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On Apr 23, 2013, we reiterated our long-term recommendation on Westamerica Bancorp. (WABC - Analyst Report) at Underperform. This reflects Westamerica’s dismal first-quarter results, which declined both on a sequential and year-over-year basis.

Why Underperform?

Westamerica’s first-quarter earnings of 64 cents per share declined from the prior-quarter earnings of 70 cents and year-ago earnings of 75 cents. The results were adversely affected by sluggish top-line growth and an increase in operating expenses. However, improving credit quality and stable capital ratios were the tailwinds.

Following the first-quarter results, the Zacks Consensus Estimate for 2013 has gone down 2.3% to $2.60 per share. Likewise, the Zacks Consensus Estimate for 2014 has declined 5.4% to $2.62 per share. With the Zacks Consensus Estimates for both 2013 and 2014 going down, Westamerica currently carries a Zacks Rank #4 (Sell).

Further, Westamerica’s net interest margin (NIM) has been falling over the last several quarters owing to the challenging economic environment. 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.

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

Also, Westamerica has been continuously experiencing pressure on its credit quality. Further, Westamerica’s securities portfolio has historically remained higher than its peers, which is expected to adversely affect the quality of earnings.

Other Banks Worth Considering

While we have a bearish take on Westamerica, we would suggest considering stocks with a better Zacks Rank. These include Glacier Bancorp Inc. (GBCI - Snapshot Report) and Preferred Bank (PFBC - Snapshot Report) with a Zacks Rank #1 (Strong Buy), and SVB Financial Group (SIVB - Analyst Report) with a Zacks Rank #2 (Buy).

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