BayCom Corp is executing a high-stakes repositioning of its balance sheet to trade immediate realized losses for long-term yield stability. The holding company for United Business Bank reported a net income of $1.1 million, or $0.10 per diluted common share, for the third quarter of 2026, marking a pivot from the $7.0 million net loss reported in the second quarter. This shift follows a period of significant executive turnover and restructuring costs that heavily weighed on previous results. By aggressively selling off underperforming investment securities and preferred equity, the company is attempting to mitigate market volatility and interest rate risk, even as these tactical moves triggered a $6.8 million loss on the sale of available-for-sale securities during the current quarter.
Strategic Repositioning of Investment Securities
The company is prioritizing a structural overhaul of its investment portfolio to combat interest rate sensitivity and improve future profitability. During the third quarter of 2026, BayCom sold $106.8 million of investment securities available-for-sale, a move that incurred a $6.8 million loss but allowed for the redeployment of capital into higher-yielding, shorter-duration assets. Management expects this maneuver to generate an approximately 122 basis point improvement in the yield on these redeployed assets. This transition is a central component of a broader strategy to refine the company's interest rate risk profile and enhance balance sheet flexibility.
In tandem with the securities sale, BayCom moved to reduce earnings volatility by selling $7.8 million of preferred equity securities. While these sales, combined with negative market performance, resulted in a $589,000 loss for the quarter, the company is positioning this as a necessary step to eliminate the impact of market fluctuations on future earnings. Additionally, the company is restructuring its bank-owned life insurance (BOLI) portfolio. Executive Vice Chairman William Black stated that the company expects to recoup the costs associated with these deliberate actions, including the securities repositioning and BOLI restructuring, within approximately three years.
Deposit Growth and Net Interest Margin Expansion
Despite the volatility in noninterest income, BayCom’s core lending and deposit franchise showed signs of resilience and expansion. Total deposits grew by $122.3 million, or 5.6%, reaching $2.3 billion at the end of the third quarter. Notably, the average cost of deposits rose only one basis point to 1.57%, suggesting the company is maintaining a stable funding base despite competitive pressures and recent Federal Reserve rate increases. This deposit growth was bolstered by the decision to retain deposits on the balance sheet that were previously placed through the IntraFi Network's CDARS and ICS programs.
The company also reported an expansion in its net interest margin (NIM), which rose to 4.11% for the third quarter. This represents a 16-basis-point increase from the second quarter of 2026 and a 43-basis-point increase compared to the third quarter of 2025. Total loans increased by $77.2 million, or 3.7%, to a total of $2.2 billion, driven largely by residential, multifamily, and commercial and industrial (C&I) lending. The average yield on interest-earning assets climbed to 5.54%, up from 5.36% in the prior quarter, reflecting the impact of higher-rate loan originations and the ongoing asset mix optimization.
Key Takeaways
- BayCom sold $106.8 million in available-for-sale investment securities at a $6.8 million loss to redeploy funds into assets expected to yield 122 basis points higher.
- Total deposits increased by $122.3 million to $2.3 billion, while the average cost of deposits remained stable at 1.57%.
- Net interest margin expanded to 4.11%, a 16-basis-point improvement over the second quarter of 2026.
FinanceInsyte's Take
In our view, BayCom Corp is currently in a "cleansing" phase, intentionally absorbing short-term hits to its income statement to fix a legacy cost and asset structure that was likely underperforming in a shifting rate environment. The $6.8 million loss on securities and the $589,000 loss on preferred equity are painful, but they appear to be calculated sacrifices designed to stop the bleeding from market volatility.
The most encouraging signal for institutional observers is the stability of the deposit franchise. Maintaining an average deposit cost of 1.57% while growing the base by over $122 million suggests that the bank's relationship-driven model is holding up against broader market tightening. However, the success of this turnaround hinges entirely on the execution of the "three-year recoup" plan mentioned by management. If the 122-basis-point yield improvement on redeployed assets does not materialize as expected, or if the commercial real estate portfolio—which remains a concentration point for nonperforming loans—deteriorates further, the strategic repositioning may be viewed as too little, too late.
Questions & Answers
How does the recent securities sale impact BayCom's long-term yield expectations?
The sale of $106.8 million in available-for-sale securities resulted in a $6.8 million loss, but the company is using the proceeds to purchase higher-yielding, shorter-duration assets. This move is expected to result in an approximately 122 basis point improvement in the yield on those redeployed assets.
What is the current status of BayCom's capital adequacy?
As of September 30, 2026, BayCom's capital ratios remained above the regulatory thresholds for "well capitalized" institutions. The company reported a Total Capital ratio of 14.52%, a Common Equity Tier 1 ratio of 13.39%, and a Tangible Common Equity ratio of 11.17%.
How has the company addressed recent executive turnover and operational costs?
The second quarter of 2026 was heavily impacted by $10.5 million in expenses related to the departure of three senior executives, including severance and accelerated equity vesting. In the third quarter, the company focused on efficiency, recording only $192,000 in severance expenses related to a new staffing realignment aimed at improving operating efficiency.
What are the primary drivers behind the expansion of the net interest margin?
The net interest margin expanded to 4.11%, up 16 basis points from the previous quarter. This was driven by an increase in the average yield on interest-earning assets to 5.54% and a 3.7% growth in total loans, supported by new originations at higher rates and a stable average cost of deposits at 1.57%.
Source: BayCom Corp
