2. Westamerica Bancorporation
Shares of Westamerica Bancorporation (WABC) of San Rafael, Calif., closed at $44.72 last Friday, down 17% year-to-date. Based on a quarterly payout of 37 cents, the shares have a dividend yield of 3.31%. The dividend was increased by a penny, on Oct. 27.
The company's year-to-date ROA was 1.79% as of Sept. 30, and its five-year average ROA was 1.91%.Westamerica had $5.0 billion in total assets as of Sept, 30, with over 90 branches in Northern and Central California. Third-quarter net income was $22.4 million, or 79 cents a share, increasing from $21.3 million, or 74 cents a share, in the second quarter, but declining from $23.7 million, or 81 cents, in the third quarter of 2010. The provision for loan losses was $2.8 million during all three periods. Net interest income declined 3.5% year-over-year to a tax-adjusted $54.7 million, with reduced loan volumes "placing greater reliance on lower-yielding investment securities." While Westamerica's earnings decline was mainly attributed to a narrowing interest rate spread, the company's third-quarter net interest margin was a stellar 5.32% (tax-adjusted), declining from 5.54% a year earlier. The third-quarter ROA was 1.82%, according to SNL Financial. Over the past five quarters, the ROA has ranged between 1.73% and 1.95%. CEO David Payne said that during the third quarter, Westamerica retired "$10 million in high-coupon trust-preferred debt, and [repurchased] 316 thousand shares of common stock." KBW analyst Julianna Balicka has an "Outperform," on Westamerica, with a $55 price target, saying on Oct. 20 that "the fundamental thesis of our model is a sustainable tangible ROE between 23% and 25%." A return on equity of 20% was long considered the threshold for strong earnings performance by a bank, at least before the real estate bubble burst. Balicka also called Westamerica a "high-quality, low risk banking franchise that provides a compelling value proposition for investors looking for low volatility earnings, consistently increasing dividends, and active capital management in the form of share buybacks or well priced acquisitions." The shares reflect Westamerica's strong and consistent earnings performance, trading for 13.5 times the consensus 2012 EPS estimate of $3.25, among analysts polled by FactSet, and just over three times tangible book value, according to SNL. Out of nine analyst covering Westamerica Bancorporation, two rate the shares a buy, six have neutral ratings, and one analyst recommends investors sell the shares. Like First Financial Bankshares, Westamerica trades for a premium to peers because of its strong long-term earnings performance. While most analysts are neutral on the shares, the analysts' ratings are based on "long-term" outlooks of only one year. Westamerica looks like a keeper for real long-term investors who can stay in for a period of many years.
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