We have retained our long-term 'Underperform' recommendation
). Though the company's third quarter results were in line with
the Zacks Consensus Estimate, we believe that a weak interest
rate environment and low investment returns will restrict any
significant bottom-line improvement in the near term.
Westamerica's quarterly results were adversely impacted by a
decline in net interest income. Yet, a fall in non-interest
expenses, rise in fee income, improving credit quality and stable
capital ratios were among the positives.
As a result of the challenging economic conditions, Westamerica's
net interest margin (NIM) for the nine month ended September 30,
2012 fell 46 basis points from the comparable period last year to
4.89%. Slow economic recovery and the Federal Reserve's decision
to keep the short-term interest rates low through mid-2015 are
expected to keep NIM under pressure in the subsequent quarters.
Though the asset quality has been showing improvement over the
last few quarters, Westamerica is anticipated to experience
credit quality pressures in the upcoming quarters. The main
reasons include the strong buoyancy observed in various macro
indicators including private consumption, unemployment and
Additionally, Westamerica's average interest earnings assets
dipped 0.5% from the prior period to $4.11 billion as of
September 30, 2012. Given the weak interest rates and low
investment returns amid the ongoing sluggish economic recovery,
we do not expect any substantial growth in interest earnings
assets over the next several quarters.
However, the scenario is relatively better, given its stable
capital and liquidity position. Over the last few years,
Westamerica has been continuously enhancing shareholders' value
through dividend hikes and share repurchases. The company
repurchased 836,000 shares for $38.7 million in the first nine
months of 2012. Moreover, the company's dividend payout ratio
increased to 50% as of September 30, 2012 from 47% in the
Further, Westamerica continues to have a relatively strong
capital position. As of September 30, 2012, the company remained
well capitalized with its capital ratios remaining substantially
above the regulatory requirements. We anticipate the company to
continue building capital over the next couple of years, leading
to a better financial position.
Westamerica currently retains a Zacks #4 Rank, which translates
into a short-term Sell rating. However, one of its peers,
Columbia Banking System Inc.
) retains a Zacks #3 Rank (short-term Hold rating).
COLUMBIA BK SYS (COLB): Free Stock Analysis
WESTAMER BANCP (WABC): Free Stock Analysis
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