BayCom Corp — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing does not provide a clear standalone fourth-quarter income statement. BayCom is a bank holding company whose principal business is conducted through United Business Bank, serving businesses and individuals across California, Colorado, New Mexico and Washington.
Financial performance and condition
| Metric | FY2021 / December 31, 2021 | Comparison |
|---|---|---|
| Total assets | $2.35 billion | Up 7.1% from 2020 |
| Loans, net of allowance | $1.65 billion | Up 1.3% |
| Deposits | $1.99 billion | Up 8.0% |
| Net interest income | $72.8 million | Down 7.0% |
| Net interest margin | 3.34% | Down from 3.84% |
| Net income | $20.7 million; diluted EPS $1.90 | Net income up 50.7%; EPS was $1.15 in 2020 |
| Provision for loan losses | $466,000 | Down from $10.3 million |
| Noninterest income / expense | $11.3 million / $55.1 million | Income up 28.2%; expense down 5.8% |
| Cash flows | Operating +$10.4 million; investing −$60.4 million; financing +$130.3 million | Cash and cash equivalents ended at $379.7 million |
| Shareholders’ equity | $262.6 million | Up 4.0% |
Net income improved principally because the provision for loan losses fell substantially, expenses declined and loan-sale gains increased. These gains included $4.8 million from sales of SBA-guaranteed loans. The decline in net interest income reflected lower yields on loans and other earning assets; reduced deposit costs only partly offset the pressure. The efficiency ratio improved to 65.57% from 67.21%.
Funding, credit and capital
- Deposits funded most operations; noninterest-bearing deposits were $710.1 million, or 35.8% of deposits. Approximately $1.0 billion of deposits were estimated to be uninsured. The ten largest non-brokered depositors held $198.6 million, or about 10.0% of deposits.
- Commercial real estate and construction/land lending represented 78.8% of total loans; real estate-secured lending was a substantial majority of the portfolio. California represented the largest geographic exposure.
- Nonperforming assets were $6.9 million, or 0.29% of assets, versus $9.1 million, or 0.41%, in 2020. Nonaccrual loans were $6.9 million; the allowance for loan losses was $17.7 million, or 1.06% of loans.
- There were no FHLB or Federal Reserve borrowings outstanding at year-end. Available capacity was reported as $483.1 million at the FHLB, $69.6 million at the Federal Reserve and $65.0 million under federal funds lines.
- Debt included $63.5 million of subordinated notes, carrying a fixed 5.25% rate until 2025 and then a floating rate, plus $8.4 million of junior subordinated debentures. The filing states the Bank was well capitalized; capital ratio figures differ among filing tables.
Material changes, outlook and risks
- Management attributed lower credit-loss provisioning to improved economic forecasts and continued recovery. It considered the year-end allowance adequate but cautioned that weaker economic conditions, COVID-19 effects or regulatory review could require higher provisions.
- Management expected low interest rates and pandemic uncertainty to continue pressuring net interest income and margin into 2022. The filing also noted expectations of Federal Reserve rate increases, which could benefit asset yields but may increase deposit costs and affect borrowers.
- PPP lending declined: $69.6 million remained outstanding at year-end, compared with $135.6 million in 2020. These loans are SBA-guaranteed, but the Company disclosed potential risks if the SBA identifies origination, servicing or forgiveness deficiencies.
- BayCom completed its acquisition of Pacific Enterprise Bancorp (PEB) on February 1, 2022, after year-end. The filing describes the strategic rationale as expanding its Orange County presence; acquisition integration, client retention, asset quality and anticipated benefits remain relevant risks. PEB balance figures differ between sections of the filing.
- Other material risks include high commercial real estate concentration, geographic and depositor concentration, interest-rate sensitivity, deposit retention, acquisition execution, cybersecurity and third-party service-provider disruptions, and the transition from LIBOR. The Company expected to adopt CECL for fiscal years beginning after December 15, 2022; its impact had not yet been quantified.
- FY2021 noninterest expense benefited from a $2.7 million reversal of excess estimated data-processing costs related to the prior GMB acquisition. The 2020 comparison included $3.0 million of GMB acquisition costs. These items affect comparability.
- The Company reported no material pending legal proceedings. It announced a $0.05-per-share quarterly dividend after year-end; it had paid no common-stock cash dividends during 2021. It repurchased 648,734 shares for $11.6 million during 2021.
Most important facts for investors to verify
- Reconcile the different Bank regulatory capital ratios presented in the filing and confirm the applicable year-end ratios.
- Reconcile the differing PEB asset, loan, deposit and equity figures stated in the filing, and assess the completed merger’s purchase accounting and integration results.
- Assess CRE concentration, especially non-owner-occupied property exposure, and monitor delinquencies, loan modifications, collateral values and allowance adequacy.
- Review the stability and cost of deposits, including uninsured balances, labor-union relationships, large depositors and the effect of rising rates.
- Separate recurring earnings from SBA loan-sale gains, PPP fee recognition, acquired-loan discount accretion and the data-processing expense reversal; monitor net interest margin and CECL implementation.