Westamerica's (WABC) Q2 Earnings In Line; Stock Down

Shares of Westamerica Bancorp (NASDAQ:WABC) dropped around 1.6% following the release of the company’s second-quarter 2016 results. Westamerica reported earnings of 57 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line fell 1.8% year over year.

The results were lower-than-expected largely due to a decline in revenues. The company witnessed decreased loan balances. However, a fall in operating expense and the absence of provisions were enough to counter the revenue decline.

Westamerica’s net income amounted to $14.5 million, down 1.5% year over year.

Lower Operating Expense Offsets Revenue Decline

Total net revenue was $45 million, down 2.6% year over year. The fall was due to a decline in both net interest income and non-interest income.

Net interest income came in at $36.5 million, down 2.5% year over year. The decline in total interest and fee income of 2.6% was partially offset by a 12.3% fall in interest expense. Further, net interest margin (FTE basis) slipped 10 basis points (bps) year over year to 3.3%.

Non-interest income fell 4.6% year over year to $11.7 million. The decline was due to all components except debit card fees and other income.

Non-interest expenses of $25.2 million declined 6.2% year over year. The fall was primarily owing to lower salaries and benefits expenses, other real estate owned, occupancy costs, amortization of identifiable intangibles, courier services and other operating costs, partially offset by a rise in professional fees, furniture & equipment costs, and outsourced data processing costs.

Efficiency ratio improved to 52.3% from 54.1% in the prior-year quarter.

Credit Quality Improves

Similar to the year-ago quarter, the company reported nil provision for loan losses. Also, nonperforming assets summed $18.1 million as of Jun 30, 2016, down 30% year over year.

Balance Sheet Shows Improvement

Westamerica’s total loans came in at $1.4 billion as of Jun 30, 2016, down 12.4% from the year-ago quarter. However, total deposits amounted to $4.5 billion, up 3% year over year.

Profitability Ratios Deteriorate

As of Jun 30, 2016, annualized return on assets of 1.13% was down 4 bps. Likewise, annualized return on common equity declined to 11% from 12% as of Jun 30, 2015.

Share Repurchase

In the reported quarter, Westamerica repurchased around 7000 shares at an average price of $49.35.

Our Take

Westamerica’s efforts to reduce its exposure to rising interest rates by buying shorter-duration investment securities with lower yields will lead to positive results. Also, the company’s impressive credit quality continues to work in its favor.

Though the company’s stable balance sheet position is expected to support growth, soft revenues and persistent margin compression, as a result of a still low interest rate scenario, will likely weigh on profitability in the near term.

WESTAMER BANCP Price, Consensus and EPS Surprise

WESTAMER BANCP Price, Consensus and EPS Surprise | WESTAMER BANCP Quote

Currently, Westamerica carries a Zacks Rank #4 (Sell).

Among other Western banks, Bank of Hawaii Corporation (NYSE:BOH) is scheduled to report results on Jul 25, Zions Bancorporation (NASDAQ:ZION) on Jul 26 and BofI Holding, Inc. (NASDAQ:BOFI) on Aug 2.