Lower operating expenses drove Westamerica Bancorp (WABC)’s fourth-quarter 2014 earnings of 58 cents per share. The figure came in line with the Zacks Consensus Estimate. However, it was lower than 60 cents earned in the year-ago quarter.
For full-year 2014, earnings per share totaled $2.32, down 7.2% from the previous year. Moreover it missed the Zacks Consensus Estimate by a penny.
Despite reporting in-line results, Westamerica’s share price fell about 1.7% following the earnings release, indicating investors’ bearishness toward the stock. Declining revenues seem to have made investors concerned about the company’s growth prospects.
Declining revenues and deteriorating profitability, coupled with poor capital position, were the major dampeners. However, reduced expenses, lower provisions and improvement in credit quality acted as tailwinds.
Westamerica’s fourth-quarter net income amounted to $15.0 million, down 6.4% from the prior-year quarter. Full-year 2014 reported net income came in at $60.6 million, down 9.7% year over year.
Performance in Detail
On a fully-taxable equivalent (“FTE”) basis, Westamerica’s fourth-quarter total revenue (net of interest expense) came in at $49.9 million, down 7.8% from the prior-year quarter.
Moreover, for full-year 2014, total revenue (net of interest expense) on a FTE basis was $204.4 million, down 9% from the previous year.
Net interest and fee income on FTE basis fell 6.9% year over year to $37.3 million. The decline in interest income, caused by low market interest rates on loan, was partially offset by a 21.9% fall in interest expense. Further, net interest margin slipped 39 basis points (bps) year over year to 3.53%.
Non-interest income totaled $12.5 million, down 10.6% from the year-ago quarter. The fall was due to a decrease in all the components, except for trust fees and other service fees.
Non-interest expenses fell 5.8% year over year to $26.4 million. The decrease was primarily caused by lower professional fees, salaries and benefits expenses, amortization of identifiable intangibles, occupancy costs, and processing fees. This was, however, partially offset by a rise in furniture & equipment costs, other real estate owned expenses and courier service expenses.
Efficiency ratio increased to 52.9% from 51.8% in the prior-year quarter. An increase in efficiency ratio indicates a decline in profitability.
Westamerica’s average loans declined 7.5% year over year to $1.7 billion as of Dec 31, 2014. However, average deposits were $4.4 billion, up 4.4% from the prior-year quarter figure of $4.2 billion.
Credit Quality
Westamerica’s credit quality continued to improve during the quarter. Provision for loan losses declined 87.5% year over year to $0.2 million. Further, nonperforming assets were $24.5 million as of Dec 31, 2014, down 30.1% from $35.0 million as of Dec 31, 2013.
Capital and Profitability Ratios
Westamerica’s capital and profitability ratios deteriorated during the quarter. As of Dec 31, 2014, total regulatory capital ratio was 14.54%, down from 16.18% as of Dec 31, 2013.
Also, Tier I capital ratio declined from 14.71% to 3.30% in the quarter ended Dec 31, 2014. Further, the tangible common equity ratio also decreased from 8.56% as of Dec 31, 2013 to 7.97% as of Dec 31, 2014.
Annualized return on assets was 1.18% as of Dec 31, 2014, down from 1.31% as of Dec 31, 2013. Likewise, annualized return on common equity slightly declined from 11.8% to 11.5% as of Dec 31, 2014.
Share Repurchase
In the reported quarter, the company repurchased nearly 161,000 shares for approximately $7.8 million. For full year 2014, the company repurchased a total of nearly 1.0 million shares for approximately $52.7 million.
Our Viewpoint
Despite improving credit quality, we remain skeptical about Westamerica’s future prospects. The company’s top line and margins continue to be constrained by the low interest rate environment. Though the interest rate conditions are expected to improve by mid-2015, chances of near-term respite seem bleak.
However, the company has been successful in its keeping its operating expenses low, giving it an advantage over its peers amid the present economic scenario.
Currently, Westamerica carries a Zacks Rank #4 (Sell).
Among other West banks, SVB Financial Group (SIVB), Western Alliance Bancorporation (WAL) and City National Corporation (CYN) are scheduled to report results on Jan 22.
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