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Banc of California Back in Growth Mode

Banc of California Inc. on Oct. 18 officially completed its $226 million acquisition of smaller local rival Pacific Mercantile Bancorp, marking another sign of consolidation among Orange County’s cluster of locally based banks.

“We are certainly in growth mode,” Chief Executive Jared Wolff told the Business Journal. “We don’t see a lot of headwinds to expand our balance sheet. We see a lot of opportunity ahead.”

The acquisition swallows what was once the fifth-largest bank headquartered in Orange County. Last year, the third largest, Opus Bank, was acquired by Pacific Premier Bank, now the largest bank headquartered here.

The purchase is further evidence of a return to growth for once-troubled Banc of California (NYSE: BANC), the county’s second largest.

After Wolff took over the Santa Ana bank in March 2019, he cut pet projects of a previous CEO, focused the bank on real estate and health industries and reduced $2 billion in less profitable assets; the bank’s assets fell as low as $7.8 billion.

The Pacific Mercantile acquisition adds $1.5 billion in total assets, as well as $980 million in gross loans and $1.3 billion in total deposits as of Sept. 30.

Two Pacific Mercantile directors, Denis Kalscheur and Shannon Eusey, joined Banc of California’s board. Eusey is the co-founder and CEO of Newport Beach’s Beacon Pointe Advisors, which has $20 billion in assets under advisement.

Pacific Mercantile brings about 100 employees focused on commercial loans and helps Banc of California’s non-interest bearing accounts, an important metric for banking investors, to rise from 32% to 36% of all deposits, Wolff said.

While the acquisition took a few weeks longer than originally expected, a conversion of Pacific Mercantile’s system should be complete in a few weeks and the cost savings will be in place by the end of the year.

“We’ll start 2022 as a fully integrated company,” Wolff said.

The acquisition ends the saga of Costa Mesa-based Pacific Mercantile, which began in 1999, hit speed bumps after the 2008 financial crisis and recovered from two regulatory cease-and-desist orders involving its mortgage and commercial banking practices.

Once the fifth-largest bank based in Orange County, its longtime chairman in the past decade was Ed Carpenter, who has helped start more than 500 banks and who was the Business Journal’s executive of the year for finance in 2012.

Banc of California is ranked No. 2 on the Business Journal’s annual list of Orange County-based commercial banks (see list, page 28).

The list doesn’t include a few banks with significant operations or executive offices here because of their non-OC headquarters designation, such as Mechanics Bank, First Foundation Bank, and Farmers & Merchants Bank.

While the weekly list concentrates on the trailing 12 months ended June 30, what follows are the highlights from the most recent third-quarter results of the four remaining publicly traded banks headquartered in Orange County:

PPBI 

About 17 months ago, Pacific Premier Bancorp Inc. (Nasdaq: PPBI) completed the acquisition of Irvine rival Opus Bank, almost doubling its assets to $21 billion as of Sept. 30, by far the largest bank headquartered in Orange County.

Its most recent third-quarter results, which include the business it took over from Opus, show earnings jumped 35% to $90.1 million. Its 95 cents a share topped the 85 cents average estimate of analysts.

“The acquisition created greater scale and deepened our market penetration which has further enhanced our franchise value,” CEO Steven Gardner said.

“While the resurgence of COVID-19 cases slowed the pace of the economic recovery during the third quarter, our dynamic business development capabilities coupled with our proprietary technology enabled us to generate high-quality loan and deposit growth, increase revenue, and achieve higher positive operating leverage.”

The shares of the bank are up 44% this year, compared to a 33% rise for the benchmark KBW Nasdaq Bank Index. It sports a $4.1 billion market cap.

“Core trends are favorable,” Raymond James analyst David Feaster Jr. wrote in a report to investors. “Importantly, loan production remains strong and just shy of record Q2 levels ($1.46 billion vs. $1.58 billion), which again translated into stronger than expected net loan growth.”

BANC

Banc of California reported third-quarter net income climbed 77% to $21.4 million. Its earnings of 38 cents per share topped the average analyst estimate for 26 cents.

“Things are looking very positive,” Wolff said.  

“Orange County’s economy is expanding. While the second quarter had robust growth, the third-quarter growth seemed slower because of the Delta variant. Things have returned to normal, although it is subdued because of the supply chain issue.”

The bank’s shares are up 43% this year to a $1.3 billion market cap.

In his note to investors, Raymond James analyst David Feaster Jr. said, “The bank has continued to execute on its strategic transformation, and the fruits of its labor are being realized as profitability and growth continue to exceed forecasts.”

CWBK

CW Bancorp (OTC: CWBK), the parent of Irvine’s CommerceWest Bank, reported net income climbed 81% to $3.6 million.

“It’s really the result of primarily three factors,” CEO Ivo Tjan told the Business Journal. “One, the overall continued strong growth in acquiring new clients and growing existing client relationships. Two, our well-defined business model in customizing products and services that are tailored made to each business, which allows us to focus on structure first, then pricing. Three, we have one of

the best efficiency ratios of any bank in the country, which is the result of us effectively using technology to improve our internal workflows and client experience online or on the mobile app.”

Shares for the bank, which moved to larger headquarters in Irvine earlier this year, have climbed 31% this year to a $109 million market cap.

USMT

US Metro Bancorp Inc. (OTC: USMT), a relatively small Korean-focused bank based in Garden Grove, reported third-quarter net income climbed 282% to $4.2 million.

“Beginning with the interest rate decreases seen mid-March of last year, earnings on liquid investments have decreased substantially. Fortunately, SBA loan demand has been positive,” CEO Dong Il Kim said in the third quarter statement.

SBA loan originations for the nine months ending Sept. 30 were $154 million compared to $49.4 million for the same nine month period in 2020. “Capital and liquidity remain strong and USMB is well positioned to continue managing through the pandemic,” the CEO said.

Shares of the thinly traded stock have climbed about 43% year to date to a $66.9 million market cap.

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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