The failure of Silicon Valley Bank (SIVB) has sent shockwaves through the U.S. banking industry, particularly affecting smaller banks. The SPDR S&P Regional Banking ETF (KRE) has declined over 20% just in the past week on fears of contagion.
But not all banks are as heavily exposed to the cryptocurrency and startup industries, although most bank stocks are getting swept up in the panic. Investors are selling bank stocks indiscriminately in this environment, but this could be an opportunity for dividend investors.
The following three regional bank stocks have declined alongside the broader financial sector, but these names are well-run with long-term growth potential and secure dividends.
Bank Stock #1: Go West for Dividends
Westamerica Bancorporation (WABC) is a regional community bank with 79 branches in Northern and Central California. The company can trace its origins back to 1884. Westamerica offers clients access to savings, checking and money market accounts.
The company's loan portfolio consists of both commercial and residential real estate loans, as well as construction loans. Westamerica is the seventh largest bank headquartered in California. It has annual revenues of nearly $270 million.
On January 19, Westamerica reported fourth-quarter and full-year earnings results. Revenue grew 47.6% to $79.6 million while GAAP earnings per share of $1.46 compared to $0.81 in the prior year. For 2022, revenue improved 23% to $267 million while EPS of $4.54 compared favorably to $3.22 in the previous year.
As of the end of the quarter, nonperforming loans totaled $774 million, down 25% year over year and lower by 20% from the third quarter of the year. Provisions for credit losses totaled $20.3 million, a decrease of 13.7% from the prior year and down 4.2% sequentially. Total loans fell 12.2% to $964 million, mostly due to a steep decline in Paycheck Protection Program (PPP) loans.
Net interest income was $69.2 million, which compares to $60.8 million for the third quarter of 2022 and $43.1 million in the fourth quarter of 2021. Average total deposits were unchanged at $6.3 billion. Analysts expect that the company will earn $5.98 in 2023.
The company has a long history of paying dividends and has increased its payout for 29 consecutive years. The shares currently yield 3.3%. We expect 2% annual EPS growth over the next five years, while the stock also appears to be significantly undervalued.
Bank Stock #2: There's Good 'Hiking' in Arkansas
Bank OZK (OZK) is a regional bank that offers services such as checking, business banking, commercial loans and mortgages to its customers in Arkansas, Florida, North Carolina, Texas, Alabama, South Carolina, New York and California.
The company has increased its dividend for 27 consecutive years, and in fact has provided dividend hikes for 50 consecutive quarters, indicating its strong business model. The shares currently yield 3.6%.
In mid-January, Bank OZK reported financial results for the fourth quarter of fiscal 2022. Total loans and deposits grew 13.5% and 6.4%, respectively, over the prior year's quarter. Net interest income grew 25% thanks to loan growth and much higher interest rates. In addition, the bank reduced its share count by 8%. As a result, EPS grew 14.5% and exceeded the analysts' consensus by $0.04. Bank OZK has exceeded the analysts' consensus in 10 of the last 11 quarters.
Bank OZK had increased its profits on a per-share basis in almost every year since the financial crisis, which was a strong feat for a bank. In the 2011 through 2019 stretch, EPS grew by nearly 11% per year. Moreover, Bank OZK has not only been growing organically, but over the last decade the bank has repeatedly made acquisitions to boost growth.
The bank is well positioned in its key markets, due to the opening of new branches and inorganic growth. Bank OZK is the largest bank in its home state of Arkansas. Given also a long history and strong performance during the last financial crisis, Bank OZK is an attractive financial stock.
Bank Stock #3: Remember the Maine
Bar Harbor Bankshares (BHB) is a bank holding company. The company's operating subsidiary, Bar Harbor Bank & Trust, is a community bank that offers a range of deposit, loan, and related banking products, as well as brokerage services provided through a third-party brokerage arrangement. In addition, the company offers trust and investment management services through this subsidiary, as well as wealth management services through its subsidiary Bar Harbor Wealth Management.
Operating over 50 locations across Maine, New Hampshire, and Vermont, Bar Harbor Bank & Trust is headquartered in Bar Harbor, Maine since 1887 and has more than $3.6 billion in assets.
Bar Harbor Bank & Trust is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire, and Vermont. The bank has a good track record in both earnings and dividend growth combined with a good dividend yield which makes the shares attractive for dividend investors. The company is well-positioned and has been able to create a strong loan pipeline and grow its loan portfolio while maintaining credit quality.
On January 19, Bar Harbor released its fourth-quarter 2022 results for the period ending December 31, 2022. For the quarter the company reported revenue of $41.2 million, compared with revenue $38.7 million in Q3 2022 and $34.97 million in Q4 2022. This result was driven by 11% annualized commercial loan growth and 19% commercial loan growth for 2022, compared to 2021. The fourth-quarter core earnings per diluted share equaled $0.83, compared to $0.76 last quarter and $0.65 in the year-ago period.
Bar Harbor's return on assets came in at 1.20% versus 1.14% last year, while the net interest margin equaled 3.76% compared to 2.79% the prior year. The non-performing asset ratio was 0.17% versus 0.27% in 2021. For the full year of 2022, net income was $43.6 million, or $2.88 per diluted share, compared to $39.3 million, or $2.61 per diluted share for 2021, an increase of 11%.
During the past five years, the company's dividend payout ratio has averaged around 42%. Bar Harbor's dividend is comfortably covered by earnings. Given the expected earnings growth, there is room for the dividend to continue to grow at the same pace and keep the payout ratio around the same levels which is safe.
The shares currently yield 3.9%.
