WALNUT CREEK, Calif.–(BUSINESS WIRE)–BayCom Corp (“BayCom” or the “Company”) (NASDAQ: BCML), the holding company for United Business Bank (the “Bank” or “UBB”), announced earnings of $6.6 million, or $0.56 per diluted common share, for the third quarter of 2023, compared to earnings of $7.2 million, or $0.59 per diluted common share, for the second quarter of 2023 and $7.0 million, or $0.52 per diluted common share, for the third quarter of 2022.
Net income for the third quarter of 2023 compared to the second quarter of 2023 decreased $576,000 or 8.0%, primarily as a result of a $1.9 million increase in provision for credit losses, reflecting a $674,000 provision for credit losses for the current quarter compared to a $1.3 million reversal of the allowance for credit losses during the second quarter of 2023, partially offset by a $528,000 increase in net interest income, $568,000 increase in noninterest income and a $224,000 decrease in provision for income taxes. Net income for the third quarter of 2023 compared to the third quarter of 2022 decreased $340,000 or 4.9%, primarily as a result of $728,000 decrease in noninterest income and $423,000 increase in noninterest expense, partially offset by a $520,000 decrease in provision for credit losses, a $84,000 increase in net interest income and $207,000 decrease in provision for income taxes.
Net income for the nine months ended September 30, 2023 compared to the same period in 2022 increased $4.9 million or 30.6%, primarily as a result of a $4.1 million increase in net interest income and a $4.1 million decrease in provision for credit losses, reflecting a $311,000 reversal of the allowance for credit losses for the nine months ended September 30, 2023 compared to a $3.8 million provision for credit losses for the same period in 2022, partially offset by a $891,000 decrease in noninterest income and a $2.4 million increase in provision for income taxes.
George Guarini, Founder, President, and Chief Executive Officer of the Company, stated, “Our financial performance for the third quarter of 2023 remained resilient despite the challenges confronting the banking industry. Similar to other banks, we experienced some pressure on our net interest margin, but this appears to have eased somewhat in the recent quarter. During the quarter, we proactively bolstered our loan loss reserves, primarily in response to specific loans. On the whole, our credit quality remains solid, and we have not identified any systemic credit issues within our loan portfolio.”
Guarini concluded, “Our financial indicators remain stable, with a net interest margin exceeding 4.0%, a return on assets surpassing 1.0%, and an improving efficiency ratio. Our liquidity and deposit levels have held steady throughout the quarter. We are committed to enhancing our tangible book value through earnings and the repurchase of our shares, which are currently trading well below our tangible book value. Additionally, we maintain the belief that merger and acquisition opportunities may arise as other banks recognize the advantages of consolidation in the current operational environment.”
Third Quarter Performance Highlights:
- Annualized net interest margin was 4.03% for the current quarter, compared to 4.02% in the preceding quarter and 3.99% in the same quarter a year ago.
- Annualized return on average assets was 1.03% for the current quarter, compared to 1.13% in the preceding quarter and 1.07% in the same quarter a year ago.
- Assets totaled $2.6 billion at both September 30, 2023 and June 30, 2023, compared to $2.5 billion at September 30, 2022.
- Loans, net of deferred fees, totaled $2.0 billion at September 30, 2023, remaining relatively unchanged from June 30, 2023, and September 30, 2022.
- Nonperforming loans totaled $14.3 million or 0.73% of total loans at September 30, 2023, compared to $12.8 million or 0.64% of total loans at June 30, 2023, and $19.7 million or 0.99% of total loans at September 30, 2022.
- The allowance for credit losses for loans totaled $19.8 million, or 1.01% of total loans outstanding, at September 30, 2023, compared to $19.1 million, or 0.95% of total loans outstanding, at June 30, 2023, and $18.1 million, or 0.90% of total loans outstanding, at September 30, 2022. The Company adopted the Current Expected Credit Losses (“CECL”) standard as of January 1, 2023, which resulted in a one-time adjustment to the allowance for credit losses for loans by $1.5 million (which included the reclassification of the net credit discount on acquired purchased credit impaired loans totaling $845,000) and an allowance for unfunded credit commitments of $45,000, and an after-tax decrease to opening retained earnings of $491,000 during the first quarter of 2023.
- A $674,000 provision for credit losses for loans was recorded during the current quarter compared to a $1.3 million reversal of the allowance for credit losses for loans and $1.2 million provision for credit losses for loans in the prior quarter and the same quarter a year ago, respectively.
- Deposits totaled $2.2 billion at September 30, 2023 compared to $2.1 billion at both June 30, 2023 and September 30, 2022. At September 30, 2023, noninterest bearing deposits totaled $667.3 million, or 30.9% of total deposits, compared to $664.1 million, or 30.9% of total deposits at June 30, 2023, and $813.5 million, or 38.5% of total deposits, at September 30, 2022.
- The Company repurchased 239,649 shares of common stock at an average cost of $18.86 per share during the third quarter of 2023, compared to 543,955 shares repurchased at an average cost of $16.71 per share during the second quarter of 2023, and 406,534 shares repurchased at an average cost of $19.14 per share during the third quarter of 2022.
- On August 18, 2023, the Company announced the declaration of a cash dividend on the Company’s common stock of $0.10 per share, which was paid on October 13, 2023 to stockholders of record as of September 15, 2023.
- The Bank remained a “well-capitalized” institution for regulatory capital purposes at September 30, 2023.
Earnings
Net interest income increased $528,000, or 2.2%, to $24.8 million for the third quarter of 2023 from $24.3 million in the prior quarter, and increased $84,000, or 0.3%, from $24.7 million in the same quarter a year ago. The increase in net interest income from the previous quarter and same quarter in 2022 reflects increases in interest income on loans, federal funds sold and interest-bearing balances in banks and, to a lesser extent, investment securities, including dividends on Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock, partially offset by higher funding costs related to our deposits and junior subordinated debt due to higher market rates. Average interest-earning assets increased $21.7 million, or 0.8%, and decreased $12.0 million, or 0.46% for the three months ended September 30, 2023 compared to the second quarter of 2023 and the third quarter of 2022, respectively. Average yield (annualized) on interest earning assets for the third quarter of 2023 was 5.34%, compared to 5.18% for the second quarter of 2023 and 4.38% for the third quarter of 2022. The average rate paid on interest-bearing liabilities for third quarter of 2023 was 2.04 %, compared to 1.82% for the second quarter of 2023, and 0.66% for the third quarter of 2022. The increases in average yield on interest-earning assets and average rate paid on interest-bearing liabilities during the current quarter reflect increases in market interest rates due to recent increases in the target range for federal funds, including a 100 basis-point increase during the first nine months of 2023, to a range of 5.25% to 5.50%.
Interest income on loans, including fees, increased $562,000, or 2.1%, to $27.2 million for the three months ended September 30, 2023 compared to the three months ended June 30, 2023, primarily due to a 14 basis point increase in the average loan yield, partially offset by a $36.0 million decrease in the average balance of loans. Interest income on loans, including fees, increased $3.2 million, or 13.4%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to a 69 basis point increase in the average loan yield, partially offset by a $24.2 million decrease in the average balance of loans. The average balance of loans was $2.0 billion for the third quarter of 2023, second quarter of 2023 and the same quarter a year ago. The average yield on loans was 5.42% for the third quarter of 2023, compared to 5.28% for the second quarter of 2023 and 4.73% for the third quarter of 2022. The increase in the average yield on loans from the third quarter of 2023 and the third quarter of 2022 was due to the impact of increased rates on variable rate loans as well as new loans being originated at higher market interest rates.
Interest income on loans included $372,000, $5,000, and $63,000 in accretion of the net discount on acquired loans for the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, respectively. The balance of the net discounts on these acquired loans totaled $419,000, $331,000, and $480,000 at September 30, 2023, June 30, 2023, and September 30, 2022, respectively. Interest income included minimal fees earned related to Paycheck Protection Program (“PPP”) loans in the quarters ended September 30, 2023 and June 30, 2023, and $161,000 during the quarter ended September 30, 2022. Interest income also included fees related to prepayment penalties of $142,000 in the quarter ended September 30, 2023, compared to $48,000 in the second quarter of 2023, and $195,000 in the third quarter of 2022.
Interest income on investment securities increased $11,000, or 0.6%, from the prior quarter and totaled $1.7 million for both the three months ended September 30, 2023 and the three months ended June 30, 2023, and increased $149,000, or 9.6%, from $1.6 million for the three months ended September 30, 2022. Average yield on investment securities increased two basis points to 4.01% for the three months ended September 30, 2023, compared to 3.99% for the three months ended June 30, 2023, and increased 74 basis points from 3.27% for the three months ended September 30, 2022. The average balance of investment securities totaled $168.6 million for the three months ended September 30, 2023, compared to $170.1 million and $188.7 million for the three months ended June 30, 2023 and September 30, 2022, respectively. In addition, during the third quarter of 2023, we received $376,000 in cash dividends on our FRB and FHLB stock, up 10.6% from $340,000 in the second quarter of 2023 and up 31.9% from $285,000 in the third quarter of 2022.
Interest income on federal funds sold and interest-bearing balances in banks increased $961,000, or 37.5%, to $3.5 million for the three months ended September 30, 2023, compared to $2.6 million for the three months ended June 30, 2023, and increased $2.2 million, or 173.8%, from $1.3 million for the three months ended September 30, 2022 as a result of an increase in the average yield. The average yield on federal funds sold and interest-bearing balances in banks increased 24 basis points to 5.38% for the three months ended September 30, 2023, compared to 5.14% for the three months ended June 30, 2023, and increased 320 basis points from 2.18% for the three months ended September 30, 2022. The average balance of federal funds sold and interest-bearing balance in banks totaled $259.6 million for the three months ended September 30, 2023, compared to $199.9 million and $234.6 million for the three months ended June 30, 2023 and September 30, 2022, respectively.
Interest expense increased $1.0 million, or 14.9%, to $8.0 million for the three months ended September 30, 2023, compared to $7.0 million for the three months ended June 30, 2023, and increased $5.6 million, or 232.5%, compared to $2.4 million for the three months ended September 30, 2022, reflecting higher funding costs primarily related to increased market rates of interest on our deposits. Average balance of deposits totaled $2.2 billion for the third quarter of 2023 compared to $2.1 billion for the second quarter of 2023, and $2.2 billion for the third quarter of 2022. The average cost of funds for the third quarter of 2023 was 2.04%, compared to 1.82% for the second quarter of 2023 and 0.66% for the third quarter of 2022. The increase in the average cost of funds during the current quarter compared to the prior quarter of 2023 and the third quarter of 2022 was due to higher interest rates paid on money market and time deposits due to increased competition and pricing pressures and a change in deposit mix due to shift of deposits from noninterest bearing accounts to higher costing money market and time deposits. The average cost of total deposits for the three months ended September 30, 2023 was 1.27%, compared to 1.10% for the three months ended June 30, 2023, and 0.25% for the three months ended September 30, 2022. The average balance of noninterest bearing deposits decreased $2.7 million, or 0.4%, to $674.8 million for the three months ended September 30, 2023, compared to $677.5 million for the three months ended June 30, 2023 and decreased $127.1 million, or 15.8%, compared to $801.9 million for the three months ended September 30, 2022. Interest expense on junior subordinated debt increased $14,000, or 6.9% to $217,000 for the three months ended September 30, 2023 compared to $203,000 for the three months ended June 30, 2023, and increased $88,000, or 68.2%, compared to $129,000 for the three months ended September 30, 2022, due to higher market rates.
Annualized net interest margin was 4.03% for the third quarter of 2023, compared to 4.02% for the second quarter of 2023 and 3.99% for third quarter of 2022. The average yield on interest earning assets for the third quarter of 2023 increased 16 basis points and 96 basis points over the average yields for the second quarter of 2023 and the third quarter of 2022, respectively, while the average rate paid on interest-bearing liabilities for third quarter of 2023 increased 22 basis points and 138 basis points over the average rates paid for the second quarter of 2023 and the third quarter of 2022, respectively. Net interest margin in the third quarter of 2023 was positively impacted by increasing yields on loans and accretion of the net discount and increasing yields on investment securities, fed funds sold and interest bearing-balances in banks, which outpaced on a percentage basis higher funding costs.
The average yield on PPP loans, including the recognition of deferred PPP loan fees, was 1.00% during the third and second quarters of 2023, resulting in a minimal negative impact to the net interest margin, compared to an average yield of 2.28% during the third quarter of 2022 resulting in a positive impact to the net interest margin of three basis points. Accretion of the net discount increased the average yield on loans by eight basis points during the third quarter of 2023, compared to no effect and a one basis point increase on the average yield on loans during the prior quarter of 2023 and the third quarter of 2022, respectively. At September 30, 2023, there was a total of $4.3 million of PPP loans outstanding, with a minimal amount of unrecognized deferred fees and costs.
Based on our review of the allowance for credit losses at September 30, 2023, the Company recorded a $674,000 provision for credit losses for the third quarter of 2023, compared to a $1.3 million reversal of the allowance for credit losses in the prior quarter of 2023 and a $1.2 million provision for credit losses in the third quarter of 2022. The provision for credit losses for loans in the third quarter of 2023 was primarily due to $1.2 million increase in reserve for individually evaluated loans, which included the loan to the Trust discussed below and previously disclosed, and an increase in qualitative reserves, partially offset by improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment, indicators utilized to estimate credit losses and, to a lesser extent, a decrease in outstanding loan balances and $25,000 in net charge-offs during the third quarter of 2023.
During the quarter ended September 30, 2023, the Company determined that a certificate of deposit-secured line of credit loan made to a revocable living trust (the “Trust” or the “Borrower”) with an outstanding balance of approximately $1.0 million as of September 30, 2023 was impaired as a result of the sole trustee and beneficiary of the Trust filing for personal bankruptcy in July 2023. At June 30, 2023, the loan had an outstanding balance of $5.0 million and was secured by a $4.0 million certificate of deposit held at the Bank. An additional $1.0 million in cash collateral securing the loan had previously been released by the Bank into a third-party escrow account at the request of the Borrower to be used as a refundable retainer in connection with a separate transaction by the Borrower. The loan matured on July 16, 2023, and the Bank received notification that the sole trustee and beneficiary of the Trust filed for personal bankruptcy on July 18, 2023. After receiving this notification, the Bank used the $4.0 million certificate of deposit held at the Bank to offset amounts owed on the loan and contacted the third-party escrow agent for the return of the additional $1.0 million of collateral. The Bank was advised by the escrow agent that the previously escrowed funds had been released by the escrow agent, which was done without the Bank’s consent and contrary to the written escrow instructions. The Bank has initiated legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral. The results of the planned legal action and the Bank’s ability to recover the previously escrowed collateral are currently uncertain. The loan was fully reserved for at September 30, 2023.
Noninterest income for the third quarter of 2023 increased $568,000, or 52.3%, to $1.7 million compared to $1.1 million in the prior quarter of 2023 and decreased $728,000, or 30.6%, compared to $2.4 million for the third quarter of 2022. The increase in noninterest income for the current quarter compared to the prior quarter of 2023 was primarily due to a $643,000 decrease in loss on equity securities as a result of improvement in fair value adjustments on these securities, a $91,000 increase in service charges and other fees and a $36,000 increase in other income and fees, partially offset by a $162,000 decrease in loan servicing fees and other fees, and a $40,000 decrease in gain on sale of SBA loans (guaranteed portion) generally due to a decrease in the volume of SBA loans sold during the current quarter. The decrease in noninterest income for the current quarter compared to the same quarter in 2022 was primarily due to a $1.3 million decrease in gain on sale of loans due to a decrease in the volume of and premiums observed on SBA loans (guaranteed portion) sold and a $57,000 decrease in loan servicing fees and other fees, partially offset by a $288,000 increase in income from our investment in a Small Business Investment Company (“SBIC”) fund, a $156,000 increase in service charges and other fees, a $88,000 decrease in loss on equity securities and a $47,000 increase in other income and fees.
Noninterest expense for the third quarter of 2023 decreased $38,000, or 0.2%, to $16.5 million compared to $16.6 million for the prior quarter of 2023, and increased $423,000, or 2.6%, compared to $16.1 million for the third quarter of 2022. The decrease in noninterest expense for the third quarter of 2023 compared to the prior quarter of 2023 was primarily due to a $461,000 decrease in salaries and employee benefits as a result of decline in other benefits expense, partially offset by a $159,000 increase in occupancy and equipment expense due to higher depreciation and property maintenance expense, a $158,000 increase in data processing and a $106,000 increase in other expense. The increase in noninterest expense for the third quarter of 2023 compared to the third quarter of 2022 was primarily due to a $212,000 increase in data processing, a $120,000 increase in salaries and employee benefits due to wage increases and an increase in full-time equivalent employees, and a $90,000 increase in occupancy and equipment.
The provision for income taxes decreased $224,000, or 7.8%, to $2.6 million for the third quarter of 2023 compared to $2.9 million for the prior quarter of 2023 and decreased $207,000, or 7.3%, to $2.8 million compared to the third quarter of 2022. The effective tax rate for the third quarter of 2023 was 28.5%, compared to 28.4% for the prior quarter of 2023, and 29.0% for the third quarter of 2022. The effective tax rate was lower for the third quarter of 2023 compared to the third quarter of 2022 due to accrual for non-deductible compensation expenses.
Loans and Credit Quality
Loans, net of deferred fees, decreased $44.5 million and $26.2 million from the prior quarter-end and September 30, 2022, respectively, and totaled $2.0 billion at September 30, 2023, June 30, 2023 and September 30, 2022. The decrease in loans at September 30, 2023 compared to June 30, 2023 primarily was due to $15.6 million of new loan originations, which was more than offset by $58.6 million of loan repayments, including $584,000 in PPP loan repayments. At September 30, 2023, there was a total of $4.3 million in PPP loans outstanding compared to $4.9 million at June 30, 2023, and $35.4 million at September 30, 2022.
Nonperforming loans, consisting of non-accrual loans and accruing loans 90 days or more past due, totaled $14.3 million or 0.73% of total loans at September 30, 2023, compared to $12.8 million or 0.64% of total loans at June 30, 2023, and $19.7 million or 0.99% of total loans at September 30, 2022. The increase in nonperforming loans from the prior quarter-end was primarily due to the line of credit loan discussed above made to the Trust that was placed on nonaccrual during the current quarter. The portion of nonaccrual loans guaranteed by government agencies totaled $801,000 at both September 30, 2023 and June 30, 2023, compared to $862,000 at September 30, 2022. There were no loans, 90 days or more past due and still accruing and in the process of collection at both September 30, 2023 and June 30, 2023, compared to 18 loans totaling $3.3 million in accruing SBA guaranteed PPP loans which were 90 days or more past due and in the process of forgiveness at September 30, 2022. Accruing loans past due between 30 and 89 days at September 30, 2023, were $2.6 million, compared to $1.6 million at June 30, 2023, and $5.3 million at September 30, 2022. The increase in accruing loans past due between 30-89 days from the prior quarter-end was primarily due to timing of borrower payments.
At September 30, 2023, the Company’s allowance for credit losses for loans was $19.8 million, or 1.01% of total loans, compared to $19.1 million, or 0.95% of total loans, at June 30, 2023 and $18.1 million, or 0.90% of total loans, at September 30, 2022. We recorded net charge-offs of $25,000 for the third quarter of 2023, compared to net charge-offs of $60,000 in the prior quarter of 2023 and net charge-offs of $944,000 in the third quarter of 2022.
In accordance with acquisition accounting, acquired loans were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts. Credit discounts are included in the determination of fair value and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date.
Contacts
BayCom Corp
Keary Colwell, 925-476-1800
kcolwell@ubb-us.com
