Banc of California trades at $16.65 per share and has stayed right on track with the overall market, gaining 17.3% over the last six months. At the same time, the S&P 500 has returned 15.9%.

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Why Is Banc of California Not Exciting?

We don't have much confidence in Banc of California. Here are three reasons why BANC doesn't excite us and a stock we'd rather own.

1. Declining Net Interest Income Reflects Weakness

Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.

Banc of California’s net interest income has declined by 1.3% annually over the last five years, much worse than the broader banking industry and in line with its total revenue.

2. Declining TBVPS Reflects Erosion of Asset Value

We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.

Disappointingly for investors, Banc of California’s TBVPS declined at a 1.4% annual clip over the last two years.

3. Previous Growth Initiatives Have Lost Money

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Banc of California has averaged an ROE of negative 4.6%, 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.

Final Judgment

Banc of California isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 0.8× forward P/B (or $16.65 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top digital advertising picks.

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