BayCom Corp — Q1 2024 Form 10-Q
Business context and period. BayCom Corp is the holding company for United Business Bank, a California-chartered community bank operating 35 branches across California, Nevada, Washington, New Mexico and Colorado. This unaudited report covers the three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. Dollar amounts below are in millions unless stated otherwise.
Financial and operating highlights
- Profitability: Net income was $5.9 million, down 18.3% from $7.2 million in Q1 2023; diluted EPS was $0.51 versus $0.57. Net interest income fell 11.3% to $22.4 million. Net interest margin declined to 3.72% from 4.26%, while the efficiency ratio worsened to 65.68% from 61.63%.
- Revenue and expenses: Interest income rose 5.6% to $31.7 million, but interest expense nearly doubled to $9.3 million as deposit costs increased. Noninterest income increased 32.1% to $2.1 million, including a $573,000 gain on equity securities versus a $896,000 loss in the prior-year quarter. Noninterest expense decreased 2.8% to $16.1 million.
- Credit costs: The income statement reported a $252,000 provision for credit losses. Net charge-offs were $3.4 million, versus $315,000 in Q1 2023, primarily reflecting charge-offs on commercial real estate loans. The allowance for loan losses was $18.9 million, or 1.00% of loans, compared with $22.0 million, or 1.14%, at year-end.
- Balance sheet and liquidity: Total assets were $2.56 billion, up 0.3% from year-end. Cash and cash equivalents increased to $348.3 million; net loans declined 2.0% to $1.87 billion; deposits increased 0.5% to $2.14 billion. Operating, investing and financing cash flows were $5.1 million, $31.0 million and $4.7 million provided, respectively; cash increased $40.8 million during the quarter.
- Funding and debt: Noninterest-bearing deposits were $630.0 million, or 29.4% of deposits. Estimated uninsured deposits were $949.3 million, or 44.3%. The company had $63.6 million of subordinated debt and $8.6 million of junior subordinated debentures. No FHLB, Federal Reserve discount-window or correspondent-bank line borrowings were outstanding. Available capacity included $508.2 million at the FHLB, $46.7 million at the Federal Reserve discount window and $65.0 million in federal funds lines.
- Capital and shareholder returns: Shareholders’ equity was $314.2 million. The Bank was reported as well capitalized; its Common Equity Tier 1 ratio was 16.91% and total risk-based capital ratio was 17.87%. BayCom repurchased 198,120 shares for $4.0 million, averaging $20.20 per share, and declared a $0.10 quarterly dividend.
Material changes versus comparable periods
- Higher yields lifted interest income, especially on cash balances, but rising funding costs more than offset the increase. Average cost of interest-bearing liabilities rose to 2.40% from 1.35%; average yield on interest-earning assets increased to 5.28% from 5.07%.
- Average loan balances were lower, and loan interest income decreased 3.8%. In contrast, interest income on federal funds and interest-bearing bank balances rose to $4.1 million from $1.8 million.
- Nonperforming loans increased to $16.5 million, or 0.87% of loans, from $13.0 million, or 0.67%, at year-end. New nonaccrual placements were partly offset by charge-offs and payoffs.
- Loans declined by $38.0 million from year-end, with $72.4 million in repayments partly offset by $32.0 million in originations. Time deposits rose 7.7%, while demand, NOW and savings balances declined.
- The Q1 2023 comparative financial statements were restated. BayCom disclosed that preferred equity securities had been incorrectly accounted for as available-for-sale debt securities; fair-value changes should have been recorded in earnings under the equity-securities guidance.
Management commentary, outlook and risks
- Management attributed the lower margin chiefly to deposit funding costs rising faster than asset yields. It said the balance sheet is structured to benefit if the Federal Reserve raises rates further; this is not quantified earnings guidance. No specific numerical earnings or balance-sheet guidance is provided.
- Management considers the loan-loss allowance adequate, citing improved forecast economic indicators and lower loan balances, but cautions that weaker economic conditions or real-estate values could increase losses. Commercial real estate is a substantial portfolio exposure: commercial real estate loans were approximately $1.63 billion at quarter-end.
- The available-for-sale securities portfolio had $20.2 million of gross unrealized losses, most associated with securities in a loss position for over 12 months. Management attributed declines primarily to interest rates and market conditions, reported no intent or expected requirement to sell before recovery, and recorded no credit-loss allowance on these securities.
- Other stated risks include deposit outflows (particularly uninsured deposits), interest-rate and liquidity exposure, inflation or recession, real-estate weakness, regulatory actions, cyber and third-party disruptions, and risks related to the prior financial-statement restatement. The filing reports no material change in risk factors from the 2023 Form 10-K, no material legal proceeding, and no material change in interest-rate-risk exposure.
- Management reported disclosure controls effective as of March 31, 2024 and no material change in internal control over financial reporting during the quarter. The company evaluated subsequent events through filing and reported none requiring adjustment.
Important facts for investors to verify
- Whether deposit pricing and mix continue to pressure net interest margin, and how uninsured deposit balances and funding stability evolve.
- Trends in nonaccrual loans, charge-offs and the allowance, especially the CRE portfolio and the collateral supporting problem credits.
- Whether the securities portfolio’s unrealized losses remain recoverable without forced sales if liquidity conditions change.
- The effect of share repurchases and dividends on holding-company liquidity, capital flexibility and future per-share results.
- The prior-period restatement disclosures and any subsequent developments in accounting review or internal controls.