BANC Q3 Deep Dive: Deposit Growth, Loan Production, and Margin Expansion Shape Outlook

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.

Is now the time to buy BANC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Banc of California’s third quarter results were marked by solid year-on-year growth and a negative market reaction, despite outpacing Wall Street’s revenue and profit expectations. Management attributed the quarter’s performance to strong loan production, disciplined cost control, and robust growth in core noninterest-bearing deposits. CEO Jared Wolff highlighted the bank’s “positive operating leverage and consistency of our results,” emphasizing margin expansion from higher-yielding loan categories and ongoing progress in deposit gathering. The team also called out proactive management of credit quality and a dynamic approach to optimizing the balance sheet.

Looking forward, management believes that continued focus on high-quality loan growth, further expansion of net interest margin, and disciplined expense management will underpin future performance. CFO Joseph Kauder noted that “we intend to grow [our margin] from here,” with expectations of stable expenses and steady earnings growth. The company expects benefits from loan portfolio remixing, repricing opportunities in its multifamily book, and further optimization of deposit costs. Management remains confident in sustaining high-quality earnings growth while navigating broader economic uncertainties and evolving rate environments.

Key Insights from Management’s Remarks

Management highlighted several operational levers driving results, from targeted loan production to technology adoption and proactive balance sheet management.

• Core deposit growth: The bank achieved a 9% increase in noninterest-bearing deposits, driven by both new business relationships and higher average balances, allowing for a reduction in higher-cost brokered deposits and lowering total deposit costs.
• Margin expansion via loan remix: Net interest margin rose due to a shift toward higher-yielding commercial and industrial (C&I), warehouse, and venture loans, while the yield on new loan production remained healthy at over 7%.
• Disciplined expense control: Noninterest expenses remained flat, with management crediting efficiency improvements, technology deployment (including company-wide use of Copilot and ChatGPT), and a company initiative called “Better Bank” for identifying cost savings.
• Credit quality vigilance: Management proactively exited criticized loans and tightened internal risk ratings, particularly in venture lending, while maintaining stable credit quality and increasing reserves as a precaution.
• Share buyback execution: The company repurchased approximately 8% of outstanding shares under its program, while maintaining a CET1 capital ratio above 10%, balancing capital return with regulatory requirements and ongoing growth initiatives.

Drivers of Future Performance

Management’s outlook hinges on sustaining loan growth, enhancing net interest margin, and maintaining rigorous cost controls amidst industry and macroeconomic headwinds.

• Loan portfolio remix and repricing: The bank expects continued margin expansion as lower-yielding multifamily loans mature and are replaced by higher-yielding new loans, even as interest rates fluctuate. Management sees this as a key accelerant for earnings.
• Deposit optimization and cost discipline: Further growth in core deposits and reduction in high-cost broker funds remain priorities. Management believes that technology and process improvements will support efficient expense levels, while dynamic balance sheet management allows for flexibility in adjusting deposit sources as needed.
• Credit risk and economic sensitivity: While management is confident in its credit quality, it remains watchful of economic uncertainty, potential rate changes, and sector-specific risks, particularly in office lending and government-tenanted properties, where the bank continues a conservative stance.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will closely monitor (1) sustained core deposit growth and the ability to further reduce expensive brokered funding, (2) continued net interest margin expansion as the loan portfolio is repriced and new production comes online, and (3) disciplined credit management, especially within sectors exposed to macroeconomic and regulatory risk. Execution on technology-driven efficiency initiatives and capital deployment decisions, including share repurchases, will also be key indicators of management’s ability to deliver consistent earnings growth.

Banc of California currently trades at $16.80, in line with $16.88 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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