Company Overview

BayCom Corp (NASDAQ:BCML) is a California-based bank holding company that has established itself as a leading community financial institution over the past two decades. Through its wholly-owned subsidiary, United Business Bank, BayCom provides a comprehensive suite of financial services to businesses, professionals, and individuals across California, Nevada, Washington, New Mexico, and Colorado.

History and Growth

BayCom Corp was founded in 2004 and is headquartered in Walnut Creek, California. The company’s wholly-owned banking subsidiary, United Business Bank, was originally established in 2004 as a state-chartered commercial bank. Over the past 20 years, United Business Bank has grown to operate 35 full-service banking branches across its five-state footprint. BayCom has expanded its geographic presence and commercial banking franchise through a series of strategic acquisitions since 2010. Key acquisitions include Pacific Enterprise Bancorp in 2022, East West Bank’s California branch network in 2018, and Truckee River Bank in 2017. These acquisitions have provided BayCom with economies of scale and improved overall franchise efficiency.

Business Model and Services

The company focuses on serving small and mid-sized businesses, professionals, and individuals in its local markets. BayCom offers a broad range of financial services, including commercial and industrial lending, commercial real estate lending, residential lending, and various deposit products. While the company’s lending activities are primarily concentrated in California, it has additional exposure in Nevada, Washington, New Mexico, and Colorado. Throughout its history, BayCom has faced various challenges common to the banking industry, such as navigating changes in the interest rate environment, managing credit risk, and complying with an evolving regulatory landscape. The company has worked to maintain a well-diversified loan portfolio, strong underwriting standards, and prudent risk management practices to weather these challenges and continue growing its business.

Recent Performance and Challenges

In 2023, BayCom faced several challenges, including the COVID-19 pandemic, inflationary pressures, and rising interest rates. Despite these headwinds, the company demonstrated its resilience, reporting net income of $27.43 million and generating $30.80 million in operating cash flow for the full year. BayCom’s commitment to prudent risk management and disciplined lending practices has been a key factor in its ability to navigate these turbulent times.

Loan Portfolio and Credit Quality

One of BayCom’s strengths is its diversified loan portfolio, which includes commercial and industrial loans, commercial real estate, residential mortgages, and consumer loans. As of December 31, 2023, the company’s total loan portfolio stood at $1.93 billion, with a non-performing asset ratio of just 0.67%. BayCom’s allowance for credit losses was $22.00 million, or 1.14% of total loans, reflecting the bank’s proactive approach to risk management.

Deposit Base

The company’s deposit base is also a source of strength, with $2.13 billion in total deposits as of the end of 2023. BayCom has maintained a well-diversified deposit mix, with a healthy balance of non-interest-bearing and interest-bearing accounts. This has allowed the bank to manage its funding costs effectively, even in a rising interest rate environment.

Capital Management

In addition to its strong balance sheet, BayCom has demonstrated a commitment to returning capital to shareholders. In 2023, the company paid $3.64 million in cash dividends and repurchased $21.67 million worth of its common stock, underscoring its confidence in the long-term prospects of the business.

Future Outlook

Looking ahead, BayCom remains focused on strategic growth, both organically and through selective acquisitions. The company is well-positioned to capitalize on opportunities in its core markets, leveraging its reputation for exceptional service and tailored financial solutions. Furthermore, BayCom’s experienced management team and robust risk management practices position the bank to navigate the challenging macroeconomic landscape.

Financials

BayCom’s financial performance in 2023 remained solid, with revenue of $104.45 million, net income of $27.43 million, operating cash flow of $30.80 million, and free cash flow of $28.68 million for the full year. The company’s quarterly financial results in 2024 have also been encouraging, with revenue of $33.43 million and net income of $6.02 million for the third quarter. However, the third quarter of 2024 saw negative operating cash flow of -$16.31 million and negative free cash flow of -$14.93 million, primarily due to lower loan origination activity and an increase in payments related to short-term borrowings.

Year-over-year revenue growth stood at 1.80%. The company’s net interest income decreased by 7.8% to $22.86 million for the three months ended September 30, 2024, compared to $24.81 million for the same period in 2023. This decrease was primarily due to a 3.7% decrease in interest income on loans, partially offset by increases in interest income on investment securities and interest-bearing balances. The net interest margin decreased to 3.73% for the three months ended September 30, 2024, compared to 4.03% for the same period in 2023, as the increase in funding costs outpaced the increase in yields on interest-earning assets.

The provision for credit losses increased to $1.25 million for the three months ended September 30, 2024, compared to $674,000 in the same period of 2023, primarily due to an increase in the quantitative reserve driven by declines in forecasted economic conditions and net charge-offs during the quarter.

Noninterest income increased by 66% to $2.75 million for the three months ended September 30, 2024, compared to $1.65 million for the same period in 2023, primarily due to a $1.42 million gain on equity securities, partially offset by decreases in service charges, loan fees, and income from the company’s Small Business Investment Company (SBIC) fund investment.

Noninterest expense decreased by 2.7% to $16.07 million for the three months ended September 30, 2024, compared to $16.52 million for the same period in 2023, mainly due to a decrease in salaries and employee benefits, partially offset by increases in data processing and occupancy and equipment expenses.

Business Segments

BayCom operates through several main business segments:

Commercial and Industrial Loans: This segment accounted for $174.43 million, or 9.1%, of the company’s total loan portfolio as of September 30, 2024. The average yield on these loans was 5.53% for the three months ended September 30, 2024, up from 5.42% in the same period a year earlier.

Commercial Real Estate Loans: As of September 30, 2024, commercial real estate loans totaled $1.63 billion, or 85.4% of the company’s total loan portfolio. The average yield on these loans was 5.53% for the three months ended September 30, 2024, up from 5.42% in the same period a year earlier.

Residential Loans: As of September 30, 2024, residential loans totaled $103.09 million, or 5.4% of the total loan portfolio. The average yield on these loans was 5.53% for the three months ended September 30, 2024, up from 5.42% in the same period a year earlier.

Consumer Loans: As of September 30, 2024, consumer loans totaled $397 million, or 2.1% of the total loan portfolio.

Geographic Markets

BayCom operates primarily in the Western United States, with the majority of its loan and deposit customers located in California, Colorado, New Mexico, Nevada, and Washington. As a small-cap company, BCML typically focuses on selling products and services within the United States.

Liquidity

BayCom maintains a strong liquidity position, supported by its diverse deposit base and access to various funding sources. As of September 30, 2024, the company reported:

These metrics demonstrate BayCom’s well-managed balance sheet and prudent liquidity management practices, enabling it to meet its financial obligations and support ongoing business operations effectively.

Conclusion

In conclusion, BayCom Corp is a well-established community bank that has demonstrated its ability to navigate challenging market conditions. The company’s diversified business model, prudent risk management, and commitment to serving its local communities have been key drivers of its success. Despite facing headwinds in the changing interest rate environment and experiencing some fluctuations in its financial performance, BayCom maintains a strong liquidity position and continues to focus on strategic growth initiatives. As the company executes its plans and leverages its strengths in its core Western U.S. markets, BayCom appears poised to deliver sustainable value for its shareholders in the years to come. The absence of reported scandals, short seller reports, or CEO departures further underscores the company’s stability and sound management practices.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.