized net loan losses on non-FDIC covered loans as a percentage of average non-FDIC covered loans increased to 0.66% from 0.42% in the year-ago period but decreased from 0.88% in the prior quarter. However, non-performing assets not covered by FDIC loss-sharing agreements were $35.3 million at Mar 31, 2010, up from $16.5 million at Mar 31, 2009 and from $33.3 million at Dec 31, 2009.
Total earnings assets were $4.11 billion, down 8.1% year over year and 3.7% from prior quarter. Total deposits were $4.0 billion, up 2.4% year over year but down 2.9% from prior quarter.
Profitability metrics also reflected a modestly cautious outlook. Westamerica’s annualized return on assets decreased to 1.99% from 4.24% in the year-ago quarter but increased from 1.85% in the prior quarter. Also annualized return on common equity declined to 18.8% from 48.0% in the year-ago quarter but was flat from the prior quarter. However, efficiency ratio increased to 44.2% from 27.7% in the year-ago quarter and 44.0% in the prior year quarter, indicating an improvement in profitability and a better managed balance sheet.
At Dec 31, 2009, total regulatory capital ratios for Westamerica Bancorp and its subsidiary, Westamerica Bank, were 15.2% and 15.1%, respectively, exceeding the 10% requirement to be well capitalized under regulatory standards. Westamerica’s long-term debt was marginally reduced to $26.5 million at the end of first quarter 2010.
Although stability has been witnessed in the credit quality and profitability metrics as compared to the prior quarter, yet Westamerica has a long road ahead to revive to its historical highs. While the company continues to implement cost saving initiatives, most of it has been the result of layoffs that also increased the additional cost of employee benefits and higher payroll taxes.
Going forward, however, we believe that Westamerica has the capacity to capitalize on the opportunities once the markets rebound to a more conducive operating environment, leading to increase in both top- and bottom-line growth.
Read the full analyst report on “WABC”
Zacks Investment Research
