Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward- looking statements as a result of a wide variety or range of factors including, but not limited to:
● adverse impacts to economic conditions in general and in California, Nevada, Colorado, New Mexico and Washington specifically, as well as other markets where the Company has lending relationships;
● effects of employment levels, labor shortages, inflation, a recession, or slowed economic growth;
● changes in the interest rate environment, including increases and decreases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and the duration of such rates, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
● the impact of inflation and the Federal Reserve’s monetary policy decisions;
● the effects of any federal government shutdown;
● the credit risks of lending and securities activities, including delinquencies, write-offs, and changes in our allowance for credit losses and provision for credit losses;
● changes in the levels of general interest rates and the relative differences between short and long-term interest rates and loan and deposit interest rates;
● unexpected outflows of uninsured deposits, which may require us to sell investment securities at a loss;
● our net interest margin and funding sources;
● fluctuations in the demand for loans, unsold homes, land and other properties;
● fluctuations in real estate values in our market areas;
● secondary market conditions for loans and our ability to sell loans in the secondary market;
● results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for credit losses, write-down asset values or increase our capital levels, affect our ability to borrow funds or maintain or increase deposits;
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● risks related to our acquisition strategy, including our ability to identify future suitable acquisition candidates, exposure to potential asset and credit quality risks and unknown or contingent liabilities, the need for capital to finance such transactions, our ability to obtain required regulatory approvals and possible failures in realizing the anticipated benefits from acquisitions;
● challenges arising from attempts to expand into new geographic markets, products, or services;
● goodwill impairment;
● bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;
● legislative or regulatory changes, including changes in banking, securities and tax laws, in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other governmental initiatives affecting the financial services industry;
● our ability to attract and retain deposits;
● our ability to control operating costs and expenses;
● use of estimates in determining the fair value of certain of our assets and liabilities, which may prove incorrect;
● staffing fluctuations in response to product demand or corporate implementation strategies;
● the effectiveness of our risk management framework;
● disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on those of our third-party vendors;
● an inability to keep pace with the rate of technological advances;
● risks associated with dependence on our Chief Executive Officer and other members of our senior management team and our ability to attract, motivate and retain qualified personnel;
● costs and effects of litigation, including settlements and judgments;
● our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;
● liquidity issues, including our ability to borrow funds or raise additional capital, if needed or desired;
● the loss of our large loan and deposit relationships;
● increased competitive pressures, including repricing and competitors’ pricing initiatives, and their impact on our market position and our loan and deposit products;
● changes in consumer spending, borrowing and savings habits;
● the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
● our ability to pay dividends on our common stock;
● the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;
● the inability of key third-party providers to perform their obligations;
● changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;
● environmental, social and governance goals;
● the potential for new or increased tariffs, trade restrictions or geopolitical tensions that could affect economic activity or specific industry sectors;
● effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events;
● other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
● risks described in other reports filed with or furnished to the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Annual Report”) and this Form 10-Q.
In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements. Moreover, you should treat
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these statements as speaking only as of the date they are made and based only on information then actually known to us. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for the remainder of 2025 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us and could negatively affect our consolidated financial condition and results of operations as well as our stock price performance.
Executive Overview
General. BayCom is a bank holding company headquartered in Walnut Creek, California. BayCom’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services to businesses and business owners as well as individuals through its network of 35 full-service branches, with 16 locations in California, one in Nevada, two in Washington, five in New Mexico and 11 in Colorado. BayCom’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.
Our principal business objective is to enhance shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth. Since 2010, we have expanded our geographic footprint through ten strategic acquisitions. We believe that our selective acquisition of community banks has yielded economies of scale and improved our efficiency. We have also grown organically by leveraging the potential within metropolitan and community markets where we operate. These markets offer significant opportunities to expand our commercial client base, increase interest-earning assets, and enhance market share. We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California; Seattle, Washington; Denver, Colorado; and Las Vegas, Nevada, and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand Counties, Colorado, provides us access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth. We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank. At March 31, 2025, on a consolidated basis, the Company had approximately $2.6 billion in total assets, $1.9 billion in total loans, $2.1 billion in total deposits and $329.3 million in shareholders’ equity.
We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth. At March 31, 2025, our $1.9 billion total loan portfolio included $279.4 million, or 14.2 %, of loans acquired through business combinations (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.7 billion, or 85.8%, consisted of loans we originated or purchased not as part of a business combination.
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. Our net income is also affected by other factors, including the provision for credit losses on loans, noninterest income and noninterest expense.
Set forth below is a discussion of the primary factors affecting our results of operations:
Net interest income. Net interest income represents interest income less interest expense. We generate interest income from interest and fees received on interest earning assets, including loans and investment securities and dividends on Federal Home Loan Bank of San Francisco (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) stock we own. We incur interest expense from interest paid on interest bearing liabilities, including interest bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest margin; and (iv) the regulatory risk weighting associated with our assets. Net interest margin is calculated as the annualized net interest income divided by average interest earning assets. Because noninterest bearing sources of funds, such as noninterest bearing deposits and shareholders’ equity, also fund interest earning assets, net interest margin reflects the benefit of these noninterest bearing sources.
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Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. In 2024, the Federal Open Market Committee (“FOMC”) of the Federal Reserve lowered the target range for the federal funds rate three times, resulting in a target range of 4.25% to 4.50% at March 31, 2025.
Noninterest income. Noninterest income consists of, among other things: (i) service charges on loans and deposits; (ii) gain on sale of loans; (iii) gain (loss) on equity securities; and (iv) other noninterest income. Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of Small Business Administration (“SBA”) loans, capitalized loan servicing rights and other related income.
Provision for credit losses. We have established an allowance for credit losses by charging amounts to provision for credit losses at a level required to reflect estimated credit losses in the loan and available-for sale investment securities portfolios. For loans, management considers many factors, including, among others, historical loss experience, types and amounts of loans in the portfolio and adverse situations that may affect borrowers’ ability to repay. See “Critical Accounting Policies and Estimates - Allowance for Credit Losses” for a description of the manner in which the provision for credit losses is established.
For investments, the Company evaluates available-for-sale debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Such situations may result from either a decline in the financial condition of the issuing entity or, in the case of fixed interest rate investments, from rising interest rates. In making this assessment, management considers the length of time and the extent to which fair value is less than amortized cost, the nature of the security, the underlying collateral, and the financial condition and prospects of the issuer, among other factors. This assessment also includes a determination of whether the Company intends to sell the security, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses. If the present value of the cash flows expected to be collected from the security is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses for available-for-sale securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for credit losses for available-for-sale securities is recognized in other comprehensive income. Changes in the allowance for credit losses for available-for-sale securities are recorded as provision for (or reversal of) credit loss. Losses are charged against the allowance for credit losses for available-for-sale securities, with a corresponding adjustment to the security's amortized cost basis, when management believes the uncollectibility of an available-for-sale security is confirmed or when either criteria regarding intent or requirement to sell is met.
Noninterest expense. Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) Federal Deposit Insurance Corporation (“FDIC”) and state assessments; (v) outside and professional services; and (vi) other general and administrative expenses, including amortization of intangible assets. Salaries and related benefits include compensation, employee benefits and employment tax expenses for our personnel. Occupancy and equipment expense includes depreciation expense on our owned properties and equipment, lease expense on our leased properties and other occupancy-related expenses. Data processing expense includes fees paid to our third-party data processing system provider and other data service providers. FDIC and state assessments expense represents the assessments that we pay to the FDIC for deposit insurance and other regulatory costs to various states. Outside and professional fees include legal, accounting, consulting and other outsourcing arrangements. Amortization of intangibles represents the amortization of our core deposit intangible from various acquisitions. Other general and administrative expenses include expenses associated with travel, meals, training, supplies and postage. Noninterest expenses generally increase as we grow our business. Noninterest expenses have increased significantly over the past few years as we have grown through acquisitions and organically, and as we have built out our operational infrastructure.
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. To prepare financial statements and interim
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financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the dates of the financial statements. As this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
These critical accounting policies and estimates include determining the allowance for credit losses and related provision.
There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Annual Report. For a detailed discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2024 Annual Report, which was filed with the SEC on March 14, 2025.
Comparison of Financial Condition at March 31, 2025 and December 31, 2024
Total assets. Total assets decreased $100.7 million, or 3.8%, to $2.6 billion at March 31, 2025, from December 31, 2024. The decrease primarily was due to a $107.5 million, or 29.5%, decline in cash and cash equivalents and a $2.0 million, or 87.5%, decline in loans held for sale, partially offset by a $13.2 million, or 0.7%, increase in loans receivable, net.
Cash and cash equivalents. Cash and cash equivalents decreased $107.5 million, or 29.5%, to $256.5 million, at March 31, 2025, from $364.0 million at December 31, 2024. The decrease primarily was due to a $105.4 million decrease in federal funds sold and interest bearing balances in banks, as excess funds were used to fund loan growth.
Investment securities available-for-sale. Investment securities available-for-sale decreased $928,000, or 0.5%, to $192.4 million at March 31, 2025 from $193.3 million at December 31, 2024. The decrease was primarily attributable to routine maturities, principal repayments, and calls of investment securities. These reductions were partially offset by an upward fair value adjustment related to unrealized gains on investment securities available-for-sale. There were no purchases of investment securities during the three months ended March 31, 2025.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of March 31, 2025. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
Amount Due or Repricing Within:
One Year
Over One
Over Five
Over
or Less
to Five Years
to Ten Years
Ten Years
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
(Dollars in thousands)
U.S. Government Agencies
$
—
—
%
$
—
—
%
$
—
—
%
$
1,883
5
%
$
1,883
5.40
%
Municipal securities
535
3.00
8,513
1.39
9,714
3.28
4,963
4.57
23,725
2.87
Mortgage-backed securities
1,486
2.48
1,510
2.56
12,825
2.53
34,397
4.75
50,218
4.05
Collateralized mortgage obligations
—
—
3,002
3.15
1,366
2.66
43,075
4.34
47,443
4.22
SBA securities
29
6.51
115
5
1,890
4.40
1,868
5.64
3,902
5.03
Corporate bonds
—
—
7,750
6.33
71,986
4.44
750
3.37
80,486
4.61
Total
$
2,050
2.67
%
$
20,890
3.58
%
$
97,781
4.05
%
$
86,936
4.56
%
$
207,657
4.20
%
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Equity securities. Equity securities decreased $255,000, or 1.9%, to $12.9 million at March 31, 2025 from $13.1 million at December 31, 2024, primarily due to mark-to-market downward adjustments recorded during the three months ended March 31, 2025.
Loans receivable, net. We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans. Total loans increased $13.2 million, or 0.7%, to $1.9 billion at March 31, 2025 from $1.9 billion at December 31, 2024. The increase was due to $72.1 million of new loan originations and $7.6 million of loan purchases, partially offset by $65.4 million of loan repayments and $2.8 million of loans sold.
The following table provides information about our loan portfolio by type of loan, with purchase credit deteriorated (“PCD”) loans presented as a separate balance, at the dates presented .
March 31,
December 31,
2025
2024
% Change
(Dollars in thousands)
Commercial and industrial
$
179,403
$
173,948
3.1
%
Real estate:
Residential
107,063
109,409
(2.1)
Multifamily residential
233,937
222,932
4.9
Owner occupied CRE
484,687
490,493
(1.2)
Non-owner occupied CRE
939,529
931,615
0.8
Construction and land
476
1,509
(68.5)
Total real estate
1,765,692
1,755,958
0.6
Consumer
534
391
36.6
PCD loans
20,716
22,450
(7.7)
Total Loans
1,966,345
1,952,747
0.7
Net deferred loan fees
323
149
116.0
Allowance for credit losses
(18,500)
(17,900)
3.4
Loans, net
$
1,948,168
$
1,934,996
0.7
%
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The following table shows as of March 31, 2025, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:
San Francisco Bay
Total in State of
Area (1)
Other California (2)
California
All Other States (3)
Total
% of
% of
% of
% of
% of
Total in
Total in
Total in
Total in
Total in
Amount
Category
Amount
Category
Amount
Category
Amount
Category
Amount
Category
(Dollars in thousands)
March 31, 2025
Commercial and industrial
$
29,514
7.7
%
$
70,370
8.8
%
$
99,884
8.4
%
$
79,519
10.2
%
$
179,403
9.1
%
Real estate:
Residential
9,895
2.6
41,508
5.2
51,403
4.3
55,868
7.2
107,271
5.5
Multifamily residential
43,236
11.2
119,722
14.9
162,958
13.7
73,206
9.4
236,164
12.0
Owner occupied CRE
157,105
40.7
275,720
34.3
432,825
36.4
59,987
7.7
492,812
25.1
Non-owner occupied CRE
145,970
37.8
295,899
36.8
441,869
37.2
507,815
65.3
949,684
48.3
Construction and land
—
—
48
—
48
—
429
0.1
477
—
Total real estate
356,206
732,897
1,089,103
697,305
1,786,408
Consumer
5
—
%
1
—
%
6
—
%
528
0.1
%
534
—
%
Total loans
$
385,725
$
803,268
$
1,188,993
$
777,352
$
1,966,345
December 31, 2024
Commercial and industrial
$
29,922
7.8
%
$
66,163
8.3
%
$
96,085
8.1
%
$
77,863
10.1
%
$
173,948
8.9
%
Real estate:
Residential
11,140
2.9
41,609
5.2
$
52,749
4.5
56,913
7.4
109,662
5.6
Multifamily residential
37,236
9.7
114,806
14.4
152,042
12.8
73,152
9.5
225,194
11.5
Owner occupied CRE
158,486
41.1
280,631
35.1
439,117
37.1
60,798
7.9
499,915
25.6
Non-owner occupied CRE
148,710
38.6
294,779
36.9
443,489
37.4
498,633
64.9
942,122
48.2
Construction and land
—
—
1,090
0.1
1,090
0.1
425
0.1
1,515
0.1
Total real estate
355,572
732,915
1,088,487
689,921
1,778,408
Consumer
5
—
%
1
—
%
6
—
%
385
0.1
%
391
—
%
Total loans
$
385,499
$
799,079
$
1,184,578
$
768,169
$
1,952,747
(1) Includes Alameda, Contra Costa, Solano, Sonoma, Marin, San Francisco, San Mateo and Santa Clara counties.
(2) Includes loans in Sacramento and Northern California counties totaling $89.8 million and loans in Los Angeles and Orange counties totaling $541.5 million at March 31, 2025. At December 31, 2024, loans in Sacramento and Northern California counties and loans in Los Angeles and Orange counties totaled $86.4 million and $537.1 million, respectively.
(3) Includes loans primarily in the states of Colorado, New Mexico and Washington. At March 31, 2025, loans in Colorado, New Mexico and Washington totaled $135.6 million, $63.8 million and $83.4 million, respectively. At December 31, 2024, loans in Colorado, New Mexico and Washington totaled $134.9 million, $84.6 million and $83.4 million, respectively.
Acquired loans. As of March 31, 2025, our total loan portfolio included $279.4 million, or 14.2%, of loans acquired through business combinations (all of which were recorded at their estimated fair values as of time of acquisition), of which $128.3 million had no remaining net premium or discount.
As of March 31, 2025, acquired non-PCD loans totaled $129.7 million, with a remaining net premium of $1.6 million, compared to $140.6 million with a remaining net premium of $1.8 million as of December 31, 2024. The net premium for acquired non-PCD loans includes a credit discount based on estimated losses in the acquired loans, partially offset by any premium based on market interest rates on the date of acquisition.
As of March 31, 2025, acquired PCD loans totaled $21.4 million, with a remaining net non-credit discount of $1.4 million, compared to $24.0 million with a remaining net non-credit discount of $1.5 million as of December 31, 2024.
Nonperforming assets and loans. Nonperforming assets generally consist of nonperforming loans and other real estate owned (“OREO”). Nonperforming loans generally consist of nonaccrual loans and accruing loans 90 days or more past due. Nonperforming assets increased $517,000 to $10.0 million, or 0.51% of total loans, at March 31, 2025 compared to $9.5 million, or 0.48% of total loans, at December 31, 2024. There was no OREO at March 31, 2025 and December 31, 2024.
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Nonperforming loans totaled $10.0 million, or 0.51% of total loans, at March 31, 2025, compared to $9.5 million, or 0.48% of total loans, at December 31, 2024. The increase in nonperforming loans was primarily due to two new loans totaling $713,000 being placed on nonaccrual during the current quarter, due to financial condition of the borrowers, partially offset by paydowns on nonaccrual loans.
At March 31, 2025, nonperforming loans totaling $618,000 were guaranteed by governmental agencies, compared to $2.0 million at December 31, 2024. At March 31, 2025 and December 31, 2024, there were no performing (accruing) modified loans to borrowers experiencing financial difficulty.
At March 31, 2025 and December 31, 2024, nonaccrual loans included $610,000 and $643,000 of loans 30-89 days past due, respectively, and $4.4 million of loans less than 30 days past due at both March 31, 2025 and December 31, 2024. At March 31, 2025, the $4.4 million of nonaccrual loans less than 30 days past due was comprised of 19 loans, all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
In general, loans are placed on nonaccrual status after being contractually delinquent for more than 90 days, or earlier, if management believes full collection of future principal and interest on a timely basis is unlikely. When a loan is placed on nonaccrual status, all interest accrued but not received is charged against interest income. When the ability to fully collect nonaccrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Interest received on such loans is recognized as interest income when received. A nonaccrual loan is restored to an accrual basis when principal and interest payments are brought current, and full payment of principal and interest is probable. Loans that are well secured and in the process of collection will remain on accrual status .
Loans may be acquired at a premium or discount to par value, in which case the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, over time, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off before maturity. Upon the pay-off of a loan before maturity, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income.
Modified loans to borrowers experiencing financial difficulty. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal is forgiven, the amount of the forgiveness is charged-off against the allowance for credit losses for loans. Upon the Company’s subsequent determination that a modified loan (or a portion thereof) is uncollectible, the loan (or portion thereof) is charged off. The amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses for loans is adjusted by the same amount.
Loan modifications to borrowers experiencing financial difficulty as of both March 31, 2025 and December 31, 2024, totaled $2.7 million. All such modified loans were on nonaccrual status as of each respective reporting date. Modified loans that are accruing and performing in accordance with their modified terms are not classified as nonperforming loans, as they continue to accrue interest and demonstrate satisfactory payment performance despite their modified terms. The related allowance for credit losses on individually evaluated modified loans totaled $22,000 and $24,000 at March 31, 2025 and December 31, 2024, respectively.
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The following table provides information regarding nonperforming loans, nonperforming assets and modified loans as of the dates indicated:
March 31,
December 31,
2025
2024
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial and industrial
$
438
$
293
Real estate:
Residential
1,084
1,103
Multifamily residential
72
77
Owner occupied CRE
4,856
4,284
Non-owner occupied CRE
3,382
3,486
Construction and land
—
—
Total real estate
9,394
8,950
Consumer
2
4
Total nonaccrual loans
9,834
9,247
Accruing loans 90 days or more past due
150
220
Total nonperforming loans
9,984
9,467
Real estate owned
—
—
Total nonperforming assets (1)
$
9,984
$
9,467
Modified loans to borrowers experiencing financial difficulty – performing
$
—
$
—
PCD loans
$
20,716
$
22,450
Nonperforming assets to total assets (1)
0.39
%
0.36
%
Nonperforming loans to total loans (1)
0.51
%
0.48
%
(1)
Performing modified loans to borrowers experiencing financial difficulty are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios.
Interest foregone on nonaccrual loans was approximately $269,000 and $483,000 for the three months ended March 31, 2025 and 2024. Interest income recognized on nonaccrual loans was approximately $35,000 and $7,200 for the three months ended March 31, 2025 and 2024.
Allowance for credit losses for loans. The allowance for credit losses is determined by us on a quarterly basis, although we are engaged in monitoring the appropriate level of the allowance on a more frequent basis. We assess the allowance for credit losses based on three categories: (i) originated loans, (ii) acquired non-PCD loans, and (iii) acquired PCD loans. The allowance for credit losses reflects management’s estimate of current expected credit losses inherent in the loan portfolios. The computation includes elements of judgment and high levels of subjectivity.
At March 31, 2025, the Company’s allowance for credit losses for loans was $18.5 million, or 0.94% of total loans, compared to $17.9 million, or 0.92% of total loans, at December 31, 2024. Management currently believes that the $18.5 million allowance for credit losses at March 31, 2025 is adequate to absorb expected credit losses inherent in the Company’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
We recorded net charge-offs of $102,000 and $3.4 million for the three months ended March 31, 2025 and 2024, respectively. The significantly lower level of net charge-offs in the current quarter reflects fewer non-accrual loan charge-offs, compared to the first quarter in 2024. In addition to changes in individually evaluated reserves, the allowance for credit losses on loans collectively evaluated (the pooled reserve) also changed during the period. The decrease in the pooled reserve during the first quarter of 2025 was primarily attributable to reduction in qualitative adjustments, reflecting stable credit trends and improvements in certain internal risk factors. This was partially offset by an increase in the quantitative reserve, driven by updates to forecasted macroeconomic conditions. Specifically, the Company incorporated a decline in projected national gross domestic product (“GDP”) and an increase in forecasted national unemployment, both
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of which are key economic indicators used in the estimation of expected credit losses under the current expected credit loss, or CECL model.
The following table presents certain credit ratios at the dates and for the periods indicated and each component of the ratio’s calculations:
Three months ended March 31,
2025
2024
(Dollars in thousands)
Allowance for credit losses on loans as a percentage of total loans outstanding at period end
0.94
%
1.00
%
Allowance for credit losses on loans
$
18,500
$
18,890
Total loans outstanding
1,966,668
1,886,730
Nonaccrual loans as a percentage of total loans outstanding at period end
0.50
%
0.87
%
Total nonaccrual loans
$
9,834
$
16,491
Total loans outstanding
1,966,668
1,886,730
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end
188.12
%
114.55
%
Allowance for credit losses on loans
$
18,500
$
18,890
Total nonaccrual loans
9,834
16,491
Net charge-offs during period to average loans outstanding:
Commercial and industrial:
0.05
%
0.10
%
Net charge-offs
$
98
$
165
Average loans outstanding
179,071
162,978
Construction and land:
—
%
—
%
Net charge-offs
$
—
$
—
Average loans outstanding
4,913
9,588
Commercial real estate:
—
%
—
%
Net charge-offs
$
—
$
3,206
Average loans outstanding
1,659,779
1,652,506
Residential:
—
%
—
%
Net charge-offs
$
—
$
—
Average loans outstanding
107,920
85,130
Consumer:
0.76
%
0.13
%
Net charge-offs
$
4
$
1
Average loans outstanding
523
769
Total loans:
0.01
%
0.18
%
Total net charge-offs
$
102
$
3,372
Total average loans outstanding
1,952,206
1,910,971
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As of March 31, 2025, the Company individually evaluated $18.0 million in loans, inclusive of the $9.8 million of nonperforming loans as of that date. Of these individually evaluated loans, $3.3 million had a specific allowance totaling $1.3 million as of March 31, 2025. As of December 31, 2024, the Company individually evaluated $17.4 million in loans, inclusive of the $9.2 million of nonperforming loans as of that date. Of these individually evaluated loans, $2.7 million had a specific allowance totaling $392,000 as of December 31, 2024.
Management considers the allowance for credit losses for loans at March 31, 2025 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for credit losses for loans or that any increased allowance for credit losses for loans that may be required will not adversely impact our financial condition and results of operations. A further decline in national and local economic conditions due to unemployment levels, labor shortages, the effects of inflation, a potential recession, slowed economic growth or otherwise, could result in a material increase in the allowance for credit losses for loans and may adversely affect the Company’s financial condition and results of operations. In addition, the determination of the amount of our allowance for credit losses for loans is subject to review by bank regulators, as part of their routine examination process, which may result in additions to our provision for credit losses based upon their judgment of information available to them at the time of their examination.
Deposits. Deposits are our primary source of funding and generally consist of core deposits from the communities served by our branch and office locations. We offer a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include interest bearing and noninterest bearing demand accounts, savings accounts, money market accounts, certificates of deposit and individual retirement accounts. These accounts earn interest at rates established by management based on competitive market factors, management’s desire to increase certain product types or maturities, and in keeping with our asset/liability, liquidity and profitability objectives. Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.
Total deposits decreased $105.2 million, or 4.7%, to $2.1 billion at March 31, 2025 compared to $2.2 billion at December 31, 2024. At March 31, 2025, noninterest bearing demand deposits totaled $589.5 million, or 27.7% of total deposits, compared to $689.0 million, or 30.8% of total deposits, at December 31, 2024, a decrease of $99.5 million . Additionally, demand deposits and time deposits decreased $99.5 million and $31.0 million, respectively, while higher-costing money market and lower-costing NOW accounts increased $27.2 million and $1.1 million, respectively, from December 31, 2024 to March 31, 2025. During the first quarter of 2025, the overall deposit mix shifted, in part, due to interest rate sensitive clients moving a portion of their non-operating deposit balances from lower costing deposits, including noninterest bearing deposits, into higher costing money market accounts and time deposits.
We consider our deposit base to be seasoned, stable and well-diversified, and we do not have any significant industry concentrations among our non-insured deposits. We also offer an insured cash sweep product (ICS) that allows customers to insure deposits above FDIC insurance limits. At March 31, 2025, our average deposit account size (excluding public funds), calculated by dividing period-end deposits by the population of accounts with balances, was approximately $60,000. See “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding our top ten depositors.
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The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.
March 31,
December 31,
2025
2024
% Change
(Dollars in thousands)
Demand deposits (1)
$
589,483
$
688,996
(14.4)
%
NOW accounts
262,512
261,430
0.4
Saving
79,339
82,300
(3.6)
Money market
672,103
644,880
4.2
Time deposits
525,393
556,403
(5.6)
Total
$
2,128,830
$
2,234,009
(4.7)
%
(1) Noninterest bearing.
Borrowings. Although deposits are our primary source of funds, we may from time to time utilize borrowings as a cost-effective source of funds when they can be invested at a positive interest rate spread, for additional capacity to fund loan demand, or to meet our asset/liability management goals. We are a member of and may obtain advances from the FHLB of San Francisco, which is part of the Federal Home Loan Bank System. The eleven regional Federal Home Loan Banks provide a central credit facility for their member institutions. These advances are provided upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.
At March 31, 2025 and December 31, 2024, we had the ability to borrow up to $535.0 million and $540.2 million, respectively, from the FHLB of San Francisco. At both March 31, 2025 and December 31, 2024, there were no FHLB advances outstanding.
The Bank has been approved for discount window advances from the FRB of San Francisco secured by certain types of loans. At March 31, 2025 and December 31, 2024, we had the ability to borrow up to $41.5 million and $41.9 million, respectively, from the FRB of San Francisco. At both March 31, 2025 and December 31, 2024, we had no FRB of San Francisco advances outstanding.
We may also utilize Fed Funds purchased from correspondent banks as a source of short-term funding. At both March 31, 2025 and December 31, 2024, we had a total of $65.0 million in federal funds lines available from third-party financial institutions and no balances outstanding at these dates.
At both March 31, 2025 and December 31, 2024, the Company had outstanding junior subordinated deferrable interest debentures, net of fair value adjustments, assumed in connection with its previous acquisitions totaling $8.7 million and $8.6 million, respectively.
At March 31, 2025, the Company had outstanding subordinated debt, net of costs to issue, totaling $63.8 million compared to $63.7 million at December 31, 2024 .
We are required to provide collateral for certain local agency deposits. At both March 31, 2025 and December 31, 2024, the FHLB of San Francisco had issued letters of credit on behalf of the Bank totaling $41.1 million, as collateral for local agency deposits.
Shareholders’ equity. Shareholders’ equity increased $5.0 million, to $329.3 million at March 31, 2025 from $324.4 million at December 31, 2024. The increase in shareholders’ equity primarily was due to $5.7 million of net income earned and a $2.1 million decrease in accumulated other comprehensive loss, net of taxes, partially offset by the repurchase of $1.3 million of Company common stock and cash dividends paid or accrued and payable totaling $1.7 million, during the first three months of 2025. During the three months ended March 31, 2025, the Company repurchased a total of 50,793 shares of its common stock at a total cost of $1.3 million and an average price of $25.82 per share, leaving 413,305 shares available for future purchases under the current stock repurchase plan. For additional information see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”
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Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024
Earnings summary. Net income was $5.7 million for the three months ended March 31, 2025, compared to $5.9 million for the three months ended March 31, 2024, a decrease of $175,000 or 3.0%. The decrease was the result of a $622,000 decrease in noninterest income and $390,000 increase in provision for credit losses, partially offset by a $473,000 increase in net interest income, $282,000 decrease in provision for income taxes and $82,000 decrease in noninterest expense. Basic and diluted earnings per share were $0.51 for both the three months ended March 31, 2025 and 2024.
Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income, was 65.74% and 65.68% for the three months ended March 31, 2025 and 2024, respectively. The deterioration in the efficiency ratio during the three months ended March 31, 2025 as compared to the same period in 2024 was primarily due to lower overall revenues, partially offset by lower noninterest expenses.
Interest income. Interest income for the three months ended March 31, 2025 was $32.6 million, compared to $31.7 million for the three months ended March 31, 2024, an increase of $902,000 or 2.8%. Increased yields earned on interest-earning assets, along with an increase in the average balances of investment securities and loans, were the primary drivers of the increase in interest income, partially offset by a decrease in the average balance of and yield on fed funds sold and interest bearing balances in banks.
Interest income on loans, including fees, increased $1.9 million, or 7.5%, to $27.1 million for the three months ended March 31, 2025 from $25.3 million for the three months ended March 31, 2024, due to a $41.9 million increase in the average balance of loans and a 32 basis point increase in the average loan yield. The average balance of loans was $2.0 billion for the first quarter of 2025, compared to $1.9 billion for first quarter of 2024. The average yield on loans was 5.64% for the three months ended March 31, 2025, compared to 5.32% for the first quarter of 2024. The increase in the average yield on loans during the current quarter, compared to the first quarter of 2024 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 for the three months ended March 31, 2025 and 2024 included $215,000 and $98,000 in accretion of the net discount on acquired loans and revenue from PCD loans in excess of discounts. The balance of the remaining net discounts on these acquired loans totaled $223,000 and $392,000 at March 31, 2025 and 2024, respectively. Interest income on loans for the three months ended March 31, 2025 and 2024, included $162,000 and $176,000, respectively, in fees related to prepayment penalties.
Interest income on investment securities increased $498,000, or 25.5%, to $2.5 million for the three months ended March 31, 2025, compared to $2.0 million for the three months ended March 31, 2024, as a result of increases in the average yield and average balance. The average yield on investment securities increased 49 basis points to 4.73% for the three months ended March 31, 2025, compared to 4.24% for the three months ended March 31, 2024. The increase in average yield was due to higher market interest rates on newly purchased securities and rate resets on variable rate investment securities. The average balance of investment securities totaled $210.2 million for the three months ended March 31, 2025, compared to $185.7 million for the three months ended March 31, 2024. In addition, during the first quarter of 2025, we received $393,000 in cash dividends on our FRB and FHLB stock, compared to $416,000 in the first quarter of 2024.
Interest income on federal funds sold and interest-bearing balances in banks decreased $1.5 million, or 35.6%, to $2.6 million for the three months ended March 31, 2025, compared to $4.1 million for the three months ended March 31, 2024, as a result of changes in the average yield and average balance. The average yield decreased 101 basis points to 4.79% for the three months ended March 31, 2025, compared to 5.48% for the three months ended March 31, 2024, reflecting a lowering of the Federal Reserve rates. The average balance of federal funds sold and interest-bearing balance in banks totaled $240.3 million and $302.1 million for the three months ended March 31, 2025 and 2024, respectively.
Interest expense. Interest expense increased $429,000, or 4.6%, to $9.8 million for the three months ended March 31, 2025, compared to $9.3 million for the three months ended March 31, 2024. The increase was primarily driven by higher average balances of money market accounts and time deposits, as well as an increase in rates paid on money market accounts, partially offset by a lower rate on time deposits. The average cost of interest-bearing liabilities for the first quarter
45
Table of Contents
of 2025 was 2.49%, compared to 2.40% for the first quarter of 2024. Total average interest-bearing liabilities increased $29.2 million, or 1.87%, to $1.6 billion for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.
Interest expense on deposits increased $456,000, or 5.5%, to $8.7 million for the three months ended March 31, 2025, compared to $8.2 million for the same period in 2024. The increase was primarily driven by higher rates paid on money market accounts and, to a lesser extent, by increases in the average balances of both money market accounts and time deposits. These increases were partially offset by a decline in rates paid on time deposits. The average rate paid on money market accounts rose by 11 basis points during the first quarter of 2025 compared to the same period in 2024, while the average rate on time deposits declined by 12 basis points over the same period. The average balance of money market accounts increased $33.3 million, or 5.4%, to $654.8 million, compared to $621.5 million for the three months ended March 31, 2024. The average balance of time deposits increased $33.6 million, or 6.9%, to $522.4 million during the first quarter of 2025, compared to $488.7 million for the same period in the prior year.
The average rate paid on all interest-bearing deposits increased by 10 basis points to 2.32% for the three months ended March 31, 2025, compared to 2.22% for the three months ended March 31, 2024. The average balance of interest-bearing deposits totaled $1.5 billion for both the three months ended March 31, 2025 and 2024, though there were shifts in the deposit mix, with average balances for money market and time deposits increasing and those for savings and NOW accounts decreasing. Additionally, t he average balance of noninterest-bearing deposits decreased $36.0 million, or 5.6%, to $603.7 million for the three months ended March 31, 2025, compared to $639.7 million for the three months ended March 31, 3024. These shifts were due to customers seeking to place excess funds in higher yielding deposit accounts. The overall average cost of deposits for the three months ended March 31, 2025 and 2024 was 1.66% and 1.55%, respectively.
Interest expense on borrowings decreased $27,000, or 2.40%, to $1.1 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The average cost of total borrowings increased to 6.07% for the three months ended March 31, 2025, compared to 6.18% for the three months ended March 31, 2024. The average balance of borrowings increased $118,000 to $72.4 million during the three months ended March 31, 2025, compared to the three months ended March 31, 2024.
Net interest income and net interest margin. Net interest income increased $473,000, or 2.1%, to $22.9 million for the three months ended March 31, 2025, compared to $22.4 million for the three months ended March 31, 2024. The increase was primarily driven by higher in interest income on loans and investment securities, partially offset by a decrease in interest income on fed funds sold and interest-bearing balances in banks, as well as higher interest expense on deposits.
The average annualized yield on interest-earning assets was 5.46% for the three months ended March 31, 2025, representing an 18 basis point increase from 5.28% for the three months ended March 31, 2024. This increase was primarily attributable to the repricing of adjustable-rate loans and securities to higher market rates and the origination of new loans at higher yields. The average cost of interest-bearing liabilities increased to 2.49%, up 9 basis points from 2.40% in the prior-year period.
As a result, the annualized net interest margin improved to 3.83% for the three months ended March 31, 2025, compared to 3.72% for the same period in 2024. The expansion in net interest margin was primarily due to the increase in yields on interest-earning assets, which outpaced the rise in the cost of interest-bearing liabilities.
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Table of Contents
Average Balances, Interest and Average Yields/Cost. The following tables present, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average costs; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Nonaccrual loans have been included in the table as loans carrying a zero yield. Yields have been calculated on a pre-tax basis. Loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.
Three months ended March 31,
2025
2024
Annualized
Annualized
Average
Average
Average
Average
Balance(4)
Interest
Yield/Cost
Balance(4)
Interest
Yield/Cost
(Dollars in thousands)
Interest earning assets
Fed Funds sold and interest bearing balances in banks
$
240,324
$
2,649
4.47
%
$
302,120
$
4,115
5.48
%
Investments securities
210,242
2,454
4.73
%
185,704
1,956
4.24
%
FHLB Stock
11,313
249
8.92
%
11,313
272
9.68
%
FRB Stock
9,650
145
6.07
%
9,633
144
6.01
%
Total loans (1)
1,952,897
27,149
5.64
%
1,910,971
25,257
5.32
%
Total interest earning assets
2,424,426
32,646
5.46
%
2,419,741
31,744
5.28
%
Noninterest earning assets
134,518
131,293
Total average assets
$
2,558,944
$
2,551,034
Interest bearing liabilities
Savings
$
80,734
25
0.13
%
$
97,519
31
0.13
%
NOW accounts
262,926
59
0.09
%
284,005
64
0.09
%
Money market
654,829
3,735
2.31
%
621,509
3,397
2.20
%
Time deposits
522,374
4,864
3.78
%
488,745
4,735
3.90
%
Total interest bearing deposit accounts
1,520,863
8,683
2.32
%
1,491,778
8,227
2.22
%
Subordinated debt, net
63,752
891
5.67
%
63,715
893
5.64
%
Junior subordinated debentures, net
8,653
192
9.01
%
8,572
217
10.20
%
Other borrowings
—
—
—
—
—
—
Total interest bearing liabilities
1,593,268
9,766
2.49
%
1,564,065
9,337
2.40
%
Noninterest bearing deposits
603,703
639,737
Other noninterest bearing liabilities
32,387
31,222
Noninterest bearing liabilities
636,090
670,959
Total average liabilities
2,229,358
2,235,024
Average equity
329,586
316,010
Total average liabilities and equity
$
2,558,944
$
2,551,034
Net interest income
$
22,880
$
22,407
Interest rate spread (2)
2.97
%
2.88
%
Net interest margin (3)
3.83
%
3.72
%
Ratio of average interest earning assets to average interest bearing liabilities
152.17
%
154.71
%
(1) Loan average balances are net of deferred origination fees and costs. Non-accrual loans are included in the average balances. Interest income on non-accruing loans is reflected in the period that it is collected, to the extent it is not applied to principal.
(2) Interest rate spread is calculated as the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.
(3) Net interest margin is calculated as net interest income divided by total average interest earning assets.
(4) Average balances are computed using average daily balances.
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Table of Contents
Rate/Volume Analysis. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume.
Three months ended March 31,
2025 compared to Three months ended March 31, 2024
Increase/(Decrease)
Attributable to
Rate
Volume
Total
(Dollars in thousands)
Interest earning assets
Fed funds sold and interest bearing balances in banks
$
(631)
$
(835)
$
(1,466)
Investments securities
242
256
498
FHLB stock and FRB stock
(22)
—
(22)
Total loans
1,342
550
1,892
Total interest income
931
(29)
902
Interest bearing liabilities
Savings
(1)
(5)
(6)
NOW accounts
—
(5)
(5)
Money market accounts
157
181
338
Time deposits
(194)
323
129
Total deposit accounts
(38)
494
456
Subordinated debt, net
(2)
—
(2)
Junior subordinated debentures, net
(27)
2
(25)
Other borrowings
—
—
—
Total interest expense
(67)
496
429
Net interest income
$
998
$
(525)
$
473
Provision for credit losses. We recorded a provision for credit losses of $642,000 for the three months ended March 31, 2025, compared to a $252,000 provision for credit losses for the three months ended March 31, 2024. The provision for credit losses during the three months ended March 31, 2025 was primarily driven by loan growth, charge-offs during the quarter, and an increase in specific reserves on individually evaluated loans. Net charge-offs totaled $102,000 during the first quarter of 2025, compared to net charge-offs of $3.4 million in the first quarter of 2024. The significantly lower level of net charge-offs in the current quarter reflects fewer non-accrual loan charge-offs as compared to the comparable quarter in 2024. In addition to changes in individually evaluated reserves, the pooled reserve also changed during the period. The decrease in the pooled reserve during the first quarter of 2025 was primarily attributable to a reduction in qualitative adjustments, reflecting stable credit trends and improvements in certain internal risk factors. This was partially offset by an increase in the quantitative reserve, driven by updates to forecasted macroeconomic conditions. Specifically, the Company incorporated a decline in projected national GDP and an increase in forecasted national unemployment.
During the first quarter of 2025, the decrease in the pooled reserved was attributable to decrease in qualitative reserve, partially offset by increase in quantitative reserve as a result of the impact of forecasted economic conditions for national gross domestic product decreasing and increasing forecasted national unemployment, both of which are key indicators utilized to estimate credit losses.
Noninterest income. Noninterest income decreased $622,000, or 30.2%, to $1.4 million for the first quarter of 2025, compared to $2.1 million for the first quarter of 2024. The decrease was primarily due to a $255,000 loss on equity securities recognized in the first quarter of 2025, compared to a $573,000 gain on equity securities in the prior-year period, as well as a $79,000 increase in loss on investment in SBIC fund. These decreases were partially offset by a $198,000 increase in gain on sale of loans, primarily due to an increase in the volume of loans sold, and a $106,000 increase in service charges and other fees. The increase in service charges and other fees was primarily due to higher customer deposits
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Table of Contents
placed in Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) money market product services via the IntraFi Network.
The following table presents the key components of noninterest income for the periods indicated:
Three months ended March 31,
2025
2024
$ Change
% Change
(Dollars in thousands)
Gain on sale of loans
$
198
$
—
$
198
100.0
%
(Loss) gain on equity securities
(255)
573
(828)
144.5
%
Service charges and other fees
945
839
106
12.6
%
Loan servicing and other loan fees
389
392
(3)
(0.8)
%
Loss on investment in SBIC fund
(109)
(30)
(79)
263.3
%
Other income and fees
272
288
(16)
(5.6)
%
Total noninterest income
$
1,440
$
2,062
$
(622)
(30.2)
%
Noninterest expense. Noninterest expense decreased $82,000, or 0.5%, to $16.0 million for the three months ended March 31, 2025, compared to $16.1 million for the three months ended March 31, 2024. The decrease was primarily due to a $101,000 decrease in salaries and employees benefits due to a lower overall headcount, partially offset by higher wages due to market-based salary adjustments and annual merit increases, and a $63,000 decrease in other expense due to reduction in legal and other professional costs. These decreases were partially offset by a $100,000 increase in data processing expense due to implementation of new banking and fraud prevention services aimed at enhancing the customer experience and strengthening operational security.
The following table details the components of noninterest expense for the periods indicated:
Three months ended March 31,
2025
2024
$ Change
% Change
(Dollars in thousands)
Salaries and employee benefits
$
9,935
$
10,036
$
(101)
(1.0)
%
Occupancy and equipment
2,136
2,154
(18)
(0.8)
%
Data processing
1,853
1,753
100
5.7
%
Other
2,065
2,128
(63)
(3.0)
%
Total noninterest expense
$
15,989
$
16,071
$
(82)
(0.5)
%
Income taxes. The provision for income taxes decreased $282,000, or 12.4%, to $2.0 million for the three months ended March 31, 2025, compared to $2.3 million for the three months ended March 31, 2024, due to lower taxable income.
The Company’s effective tax rate was 25.8% and 27.9% for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate was lower for the three months ended March 31, 2025, compared to the same period in 2024, due to higher low income housing tax credits .
Liquidity and Capital Resources
Planning for our normal business liquidity needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term basis, it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management software model projections.
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run off that may occur in the normal course of business. We rely on multiple sources to meet our potential liquidity needs. Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sales of loans. During the three months ended March 31, 2025, the Bank sold $2.8 million in loan participation interests and received $65.4 million in principal loan repayments. While maturities and scheduled amortizations of loans are generally predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.
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Deposits decreased $105.2 million to $2.1 billion and liquid assets, in the form of cash and cash equivalents, time deposit in banks and investment securities, decreased $108.7 million to $448.9 million at March 31, 2025 from December 31, 2024. Management believes that our securities portfolio is of high quality and that the securities would therefore be marketable. No securities were purchased during the three months ended March 31, 2025, while securities repayments, maturities and sales during that period were $3.8 mil lion. Certificates of deposit scheduled to mature in one year or less at March 31, 2025, totaled $442.2 million. It is management’s policy to maintain deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that most of our maturing certificates of deposit will remain with us.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of March 31, 2025, the Bank had an available borrowing capacity of $535.0 million with the FHLB of San Francisco, with no borrowings outstanding at that date or at December 31, 2024. At March 31, 2025, we had the ability to borrow up to $41.5 million from the FRB of San Francisco, with no borrowings outstanding at that date. The Bank also had, as of that date, federal funds lines with four correspondent banks, with available commitments totaling $65.0 million. There were no amounts outstanding under these facilities at March 31, 2025 and December 31, 2024. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.
Liquidity management is both a daily and long-term function of the Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and U.S. agency securities. We use our sources of funds primarily to meet our ongoing commitments, to pay maturing deposits and fund withdrawals, and to fund loan commitments. At March 31, 2025, loan commitments and letters of credit totaled $67.3 million, including $9.6 million of undisbursed construction and development loan commitments. For information regarding our commitments, see “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in “Item 1. Financial Information” of Part I of this report.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities for the three months ended March 31, 2025 and 2024 was $9.6 million and $5.1 million, respectively. During the three months ended March 31, 2025, net cash used in investing activities was $8.6 million, which consisted primarily of purchases of loans, partially offset by a proceeds from maturities, repayments and calls of investment securities AFS, compared to $31.0 million of net cash provided by investing activities for the three months ended March 31, 2024. Net cash used in financing activities for the three months ended March 31, 2025 was $108.5 million, which was comprised primarily of decrease in noninterest and interest bearing deposits in banks, net, compared to $4.7 million of net cash provided by financing activities during the three months ended March 31, 2024. Management believes our capital sources are adequate to meet all reasonably foreseeable short-term and long-term cash requirements. There has not been a material change in our liquidity and capital resources since the information disclosed in our 2024 Annual Report other than set forth above. We are not aware of any reasonably likely material changes in the mix and relative cost of such resources.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity. At March 31, 2025, BayCom Corp had liquid assets of $19.9 million. In addition to its operating expenses, BayCom Corp is responsible for paying to its shareholders any dividends that have been declared, funding stock repurchases, and making payments on its junior subordinated debentures and subordinated notes. BayCom Corp can receive dividends and other capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends and make other capital distributions.
On February 20, 2025, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.15 per share on the Company’s outstanding common stock, which was paid on April 10, 2025 to shareholders of record as of the close of business on March 13, 2025. The Company expects to continue to pay quarterly cash dividends on its common stock, subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment of the cash dividend at this rate of $0.15 per share, our average total dividend paid each quarter would be approximately $1.7 million based on the number of our outstanding shares at March 31, 2025. The dividends we pay may be limited as more fully discussed under “Business – Supervision and
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Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I. Item 1. Business” of the 2024 Annual Report.
From time to time, our Board of Directors has authorized stock repurchase programs. In general, stock repurchases allow us to proactively manage our capital position and return excess capital to shareholders. Stock repurchases also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. In May 2024, our Board of Directors announced a new stock repurchase program, to commence following completion of the then-existing stock repurchase program (which was completed during the quarter ended June 30, 2024), for the repurchase of up to 560,000 shares, or approximately 5.0% of the Company’s outstanding common stock, over a one- year period. Purchases under the Company’s stock repurchase programs may be made through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. The repurchase programs may be suspended, terminated, or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The Company’s stock repurchase programs do not obligate the Company to purchase any particular number of shares. As of March 31, 2025, there remained 413,305 shares available for repurchase under the Company’s current stock repurchase program. For additional information on the Company’s stock repurchases, see “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” contained in Part II of this report.
Regulatory Capital
The Bank, as a state-chartered, federally insured commercial bank and member of the Board of Governors of the Federal Reserve System, is subject to capital requirements established by the Federal Reserve. The Federal Reserve requires the Bank to maintain levels of capital adequacy that generally parallel the FDIC requirements. The capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital. The FDIC requires the Bank to maintain minimum ratios of Total Capital, Tier 1 Capital, and Common Equity Tier 1 Capital to risk-weighted assets as well as Tier 1 Leverage Capital to average assets. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations. Based on capital levels at March 31, 2025 and December 31, 2024, the Bank was considered Well Capitalized at both of those dates.
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The table below shows the capital ratios under the Basel III capital framework as of the dates indicated:
At March 31, 2025
At December 31, 2024
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Leverage Ratio
BayCom Corp
$
297,879
12.16
%
$
289,525
11.76
%
Minimum requirement for “Well Capitalized”
122,530
5.00
%
123,063
5.00
%
Minimum regulatory requirement
98,024
4.00
%
98,451
4.00
%
United Business Bank
349,640
13.92
%
333,965
13.23
%
Minimum requirement for “Well Capitalized”
125,591
5.00
%
126,213
5.00
%
Minimum regulatory requirement
100,473
4.00
%
100,970
4.00
%
Common Equity Tier 1 Ratio
BayCom Corp
297,879
14.59
%
289,525
14.41
%
Minimum requirement for “Well Capitalized”
132,722
6.50
%
130,584
6.50
%
Minimum regulatory requirement
91,884
4.50
%
90,404
4.50
%
United Business Bank
349,640
17.23
%
333,965
16.81
%
Minimum requirement for “Well Capitalized”
131,866
6.50
%
129,125
6.50
%
Minimum regulatory requirement
91,292
4.50
%
89,394
4.50
%
Tier 1 Risk-Based Capital Ratio
BayCom Corp
307,364
15.05
%
299,010
14.88
%
Minimum requirement for “Well Capitalized”
163,350
8.00
%
160,719
8.00
%
Minimum regulatory requirement
122,512
6.00
%
120,539
6.00
%
United Business Bank
349,640
17.23
%
333,965
16.81
%
Minimum requirement for “Well Capitalized”
162,297
8.00
%
158,923
8.00
%
Minimum regulatory requirement
121,723
6.00
%
119,192
6.00
%
Total Risk-Based Capital Ratio
BayCom Corp
391,089
19.15
%
382,595
19.04
%
Minimum requirement for “Well Capitalized”
204,187
10.00
%
200,899
10.00
%
Minimum regulatory requirement
163,350
8.00
%
160,719
8.00
%
United Business Bank
368,680
18.17
%
352,865
17.76
%
Minimum requirement for “Well Capitalized”
202,871
10.00
%
198,654
10.00
%
Minimum regulatory requirement
162,297
8.00
%
158,923
8.00
%
In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. At March 31, 2025, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank-only basis and the Federal Reserve expects the holding company’s subsidiary bank(s) to be Well Capitalized under the prompt corrective action regulations. If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2025, the Company would have exceeded all regulatory capital requirements.
For additional information, see “Item 1. Business — Supervision and Regulation — United Business Bank — Capital Requirements” and “Note 19 - Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8. Financial Statements and Supplementary Data” in the 2024 Annual Report.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.