Westamerica Continues To Leverage Its Amazingly Low-Cost Deposit Base

Westamerica Bancorp (WABC) may be one of the strangest banks I follow. While the bank’s tangible book value has increased more than 6% a year over the last decade, loan balances have declined more than 6% on average, and earnings have likewise contracted over time. Although Westamerica’s extremely conservative underwriting and ultra-low-cost deposit base can serve investors well in tougher times (the shares have outperformed the bank sector on a one-year, three-year, and five-year basis), this is definitely an atypical bank and investors need to appreciate that before adding it to their portfolio.

Westamerica has outperformed as the banking cycle has become more challenging, and I don’t see a lot of value here in the high $60’s. A pullback into the low $60’s (or high $50’s) would offer a more compelling story, unless you believe that banks are stumbling toward a major credit crisis, in which case Westamerica’s pristine balance sheet will shine all the brighter.

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Westamerica Continues To Leverage Its Amazingly Low-Cost Deposit Base