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Wednesday, Feb 21, 2024

OC Banks Weather Run on Regionals

Orange County-based publicly traded banks appeared to have weathered the March runs on deposits at regional banks, according to their recently reported first-quarter reports.

The four largest publicly traded banks, and one with large operations here, reported relatively small transfer of deposits during the first quarter that saw runs on failing banks like Silicon Valley Bank and First Republic Bank.

“The recent bank failures have highlighted the importance of sound enterprise risk management practices and providing stability through prudent and proactive capital and liquidity management,” Pacific Premier Bancorp Chief Executive Steven Gardner told analysts on a conference call.

Their first-quarter reports highlighted several new issues: They are lending less, stockpiling cash and paying more interest on deposits.

All the banks have lost market value since March 6, the day problems at Silicon Valley Bank surfaced.

The three biggest banks saw their stock prices decline more than the 33% drop seen with the benchmark KBW Nasdaq Bank Index (BKX).

Many regional banks first witnessed their share prices decline in March as investors worried that depositors would transfer their funds to the safer largest banks that are deemed too big to fail. First Republic Bank lost half of its deposits—about $100 billion—before being taken over on May 1 by JPMorgan Chase & Co.

What follows below is a look at five local banks:

Pacific Premier: Cash on Hand

Steven Gardner has become an expert in overcoming crisis, as seen when rescuing Pacific Premier Bancorp. from near bankruptcy when he took it over in 2000 and then navigating it successfully through the 2008 financial downturn.

He’s turned the bank into the largest with headquarters in Orange County through acquisitions and organic growth.

In the past 15 months, Gardner built up the bank’s cash and equivalents to $1.4 billion as of March 31, almost four times the amount on hand at the end of 2021. The company also noted it has unused borrowing capacity of $8.55 billion at quarter end.

“Our disciplined, prudent and proactive approach to managing capital and liquidity helped us navigate a turbulent quarter,” Gardner told analysts on a late-April conference call.

While Pacific Premier did see a high volume of call activity from worried customers in March after the collapse of Silicon Valley Bank, “by the following week that had really died down pretty significantly,” Gardner said.

The bank on April 27 reported total deposits fell quarter-over-quarter a relatively small 0.8%, or $144.6 million, to $17.2 billion.

Pacific Premier is increasing interest payment on deposits to satisfy customers. Its interest expense on deposits surged to $40.2 million, up from $1.7 million in the same quarter a year ago.

It’s also lending less. Its loans totaled $14.2 billion, about 3.8% less than a year ago.
Since March 6, shares of Pacific Premier have fallen 42% to $18.30 a share and a $1.73 billion market cap.

CommerceWest: Profit Rises 14%

Ivo Tjan, who founded Irvine-based CW Bancorp (OTC: CWBK), the parent of CommerceWest Bank, has successfully steered it through crises like the aftermath of the Sept. 11 terrorist attacks and 2008 financial meltdown as well as the 2020 pandemic.

CommerceWest banks many payroll companies where every year during the last two weeks of December, they pre-fund their employee’s bonuses, which are paid in the first two weeks of January, Tjan said.

Excluding these seasonal bonuses, its core deposits grew 2.5% from the fourth quarter to the first quarter.

In his quarterly statement, Tjan repeated his belief that a recession will hit later this year and is deleveraging the bank to strengthen capital ratios.

As a result, total loans decreased $28.3 million, or 4%, in the first quarter. Still, the bank was able to boost its first-quarter net income by 14% to $4.6 million.

“It’s the strength of the CommerceWest Bank business model” that explains the increase, Tjan said. “We have a diversified client base of traditional companies who are manufacturers, wholesalers, distributors, service and professional companies of small and midsize businesses; coupled with our digital and customized banking approach that empowers each client and allows us to drive productivity and efficiency.”

Shares of the bank have dropped 18% to $27.78 each since March 6; it now has a $96 million market cap.

US Metro: Expansion Continues

US Metro Bancorp, a Garden Grove bank that caters to Korean Americans (OTC: USMT), felt confident enough that it’s opening its newest branch in Lynnwood, Wash., its first location outside of California.

“Despite the recent industry challenges, the bank has navigated the situation well and continues to move forward,” CEO Dong Il Kim said. “The bank is positioned to continue its strong performance throughout the remainder of 2023.”

Its deposits rose to $951.2 million, up 0.9% from Dec. 31.

Since March 6, US Metro shares fell 16% to $3.51 and a $57 million market cap.

Banc of California: Overcoming ‘Disruption’

“Significant available excess liquidity” was the mantra when Santa Ana-based Banc of California Inc., the second-largest based bank in Orange County (NYSE: BANC), reported first-quarter earnings on April 20.

It reported unused borrowing capacity of $4 billion, including $1.0 billion in cash. A year ago, it had $254.2 million in cash. Its available liquidity was 2.2 times the level of uninsured and uncollateralized deposits.

Its total deposits declined by a relatively small 2.3% from the fourth quarter to $6.95 billion.

There has been “a lot of disruption, a lot of concern from clients around uninsured deposits and what that means,” CEO Jared Wolff told analysts on an April conference call.

“Our team did a remarkable job of giving our clients confidence and explaining our balance sheet and the strength that we have, and I think that’s proven out.”

He said the bank repositioned its securities portfolio that resulted “in low levels of unrealized losses despite the rapidly rising rate environment.”

The bank also “opportunistically” repurchased 1% of its shares through mid-April.
Its interest expenses jumped fourfold to $33.9 million from the same period a year ago.

“There’s absolutely competitive pressure right now from the rate side,” Wolff said. “If depositors have excess balances there isn’t anybody who isn’t asking for rate (increases).”

Its total gross loans fell 5.3% to $7.05 billion in the past year.

“You’ve got to be able to see a good risk adjusted return to want to lend today,” Wolff said. “We’re not looking to grow just to grow in an environment that’s not really a growth market. It’s just not.”

Since March 6, its shares have fallen 40%; it now sports a $584 million market cap.

First Foundation: Shares Hit

Among area banks, First Foundation Inc. (Nasdaq: FFWM) was the worst hit during the industry’s recent turmoil.

First Foundation, which moved headquarters to Dallas two years ago and still has significant banking operations in Irvine, reported deposits totaling $10.1 billion, a decline of 2.9% from Dec. 31.

Significantly, its net interest margin, a key banking metric, dropped to 1.83% for the quarter, down from 2.45% in the fourth quarter. Its net income fell 72% to $8.5 million.

“The impact of the Fed’s recent interest rate actions came to a head in the first quarter; however, our strong balance sheet and on-balance sheet liquidity allowed us to navigate this uncertain environment,” said Scott Kavanaugh, CEO and president of First Foundation.

“We continue to execute against our very solid business plan and
expect positive results to follow once we experience a more normalized rate environment.”

Its shares are down 72% since March 6.

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