BayCom Corp — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2019. BayCom Corp is a bank holding company whose principal subsidiary, United Business Bank, serves businesses and individuals. Financial figures below are in millions of dollars unless otherwise stated.
Financial performance and position
| Metric | Q3 2019 / Sep. 30, 2019 | Comparable period / Dec. 31, 2018 |
|---|---|---|
| Net interest income | $17.8; nine-month total $48.6 | Q3 2018: $13.0; nine-month 2018: $38.0 |
| Net income | $5.6; nine-month total $12.7 | Q3 2018: $3.5; nine-month 2018: $11.9 |
| EPS, diluted | $0.46; nine-month total $1.11 | Q3 2018: $0.31; nine-month 2018: $1.30 |
| Total assets | $1,770.7 | $1,478.4 |
| Loans, net | $1,225.3 | $970.2 |
| Deposits | $1,498.2 | $1,257.8 |
| Cash and cash equivalents | $337.1 | $323.6 |
| Shareholders’ equity | $240.9 | $200.8 |
Q3 net interest margin was 4.23%, versus 4.06% a year earlier; the nine-month margin was 4.28%, versus 4.14%. The efficiency ratio increased to 58.70% for Q3 from 57.44%, and to 65.34% for the first nine months from 57.95%. The company reported $8.2 million of junior subordinated debentures and no FHLB advances or federal funds borrowings outstanding. The Bank had $535.1 million of available FHLB borrowing capacity and $65.0 million of federal funds lines.
For the first nine months, operating cash flow was $5.4 million, investing cash flow was positive $33.5 million, and financing cash flow was negative $25.4 million. Cash and cash equivalents increased $13.5 million from year-end 2018.
Changes versus comparable periods
- Q3 net income increased 58.1% year over year; nine-month net income increased 7.2%. Q3 diluted EPS rose to $0.46, while nine-month EPS declined from $1.30 to $1.11, alongside a higher weighted-average share count.
- Net interest income rose 36.4% in Q3 and 27.9% year to date, reflecting growth in average earning assets and higher loan yields. Interest expense also increased, including higher deposit costs.
- Noninterest income increased 29.1% in Q3 and 24.4% year to date. Noninterest expense rose 38.6% and 43.7%, respectively, with added staffing, data-processing and other costs associated with acquisitions and expanded operations.
- Assets, loans and deposits grew substantially from year-end, primarily reflecting the May 2019 Uniti acquisition, alongside organic loan growth. Uniti consideration totaled $62.7 million, comprising cash and 1,115,006 BayCom shares.
Outlook, risks and unusual items
- Management described a strategy of organic growth and selective acquisitions, but provided no quantified earnings or financial guidance. On October 21, 2019, BayCom completed the TIG acquisition, expanding into Colorado. On November 4, it announced a proposed all-cash acquisition of Grand Mountain Bancshares, expected to close in late Q1 2020 subject to approvals and other conditions.
- Nonaccrual loans rose to $6.6 million, or 0.54% of total loans, from $3.1 million, or 0.32%, at year-end; the increase was primarily related to a $2.7 million construction loan. Nonperforming assets were $7.2 million. The allowance was $6.4 million, 0.52% of loans and 96.25% of nonperforming loans. Management considered it adequate but noted estimates and regulatory review could result in additional provisions.
- Commercial real estate is a significant portfolio concentration; management cautioned that weaker economic conditions or real-estate values could affect collectability. The top ten depositors represented 10.4% of deposits. Undisbursed loan commitments and standby letters of credit totaled approximately $117.2 million.
- Acquisition-related costs were $4.1 million for the first nine months. Loan-interest income included acquisition-accounting accretion; management noted that this benefit may decline as purchase discounts run off. Goodwill was $26.4 million, with no impairment identified in the period.
- BayCom authorized repurchases of up to 5% of outstanding shares after quarter-end; the program does not require purchases. The company paid no regular cash dividend. Management said the Bank was well capitalized. Disclosure controls were judged effective, and no material change in internal controls was reported.
- CECL adoption was expected after December 15, 2022, subject to the described effective-date extension. Management said the impact was still being assessed and the allowance could increase. The filing also identifies interest-rate, credit, acquisition-integration, deposit-retention, liquidity, operating-cost and technology risks.
Important facts for investors to verify
- Whether TIG integration delivers expected benefits and how the proposed Grand Mountain transaction proceeds, including its approvals, financing and integration costs.
- Credit quality trends, especially the construction loan, commercial real-estate exposures, nonaccruals and allowance coverage.
- Whether deposit pricing and funding costs pressure net interest margin as market rates and acquired deposit costs change.
- How acquisition-related expenses and loan-discount accretion affect recurring earnings, efficiency and per-share results.
- The eventual CECL allowance impact, and the use and scale of the authorized share-repurchase program.