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Sunday, Jul 14, 2024

OC Banks See Business Sentiment Changing

Finance: Corporate resilience, loan growth

Executives at publicly traded banks headquartered in Orange County are reporting businesses are still taking out loans, albeit with an eye on rising interest rates.

“Overall, the economy is appearing to be very resilient,” Jared Wolff, chief executive at Santa Ana’s Banc of California Inc., told the Business Journal.

“There are great changes forthcoming that may impact behavior. So far, rising rates haven’t affected behavior, except for the mortgage industry.”

Banks are often the canaries in the economic coal mine, knowing quickly which companies and industries are hesitating to take out new loans or worse yet, falling behind in payments for existing loans.

“The sentiment with OC businesses is somewhere between cautiously optimistic to a likely recession coming in the next six to 12 months,” Irvine-based CommerceWest Bank boss Ivo Tjan told the Business Journal.

“We have noticed businesses are tightening on expenses, being more careful with new hirings and preserving cash,” he said.

This page includes comments and recent results from four publicly traded banks after their recent quarterly earnings report.


CommerceWest Bank:
‘Fortress Balance Sheet’


Irvine-based CW Bancorp (OTCQX: CWBK), the parent company of CommerceWest Bank, reported net income jumped 40% to $4.12 million, or $1.20 a share last quarter.

Loan growth jumped 23% to $151 million from the same period a year ago.

“We continue to demonstrate the strength of the bank’s business model, digital banking strategy and our team’s execution; while maintaining a fortress balance sheet,” CEO Ivo Tjan said in a statement.

Still, it’s a “challenging economic environment,” Tjan added. The bank increased its provision for loan losses to $375,000 from zero in the same period a year ago.

Tjan told the Business Journal that federal funds rate, currently at 2.25% to 2.50%, could rise another 1% to 1.25%.

Tjan, who founded the bank in 2001, celebrated 50 quarters of consecutive profits.

Shares of the thinly traded bank rose 5.1% to $34 in the trading session after the results were announced. They have doubled in the past year to a $116 million market cap.


Pacific Premier:
Challenges Emerge


Irvine-based Pacific Premier Bancorp Inc. (Nasdaq: PPBI), the largest bank based in Orange County with $22 billion in assets, on July 21 reported second-quarter net income fell 28% to $69.8 million. Its quarterly earnings of 73 cents topped the Zacks consensus estimate for 72 cents.

The bank performed well “despite a challenging operating environment,” Chairman and Chief Executive Steven Gardner said in a statement.

That’s a change from Jan. 20 when Gardner said that “the fundamental underpinnings to the economy are strong, particularly in our West Coast markets.”

The company generated $1.12 billion in new loan fundings, slightly up from $1.06 billion in the first quarter and down from $1.15 billion in the same period a year earlier.

“Pacific Premier posted a solid quarter with most fundamental trends coming in at or modestly above our forecasts,” Wedbush analyst David Chiaverini wrote after the results were posted.

Loan growth in the second half could be tempered by waning commercial real estate demand given the increasing interest rates, the bank’s management warned.

Additional acquisitions by the bank—which last year completed the buy of cross-town rival Opus Bank—are limited because of the “uncertain economic outlook,” Chiaverini said.

Shares were mostly flat after the results were announced. At press time, the bank’s shares, $32.90 each with a $3.1 billion market cap, are off their 52-week high of $45.25 last November.


Banc of California:
Robust Pipeline


CEO Jared Wolff closely tracks the mood of local businesses through loan growth. In the second quarter, his Santa Ana-based Banc of California Inc. (NYSE: BANC) reported $1.2 billion in new loans, up 25% from the first quarter and the highest amount in three years.

“Our pipeline right now is strong,” Wolff said.

Since loans are often a long process that lasts months, the second-quarter loan growth was the result of activity in the first quarter, Wolff said.

“I’d expect the third quarter will be strong” because of second quarter activity, Wolff said. “The Fed is raising rates—the question is will that start influencing behavior? We will see that play out in fourth-quarter loan growth.”

The firm reported second-quarter profit rose 40% to $26.7 million; its 45 cents a share topped the average analyst estimate of 44 cents.

“The outlook looks very good. We are confident that we’ll continue to expand our earnings,” Wolff told the Business Journal.

The bank, the second largest in Orange County with $9.4 billion in assets, reported its net interest margin, a key metric for banking profitability, rose to 3.58%, an increase of 7 basis points from the prior quarter because interest rates went up meaningfully faster than deposit costs, he said.

The bank ceased originating residential mortgages about three years ago, helping it avoid the dramatic decline in that industry. It still buys large portfolios of single-family loans, getting “some of the best risk adjusted loans in the market,” Wolff said.

“The commercial real estate market continues to be active, and we continue to see quality lending opportunities,” he said.

“It was strong in Orange County. We continue to see demand for bridge lending by real estate professionals for multi- family or mixed-used.” There is some slowdown in construction, which besides interest rate increases is also complicated by supply challenges and labor shortages, Wolff said, adding that he’s also concerned about manufacturing and distribution businesses facing the same problems.

Since the results were announced July 21, shares have drifted downward 4.4% to $17.19 and a $1 billion market cap. The shares are little changed from a year ago.


US Metro: Capital, Liquidity Strong


US Metro Bancorp Inc. (OTC: USMT), a Korean-focused bank based in Garden Grove, reported second-quarter net income dropped 0.8% to $4.2 million.

The bank’s loans climbed 39% to $876.4 million from the same period last year.

“Government guaranteed loan demand continues to be healthy,” CEO Dong Il Kim said in a statement. “Capital and liquidity remain strong and USMB is well positioned for continued growth.”

Shares of the thinly traded stock have doubled in the past two years to $4.49 and a $73 million market cap.

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Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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