By a lot of metrics, Westamerica Bancorporation (NASDAQ:WABC) has a legitimate claim to being one of the best banks in the country, or at least one of the best small-cap banks. This Northern California-based bank produced numbers during the credit crisis/recession that were better than what many banks produce today, and the bank's service-oriented approach to business banking has made it a strong player for business deposits within its footprint.
But there's an ironic twist to this narrative. A lot of what has made Westamerica so good, particularly its rigorous underwriting discipline, is weighing heavily on the bank today. Credit quality is still excellent, but loans have declined at a double-digit rate for five years running and a shocking amount of the company's asset base is invested in securities because management can't find worthwhile loan opportunities. With that, valuation is a mystery to me. Even if I were to assume that ROE could double over the next five years, I don't see the path to today's valuation.
Follow this link for more:
Westamerica Bancorp Struggling As A Supreme-Quality Bank In A Lower-Quality World