BayCom Corp — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 13, 2020. This is an annual filing, and the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow value. Figures below are annual unless stated otherwise. Dollar amounts are in U.S. dollars.
Business context
BayCom is a California bank holding company whose subsidiary, United Business Bank, serves businesses, business owners and individuals. At year-end it operated 32 full-service branches across California, Washington, New Mexico and Colorado. The bank’s growth strategy combines commercial lending and organic expansion with acquisitions of community banks.
Financial performance and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets, year-end | $1.994 billion | $1.478 billion |
| Net loans, year-end | $1.450 billion | $970.2 million |
| Deposits, year-end | $1.701 billion | $1.258 billion |
| Shareholders’ equity, year-end | $254.2 million | $200.8 million |
| Interest and dividend income | $76.5 million | $56.9 million |
| Net interest income | $67.8 million | $51.9 million |
| Provision for loan losses | $2.2 million | $1.8 million |
| Noninterest income | $9.6 million | $7.1 million |
| Noninterest expense | $51.5 million | $36.7 million |
| Net income | $17.3 million | $14.5 million |
| Diluted EPS | $1.47 | $1.50 |
Net interest margin was 4.22%, compared with 4.15%; return on average assets was 1.01%, versus 1.10%; and return on average equity was 7.53%, versus 8.48%. The efficiency ratio rose to 66.51% from 62.15%. The bank’s loan yield was 5.68%, while its average cost of interest-bearing liabilities increased to 0.90% from 0.62%.
Cash and cash equivalents were $295.4 million at year-end, down from $323.6 million. Operating cash flow was $7.0 million; investing activities provided $0.9 million and financing activities used $36.1 million. Deposits were the primary funding source. No FHLB advances or Fed Funds borrowings were outstanding; available borrowing capacity was approximately $542.4 million from the FHLB and $40.5 million through Fed Funds lines. The company also had $8.2 million of junior subordinated debentures. The Bank met regulatory “well-capitalized” requirements; its year-end total risk-based capital ratio was 14.75% and leverage ratio was 10.98%.
Material changes versus 2018
- Assets rose 34.9%, net loans 49.5% and deposits 35.3%, largely reflecting the Uniti and TIG acquisitions, as well as loan purchases and organic growth. Uniti closed in May 2019 and TIG in October 2019.
- Net income increased 19.5%, but diluted EPS decreased from $1.50 to $1.47 as the average share count increased.
- Net interest income grew 30.6%; higher average earning assets and loan yields supported income, while interest expense increased 76.7% as funding costs rose.
- Noninterest expense increased 40.4%, including $6.6 million of acquisition-related expenses. Salaries and benefits, data processing and branch costs also increased. The efficiency ratio consequently worsened.
- Nonperforming assets increased to $7.4 million from $3.9 million; nonperforming loans were 0.47% of total loans versus 0.32%. Total past-due loans increased to $18.9 million from $5.8 million.
- Year-end allowance for loan losses rose to $7.4 million from $5.1 million, while coverage of nonperforming loans declined to 108.16% from 164.32%. Acquired loans are carried at acquisition-date fair value and do not receive an initial allowance.
Outlook, risks and unusual items
- Management said it expects to continue selective acquisitions and organic commercial growth, with a focus on expense management and asset quality. A new core processing system was expected to begin implementation in the second quarter of 2020. The filing gives no quantified earnings or growth guidance.
- In February 2020, BayCom completed its acquisition of Grand Mountain Bancshares for approximately $13.9 million in cash. GMB had year-end 2019 assets of about $132.5 million, loans of $96.6 million and deposits of $118.6 million. The acquisition expanded the branch network to 36 locations.
- The filing identifies coronavirus-related economic disruption as a risk, including effects on clients, supply chains, trade, travel and tourism. It also describes risks from regional economic weakness, interest-rate changes, real estate values, acquisition integration and competition.
- Commercial real estate and construction lending are material concentrations: commercial real estate loans under regulatory guidance equaled 330% of regulatory capital. Real-estate-secured loans were 87.1% of total loans; California borrowers accounted for 70.4% of the portfolio.
- Labor-union deposits were $519.2 million, or 30.5% of deposits; the ten largest non-brokered depositors represented 9.2%. Management notes that deposit withdrawals or related customer outflows could raise funding costs.
- BayCom sold $38.4 million of guaranteed SBA loans, recognizing a $3.0 million gain. Acquisition-related goodwill increased to $35.5 million; management reported no impairment. The company repurchased 493,787 shares for about $11.0 million and paid no regular cash dividend.
- CECL adoption was expected for the fiscal year beginning after December 15, 2022; the company had not quantified the impact. The bank was also evaluating, but had not decided whether to adopt, the Community Bank Leverage Ratio framework.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. The auditor did not express an opinion on internal control over financial reporting; the company reported management’s assessment that controls were effective.
Important facts for investors to verify
- How much of loan, deposit and earnings growth is sustainable without further acquisitions, and how integration costs and efficiencies develop.
- Whether the increase in past-due, nonperforming and restructured loans continues, and whether the allowance and acquired-loan discounts adequately reflect credit risk.
- Commercial real estate concentration, geographic exposure, large borrower relationships and sensitivity to declines in property values or regional economic conditions.
- Deposit stability and pricing, especially among labor-union, large and relationship-linked depositors, and the effect of rising funding costs on net interest margin.
- The realized results and balance-sheet effects of the GMB acquisition, planned core-system conversion, share repurchases and any future capital distributions.
- Management’s eventual estimate of CECL’s effect on reserves, earnings and regulatory capital, as well as the effect of coronavirus-related economic conditions after the filing date.