Executive Summary / Key Takeaways

• BayCom Corp (NASDAQ:BCML) is a regional bank holding company focused on commercial banking in the Western U.S., pursuing a dual strategy of strategic acquisitions and organic growth to enhance shareholder value and expand its commercial client base.
• Recent financial performance for the nine months ended September 30, 2025, shows a slight decrease in net income to $17.1 million, primarily due to increased provision for credit losses, despite a rise in net interest income and improved efficiency.
• The company's loan portfolio experienced robust growth, increasing 4.6% to $2 billion, driven by new originations, while deposits saw a marginal decline of 0.3%, reflecting customer migration to higher-yielding products.
• Elevated credit risk, particularly in commercial real estate and commercial and industrial portfolios, led to an increase in nonperforming assets and a higher allowance for credit losses, influenced by a weaker economic outlook.
• BCML maintains a "Well Capitalized" regulatory status, demonstrating strong capital ratios, and continues its dividend policy, signaling confidence in its financial stability and commitment to shareholder returns.

Setting the Scene: A Regional Bank's Strategic Foundation

BayCom Corp, established in 2004, operates as the holding company for United Business Bank, a California state-chartered bank that has grown to 34 full-service branches across California, Nevada, Washington, New Mexico, and Colorado. The company's core mission is to enhance shareholder value and deliver consistent earnings growth by expanding its commercial banking franchise. This expansion is achieved through a deliberate dual strategy: selective strategic acquisitions, which have included ten transactions since 2010 to broaden its geographic footprint and achieve economies of scale, and organic growth, which leverages opportunities within its metropolitan and community markets to increase its commercial client base and interest-earning assets.

United Business Bank provides a comprehensive suite of financial services tailored primarily to small and mid-sized businesses, service professionals, and individuals. Its offerings span various lending products, including commercial and multifamily real estate loans, commercial and industrial loans, Small Business Administration (SBA) loans, construction and land loans, agriculture-related loans, and consumer loans. On the deposit side, the bank offers demand, NOW, savings, money market, and time deposit accounts. Beyond traditional banking, BCML provides modern conveniences such as online and mobile banking, remote deposit capture, treasury management services, and debit cards, aiming to deliver a high-quality, relationship-based client experience.

In the competitive landscape of regional banking, BCML positions itself against other regional players like Pacific Premier Bancorp (PPBI), Heritage Commerce Corp (HTBK), and CVB Financial Corp (CVBF), all vying for similar commercial and individual clients in the Western U.S. While larger competitors may possess greater scale and broader market presence, BCML's strength lies in its localized approach and personalized customer service, fostering deeper client relationships. This community-focused strategy allows BCML to cultivate strong customer loyalty, which can translate into stable deposit bases and recurring revenue streams. However, BCML's smaller scale compared to some rivals could lead to higher operating costs and potentially limit its agility in rapidly adopting new technologies, a vulnerability in an increasingly digital banking environment.

The broader industry is experiencing significant shifts. The Federal Open Market Committee (FOMC) of the Federal Reserve has reduced the target range for the federal funds rate by a cumulative 125 basis points through September 2025, bringing the target range to 4% to 4.25%, with a further 25 basis point cut in October 2025 to 3.75% to 4%. This monetary easing impacts net interest margins across the banking sector. Furthermore, a general trend of customer migration toward higher-yielding deposit products is evident, pressuring banks to adjust their funding strategies. The rise of artificial intelligence (AI) and the increasing demand for data centers also present new lending opportunities for the banking sector, particularly for those capable of financing large-scale infrastructure projects.

Operational and Technological Edge

BayCom Corp's operational effectiveness is underpinned by its commitment to providing a comprehensive suite of banking products and services, enhanced by its digital offerings. While the company does not highlight a singular, proprietary technological breakthrough akin to a manufacturing firm, its investment in digital banking tools, such as online and mobile banking, remote deposit capture, and treasury management services, is crucial for maintaining competitiveness and meeting evolving customer expectations. These services are designed to streamline operations for small and mid-sized businesses, offering convenience and efficiency that are vital in today's fast-paced commercial environment.

The strategic intent behind these technological offerings is to provide an "enhanced banking experience" and "high-quality, relationship-based client service," which are foundational to its community bank model. For instance, robust treasury management services enable businesses to manage their cash flow more effectively, potentially leading to stronger client retention and deeper banking relationships. While specific quantitative metrics on the performance or cost advantages of BCML's digital platforms are not publicly detailed, the company's focus on these areas aims to improve operational efficiency and customer satisfaction, thereby contributing to its competitive moat.

Compared to its peers, BCML's technological adoption appears to be a continuous effort to keep pace with industry standards rather than a source of radical differentiation. Some competitors, particularly larger regional banks, might have greater resources to invest in cutting-edge digital innovations or strategic partnerships for advanced digital banking solutions. However, BCML's strength lies in integrating these tools with its personalized service model, ensuring that technology complements, rather than replaces, the human element of community banking. The company's ongoing evaluation of new accounting guidance, such as ASU 2024-3 and ASU 2025-1 regarding income statement disclosures, and ASU 2025-5 for credit loss estimation, demonstrates its commitment to adapting to regulatory and operational advancements, which are critical for long-term stability and efficiency.

Financial Performance and Liquidity

BayCom Corp's financial performance for the nine months ended September 30, 2025, reflects a period of both growth and increased provisioning for credit risk. Net income for the nine-month period decreased by $421,000, or 2.4%, to $17.1 million, compared to $17.5 million in the prior-year period. This decline was primarily attributed to a $2.2 million increase in the provision for credit losses and a $1.1 million decrease in noninterest income. These headwinds were partially offset by a $1.9 million increase in net interest income and a $468,000 decrease in noninterest expense. For the third quarter of 2025, net income was $5.0 million, a 13.6% decrease from $6.0 million in the third quarter of 2024, driven by similar factors.

Despite the dip in net income, the company demonstrated improved efficiency, with its efficiency ratio improving to 62.15% for the three months and 63.88% for the nine months ended September 30, 2025, from 62.76% and 65.20% respectively in the prior year. This improvement was largely due to higher net interest income and a modest reduction in noninterest expense. Interest income on loans, including fees, saw robust growth, increasing by $7.8 million (10.2%) for the nine-month period, driven by a $108.2 million increase in the average balance of loans and a 24 basis point increase in the average loan yield. The average yield on loans benefited from increased rates on variable-rate loans and new originations at higher market interest rates. However, interest income from federal funds sold and interest-bearing balances in banks decreased significantly due to Federal Reserve rate reductions.

Interest expense rose, influenced by increased interest expense on subordinated debt, which included $835,000 of amortized debt issuance costs recognized in connection with the company's redemption of its subordinated notes during the third quarter of 2025. Higher deposit rates, reflecting increased market rates and competitive pricing pressures, also contributed to the rise in interest expense. The annualized net interest margin for the nine months ended September 30, 2025, improved to 3.76% from 3.72% in the prior-year period, as the increase in yields on interest-earning assets outpaced the increase in the cost of interest-bearing liabilities. However, the net interest margin for the third quarter of 2025 declined to 3.68% from 3.73% in the same period of 2024, due to the amortization of debt issuance costs and the rate paid on interest-bearing liabilities rising faster than the yield on interest-earning assets.

Total assets decreased by $60.7 million, or 2.3%, to $2.60 billion at September 30, 2025, primarily due to a $135.6 million decline in cash and cash equivalents. This reduction in cash was largely used to fund the early redemption of $63.7 million of outstanding subordinated notes, as well as to support loan growth and deposit withdrawals. Total loans, net of allowance for credit losses, increased by $89.4 million, or 4.6%, to $2 billion, fueled by $337.2 million of new loan originations and $24.6 million of loan purchases. Total deposits saw a marginal decrease of $5.9 million, or 0.3%, to $2.2 billion, reflecting a shift from noninterest-bearing demand deposits to interest-bearing accounts as customers sought higher yields.

Shareholders' equity increased by $9.9 million to $334.3 million, driven by net income and other comprehensive income, partially offset by common stock repurchases totaling $6.1 million and $6.6 million in cash dividends paid. The company maintains a "Well Capitalized" status, with a Leverage Ratio of 11.80% and a Common Equity Tier 1 Ratio of 14.25% at September 30, 2025, significantly exceeding regulatory minimums.

Risks and Outlook

BayCom Corp faces several pertinent risks, primarily related to credit quality and the evolving interest rate environment. Nonperforming assets increased by $4.4 million to $13.9 million, or 0.68% of total loans, at September 30, 2025, up from $9.5 million, or 0.48% of total loans, at December 31, 2024. This rise in nonperforming loans, particularly in commercial real estate and commercial and industrial portfolios, reflects elevated credit risk. A significant portion of nonaccrual loans were placed on that status due to borrower-specific financial concerns or elevated collateral risk, rather than just payment delinquency.

The allowance for credit losses for loans increased to $20.8 million, or 1.02% of total loans, at September 30, 2025, from $17.9 million, or 0.92% of total loans, at December 31, 2024. This increase was driven by loan growth, charge-offs, and higher reserves on pooled loans, reflecting an annual update to the CECL model methodology that incorporated a higher forecasted national unemployment rate and a weaker outlook for national GDP. Management acknowledges that while the current allowance is believed to be adequate, actual credit losses could differ if economic conditions or borrower performance deteriorate further. The company also has a concentration of loans in commercial real estate, making it susceptible to declines in real estate values in its primary market areas.

Looking ahead, BayCom Corp anticipates full recovery of the amortized cost of its available-for-sale securities at maturity or sooner in a more favorable interest rate environment. The company expects to continue paying quarterly cash dividends of $0.25 per share, subject to Board discretion, which would amount to approximately $2.7 million per quarter based on current outstanding shares. Management also expects to utilize its borrowing facilities from the FHLB and FRB to fund loan originations, deposit withdrawals, and other financial commitments, demonstrating a proactive approach to liquidity management.

Conclusion

BayCom Corp presents a compelling investment narrative rooted in its disciplined growth strategy and commitment to community-focused commercial banking. Despite a recent increase in credit loss provisions and a slight dip in net income, the company's underlying operational efficiency has improved, and its loan portfolio continues to expand. The strategic redemption of subordinated debt and robust capital ratios underscore a strong financial foundation, positioning BCML for resilience in a dynamic economic landscape.

While facing competitive pressures from larger regional banks and the ongoing challenge of customer migration to higher-yielding deposit products, BCML's emphasis on personalized service and diversified loan offerings provides a distinct competitive edge. The company's digital banking services, while not revolutionary, are integral to its client value proposition, supporting its relationship-based model. Investors should monitor the trajectory of credit quality indicators and the impact of evolving interest rates, but BayCom Corp's consistent capital management and strategic focus on organic and acquisitive growth suggest a stable, albeit incrementally growing, outlook within the regional banking sector.