We have reiterated our long-term 'Underperform' recommendation
). Though the company's first-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 negatively impacted by
lower top line. However, a fall in non-interest expenses, improving
credit quality and stable capital ratios were among the
As a result of the difficult economic environment, Westamerica's
net interest margin in the first quarter fell 23 basis points on a
year-over-year basis to 5.12%. Slow economic recovery and the
Federal Reserve's decision to keep the short-term interest rates
low till 2014 are expected to keep the margin under pressure in the
next several 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 being observed in macro indicators such
as private consumption, unemployment and interest rates.
Additionally, Westamerica's average interest earnings assets
inched up 0.2% sequentially to $4.19 billion as of March 31, 2012.
However, we do not expect any significant improvement in interest
earnings assets, given the weak interest rates and low investment
returns amid the ongoing sluggish economic recovery.
However, the scenario is not that bad given its stable capital
and liquidity position. For the last several quarters, Westamerica
has been continuously enhancing the shareholder value through
dividend hikes and share repurchases. In 2011, the company
increased its dividend nearly 3% to 37 cents per share and
announced a new repurchase authorization of up to 2 million
Moreover, Westamerica remains one of the most profitable banks
in the industry, on the basis of its strong return on equity (ROE)
and return on assets (ROA). Though its ROE declined to 15.45% in
the first quarter from 16.65% in the prior-year quarter and ROA
reduced to 1.68% from 1.84% in the year-ago period, both remained
well above the peer group average.
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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