BayCom Corp (NASDAQ: BCML) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 15, 2024. BayCom is a bank holding company whose principal operating business is United Business Bank, a community bank with 35 branches across California, Nevada, Washington, New Mexico and Colorado. The filing reports annual results, not standalone fourth-quarter results.
Financial results and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $2.552 billion | $2.513 billion |
| Loans, net, year-end | $1.906 billion | $2.002 billion |
| Deposits, year-end | $2.133 billion | $2.085 billion |
| Shareholders’ equity, year-end | $312.9 million | $317.1 million |
| Net interest income | $97.9 million | $96.7 million |
| Provision for credit losses | $2.0 million | $4.4 million |
| Net income | $27.4 million | $23.7 million |
| Diluted earnings per share | $2.27 | $1.81 |
| Net interest margin | 4.05% | 3.90% |
| Efficiency ratio | 61.69% | 64.13% |
| Net cash from operating activities | $30.8 million | $39.6 million |
Interest income rose 18.0% to $126.3 million, while interest expense increased 175.0% to $28.5 million as deposit and funding costs rose. The average cost of deposits increased to 1.13% from 0.29%. Net charge-offs were $550,000, down from $3.2 million. The year-end allowance for credit losses was $22.0 million, or 1.14% of loans, compared with $18.9 million, or 0.94%, under the prior-year incurred-loss method.
Liquidity strengthened: cash and cash equivalents were $307.5 million, and cash, time deposits in banks and available-for-sale securities totaled $471.9 million. The Bank had no FHLB advances outstanding and reported $576.9 million of available FHLB capacity, plus $65.0 million of uncommitted Federal Funds lines. Subordinated debt was $63.9 million and junior subordinated debentures were $8.6 million. The Bank met regulatory “Well Capitalized” requirements; its total risk-based capital ratio was 18.08% and leverage ratio was 13.08%.
Changes versus prior year
- Net income increased 15.6%, aided by higher net interest income, a lower credit-loss provision, improved noninterest income and lower noninterest expense.
- Net interest margin expanded 15 basis points as yields on variable-rate assets repriced upward faster than funding costs, though deposit costs rose sharply.
- Loans declined 4.8%, reflecting repayments and loan sales exceeding new originations and purchases. Deposits grew 2.3%, but the mix shifted: noninterest-bearing deposits fell to 30.3% of deposits from 37.1%, while time deposits increased to $477.2 million from $293.3 million.
- Nonperforming assets were $13.0 million, or 0.51% of assets, versus $15.2 million, or 0.61%. Nonperforming loans were 0.67% of loans versus 0.75%.
- Shareholders’ equity declined 1.3%, reflecting $24.1 million of share repurchases, $4.8 million of declared dividends and a $3.0 million increase in accumulated other comprehensive loss, partly offset by net income.
Outlook, risks and unusual items
- Management intends to pursue organic commercial lending growth and selective acquisitions, and says the balance sheet could benefit if rates rise further; it expects lower rates could pressure net interest income. No specific earnings or growth guidance is provided.
- Credit concentration is a key risk: commercial real estate represented about 87% of total loans. CRE loans were 327.3% of regulatory capital, a level the filing says may prompt additional supervisory analysis. Office, retail, hotel and other property-market conditions, refinancing and balloon maturities could affect borrowers and collateral.
- Funding risks include competition for deposits, higher deposit repricing costs, uninsured deposits of approximately $1.0 billion (45.4% of deposits), and relationships among some large depositors. Labor-union deposits were 30.9% of total deposits.
- A $1.0 million loan to a trust became nonaccrual after its trustee/beneficiary filed for bankruptcy. The Bank applied $4.0 million of its certificate-of-deposit collateral but is pursuing legal action to recover another $1.0 million released to an escrow agent without the Bank’s consent; recovery is uncertain. The loan was fully reserved at year-end.
- BayCom adopted CECL on January 1, 2023, increasing the loan-loss allowance by $1.5 million and reducing opening retained earnings by $491,000 after tax. The auditor identified the allowance estimate as a critical audit matter.
- The company restated prior-period financial statements after determining that preferred equity securities had been incorrectly classified as available-for-sale debt securities. The resulting material weakness in internal control was reported as remediated at December 31, 2023; management and the auditor concluded controls over financial reporting were effective at year-end. The auditor issued unqualified opinions on the financial statements and internal controls.
- Available-for-sale securities had $21.1 million of gross unrealized losses at year-end, which management attributed primarily to interest rates and market conditions; it reported no credit-loss allowance on those securities. Goodwill of $38.8 million was not considered impaired.
- The Board declared a quarterly dividend of $0.10 per share in February 2024. Management expects regular quarterly dividends to continue, but payment remains discretionary and subject to capital, regulatory and other constraints.
Important facts for investors to verify
- Review the full restatement disclosures and the accounting and control remediation relating to preferred equity securities.
- Track CRE portfolio performance, especially office, retail, hotel and multifamily exposures; criticized loans, collateral values, maturities and refinancing risk.
- Assess deposit retention, deposit pricing, uninsured and concentrated balances, time-deposit maturities and available borrowing capacity.
- Monitor credit-loss allowance assumptions under CECL, nonaccrual trends, specific reserves and the unresolved escrow-collateral litigation.
- Compare actual net interest margin and earnings with management’s rate-sensitivity disclosures; the filing’s modeled outcomes depend on assumptions and are not forecasts.