Business Overview Banc of California, Inc. (BANC) has solidified its position as a leading independent bank in the Golden State, navigating the dynamic landscape of the regional banking industry with agility and strategic vision. With a rich history spanning over two decades, this Los Angeles-based institution has evolved to meet the growing needs of businesses and communities across California, Colorado, and North Carolina.
Banc of California was incorporated in March 2002 as a holding company for its wholly owned subsidiary, Banc of California, a California state-chartered bank and member of the Federal Reserve System. The company was founded with the goal of becoming one of the premier community banks in California, focusing on providing banking and treasury management services to small- and middle-market businesses. Over the years, the bank has grown both organically and through strategic acquisitions, expanding its footprint across the state.
In November 2023, Banc of California completed a transformative merger with PacWest Bancorp, which significantly increased the company's scale and presence in California. The merger was accounted for as a reverse merger, with PacWest Bancorp deemed the accounting acquirer. As part of the transaction, Banc of California also raised $400 million in new equity capital. Following the merger, the bank had to navigate the challenges of integrating the two organizations and optimizing the combined balance sheet. This included shedding certain non-core assets and deposits to improve the company's funding mix and risk profile. The integration process was complex, but the bank was able to achieve its cost synergy targets and position the company for future growth.
Throughout its two-decade history, Banc of California has weathered various economic cycles and market disruptions. Most recently, the company had to contend with the impacts of the COVID-19 pandemic, which tested the resilience of its loan portfolio and operating model. However, the bank was able to effectively manage through this period, maintaining solid asset quality and continuing to serve its customers.
Today, Banc of California operates 80 full-service branches and boasts a diverse loan portfolio, with a focus on commercial and industrial (C&I) lending, which now accounts for 30.1% of the core loan book, up from 25.6% a year ago. The bank's strong presence in the state's thriving venture capital and technology ecosystems, as well as its position in the robust commercial real estate market, have been key drivers of its growth and profitability.
Financial Performance Banc of California's financial performance has been consistently strong, with the company reporting net income of N/A and revenue of N/A for the fiscal year ended December 31, 2024. The bank's operating cash flow for the same period stood at N/A, while its free cash flow was N/A.
In the latest quarter ended September 30, 2024, Banc of California reported net income of $69.97 million, or $0.24 per diluted share, compared to a net loss of $1.42 billion, or a loss of $18.61 per diluted share, in the same period of the previous year. The company's net interest margin expanded by 135 basis points year-over-year, reaching 2.79%, while non-interest operating expenses decreased by 36% from the normalized fourth quarter of 2023.
For the most recent quarter, the company reported revenue of $424.519 million, net income of $56.919 million, operating cash flow of $79.796 million, and free cash flow of $75.662 million. This represents year-over-year growth, although specific growth rates were not provided.
Loan Growth and Deposit Mobilization Banc of California has demonstrated strong loan growth, with a 1.5% increase in its loan portfolio during the third quarter of 2024, or approximately 6% on an annualized basis. The bank's focus on key lending segments, such as warehouse, fund finance, and lender finance, has driven this growth, complemented by a pickup in activity across its commercial and residential real estate portfolios.
The company has also made significant strides in deposit mobilization, with non-interest-bearing deposits now accounting for 29.1% of total average deposits, up from 27.7% in the prior quarter. Banc of California's emphasis on cultivating low-cost core deposits has been a critical factor in its ability to expand its net interest margin and maintain a strong funding position.
As of September 30, 2024, the total loans and leases held for investment, net of deferred fees, was $23.53 billion. The loan portfolio is diversified across several sectors:
- Real Estate Mortgage: $13.33 billion (56% of total loan and lease portfolio) - Commercial real estate mortgage loans: $4.56 billion - Multi-family loans: $6.01 billion - Other residential real estate loans: $2.77 billion
- Real Estate Construction and Land: $3.46 billion (15% of total loan and lease portfolio) - Commercial construction and land loans: $836.90 million - Residential construction and land loans: $2.62 billion
- Commercial: $6.32 billion (27% of total loan and lease portfolio) - Asset-based lending loans: $2.12 billion - Venture capital loans: $1.35 billion - Other commercial loans: $2.85 billion
- Consumer: $414.49 million (2% of total loan and lease portfolio)
The bank's deposit portfolio totaled $26.83 billion as of September 30, 2024, with noninterest-bearing deposits accounting for $7.81 billion (29% of total deposits) and interest-bearing deposits at $19.02 billion (71% of total deposits). Banc of California has been actively managing its deposit composition, reducing brokered deposits from $3.49 billion (12% of total deposits) at December 31, 2023, to $1.99 billion (8% of total deposits) at September 30, 2024.
Credit Quality and Risk Management Banc of California's credit quality remains strong, with the bank's allowance for credit losses standing at 1.13% of total loans as of September 30, 2024, and a coverage ratio of 142% for non-performing loans. The company's economic coverage ratio, which includes the loss coverage from its credit-linked notes and the unearned credit mark on the acquired Banc of California loan portfolio, is even higher at 1.72% of loans.
The bank's conservative underwriting approach and proactive risk management have been instrumental in navigating the challenges posed by the COVID-19 pandemic and the recent economic uncertainty. Banc of California has been quick to downgrade and slow to upgrade credits, demonstrating its disciplined approach to credit risk management.
As of September 30, 2024, the allowance for credit losses to loans and leases held for investment ratio was 1.20%, compared to 1.22% at December 31, 2023, indicating stable credit quality.
Outlook and Strategic Initiatives Looking ahead, Banc of California is well-positioned to capitalize on the growth opportunities in its key markets. For 2025, the company is targeting mid- to upper-single-digit loan growth, driven by continued strength in its warehouse, fund finance, and lender finance portfolios, as well as a pickup in activity across its commercial and residential real estate segments.
The bank's ongoing focus on deposit gathering, with a target of maintaining non-interest-bearing deposits above 30% of the total deposit base, will further support its net interest margin expansion. Banc of California is also committed to driving operational efficiencies, having achieved its cost synergy targets from the PacWest Bancorp merger and continuing to explore opportunities to streamline its systems and processes.
For 2025, the company has provided the following guidance: - Deposit growth: Targeting mid to upper-single-digits - Net interest margin (NIM): Targeting a range of 3.20% to 3.30% for the full year 2025 - Non-interest expense: Targeting a range of $190 million to $195 million per quarter on average - Effective tax rate: Expecting 27% to 28% for 2025
Risks and Challenges As with any financial institution, Banc of California faces a range of risks and challenges. The bank's exposure to the commercial real estate market, particularly office properties, could be impacted by evolving work-from-home trends and the broader economic environment. Additionally, the bank's venture capital and life sciences lending portfolios, while historically strong, are subject to the inherent volatility of those industries.
The company's reliance on wholesale funding sources, such as brokered deposits, also presents a degree of risk, as the availability and cost of these funds can be sensitive to market conditions. Banc of California's management team, however, has demonstrated its ability to navigate these challenges, as evidenced by the bank's successful balance sheet repositioning and integration of the PacWest Bancorp merger.
Financials Banc of California's financial performance has been consistently strong, with the company reporting net income of N/A and revenue of N/A for the fiscal year ended December 31, 2024. The bank's operating cash flow for the same period stood at N/A, while its free cash flow was N/A. In the latest quarter ended September 30, 2024, Banc of California reported net income of $69.97 million, or $0.24 per diluted share, compared to a net loss of $1.42 billion, or a loss of $18.61 per diluted share, in the same period of the previous year.
The company's key financial metrics as of September 30, 2024, include: - Consolidated common equity Tier 1 capital ratio: 14.08% - Tier 1 capital ratio: 14.08% - Total capital ratio: 16.61% - Net interest margin for Q3 2024: 2.93% (up from 2.80% in Q2)
Liquidity Banc of California maintains a strong liquidity position, with a diverse funding base that includes core deposits, wholesale funding sources, and access to various liquidity facilities. The bank's emphasis on cultivating low-cost core deposits has been a critical factor in its ability to maintain a robust liquidity profile. As of September 30, 2024, non-interest-bearing deposits accounted for 29.1% of total average deposits, up from 27.7% in the prior quarter, further strengthening the bank's liquidity position.
The company had $2.55 million in total cash, cash equivalents, and restricted cash as of the most recent quarter. While specific details about credit facilities or credit lines were not provided, the bank's strong capital ratios and diverse funding sources indicate a solid liquidity position.
Conclusion Banc of California has emerged as a formidable player in the California banking landscape, leveraging its expertise in key lending verticals and its strong deposit franchise to drive consistent financial performance. The company's strategic focus on organic growth, operational efficiency, and disciplined risk management has positioned it well to capitalize on the opportunities in its markets and deliver long-term value for its shareholders. With a clear growth strategy for 2025 and a strong financial foundation, Banc of California is poised to continue its upward trajectory in the competitive banking sector.