BayCom Corp — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. BayCom Corp is the holding company for United Business Bank, a community bank serving businesses, professionals and individuals across California, Washington and New Mexico. Unless noted, dollar amounts below are in millions.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net interest income | $16.0 | $12.6 | $30.9 | $25.0 |
| Provision for loan losses | $0.4 | $0.2 | $0.7 | $0.5 |
| Noninterest income | $2.5 | $2.1 | $4.7 | $3.8 |
| Noninterest expense | $14.8 | $8.7 | $24.5 | $16.8 |
| Net income | $2.2 | $4.3 | $7.2 | $8.4 |
| Diluted EPS | $0.20 | $0.45 | $0.64 | $0.99 |
| Net interest margin | 4.29% | 4.11% | 4.31% | 4.19% |
Q2 net income fell 48.8% year over year; first-half net income fell 14.3%. Management attributed the decline primarily to $4.1 million of Uniti acquisition-related expenses. The Q2 efficiency ratio rose to 79.73% from 57.39%; the first-half ratio was 69.05% versus 58.21%. Higher loan yields and average earning assets supported net interest income and margin, while funding costs also increased. No separate revenue or gross-margin measure is presented as a primary operating metric.
Financial position, cash flow and liquidity
- At June 30, 2019, total assets were $1.772 billion, loans net of allowance were $1.214 billion, deposits were $1.505 billion and shareholders’ equity was $234.6 million. Versus December 31, 2018, these increased by $293.3 million, $243.3 million, $247.6 million and $33.9 million, respectively; the Uniti acquisition was a key driver.
- Cash and cash equivalents were $351.6 million, compared with $323.6 million at year-end. First-half cash from operating activities was $2.2 million, investing activities provided $44.0 million and financing activities used $18.2 million. Cash increased $28.0 million.
- Borrowings were $8.2 million, consisting of junior subordinated debentures. There were no FHLB advances or federal funds borrowings outstanding; available capacity was $371.0 million from the FHLB and $65.0 million through federal funds lines.
- The Bank was reported as well-capitalized. At June 30, its leverage ratio was 11.55%, Common Equity Tier 1 ratio 16.22% and total risk-based capital ratio 16.73%. The Bank’s capital conservation buffer was 8.58%.
Material changes, outlook and risks
- BayCom completed its acquisition of Uniti Financial Corporation on May 24, 2019, issuing 1,115,006 shares and paying $37.8 million cash; total consideration was $62.7 million. The acquisition added three Southern California branches. Acquisition accounting added $11.9 million of goodwill; goodwill totaled $26.4 million at quarter-end.
- The company signed a definitive agreement to acquire TIG Bancorp for cash and stock, valued at approximately $39.4 million based on BayCom’s June 28 share price. The proposed deal remained subject to TIG shareholder approval and customary conditions and was expected to close in Q4 2019; its value could fluctuate with BayCom’s share price.
- Credit indicators included $3.8 million of nonaccrual loans (0.31% of loans), $4.4 million of nonperforming assets and $6.8 million of potential problem loans. The allowance for loan losses was $5.9 million, or 0.48% of total loans, compared with 0.53% at year-end. Commercial real estate concentration exposes the bank to deterioration in local economies or property values.
- Management said the allowance was adequate but noted estimates may prove incorrect and regulators may require additional reserves. The company also highlighted acquisition integration, expense control, deposit retention, interest-rate exposure, competition, technology and regulatory risks. CECL adoption was expected to change credit-loss estimation; the impact was still being assessed.
- No numerical earnings or margin guidance was provided. Management described continued acquisition-led and organic growth as strategic priorities. The filing reported no material change in risk factors from the 2018 Form 10-K, no material change in interest-rate risk exposure, and effective disclosure controls.
Key facts for investors to verify
- Whether Uniti integration and expense actions improve the efficiency ratio and earnings after the reported $4.1 million of acquisition costs.
- Whether the TIG transaction closes on the expected terms and timetable, and how its financing, share issuance and integration affect results.
- Loan quality trends, especially commercial real estate exposures, past-due loans and potential problem loans, alongside allowance adequacy and acquired-loan discounts.
- Deposit pricing and retention, funding costs, and sensitivity of net interest income to changing interest rates.
- The eventual CECL adoption date and quantified effect on the allowance, earnings and capital.