Don’t Bank on It: Nothing Is Good In California

With this report, we continue the “Don’t Bank On It” format: a concentrated review of the existential risks sitting on one bank’s balance sheet. We also challenge readers to figure out which bank we are covering in each article.

Our fourth highlighted bank is a publicly listed US bank with more than $30B in assets. Its branch network, deposit franchise, and a substantial portion of its real-estate lending are focused on California.

High-risk loan mix

This bank has a very high-risk loan mix. CRE mortgages and multifamily loans (the multifamily book is larger than the CRE mortgage portfolio) account for more than 40% of its total loan book and almost 400% of its CET1 capital. The bank’s CRE and multifamily businesses are primarily located in California, where property prices remain under significant pressure. The national multifamily market saw significant deterioration in 2025, as indicated by CMBS delinquency ratios, which reached 6.6% at YE25, up from 4.6% at YE24. High exposure to multifamily is a major risk for the bank.

In addition, the bank has a large commercial book (almost 40% of its total credit portfolio), of which more than 25% is venture-capital lending and nearly 40% is asset-backed lending. Needless to say, these are high-risk lending segments, especially in a crisis.

The bank also has exposure to construction and land lending. If we add together its CRE book, multifamily segment, commercial book, and construction and land lending, the total exposure amounts to more than 900% of the bank’s CET1 capital. Clearly, this is an extremely high ratio by any risk-management standard.

Cost efficiency is mediocre

For the first half of 2026, the bank’s headline efficiency ratio was above 60%. This is as much as 10 percentage points worse than the average of its peer group. As such, the bank is entering the next turn of the credit cycle not only with a high-risk loan mix, but with subpar operational efficiency as well.

Capital is on the weaker side

The CET1 capital adequacy ratio improved somewhat in 2Q26 but remained in the single digits. This is low given the risky nature of its loan portfolio. Organic capital generation is also quite subpar, as the bank’s profitability ratios have lagged the peer-group average for quite some time. In particular, its ROE was quite weak compared to peers.

Conclusion

While we have not been able to find a bank with a solid balance sheet in all of California, this bank stands out as one of the weakest in the state. In fact, this bank does not need a full-blown crisis for major risks to emerge: even a 2% loan-loss ratio, which can occur in a relatively benign credit environment, could wipe out 20% of its equity.

Can you recognize this bank? If not, come to StockWaves at ElliottWaveTrader.net to identify it and view not only the fundamentals report but the Elliott Wave analysis to assist in making investing decisions.