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On Jul 9, 2013, we reiterated our long-term recommendation on Westamerica Bancorp. (WABC - Analyst Report) at Underperform. Our decision rests on Westamerica’s mounting expenses.

Why Underperform?

Westamerica’s net interest margin (NIM) has been declining over the last several quarters due to the challenging economic environment. Moreover, sluggish economic recovery and the Federal Reserve’s decision to keep short-term interest rates low through mid-2015 are expected to keep NIM under pressure going forward.

Further, Westamerica’s interest earnings assets have remained a matter of concern due to the weak interest rates and low investment returns amid a sluggish economic recovery.

Also, Westamerica has been continuously experiencing pressure on its credit quality, which is anticipated to increase in the upcoming quarters due to the prevailing weak macroeconomic environment. Further, Westamerica’s securities portfolio has historically remained higher than its peers, which is expected to adversely affect the quality of earnings.

For Westamerica, the Zacks Consensus Estimate for 2013 has gone down 1.9% to $2.58 per share over the last 90 days. Likewise, the Zacks Consensus Estimate for 2014 has declined 2.3% to $2.56 per share over the same time frame. With the Zacks Consensus Estimates for both 2013 and 2014 going down, Westamerica currently carries a Zacks Rank #3 (Hold).

Westamerica is scheduled to announce its second-quarter results on Jul 16. The Zacks Consensus Estimate for the quarter is pegged at 64 cents per share.

Other Stocks Worth Considering

Some stocks that are performing well include Central Pacific Financial Corp. (CPF - Snapshot Report), Preferred Bank (PFBC - Snapshot Report) and TriCo Bancshares (TCBK - Snapshot Report). All these carry a Zacks Rank #1 (Strong Buy).

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