Banc Of California Has Surprised Again

| About: Banc of (BANC)

Summary

Banc of California has continued to achieve substantial growth reporting record 2015 earnings.

Banc of California has compelling valuation metrics. The forward P/E is very low at 8.43, and the PEG ratio is also very low at 0.83.

The company is paying a generous dividend currently yielding 2.98%.

Although BANC's stock is already up 10.1% year to date, it still has much room to grow, and, in my opinion, BANC's stock is smart long term investment.

Click to enlarge

In my previous article about Banc of California (NYSE:BANC) from November 19, 2015, I suggested that BANC will continue to benefit, from the robust and growing economy of California, its solid and improving employment trends, and its large and attractive demographic base. Meanwhile, the company reported record 2015 earnings, and its shares have gained 10% since my article was written.

Since the beginning of the year, BANC's stock is up 10.1% while the S&P 500 Index has decreased 0.4%, and the Nasdaq Composite Index has lost 4.7%. However, since the beginning of 2012, BANC's stock has gained only 57.1%. In this period, the S&P 500 Index has increased 61.9%, and the Nasdaq Composite Index has risen 83.2%.

BANK Daily Chart

Click to enlarge

BANK Weekly Chart

Click to enlarge

Charts: TradeStation Group, Inc.

On January 28, Banc of California reported its fourth quarter and full year 2015 financial results which beat EPS expectations by a big margin of $0.12 (44.4%). The company posted revenue of $118.9 million in the period, also beating Street forecasts of $106.7 million. BANC showed significant earnings per share surprise in all its last five quarters, as shown in the table below.

Data: Yahoo Finance

Fourth Quarter Highlights

  • Record quarterly core deposit growth of $540 million; including $110 million from non-interest bearing deposits.
  • Record quarterly commercial banking segment loan and lease originations of $914 million; resulting in $2.8 billion for the full year.
  • Full year 2015 total loan originations of $7.1 billion.
  • Commercial Banking profits increased to 90% of total, fully allocated segment profitability with Financial Advisory finishing at 9% and Mortgage Banking falling to 1% for the quarter.
  • The Company's return on average assets for the quarter was 1.0%, and its return on average tangible common equity (ROTCE) for the quarter was 16.6%.

In the report, Steven Sugarman, Chairman and Chief Executive Officer, said:

Banc of California finished 2015 with accelerating growth and profitability across our businesses. Our return on tangible common equity over 15% and return on assets over 1% demonstrates the long-term earnings power of our franchise. Combining these returns with our industry leading growth continues to yield significant value creation for shareholders. Our strong results are a testament to the hard work and dedication of our talented employees, who as employee-shareholders take pride in the shared success in growing the long-term value of the franchise. I am also particularly proud that Banc of California ranked #1 for total shareholder return in 2015 of all west coast banks included on Forbes Magazine's list of America's Top 100 banks.

Click to enlarge

Source: Fourth Quarter 2015 Earnings Conference Call Presentation

I see continued high growth prospects for the company. According to BANC, it continues to invest to support the growth of the franchise. Looking to 2016 it has spent a great deal of efforts in the strategic planning process to ensure it is disciplined with how resource dollars are invested. As part of its plan for 2016, BANC is focused on core marginal efficiency ratio of 40% for incremental growth. This means that each new dollar of revenue should come in with less than $0.40 of related incremental expense. Through growth at these strong marginal returns, the company expects to drive down the consolidated efficiency ratio to 65 basis points to 70 basis points for the full year 2016. Banc of California also looks to expand its merchant processing businesses more broadly. On the debit card side, with the continued growth in the number of card holders and the respective card volume, BANC can become a MasterCard principal issuer, and it will now be directly issuing debit cards to customers and clients of Banc of California. According to the company, although not a significant revenue opportunity immediate term on its own, the debit card business serves as a foundation from which it will build additional card-related products as BANC looks to its expansion into the e-payments business.

Valuation

Banc of California has compelling valuation metrics. The trailing P/E is very low at 12.01, and the forward P/E is even lower at 8.43. Moreover, the PEG ratio is very low at 0.83. The PEG ratio - price/earnings-to-growth ratio is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.

Banc of California is paying a dividend. The forward annual dividend yield is pretty high at 2.98%, and the payout ratio is only 29.3%. The annual rate of dividend growth over the past five years was at 13.9%.

Growth

BANC has recorded substantial growth in the last few years. The company's annual average sales growth over the last five years was extremely high at 45.5%, and the average EPS growth was very high at 29.4%. The average annual estimated EPS growth for the next five years is also high at 12.5%.

Moreover, BANC's Growth Rates parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the table below:

Click to enlarge

Source:Portfolio123

Summary

Banc of California has continued to achieve substantial growth reporting record 2015 earnings. What's more, the company showed significant earnings per share surprise in all its last five quarters. I see continued high growth prospects for the company. According to BANC, it continues to invest to support the growth of the franchise. Banc of California has compelling valuation metrics. The forward P/E is very low at 8.43, and the PEG ratio is also very low at 0.83. Furthermore, the company is paying a generous dividend currently yielding 2.98%. Although BANC's stock is already up 10.1% year to date, it still has much room to grow, and, in my opinion, BANC's stock is smart long term investment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.