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Bear of the Day

Westamerica Bancorp's (WABC) first quarter 2012 earnings were in line with the Zacks Consensus Estimate. Results were negatively impacted by lower revenue. We believe that a weak interest rate environment and low investment returns will restrict any significant bottom-line improvement in the near term.

On a price-to-book basis, the shares currently trade at 2.3x, a substantial premium to the industry average of 1.0x. The valuation on a price-to-book basis looks reasonable, given a trailing 12-month ROE of 15.6% versus industry average of 6.1%.

Our six-month target price of $41.00 equates to about 13.4x our earnings estimate for 2012. Combined with the $1.48 per share annual dividend, this price target implies an expected negative return of 8.5% over that period, which is consistent with our long-term Underperform recommendation on the shares.

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