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California community banks growing faster than US median, but not as profitably

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California community banks growing faster than US median, but not as profitably

Profitability trends were again mixed for California's community banks and thrifts in the second quarter, while loan and deposit growth continued to outpace the nation as a whole.

The median return on average equity for California's community banks and thrifts with less than $10 billion in assets was 9.35% in the second quarter, down 53 basis points year over year and much lower than the 10.45% median ROAE for community banks in the Western U.S. and 9.59% for the nation as a whole. However, the median net interest margin for California community banks was 4.09% in the second quarter, up 6 basis points compared to the second quarter of 2018 and higher than the national median of 3.83%.

Median loan and deposit growth in California also outpaced the national median at 8.4% and 6.6%, respectively, year over year, compared to 5.0% and 3.4% for the U.S. as a whole.

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Santa Ana-based Banc of California Inc., California's largest community bank with less than $10 billion in assets, trailed the state median in all six of the categories examined in the second quarter. Deposits at the bank dropped 11.5% year over year and the bank's 5.69% return on average equity was almost 4 percentage points below the national median in the second quarter. However, the bank did report 32 cents in normalized GAAP earnings per share for the second quarter, which trounced analyst expectations of just 17 cents per share.

Yet this earnings surprise provided only a short-term boost to the company's stock price. Since the end of June, Banc of California's stock has returned 3.8% as of Sept. 18, which is higher than the S&P 500's 2.7% return, but lower than the SNL U.S. Bank and Thrift index's 4.2% return.

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M&A activity has slowed in California. In 2018, 11 whole-company or minority interest deals with a California-based bank or thrift target were announced, but as of Sept. 11, only four have been announced this year. Most recently, on July 24, Walla Walla, Wash.-based Banner Corp. announced that it would acquire Santa Rosa-based AltaPacific Bancorp for $87.4 million.

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During the second quarter, 16 bank branches were opened in California, while 37 were closed. Over the year ended June 30, 71 branches were opened, compared to 181 closures.

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Click here for an Excel spreadsheet containing results for all California community banks in the second quarter of 2019.