Banc of California: Consider The Post-Merger Preferred Stock For Income

Core Viewpoint - Banc of California, Inc. has completed a merger with PacWest Bancorp, positioning itself as the third-largest bank headquartered in California and enhancing its market presence. The preferred stock, BANC-F, is rated as a Buy due to its yield and potential yield to call (YTC) [1][4][13]. Company Overview - Banc of California, Inc. provides a range of banking products and services primarily to small and medium-sized businesses in California, including personal banking, commercial banking, and specialty banking services. The bank was established in 1941 [3][4]. Merger Details - The merger with PacWest Bancorp has resulted in the combined entity being the third-largest bank in California, although it ranks about eighth in terms of branches. The merger included a $400 million equity raise from investment firms [4][5]. - As part of the merger, Banc of California and Pacific Western Bank have sold approximately $1.9 billion in assets to reposition their balance sheets, with additional asset sales expected through the first quarter of 2024 [5]. Preferred Stock Analysis - The preferred stock BANC-F has a fixed dividend rate of 7.75% and is subject to a call date of September 1, 2027. It will convert to a floating rate based on the 5-Year UST rate plus 4.82% after the call date [7][12]. - BANC-F is currently viewed as riskier compared to other bank preferreds, indicated by its higher yield and YTC. It has the highest floating rate among its peers, which increases the likelihood of being called [12][13]. Market Context - The performance of BANC-F has been influenced by broader market conditions, particularly the Federal Open Market Committee (FOMC) rate expectations. The market has shifted towards a neutral stance regarding interest rate cuts, impacting the pricing of fixed-income assets [14]. Conclusion - The merger and subsequent financial strategies have positioned Banc of California favorably, with the preferred stock BANC-F offering attractive yields. Investors are encouraged to consider the insights from various contributors on Seeking Alpha regarding the merger's implications [15].