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Wednesday, Aug 17, 2022

Banc of California’s Profit Emerges

Since Jared Wolff in 2019 became CEO of Santa Ana-based Banc of California Inc. (NYSE: BANC), the second biggest in Orange County, he’s focused on lending to the real estate and health sectors. He’s dumped expensive pet projects of previous executives such as the naming rights to a new soccer stadium in downtown Los Angeles.

The results became evident in the fourth quarter when the company reported net income climbed 70% to $17.7 million from the same period a year ago. Its adjusted profit of 35 cents a share easily topped the Zacks consensus estimate of 19 cents. Its net interest margin was 3.38%, a stunning 29 basis point increase from the third quarter.

“We ended 2020 with a strong quarter that demonstrates the potential of our franchise,” Wolff said. “The result of these accomplishments is that we made significantly more money on a core basis in 2020 than we did in 2019, while operating with a smaller balance sheet for most of the year.”

Although Southern California business has been heavily hit by new COVID-19 restrictions, the bank hasn’t seen it impact credit quality or a new wave of deferral requests, Wolff said.

The bank’s shares have risen about threefold since April 1 and at press time hovered around $956 million cap. KBW increased its target price to $20 from $16.

“Banc continues to deliver on its strategic plans to improve profitability with a lower-risk profile,” KBW analyst Jacquelynne Bohlen wrote in a report to investors. “We are increasingly positive on Banc.” 

The Problem With SBA Loans

When Banc of California CEO Jared Wolff spoke to analysts in January, he was frank about the problems of issuing Small Business Administration loans:

“In terms of SBA specifically, I’m certainly open to it. We don’t have that engine running today enough to be able to do that. But I wouldn’t be opposed to it in the future.

“But one of the things I think I’ve mentioned this before about SBA: In the past, with the number of banks that I’ve been associated with acquisitions, I’ve seen every bank claim that they do SBA differently and they’re better.

“At the end of the day it was all the same stuff. People made loans that they shouldn’t have made because they’re supported by government guarantees and somehow they talk themselves into them.

“And then when the economy goes bad, you’re left with a big number of loans with an overall portfolio of small dollar balance, and it’s a really big pain to work it out because you got to follow all the government rules. And I remember that.

“So the last thing you want to do is end up with the unguaranteed portion. I mean that’s like the worst of all scenarios.

“I think there are some banks that are probably doing a great job at it. I think it can be done and I’m certainly open to it.

“I think the right place to be in SBA today is on the real estate side so that’s the engine we’re trying to build up. We’re not there yet, but hopefully we can build it. People get hurt more on the non-real estate SBA loans.”


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