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Westamerica's Revenue Woes Continue to Hurt Profitability

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On Aug 23, 2016, we issued an updated research report on Westamerica Bancorp. (WABC - Free Report) . Strained revenue growth remains a major concern for the company. This has also impacted the company’s profitability.

Persistent low rate environment is taking a toll on Westamerica’s interest income and compressing its net interest margin (“NIM”). The company has been witnessing a consistent fall in NIM over the past several quarters.

Further, declining loan balances add to the company’s woes. Over the last six years (2010–2015), loans have dropped at a CAGR of 12.1%, with the trend continuing in the first half of 2016. Unless the rate environment improves, Westamerica is likely to continue facing this headwind.

Also, Westamerica has been witnessing a fall in non-interest income. Over the last six years (2010–2015), fee income has decreased at a CAGR of 4.9%, with the trend continuing in the first half of 2016. We believe that unless the company is able to ward off heightened competition, non-interest income will continue to experience a downward trend.

Therefore, overall revenue improvement seems elusive for Westamerica.

Driven by revenue growth concerns, analysts have lowered their estimates for Westamerica. Over the last 30 days, the Zacks Consensus Estimate for 2016 inched down a penny; while for 2017, it is down 2.4%.

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

Stocks That Warrant a Look

Better-ranked banking stocks include American River Bankshares , First Republic Bank and Central Pacific Financial Corp. (CPF - Free Report) . All three stocks carry a Zacks Rank #2 (Buy).

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