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 $8.1 million, or $0.62 per diluted common share, for the fourth quarter of 2022, compared to earnings of $7.2 million, or $0.54 per diluted common share, for the third quarter of 2022 and $5.4 million, or $0.51 per diluted common share, for the fourth quarter of 2021. For the year ended December 31, 2022, the Company announced earnings of $27.0 million, or $2.06 per diluted common share, compared to $20.7 million, or $1.90 per diluted common share, for the year ended December 31, 2021.
Net income for the fourth quarter of 2022 compared to the prior quarter increased $824,000, or 11.4%, primarily as a result of a $1.7 million increase in net interest income and a $577,000 decrease in provision for loan losses, partially offset by a $1.2 million decrease in noninterest income and a $212,000 increase in noninterest expense. Net income for the fourth quarter of 2022 compared to the fourth quarter of 2021 increased $2.6 million, or 48.1%, primarily as a result of a $7.3 million increase in net interest income, partially offset by a $121,000 increase in provision for loan losses, a $1.1 million decrease in noninterest income, a $2.6 million increase in noninterest expense and a $920,000 increase in provision for income taxes.
Net income increased $6.3 million, or 30.5%, to $27.0 million for the year ended December 31, 2022 compared to $20.7 million in 2021, primarily as a result of a $23.9 million increase in net interest income, partially offset by a $4.0 million increase in provision for loan losses, a $589,000 decrease in noninterest income, a $10.8 million increase in noninterest expense and a $2.2 million increase in provision for income taxes. Included in noninterest income for the year ended December 31, 2022 was $1.6 million in bargain purchase gain related to our acquisition of Pacific Enterprise Bancorp (“PEB”) and its wholly owned operating subsidiary, Pacific Enterprise Bank, during the first quarter of 2022, that was not present during the prior year.
George Guarini, President and Chief Executive Officer, commented, “We are pleased that our financial results for the fourth quarter and full year 2022 are in line with our expectations. Despite the developing rate pressure on deposits, our return on average assets and our net interest margin improved during the year as a result of our loan growth and overall asset sensitivity. The Federal Reserve has indicated that it expects to continue to increase interest rates in 2023, which should continue to contribute to future earnings. In addition, we are seeing lower marketplace premiums on SBA Loans which gives us the opportunity to hold these loans on the balance sheet supplementing loan growth.”
Guarini concluded, “While market conditions may not be very conducive for merger and acquisition activity, we continue to look for selective merger partners. In addition to focusing on achieving our financial metrics, we are continuing to repurchase our shares and pay cash dividends to our shareholders. Our goal continues to be to consistently add value for our clients and shareholders.”
Fourth Quarter Performance Highlights:
- Annualized net interest margin was 4.40% for the current quarter, compared to 3.99% in the preceding quarter and 3.41% in the same quarter a year ago.
- Annualized return on average assets was 1.28% for the current quarter, compared to 1.11% in the preceding quarter and 0.92% in the same quarter a year ago.
- Assets totaled $2.5 billion at both December 31, 2022 and September 30, 2022, compared to $2.4 billion at December 31, 2021.
- Loans, net of deferred fees, totaled $2.0 billion at both December 31, 2022 and September 30, 2022, and totaled $1.7 billion at December 31, 2021.
- Nonperforming loans totaled $15.2 million or 0.75 % of total loans at December 31, 2022, compared to $19.7 million or 0.99% of total loans at September 30, 2022, and $6.9 million or 0.41% of total loans at December 31, 2021.
- The allowance for loan losses totaled $18.9 million, or 0.94% of total loans outstanding, at December 31, 2022, compared to $18.1 million, or 0.90% of total loans outstanding, at September 30, 2022, and $17.7 million, or 1.06% of total loans outstanding, at December 31, 2021. A $617,000 provision for loan losses was recorded during the current quarter compared to a $1.2 million provision for loan losses in the prior quarter, and a $496,000 provision for loan losses in the same quarter a year ago.
- Deposits totaled $2.1 billion at both December 31, 2022, and September 30, 2022, compared to $2.0 billion at December 31, 2021. At December 31, 2022, noninterest bearing deposits totaled $773.3 million, or 37.1% of total deposits, compared to $813.5 million, or 38.5% of total deposits at September 30, 2022, and $710.1 million, or 35.8% of total deposits at December 31, 2021.
- The Company repurchased 236,985 shares of common stock at an average cost of $18.60 per share during the fourth quarter of 2022, compared to 406,534 shares repurchased at an average cost of $19.14 per share during the third quarter of 2022, and 5,125 shares repurchased at an average cost of $18.31 per share during the fourth quarter of 2021.
- On November 16, 2022, the Company announced the declaration of a cash dividend on the Company’s common stock of $0.05 per share, paid on January 13, 2023 to stockholders of record as of December 16, 2022.
- The Bank remained “well-capitalized” institution for regulatory capital purposes at December 31, 2022.
Earnings
Net interest income increased $1.7 million or 7.1%, to $26.5 million for the fourth quarter of 2022 from $24.7 million in the prior quarter and increased $7.3 million, or 37.9%, from $19.2 million in the same quarter a year ago. The increase in net interest income between the periods reflects increases in interest income on loans, cash and cash equivalents and, to a lesser extent, investment securities, including dividend on FRB and FHLB stock, partially offset by higher funding costs related to increased market rates of interest on our deposits and junior subordinated debt. Average interest-earning assets decreased $73.2 million, or 3.0%, and increased $150.7 million, or 6.7% for the three months ended December 31, 2022 compared to the third quarter of 2022 and the fourth quarter of 2021, respectively. Average yield on interest earning assets for the fourth quarter of 2022 was 4.91%, compared to 4.38% for the third quarter of 2022 and 3.79% the fourth quarter of 2021. The increase in average yields on interest-earning assets during the current quarter reflects increases in market interest rates due to recent increases in the target range for federal funds, including a 125 basis points increase during the fourth quarter of 2022, to a range of 4.25% to 4.50%. The average rate paid on interest bearing liabilities for fourth quarter of 2022 was 0.89%, compared to 0.66% for the third quarter of 2022, and 0.64% for the fourth quarter of 2021.
Interest income on loans, including fees, increased $1.8 million, or 7.5%, to $25.8 million for the fourth quarter of 2022 compared to the prior quarter primarily due to a 39 basis point increase in the average loan yield. Interest income on loans, including fees, increased $6.1 million, or 30.6%, during the fourth quarter of 2022 compared to the fourth quarter of 2021 primarily due to a $352.7 million increase in the average loan balance and a 37 basis point increase in the average loan yield. The average loan balance totaled $2.0 billion for both the fourth quarter of 2022 and third quarter of 2022, compared to $1.6 billion for the same quarter a year ago. The average yield on loans was 5.12%, compared to 4.73% for the third quarter of 2022 and 4.75% for the fourth quarter of 2021. The increase in the average yield on loans from the prior quarter was due to the impact of increased rates on variable rate loans as well as new loans being originated at higher interest rates and by a $155,000 increase in accretion of the net discount on acquired loans, partially offset by a $28,000 decrease in PPP loan fees recognized when compared to the prior quarter.
Interest income on loans included $218,000, $63,000, and $409,000 in accretion of the net discount on acquired loans and revenue from purchase credit impaired loans in excess of discounts for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively. The balance of the net discounts on these acquired loans totaled $522,000, $480,000, and $2.1 million at December 31, 2022, September 30, 2022, and December 31, 2021, respectively. Interest income included $133,000 in fees earned related to PPP loans in the quarter ended December 31, 2022, compared to $161,000 in the prior quarter 2022 and $1.9 million in the same quarter 2021. Interest income also included fees related to prepayment penalties of $335,000 in the quarter ended December 31, 2022, compared to $195,000 in the prior quarter 2022, and $439,000 in the same quarter in 2021. As of December 31, 2022, total unrecognized fees on PPP loans were $94,000.
Interest income on investment securities available-for-sale increased $57,000 to $1.6 million for the three months ended December 31, 2022, compared to the three months ended September 30, 2022, and increased $424,000, or 36.0%, from $1.2 million for the three months ended December 31, 2021. The increase in the current quarter compared to the same quarter in 2021 was due to the increase in market interest rates which resulted in a 32 basis point increase in the average yield on investment securities available-for-sale to 3.39% for the three months ended December 31, 2022 from 3.07% for the three months ended December 31, 2021. The average balance on investments securities available-for-sale totaled $187.5 million for the three months ended December 31, 2022, compared to $188.7 million and $152.3 million for the three months ended September 30, 2022 and December 31, 2021, respectively.
Interest income on federal funds sold and interest-bearing balances in banks increased $435,000, or 33.8%, to $1.7 million for the three months ended December 31, 2022, compared to $1.3 million for the three months ended September 30, 2022, and increased $1.5 million, or 820.8%, from $186,000 for the three months ended December 31, 2021 as a result of an increase in the average yield. The average yield on federal funds sold and interest-bearing balances in banks increased 167 basis point to 3.85% for the three months ended December 31, 2022, compared to 2.18% for the three months ended September 30, 2022, and increased 367 basis point from 0.18% for the three months ended December 31, 2021. The average balance of federal funds sold and interest-bearing balance in banks totaled $177.4 million for the three months ended December 31, 2022, compared to $234.6 million and $418.8 million for the three months ended September 30, 2022 and December 31, 2021, respectively. In addition, during the fourth quarter of 2022, we received $379,000 in cash dividends on our FRB and FHLB stock, up 32.5% from $286,000 in the prior quarter and up 43.0% from $265,000 in the fourth quarter in 2021.
Interest expense increased $623,000, or 25.8%, to $3.0 million for the three months ended December 31, 2022, compared to $2.4 million for the three months ended September 30, 2022, and increased $854,000, or 39.2%, compared to $2.2 million for the same quarter in 2021, primarily as a result of an increase in the average cost of deposits. Average balance of deposits totaled $2.1 billion for the fourth quarter of 2022, compared to $2.2 billion for the third quarter of 2022 and $2.0 billion for the same quarter in 2021. The average cost of funds for the fourth quarter of 2022 was 0.89% compared to 0.66% for third quarter of 2022 and 0.64% for the same quarter in 2021. The increase in the average cost of funds during the current quarter compared to the prior quarter was due to higher interest rates paid on money market and time deposits due to increased competition and pricing pressures resulting from higher market interest rates generally. The average cost of total deposits for the three months ended December 31, 2022 was 0.37%, compared to 0.25% for the three months ended September 30, 2022, and 0.24% for the three months ended December 31, 2021. The average balance of noninterest bearing deposits increased $7.4 million, or 0.91%, to $809.2 million for the three months ended December 31, 2022, compared to $801.9 million for the three months ended September 30, 2022 and $738.6 million for the three months ended December 31, 2021. In addition, interest expense on junior subordinated debt increased $92,000, or 110.0%, to $176,000 for the three months ended December 31, 2022, compared to $84,000 for the same quarter in 2021 as a result of higher market rates.
Annualized net interest margin was 4.40% for the fourth quarter of 2022, compared to 3.99% for the preceding quarter and 3.41% for fourth quarter of 2021 as a result of our asset sensitive balance sheet. The average yield on interest earning assets for the fourth quarter of 2022 increased 53 basis point and 112 basis point over the average yields for the third quarter of 2022 and the fourth quarter of 2021, while the average rate paid on interest bearing liabilities for fourth quarter of 2022 increase 23 basis points and 25 basis points over the average rates paid for the third quarter of 2022 and the fourth quarter of 2021, respectively. Net interest margin was positively impacted by rising interest rates during the quarter which produced higher yields on loans, investment securities and fed funds sold and interest bearing-balances in banks.
The average yield on PPP loans including the recognition of deferred PPP loan fees was 2.30%, resulting in a positive impact to the net interest margin of three basis points during the fourth quarter of 2022, compared to an average yield of 2.28% with a positive impact to the net interest margin of three basis points during the prior quarter 2022, and compared to an average yield of 8.95% with a positive impact to the net interest margin of 23 basis points during the same quarter in 2021. The accretion of the net discount on acquired loans increased the average yield on loans by 11 basis points during the fourth quarter of 2022, compared to one basis point during the prior quarter 2022, and 15 basis points during the same quarter in 2021. The incremental accretion and the impact on loan yield will change during any period based on the volume of prepayments, but is expected to decrease over time as the balance of the net discount declines.
Based on our review of the allowance for loan losses at December 31, 2022, the Company recorded a $617,000 provision for loan losses for the fourth quarter of 2022, compared to a $1.2 million provision for loan losses and a $496,000 provision for loan losses in the prior quarter 2022 and the same quarter in 2021, respectively. The provision for loan losses in the fourth quarter of 2022 was primarily due to new loan production and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate loan losses, partially offset by $233,000 in net recoveries during the fourth quarter of 2022.
Noninterest income for the fourth quarter of 2022 decreased $1.2 million, or 45.0%, to $1.5 million compared to $2.7 million in the prior quarter 2022 and decreased $1.1 million, or 41.3%, compared to $2.6 million for the same quarter in 2021. The decrease in noninterest income for the current quarter compared to the prior quarter 2022 was due to a $1.2 million decrease in gain on sale of SBA loans (guaranteed portion), primarily due to a decrease in the volume of these loans sold during the current quarter, and a $162,000 decrease in income from our investment in a Small Business Investment Company (“SBIC”) fund, partially offset by a $125,000 increase in servicing charges and other fees. The decrease in noninterest income for the current quarter compared to the same quarter in 2021 was primarily due to a $1.1 million decrease in gain on sale of loans due to a decrease in the volume and premiums observed on SBA loans (guaranteed portion) sold and a $478,000 decrease in SBIC income, partially offset by a $358,000 increase in servicing charges and other fees.
Noninterest expense for the fourth quarter of 2022 increased $212,000, or 1.3%, to $16.3 million compared to $16.1 million for the prior quarter 2022 and increased $2.6 million, or 18.6%, compared to $13.8 million for the same quarter in 2021. The increase in noninterest expense for the current quarter compared to the prior quarter 2022 was primarily due to a $565,000 increase in salaries and employee benefits as a result of increases in salaries and wages in 2022 due to upward market pressure on wages in 2022 and year-end accrual adjustments related to other employee benefits. The increase was partially offset by a $47,000 decrease in occupancy and equipment expenses, a $95,000 decrease in data processing fees and a $211,000 decrease in other noninterest expense. Noninterest expenses for the fourth quarter of 2022 increased compared to the same quarter in 2021 primarily due to $2.1 million increase in salaries and employee benefits as a result of an increase in the number of full-time equivalent employees, reflecting our acquisition of Pacific Enterprise Bancorp (“PEB”) and its bank subsidiary, Pacific Enterprise Bank, in February, 2022, coupled with retention incentives and salary adjustments due to upward market pressure on wages in 2022. The increase was also a result of increases in occupancy and equipment expense of $222,000, data processing fees of $137,000 and other noninterest expenses of $68,000.
The provision for income taxes was $3.0 million for both the fourth quarter 2022 and third quarter of 2022 and increased $920,000 compared to $2.1 million for the fourth quarter of 2021 primarily due to increased pre-tax income. The effective tax rate for the fourth quarter of 2022 was 27.1%, compared to 29.0% for the prior quarter 2022, and 27.7% for the same quarter in 2021. The effective tax rate was lower for the fourth quarter of 2022 compared to the prior quarter 2022 due to year-end true-up adjustments related to non-taxable interest income on tax exempt municipal securities.
Loans and Credit Quality
Loans, net of deferred fees, increased $26.2 million to $2.0 billion at December 31, 2022, compared to September 30, 2022, and increased $356.2 million compared to $1.7 billion at December 31, 2021. The increase in loans at December 31, 2022 compared to September 30, 2022 primarily was due to $127.3 million of new loan originations, partially offset by $101.3 million of loan repayments, including $24.3 million in PPP loan repayments. At December 31, 2022, there was a total of 51 PPP loans outstanding totaling $11.1 million, compared to 138 loans totaling $35.4 million at September 30, 2022.
Nonperforming loans, consisting of non-accrual loans and accruing loans that are 90 days or more past due, totaled $15.2 million or 0.75% of total loans at December 31, 2022, compared to $19.7 million or 0.99% of total loans at September 30, 2022, and $6.9 million or 0.41% of total loans at December 31, 2021. The decrease in nonperforming loans from the prior quarter was primarily due to repayment of $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, and repayment of a $1.7 million participation interest in a shared national credit, which was restructured as a TDR and placed on non-accrual during the first quarter of 2022. The portion of nonaccrual loans guaranteed by government agencies totaled $839,000, $862,000, and $822,000 at December 31, 2022, September 30, 2022, and December 31, 2021, respectively. There was one loan totaling $934,000 that was 90 days or more past due, still accruing and in the process of collection at December 31, 2022, compared to $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 December 31, 2022, were $1.5 million, compared to $5.3 million at September 30, 2022, and $3.8 million at December 31, 2021.
At December 31, 2022, the Company’s allowance for loan losses was $18.9 million, or 0.94% of total loans, compared to $18.1 million, or 0.90% of total loans, at September 30, 2022 and $17.7 million, or 1.06% of total loans, at December 31, 2021. The decrease in the allowance for loan losses as a percentage of total loans outstanding at December 31, 2022, as compared to December 31, 2021, was due to the Company’s acquisition of PEB and related acquisition accounting as acquired loans were recorded at their estimate fair value at acquisition and no allowance for loan losses was recorded. We recorded net recoveries of $233,000 for the fourth quarter of 2022, compared to net charge-offs of $944,000 in the prior quarter 2022 and net charge-offs of $95,000 in the same quarter in 2021.
In accordance with acquisition accounting, loans acquired from acquisitions 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 loan losses is recorded for acquired loans at the acquisition date. However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred. The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios. As of December 31, 2022, acquired loans net of their discount totaled $257.9 million with a remaining net discount on these loans of $522,000, compared to $299.4 million of acquired loans with a remaining net discount of $480,000 at September 30, 2022, and $53.4 million of acquired loans with a remaining net discount of $2.1 million at December 31, 2021. The net discount includes a credit discount based on estimated losses in the acquired loans partially offset a premium, if any, based market interest rates on the date of acquisition.
Deposits and Borrowings
Deposits totaled $2.1 billion at both December 31, 2022, and September 30, 2022, and $2.0 billion at December 31, 2021. At December 31, 2022, noninterest bearing deposits totaled $773.3 million, or 37.1% of total deposits, compared to $813.5 million, or 38.5% of total deposits at September 30, 2022, and $710.1 million, or 35.8% of total deposits at December 31, 2021.
At both December 31, 2022 and September 30, 2022, the Company had outstanding junior subordinated debt, net of marked-to-market adjustments, related to junior subordinated deferrable interest debentures assumed in connection with its previous acquisitions totaling $8.5 million, compared to $8.4 million at December 31, 2021. At both December 31, 2022 and September 30, 2022, the Company also had outstanding subordinated debt, net of costs to issue, totaling $63.7 million compared to $63.5 million at December 31, 2021.
At December 31, 2022, September 30, 2022 and December 31, 2021, the Company had no other borrowings outstanding.
Shareholders’ Equity
Shareholders’ equity totaled $317.1 million at December 31, 2022, compared to $314.4 million at September 30, 2022, and $262.6 million at December 31, 2021. The increase from the prior period of 2022 reflects net income earned during the quarter, offset by repurchases of $4.
Contacts
BayCom Corp
Keary Colwell, 925-476-1800
[email protected]
