Four of the five biggest banks based in Orange County reported last week that profits improved in the second quarter.
Shares of three of the five, led by Opus Bank, rose.
Here’s a roundup that includes the banks’ results, data points and outlooks:
Banc of California
It was Doug Bowers’ first report as chief executive of the beleaguered bank (NYSE: BANC).
He told analysts on a conference call that during his first 11 weeks on the job, he learned the bank has a “very good brand” in a “great market.”
However, he criticized prior management for using “high-cost funding to invest in relatively low-yielding securities.”
The Santa Ana bank reported adjusted net income of 20 cents, missing the 24-cent average estimate of six analysts and below 29-cent profit a year earlier.
“The balance sheet was significantly impacted by strategic actions as loans, deposits and assets contracted,” said a report by Jacquelynne Chimera Bohlen, an analyst for Keefe, Bruyette & Woods.
Earlier this year, the bank underwent a battle with large shareholders, two of whom became directors. Longtime Chief Executive Steven Sugarman left in January at the same time the bank announced a Securities and Exchange Commission investigation. The bank cut its employee count in half in March by selling its home mortgage unit to focus on commercial banking.
It said it “significantly re-positioned and de-risked the balance sheet” by reducing brokered deposits, reclassifying held-to-maturity securities as available for sale, and selling longer-duration mortgage backed securities.
Bowers said he anticipates one-time expenses to drag down results for the next two to three quarters.
“A significant transformation is required here for us to be successful, and it is early days in that effort,” he said. “Core deposit growth has not historically kept pace with loan growth. All of this has resulted in a much higher cost of funding.”
The bank reported deposits fell to $8.05 billion, down $553 million quarter-over-quarter, mostly resulting from a decline in brokered deposits, which tend to pay customers higher interest rates.
The bank is still searching for a chief financial officer to replace James McKinney, who departed in September.
Shares declined 2.4% in the trading session following the report and have fallen 10% in the past year for a $1.05 billion market cap.
Opus Bank
The key question about Irvine-based Opus (Nasdaq: OPB) was whether its criticized loans, those with potential weakness, would worsen. They tripled to $359 million in the first quarter from a year earlier, and Opus reported a 20% second-quarter improvement to $289 million.
The bank’s adjusted earnings per share was 51 cents a share, up from 46 cents a year earlier and more than double the 24 cents in the first quarter. The average of two analysts was a 25-cent profit.
“The EPS beat was driven by a loan loss reserve release of $7.1 million, which was a function of a reduction in criticized loans,” JMP Research analyst Chris York wrote in a report.
New loan funding climbed 65% to $362 million from the first quarter, about half of that in commercial business loans. The core net interest margin rose to 3.2%, above a KBW-forecasted 3.11%.
Deposits declined 6% to $6.3 billion because the bank reduced rate-sensitive deposits.
“While we still have more work ahead of us, I’m proud of the results we achieved,” Chief Executive Stephen Gordon told analysts on a call.
Management didn’t mention dividends on the call, so analyst York delayed their expected reinstated dividend from this year’s third quarter to next year’s first quarter as the bank rebuilds capital levels and establishes a steady state of earnings.
Shares rose 4.3% in the trading session following the report and are down about 25% year-over-year for a $895 million market cap.
First Foundation
The Irvine-based bank, which also includes a wealth management unit, continued to impress investors by reporting 28-cent profit, topping the 21-cent average estimate of four analysts and double the amount a year earlier.
“The growth of our loan portfolio without compromising credit quality is something I remain very proud of,” Chief Executive Scott Kavanaugh told analysts on a conference call. “Our excellent credit quality is evidenced by our nonperforming asset ratio of 14 basis points and no charge-offs year-to-date.”
In the first half of the year, deposits rose 28%, or about $681 million, to $3.1 billion, while there were $816 million in loan originations.
“Loan and deposit growth was robust,” D.A. Davidson analyst Gary Tenner wrote in a report. “The beat was driven by higher than expected fee income due to a higher gain on sale of loans combined with a tax benefit related to stock based compensation accounting.”
Kavanaugh said the company continues to have “healthy pipelines of new business across all of our business lines.”
Shares rose 3.8% in the trading session following the report and have climbed about 48% in the past year for a $586 million market cap.
Pacific Premier
Irvine-based Pacific Premier Bancorp (Nasdaq: PPBI), which has also surged on Wall Street in the past year, reported adjusted net income of 51 cents a share, topping the 47-cent average of five analysts and the 38 cents a year earlier.
Its assets climbed to $6.4 billion from $4.2 billion in the first quarter due to the acquisition of Heritage Oaks Bancorp. It’s shooting to boost assets above $10 billion and is exploring more acquisitions.
“There was a substantial amount of activity during the quarter that could easily distract some organizations, but I am proud of how our team was able to quickly come together early in the process and accomplish a great deal,” Chief Executive Steven Gardner said on a conference call with analysts.
Deposits rose to $4.9 billion from $3.3 billion in the first quarter due to the acquisition. Loans grew by $492 million, led by lending in the commercial real estate and franchise sectors.
“Solid loan growth in a transition quarter; we expect a stronger pace going forward,” analyst Tenner wrote in his report.
In the second half of the year, it intends to “accelerate business development” on the Central Coast where Heritage was headquartered, and to explore other acquisitions. Gardner said the bank isn’t interested in residential mortgages.
Business owners are “cautiously optimistic” about the second half, he said. The bank has “plenty of opportunity” to grow its average loan size.
Shares rose 3.8% in the trading session following the report and have climbed about 48% in the past year for a $1.4 billion market cap.
Pacific Mercantile
The Costa Mesa bank (Nasdaq: PMBC) reported profit of 11 cents a share compared with a loss of 21 cents a year earlier. It surpassed $1 billion in loans for the first time.
“Our loan pipeline is healthy and we expect further improvements in our profitability,” Chief Executive Tom Vertin said in a statement.
KBW analyst Bohlen wrote that loans grew faster, 39%, than her 17% estimate, while 5% deposit growth was half what she’d expected.
Management has “shifted the company’s focus toward relationship banking from its prior competitive pricing model,” she wrote.
Shares fell 2.8% in the trading session following the report and have declined 13% in the past year for a $196 million market cap. n
