Banc of California (BANC)

Regional bank Banc of California (NYSE:BANC) announced better-than-expected revenue in Q3 CY2025, with sales up 32.8% year on year to $287.7 million. Its GAAP profit of $0.38 per share was 14.4% above analysts’ consensus estimates.

Company Overview

Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE:BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Banc of California competes with other regional banks operating in California and the western United States, including Pacific Premier Bancorp (NASDAQ:PPBI), East West Bancorp (NASDAQ:EWBC), and First Republic Bank, as well as larger national institutions like Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Unfortunately, Banc of California struggled to consistently increase demand as its $1.09 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of lacking business quality.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Banc of California’s annualized revenue growth of 55.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Banc of California reported wonderful year-on-year revenue growth of 32.8%, and its $287.7 million of revenue exceeded Wall Street’s estimates by 1.8%.

Net interest income made up 93.3% of the company’s total revenue during the last five years, meaning Banc of California lives and dies by its lending activities because non-interest income barely moves the needle.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last five years, Banc of California’s efficiency ratio has increased by 21.8 percentage points, going from 47.2% to 64.6%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Banc of California’s efficiency ratio came in at 62.1% this quarter, beating analysts’ expectations by 431.9 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Banc of California to rein in some of its expenses as it anticipates an efficiency ratio of 63.1%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Banc of California’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Banc of California, its two-year annual EPS growth of 43.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Banc of California reported EPS of $0.38, up from negative $0.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Banc of California’s full-year EPS of $1.04 to grow 50.7%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

Banc of California’s TBVPS declined at a 3.6% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 3.6% annually over the last two years from $15.82 to $16.99 per share.

Over the next 12 months, Consensus estimates call for Banc of California’s TBVPS to grow by 6.6% to $18.12, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Banc of California has averaged a Tier 1 capital ratio of 10.3%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Banc of California has averaged an ROE of negative 4.5%, a bad result not only in absolute terms but also relative to the majority of banks putting up 15%+. It also shows that Banc of California has little to no competitive moat.

It was good to see Banc of California beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.6% to $17.49 immediately after reporting.

Updated: December 4, 2025 at 11:33 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Banc of California’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROE suggests management has struggled to find compelling investment opportunities. On top of that, its TBVPS has declined over the last five years.

Banc of California’s P/B ratio based on the next 12 months is 0.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $20.41 on the company (compared to the current share price of $18.93).