It was Banc of California Inc.’s (NYSE: BANC) turn for an Orange County-based bank to impress investors.
Four of the five biggest based here reported second-quarter financial results last week, with Banc of California’s shares jumping the most, 7.8% to $20.15 in the session following the report on volume twice the daily average.
“Banc of California reported better-than-expected results” due to solid loan growth, deposit growth and margin expansion, Raymond James Financial Inc. analyst Donald Worthington wrote in a note to investors.
The Santa Ana bank, which has a $1 billion market cap, reported adjusted profit of 18 cents a share, topping the 16-cent consensus estimate. Its net interest margin, a key profitability metric, edged up from 2.98% in the first quarter to 3.01%.
The bank has been troubled by a number of issues in the past two years, such as management turnover, a proxy fight, and a $13.7 million theft from a line of credit. Last month, it announced it will cut 9% of its workforce to approximately 700 employees. It employed 1,776 in 2016.
Last year, it hired Chief Executive Doug Bowers, who’s criticized prior management for using “high-cost funding to invest in relatively low-yielding securities.”
“I’m pleased with the progress we are making and executing on our three-year strategic road map,” Bowers told analysts on a conference call, “That said, we all recognize we have plenty of work ahead of us.”
Shares are still down 4.8% since he assumed his position.
Last week Irvine-based Opus Bank (Nasdaq: OPB) reaffirmed its goal to issue $2 billion in new loan fundings this year. It’s become an even more ambitious target, now that halfway through the year the bank has made about $750 million in new loan fundings, signaling it will have to catch up in the second half in an environment of climbing interest rates.
It said loan originations were “unusually low” in May. Opus executives emphasized they’ve hired 21 commercial and business bankers this year.
“We are already seeing early successes as they begin to ramp up their activity,” Chief Executive Stephen Gordon told analysts on a conference call. “We continue to have confidence in our ability to achieve our growth goals for 2018.”
Opus reported a second-quarter profit of 40 cents, topping the 37-cent Bloomberg average analyst estimate. A year ago, it reported 51 cents a share.
Nonetheless, after the report, shares fell 4.1% to $28.45 on volume more than twice the daily average.
A loan-growth decline caught some analysts by surprise. Its net interest margin dropped 13 basis points from 3.2% in the first quarter to 3.07%.
“The quality of the beat was low” and offset by a declining balance sheet and contracting net interest margin, JMP analyst Christopher York wrote in a note to investors.
FIG Partners LLC analyst Timothy Coffey downgraded the recommendation from outperform to market perform. That means no Wall Street analyst recommends it as a buy, since all six analysts suggest a hold, all with a target price of $30 to $31, according to Bloomberg data.
Gordon said the bank had “significant improvements” in its credit quality. It reported criticized loans, those in danger of falling, fell to $199.1 million; last year, they tripled to $359 million.
He told analysts he anticipates the Federal Reserve to increase rates two more times this year.
Shares are still up 2.8% this year.
Tax Boost
Pacific Mercantile Bancorp (Nasdaq: PMBC) of Costa Mesa felt so good about its recent results that it released an $11.1 million tax valuation allowance that flowed to its bottom line.
Thus, it reported net income of $15.4 million, or 65 cents a share, about six times above the same period last year, when it reported $2.5 million, or 11 cents.
“Our improving financial performance and positive outlook, among other favorable factors, led to the recapture of our deferred tax asset, which substantially increases our book value,” Chief Executive Tom Vertin said in a statement.
It reported net interest margin fell from 3.84% in the first quarter to 3.78% because of an interest rates increase.
Vertin, who took the role in 2016, has tried to reduce the bank’s reliance on certificates of deposit, which he said are the highest cost for funding loans. The bank reported CDs of $315.5 million, or about 27% of deposits, down from 32% in December.
Shares rose 0.5% to $9.85 after the report and are up 11% for the year. The bank’s market cap is $229 million.
Shorts on Hunt
Analysts often praise the performance of Irvine-based Pacific Premier Bancorp (Nasdaq: PPBI), as six of seven analysts have a buy rating on it. Yet the market hasn’t been kind in recent months.
Shares dropped 1.6% to $37.20 in the trading session after the quarterly results were released last week. They’ve steadily fallen from a 52-week high of $45.10 on March 12.
Short traders are piling on as short interest ratio, or number of days needed to close all short positions, increased from 11.9 days on June 29 to 19.8 days two weeks later, the highest level in more than three years, according to Bloomberg data.
Pacific Premier reported 60 cents, missing the 61-cent estimate of six analysts. Chief Executive Steve Gardner said he, too, was unhappy with the results.
“It does not live up to the high standards that we set for ourselves,” he said in a statement. “We are capable of stronger performance metrics across the organization, and with the completion of a number of key projects, I expect our team to operate at a higher level.”
Gardner predicted “an increase in our earnings power” next year.
Keefe Bruyette & Woods analyst Jacquelynn Bohlen advised investors that since the bank has lagged the KRX Index this year, a benchmark for regional banks, shares are creating “an even more compelling valuation for a highly profitable bank with strong growth prospects.”
Pacific Premier is the largest OC bank based on market cap at $2.35 billion, more than twice Opus’.
Since acquiring Grandpoint Capital Inc. on July 1, it can claim the largest based on assets, with $11.6 billion, compared to $10.3 billion at Banc of California.
Irvine-based First Foundation Inc. (Nasdaq: FFWM), the fourth-largest OC bank based on market cap at $822 million, is scheduled to report its results on July 30.
