San Rafael-based Westamerica Bancorporation (NASDAQ:WABC) has always been a different sort of bank. With an intensively conservative underwriting approach, Westamerica is quite happy not to make loans and instead direct its ultra-low-cost deposit base into securities, while keeping operating expenses as low as possible. This strategy has minimized loan losses for Westamerica, but it also has limited earnings growth, making Westamerica a somewhat countercyclical bank that tends to outperform when typical banks struggle.
I can appreciate the "sleep well at night" aspect to Westamerica, and I do believe there will be good long-term dividend growth here over the years to come. But, with bank valuations near historical lows, I don't think this is a great time to be playing defense, and I think Westamerica is likely to lag in terms of total returns over the next three to five years.
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