I, Joe Gladue , certify that this report reflects my personal beliefs about this company and that no portion of my compensation was, is or will be directly or indirectly related to the specific recommendations or views discussed in this report.
| Ratings Distribution as of May 17, 2012 | % with Investment Banking Relationships | |||||
| Rating | Number of Companies | Percent of Total | Rating | Number of Companies | Percent of Total | |
| Buy | 112 | 73.7% | Buy | 13 | 100.0% | |
| Neutral | 37 | 24.3% | Neutral | 0 | 0.0% | |
| Sell | 3 | 2.0% | Sell | 0 | 0.0% | |
| Total | 152 | 100% | Total | 13 | 100% | |
Asset Quality – BANC has seen favorable trends in NPAs, but the real estate market in Southern California remains depressed and a significant overhang of underwater homes and potential foreclosures could put further pressure on home prices.
Economic Slowdown – There is growing evidence that the economy is starting to gain some forward momentum, and unemployment has come down modestly. However, at the current pace, it will take several years before the economy can once again claim to be at full employment levels, and a number of potential pitfalls could jeopardize even this pace of recovery. Any setbacks to the economic recovery could further affect asset quality and loan demand. The weak economy has had a big impact on state economies and California has had well-publicized budget woes. Government responses to the recession, both at the federal and state level, could affect First PacTrust’s business and consumer customer base.
Shifting Regulatory Landscape – Since the financial meltdown in 2008, the regulatory framework affecting banks in the U.S has changed considerably. Many elements of the Dodd-Frank Wall Street Reform and Consumer Protection Act will remain unclear until rules are put in place by various agencies. Capital rules under Basel III are also becoming more stringent. These and other changes to the legal, regulatory and accounting framework affecting banks could have a significant impact on future profitability.
Rising Interest Rates – An increase in interest rates, particularly at the short end of the yield curve, could reduce First PacTrust’s net interest income, since funding costs could rise faster than the yields on earning assets.
Geographic Concentration – First PacTrust’s banking operations are concentrated in the state of California, particularly in the southern part of the state. This subjects the company to risks that affect the economy of this region. Any downturn in the regional economy could have a more serious impact on First PacTrust than on other more geographically diversified banks.
Additional Capital Needs – Given the projected rapid growth of First PacTrust, it is possible that the company may need to raise additional capital at some point in the future to fund this growth. The additional capital could be dilutive to EPS.
Depressed Valuations –The banking sector has suffered from low valuations relative to historical norms since the financial crisis began a few years ago. Increased regulatory burdens, the prospects for an extended period of weak loan demand and low interest rates have led many investors to conclude that profitability in the industry will remain depressed for a considerable period. The resulting low valuations for bank stocks could persist for an extended period.