Low interest rate condition continues to weigh on Westamerica Bancorp (WABC) as it reported its third consecutive earnings miss yesterday. The company’s fourth-quarter 2013 earnings of 60 cents per share missed the Zacks Consensus Estimate of 63 cents primarily due to persistent pressure on top line. The reported figure was also lower than 70 cents earned in the year-ago quarter.
Our quantitative model did not conclusively predict an earnings beat as the earnings ESP for the company was -3.18% and it carries a Zacks Rank #4 (Sell), which is not the right combination.
For the full year 2013, Westamerica recorded earnings per share of $2.50, down from $2.93 in 2012. Earnings for the year also missed the Zacks Consensus Estimate of $2.54.
Westamerica’s stock price movement following the earnings release reflected negative market sentiment. The stock closed at $53.61, declining 2.0% from the previous day.
As predicted, revenues lagged estimates due to a decline in net interest income as well as non-interest income. Further, capital ratios and profitability ratios deteriorated during the quarter. However, the gloomy scenario was partly offset by a decline in expenses and provision for loan losses as well as an improvement in credit quality.
Westamerica reported net income of $16.1 million, down 16.1% from the prior-year quarter. For the full year 2013, net income came in at $67.2 million, declining 17.2% from $81.1 million in 2012.
Performance in Detail
Westamerica’s total revenue (net of interest expense) came in at $54.1 million, down 10.5% from the previous quarter. For the full year 2013, total revenue came in at $224.7 million, declining nearly 11.5% from $254.0 million in 2012.
On a fully-taxable equivalent basis, net interest income (NII) fell 13.5% year over year to $40.1 million. The decline was due to lower yields on loans and investment securities and reduced loan volumes, partially offset by declining interest expenses. Further, net interest margin declined 57 basis points (bps) sequentially to 3.92%.
Non-interest income totaled $14.0 million in the reported quarter, compared with $14.2 million in the prior-year quarter.
Non-interest expenses dipped nearly 1.0% year over year to $28.0 million. The fall was primarily due to decline in amortization of identifiable intangibles expenses and other costs.
Westamerica’s average loans declined 14.3% year over year to $1.8 billion as of Dec 31, 2013. Moreover, average deposits were $4.2 billion, down slightly from the prior-year quarter.
Credit Quality
Westamerica’s credit quality showed a marked improvement this quarter. Provision for loan losses remained declined 13.5% year over year to $1.6 million. Nonperforming assets were $35.0 million as of Dec 31, 2013, down 40.9% from $59.3 million as of Dec 31, 2012.
Capital and Profitability Ratios
Westamerica’s capital ratios and profitability ratios deteriorated. As of Dec 31, 2013, total regulatory capital ratio came in at 16.18%, down from 16.33% as of Dec 31, 2012. Further, Tier I capital ratio as a percentage of risk-adjusted assets was 14.71%, down from 15.06% in the prior-year quarter end.
Westamerica’s annualized return on assets was 1.31% as of Dec 31, 2013, compared with 1.55% as of Dec 31, 2012. As of Dec 31, 2013, annualized return on common equity was 11.8% against 14.1% as of Dec 31, 2012.
Share Repurchase
In the reported quarter, the company repurchased 326,000 shares at an average price of $53.74 per share.
Our Viewpoint
Sluggish economic recovery, a near zero rate and low investment returns will continue to challenge any significant bottom-line improvement in the near term. However, declining expenses and improving asset quality in the present market scenario are amongst the positives for the company.
Currently, Westamerica carries a Zacks Rank #4 (Sell).
Among other West banks, SVB Financial Group (SIVB) is expected to release earnings results on Jan 23, while Bank of Hawaii Corp. (BOH) and Zions Bancorp. (ZION) are scheduled to report on Jan 27.
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