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Tickers in this Article: WABC, PFBC
Westamerica Bancorp's (WABC) fourth-quarter 2012 earnings of 70 cents per share were in line with the Zacks Consensus Estimate. Yet, this compared unfavorably with the prior-quarter earnings of 73 cents and the year-ago earnings of 77 cents.

Both sequential and year-over-year results were adversely impacted by reduced top line. However, a decline in operating expenses, improving credit quality and stable capital ratios were the positives during the quarter.

Westamerica reported a net income of $19.1 million, down 4.4% from the prior quarter and 12.2% from the prior-year quarter. For 2012, the net income stood at $81.1 million, down 7.7% from $87.9 million recorded in 2011.

For full-year 2012, Westamerica recorded earnings per share of $2.93, down 4.6% from $3.07 in 2011. The full year earnings were also in line with the Zacks Consensus Estimate.

Performance Details

Westamerica's total revenue came in at $61.8 million, down 4.5% from the previous quarter and 11.8% from the year-ago quarter. Total revenue marginally missed the Zacks Consensus Estimate of $62 million.

For 2012, total revenue was $259.8 million, down 9.6% from $287.3 million in 2011. However, this was 1.1% higher than the Zacks Consensus Estimate of $257.0 million.

On a fully-taxable equivalent basis, net interest income (NII) fell 5.0% sequentially and 13.3% year over year to $46.3 million. Both declines came on the back of lower yields on loans and investment securities along with reduced loan volumes, partly offset by lower interest expenses.

Net interest margin was 4.49%, down 18 basis points (bps) sequentially and 75 bps year over year.

Non-interest income was $14.2 million in the reported quarter, falling nearly 3.0% sequentially and 4.5% year over year. The deterioration was mainly driven by lower service charges on deposit accounts, merchant processing services costs, ATM processing fees, financial services commissions and other income, partly offset by higher debit card fees and trust fees.

Non-interest expenses fell 3.5% sequentially and 7.9% year over year to $28.2 million. The declines were primarily attributable to reduction in salaries & benefits expenses, occupancy costs, amortization of identifiable intangibles professional fees, furniture and equipment costs, other real estate owned expenses as well as courier service charges.

Efficiency ratio stood at 46.7%, slightly rising from 46.2% in the prior quarter and 44.9% in the year-ago quarter. The increase in efficiency ratio indicates deterioration in profitability.

Credit Quality

Westamerica's credit quality continued to show a marked improvement during the quarter. Provision for loan losses remained flat, sequentially as well as on a year-over-year basis, at $2.8 million. Moreover, nonperforming assets were $59.3 million at Dec 31, 2012, down 17.1% from $71.5 million at Sep 30, 2012 and 41.3% from $101.0 million at Dec 30, 2011.

Profitability Ratios

Profitability metrics reflected a modestly cautious outlook. Westamerica's annualized return on assets was 1.55% as of Dec 31, 2012 compared with 1.63% as of Sep 30, 2012 and 1.73% as of Dec 31, 2011. As of Dec 31, 2012, the annualized return on common equity was 14.1% against 14.7% as of Sep 30, 2012 and 15.9% as of Dec 31, 2011.

Capital Ratios

As of Dec 31, 2012, total regulatory capital ratio came in at 16.33%, up from 16.22% as of Sep 30, 2012 and 15.83% as of Dec 31, 2011. Further, tier I capital ratio as a percentage of risk-adjusted assets was 15.06%, rising from 14.96% in the prior quarter-end and 14.54% in the end of the previous-year quarter.

Share Repurchase Update

In July, Westamerica announced a new share repurchase program, under which the company will be able to repurchase up to 2 million common shares through Sep 1, 2013. In the reported quarter, the company repurchased 183,000 shares, at an average price of $42.92 per share.

Further, in 2012, Westamerica bought back 937,000 share worth $45.38 million.

Our Viewpoint

We believe that a weak interest rate scenario and low investment returns will restrict any significant bottom-line improvement in the near term. Nevertheless, we anticipate continued synergies from Westamerica's strong expense discipline, conservative credit culture and a sound balance sheet. Once the market rebounds to a more conducive operating environment, the company will be able to capitalize on opportunities.

Currently, Westamerica retains a Zacks Rank #4 (Sell). Also, we are maintaining a long-term Underperform recommendation on the shares.

Among Westamerica's peers, Preferred Bank (PFBC) is slated to release its fourth quarter results on Jan 22, 2013.

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