BayCom Corp — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a quarter-only report. BayCom is a bank holding company operating through United Business Bank, with 34 branches in California, Colorado, New Mexico and Washington. It completed the acquisition of Grand Mountain Bancshares in February 2020.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets at year-end | $2.196 billion | $1.994 billion |
| Loans, net at year-end | $1.626 billion | $1.450 billion |
| Deposits at year-end | $1.838 billion | $1.701 billion |
| Shareholders’ equity at year-end | $252.6 million | $254.2 million |
| Net interest income | $78.3 million | $67.8 million |
| Provision for loan losses | $10.3 million | $2.2 million |
| Net income | $13.7 million | $17.3 million |
| Diluted earnings per share | $1.15 | $1.47 |
| Net interest margin | 3.84% | 4.22% |
| Return on average assets / equity | 0.84% / 7.15% | 1.01% / 7.53% |
| Efficiency ratio | 67.21% | 66.51% |
Net cash provided by operating activities was $10.0 million; investing activities used $73.7 million and financing activities provided $67.6 million. Cash and cash equivalents increased $3.9 million to $299.3 million.
Year-end total liabilities were $1.943 billion. Borrowings were $76.7 million, including $63.4 million of subordinated notes, $8.3 million of junior subordinated debentures and $5.0 million of other borrowings. The Bank was reported as well capitalized: its year-end total risk-based capital ratio was 15.36%, and its Tier 1 leverage ratio was 10.18%.
Material changes versus 2019
- Net income declined 20.7%, primarily reflecting the higher loan-loss provision related to pandemic uncertainty, lower net interest margin and higher operating expenses.
- Net interest income rose 15.5% as average earning assets and loans grew, but margin fell 38 basis points. Management attributed pressure to lower market rates and low-yield PPP loans.
- Loans grew 12.1%; growth included $135.6 million of PPP loans reported in the loan portfolio and $98.4 million of loans acquired with GMB. Deposits grew 8.1%, including acquired deposits and pandemic-related customer cash balances.
- The allowance for loan losses increased to $17.5 million, or 1.06% of loans, from $7.4 million, or 0.51%. Nonperforming assets rose to $9.1 million (0.41% of assets) from $7.7 million (0.37%).
- Noninterest income declined 8.3%, mainly from lower SBA loan-sale gains. Noninterest expense rose 13.7%, including acquisition, staffing and occupancy costs.
- BayCom issued $65.0 million of 5.25% fixed-to-floating subordinated notes due 2030. It repurchased 1,276,869 shares for $18.3 million during 2020; the board authorized a further repurchase program in February 2021.
Outlook, risks and unusual items
Management gave no quantified earnings or growth guidance. It expects low rates and PPP loan yields to continue pressuring net interest income and margin during 2021 and possibly longer, while pursuing organic growth and selective acquisitions. Management also said it would continue assisting borrowers and processing PPP forgiveness and new applications.
- COVID-19 credit exposure: The Company provided payment relief on 450 loans totaling $423.2 million during 2020. At year-end, 43 loans totaling $66.7 million remained under additional forbearance; $356.5 million had returned to normal payments. Pandemic-related downgrades totaled $103.3 million.
- Portfolio concentration: Commercial real estate and construction loans accounted for about 70% of total loans; real estate was a primary or secondary component of collateral for approximately 80.9%. Regulatory guidance identifies the Bank’s commercial real estate concentration for heightened risk management; reported CRE loans were 322% of regulatory capital.
- PPP and SBA: PPP loans are federally guaranteed but involve eligibility, servicing and forgiveness risks. SBA guarantee claims may be impaired by origination or servicing deficiencies.
- Funding and rates: Deposits are the principal funding source. Labor-union deposits represented 33.0% of total deposits, and the ten largest non-brokered depositors represented 9.3%. Rising funding costs, deposit withdrawals and interest-rate changes could affect earnings and liquidity.
- Other risks: The filing highlights acquisition integration, goodwill impairment, cybersecurity and third-party service providers, regulatory and privacy compliance, and the transition from LIBOR. Management found no goodwill impairment at year-end. No pending legal proceeding was identified as likely to have a material adverse effect.
- Capital return and parent liquidity: No dividends were paid to shareholders in the reported years. The Bank could not pay a dividend to the parent at year-end without prior regulatory approval, making parent-company liquidity and debt service important to monitor.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because BayCom was an emerging growth company.
Important facts for investors to verify
- Reconcile the PPP balance: the filing reports $135.6 million in several loan disclosures but $136.5 million in other sections for year-end PPP loans.
- Review the allowance assumptions and subsequent performance of the $66.7 million of loans still under payment relief, pandemic-downgraded credits and hospitality/restaurant exposures.
- Track net interest margin, loan and deposit pricing, deposit concentration and the maturity/refinancing of the $65.0 million subordinated notes.
- Confirm the impact of the GMB integration, elevated recurring expenses and any further share repurchases on earnings, capital and parent-company liquidity.
- Assess the timing and balance-sheet impact of CECL adoption, which the filing expected to apply beginning in fiscal 2023; management had not determined the amount of any adoption adjustment.