On Wednesday, Truist Securities increased the stock price target for Banc of California (NYSE:BANC) to $15.00, up from the previous $13.00, while maintaining a Hold rating on the stock. The adjustment follows the firm's reduction of the bank's core earnings per share (EPS) estimates for 2024 and 2025 to $0.66 and $1.15, respectively, from earlier projections of $1.08 and $1.81.
The revised EPS estimates are primarily due to anticipated lower net interest income (NII), resulting from a smaller balance sheet and limited net interest margin (NIM) expansion, as well as higher operating expenses.
Despite these factors, the bank is expected to manage funding costs effectively through the growth of core customer deposits and the runoff of higher-cost sources. This strategy is supported by the recent closure of $1.9 billion in Civic loan sales.
Truist Securities also anticipates that Banc of California will announce a securities restructuring in the third quarter, although this has not been included in their forecast due to uncertainties. The bank's guidance for a NIM of 2.90%-3.00% in the fourth quarter of 2024 is seen as achievable, considering the potential reduction in the cost of funds by 20-25 basis points and further expansion of earning asset yields.
The firm expects that by the end of the year, Banc of California's balance sheet repositioning and right-sizing efforts will be completed, providing investors with greater confidence in the bank's earnings run-rate potential.
Still, the stock is likely to continue trading at a discount to its peers until these initiatives are fully realized. The bank's stock is currently trading at 0.9 times the firm's next twelve months' tangible book value (NTM TBV), which is the basis for the raised price target.
In other recent news, Banc of California has reported a robust Q2, marked by significant strategic milestones. The bank successfully completed a core system conversion and sold its CIVIC loan portfolio, freeing up $100 million in Tier 1 capital. Banc of California's earnings per share stood at $0.12, reflecting improvements in net interest income and margin.
Recent developments also include a decrease in non-interest expenses and an anticipated 30% year-over-year reduction in Q4. Despite a decrease in total loans held for investment and total deposits, the bank remains optimistic about future loan growth and deposit retention.
Banc of California is also investing in technology and marketing to attract new clients and compete with larger banks. The bank has expressed confidence in the credit quality of the PacWest portfolio and is optimistic about future net interest margin and profitability expansion. These recent developments underscore Banc of California's commitment to driving growth and improving profitability.
InvestingPro Insights
Recent analysis from InvestingPro provides a nuanced perspective on Banc of California's financial outlook. While net income is expected to grow this year, which aligns with Truist Securities' positive adjustment of the bank's price target, there are challenges to consider. Analysts have flagged concerns with weak gross profit margins and the fact that the company was not profitable over the last twelve months. However, there is optimism as analysts predict the company will return to profitability this year.
Key financial metrics from InvestingPro underscore the bank's current situation. With a market capitalization of $2.33 billion and a price-to-book ratio of 0.8 as of the last twelve months leading up to Q1 2024, the bank presents a potentially undervalued investment opportunity, especially if it meets its net income growth expectations. The dividend yield stands at 2.89%, which might appeal to income-focused investors. It is worth noting that the bank's revenue has declined by 85.87% over the last twelve months as of Q1 2024, which may raise concerns about its growth trajectory.
For investors seeking a deeper dive into Banc of California's financials, InvestingPro offers additional insights. There are more InvestingPro Tips available that could provide a clearer picture of the bank's future performance. Discover these tips and take advantage of the special offer using coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at: https://www.investing.com/pro/BANC.
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