BayCom Corp. 10-Q Summary
Reporting period: First quarter ended March 31, 2021. BayCom is a bank holding company whose subsidiary, United Business Bank, serves businesses and individuals through 34 branches across California, Washington, New Mexico and Colorado. Financial amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $18.1 | $20.0 in Q1 2020 |
| Net income | $4.5 | $2.8 in Q1 2020 |
| Diluted earnings per share | $0.40 | $0.23 in Q1 2020 |
| Net interest margin | 3.49% | 4.22% in Q1 2020 |
| Efficiency ratio | 69.31% | 74.81% in Q1 2020 |
| Total assets | $2,288.2 | $2,195.7 at Dec. 31, 2020 |
| Net loans | $1,566.7 | $1,625.8 at Dec. 31, 2020 |
| Deposits | $1,928.0 | $1,838.4 at Dec. 31, 2020 |
| Cash and cash equivalents | $457.7 | $299.3 at Dec. 31, 2020 |
| Shareholders’ equity | $254.6 | $252.6 at Dec. 31, 2020 |
- Q1 net income rose 60.8% year over year. Noninterest expense fell $2.8 million, including the absence of $3.0 million in acquisition-related expense recorded in Q1 2020; lower loan-loss provision also helped. These gains were partly offset by lower net interest income and noninterest income.
- Interest income declined 9.9% to $20.3 million, while interest expense declined 10.8% to $2.2 million. The average loan yield fell to 4.79% from 5.34%; the average cost of deposits fell to 0.26% from 0.53%. The lower asset yields and PPP lending weighed on margin.
- Operating cash flow was $0.7 million, investing cash flow was $70.4 million provided, and financing cash flow was $87.4 million provided. Cash rose by $158.4 million during the quarter, primarily reflecting loan repayments and deposit growth.
- The allowance for loan losses was $17.5 million, or 1.10% of loans, unchanged from year-end. The company recorded no Q1 provision or net charge-offs.
- Liabilities included $5.0 million of other borrowings, $8.3 million of junior subordinated debentures and $63.4 million of subordinated debt. The $65 million subordinated notes carry a 5.25% fixed rate through September 2025, then reset to a floating rate; the $5 million FHLB advance was scheduled to mature May 7, 2021.
- United Business Bank was classified as “Well Capitalized.” At March 31, its leverage ratio was 10.52%, CET1 ratio 15.14%, Tier 1 risk-based ratio 15.14%, and total risk-based capital ratio 16.32%.
Material changes and operating developments
- Total assets increased 4.2% from year-end as cash grew, while net loans declined 3.6%. Loan repayments were $150.0 million, including $25.6 million of PPP forgiveness, versus $81.9 million of originations, which included $48.3 million of new PPP loans.
- Deposits increased 4.9%, supported by customer relationship growth, PPP proceeds, government stimulus deposits and reduced withdrawals. Noninterest-bearing demand deposits were 37.7% of deposits. The top ten depositors accounted for 9.5% of deposits, up from 8.8% at year-end.
- Nonperforming assets increased to $10.0 million from $9.1 million at year-end; nonaccrual loans rose to $9.8 million from $8.4 million. Potential problem loans increased to $16.1 million from $12.7 million.
- The company repurchased 132,123 shares for $2.2 million, averaging $16.66 per share, and authorized a new repurchase program for up to 560,000 shares.
Outlook, risks and unusual items
- Management expects the low-rate environment and PPP loans to continue pressuring net interest income and margin in 2021 and potentially longer. The filing provides no specific earnings or revenue guidance.
- COVID-19 payment-relief arrangements covered 23 loans totaling $32.0 million at quarter-end, down from 43 loans totaling $66.7 million at year-end. The bank continued processing forgiveness under the first PPP program and funding loans under the second program.
- At March 31, the bank had 1,345 PPP loans outstanding totaling $158.7 million, with $4.4 million in unearned fees and $1.2 million in recognized fees. PPP loans were excluded from the allowance calculation because they are SBA-guaranteed.
- Management attributed the zero Q1 provision primarily to an improving economic outlook, but warned that further economic deterioration, COVID-19 effects or inadequate government support could increase credit losses and the allowance. Commercial real estate concentration, real estate values, interest rates, deposit retention, regulatory matters, technology and cybersecurity, and acquisition execution are additional cited risks.
- Management’s first-quarter qualitative goodwill assessment found no impairment indicated; sustained adverse economic conditions or a prolonged decline in the share price could lead to impairment charges.
- There were no material changes to previously disclosed risk factors, no reported legal proceedings expected to materially affect the company, and no material change in interest-rate risk exposure from the 2020 year-end disclosure. Disclosure controls were reported effective.
Investor facts to verify
- Whether the rise in nonaccrual and potential problem loans develops into higher charge-offs or provisioning, particularly in commercial real estate and COVID-affected sectors.
- PPP loan forgiveness pace, remaining deferred fees, and the effect of PPP runoff on loan yields and net interest margin.
- Whether deposit growth persists and how funding costs, top-depositor concentration and the May 2021 FHLB advance maturity affect liquidity.
- How the $63.4 million subordinated debt balance and its later floating-rate reset affect funding costs and capital planning.
- Whether management’s no-impairment goodwill conclusion remains supported if economic conditions or the company’s market valuation weaken.