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BayCom is a bank holding company headquartered in Walnut Creek, California.
−Removed: The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 34 full-service branches, with 16 locations in California, two in Washington, five in New Mexico and 11 in Colorado.
+Added: The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 33 full-service branches at December 31, 2021, with 15 locations in California, two in Washington, five in New Mexico and 11 in Colorado.
Our principal objective is to continue to increase shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth.
−Removed: Since 2010, we have expanded our geographic footprint through nine strategic acquisitions.
+Added: Since 2010, we have expanded our geographic footprint through ten strategic acquisitions, which includes our most recent acquisition of PEB which closed in February 2022.
We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency.
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The significant 150 basis point reduction in the targeted federal funds rate during the quarter ended March 31, 2020, resulted in a larger impact to our interest earning assets than to our interest bearing liabilities, thereby decreasing our net interest margin to 3.34% for the year ended December 31, 2021, as compared to 3.84% for the year ended December 31, 2020.
−Removed: In addition, our net interest margin was adversely impacted by the low loan yields from the PPP loan portfolio.
−Removed: The continuing low interest rate environment is expected to continue to put downward pressure on loan yields and the yields on other floating rate interest earning assets as well.
−Removed: Further, because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, until the pandemic subsides the Company expects its net interest income and net interest margin will be adversely affected in 2021 and possibly longer.
+Added: The decrease in net interest margin during 2021 primarily reflects lower yields on average interest earning assets, partially offset by decreases in the average cost of interest bearing liabilities.
+Added: The lower yields on average interest earning assets compared to a year earlier was largely due to the impact of the continuing low targeted Fed Funds Rate resulting in lower yields on new loan originations and further declines on floating rate loan yields as well as excess liquidity being invested in low yielding short term investments and interest bearing deposits.
+Added: yields in 2021 were, however, impacted favorably as a result of recognition of unamortized deferred fee income on PPP loans forgiven and repaid by the SBA.
+Added: If market interest rates remain near historic lows, the Company expects continued downward pressure on loan yields.
+Added: Further, because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures put in place to address its economic consequences are unknown, until the pandemic subsides, the Company’s net interest income and net interest margin may be adversely affected in 2022 and possibly longer.
The provision for loan losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions.
−Removed: Our earnings for 2020 reflect the impact of the COVID-19 pandemic resulting in a reduction in business activity or the closing of businesses in all the states the Company operates resulting in a significant increase to our provision for loan losses.
+Added: We recorded a $466,000 provision for loan losses in the year ended December 31, 2021, primarily reflecting a decrease in the probable loan losses due to an improvement in the forecasted economic indicators used to calculate the allowance for loan losses since December 31, 2020 and new loan production, compared to a $10.3 million provision for loan losses recorded in 2020.
Our net income is also affected by noninterest income and noninterest expenses.
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and (iii) other noninterest income.
+Added: Our noninterest income increased $2.5 million during the year ended December 31, 2021, as compared to 2020, primarily attributable to a $3.0 million increase in gain on sale of loans.
Noninterest expense includes, among other things:
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and (vii) other general and administrative expenses.
+Added: Our noninterest expenses decreased $3.4 million during the year ended December 31, 2021, as compared to 2020.
+Added: The decrease was primarily attributable to a $2.7 million decrease in data processing expense related to reversing over accrued merger data processing expense related to our GMB acquisition as actual expenses were lower than original estimates.
Noninterest income and noninterest expenses are impacted by the growth of our banking operations and growth in the number of loan and deposit accounts both organically and through strategic acquisitions.
26 unchanged sentences
In acquiring United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community.
−Removed: As of December 31, 2020, our top ten depositors, which included one labor union and accounted for roughly 9.3% of our deposits.
+Added: As of December 31, 2021, our top ten depositors, which included six labor unions accounted for roughly 5.9% of our total deposits.
At that date, nearly 35.8% of our deposit base was comprised of noninterest bearing demand deposit accounts, significantly lowering our aggregate cost of funds.
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We believe we have built a scalable platform that will support our recent growth as well as efficiently and effectively manage our anticipated growth in the future, both organically and through acquisitions.
−Removed: In July 2020, we implemented a new core processing system that will strengthen our control environment, improve the efficiency of our financial systems and enhance our capabilities with regards to future acquisitions.
+Added: In July 2020, we implemented a new core processing system that strengthened our control environment, improved the efficiency of our financial systems and enhanced our capabilities with regards to future acquisitions.
● Preserve Our Asset Quality Through Disciplined Lending Practices.
64 unchanged sentences
BayCom’s Response to COVID-19
−Removed: In response to the current global situation surrounding the COVID-19 pandemic, the Company is offering a variety of relief options designed to support our clients and the communities we serve.
−Removed: Paycheck Protection Program ("PPP") Participation .
−Removed: In response to the COVID-19 pandemic, the Bank is committed to providing assistance to its customers.
−Removed: Under the CARES Act, as a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020.
−Removed: The PPP program initially concluded on August 8, 2020.
−Removed: Through the conclusion of the first round of the PPP program on August 8, 2020, the Company had accepted 1,359 applications for PPP loans, for a total of $140.2 million, including applications from new and existing clients who are small to midsize businesses as well as independent contractors, sole proprietors and partnerships as allowed under the PPP guidance issued in April 2020.
−Removed: At December 31, 2020, the Company had 1,330 PPP loans totaling $136.5 million.
−Removed: The CAA, 2021 renewed and extended the PPP until March 31, 2021 by authorizing an additional $284.5 billion for the program.
−Removed: As a result, in January 2021, the Bank began accepting and processing loan applications under this second PPP program.
−Removed: The SBA has recently released a simplified forgiveness process for PPP loans of $150,000 or less.
−Removed: At December 31, 2020, the Bank held 1,179 of PPP loans of $150,000 or less with a combined balance of $46.5 million.
−Removed: We will also continue working with our customers to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate.
−Removed: Allowance for Loan Losses and Loan Modifications .
−Removed: At December 31, 2020, the Company’s allowance for loan losses was $17.5 million, or 1.06% of total loans, compared to $7.4 million, or 0.51% of loans outstanding, at December 31, 2019.
−Removed: The provision for loan losses totaled $10.3 million for the year ended December 31, 2020, compared to $2.2 million for the year ended December 31, 2019.
−Removed: The increase in the allowance for loan losses is primarily the result of the economic deterioration and impacts resulting from the COVID-19 pandemic.
−Removed: We are continuing to offer payment and financial relief programs for borrowers impacted by COVID-19.
−Removed: According to the CARES Act and related banking agency guidance, and as extended by the CAA, 2021 banks are not required to designate as TDRs the modification of loans as a result of the COVID-19 pandemic, made on a good faith basis to borrowers who were current, as defined under the CARES Act prior to any relief.
−Removed: This includes short-term (e.g.
−Removed: less than six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.
−Removed: Borrowers are considered current under the CARES Act and related banking agency guidance if they are not more than 30 days past due on their contractual payments as of December 31, 2019, or prior to any relief, respectively, and have experienced financial difficulty as a result of COVID-19.
−Removed: On December 27, 2020, the CAA, 2021 was signed into law.
−Removed: Among other purposes, this act provides additional coronavirus emergency response and relief, including extending relief offered under the CARES Act related to TDRs as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.
−Removed: The Company has made available the following short-term relief option to all borrowers affected by COVID-19:
−Removed: ● Interest only payments on term debt for up to 180 days;
−Removed: ● Full payment deferrals for up to 180 days upon request with an extension for another 180 days upon submission of specified documentation and recovery plans;
−Removed: ● Loan re-amortization, especially in cases where significant prepayments of principal have occurred and to provide for continuing payment reduction at the end of the 180-day deferment period;
−Removed: ● Covenant waivers and resets.
−Removed: For the year 2020, we provided cumulative payment relief to borrowers related to COVID-19 for 450 loans totaling $423.2 million, of which 407 loans totaling $356.5 million or 84.2% have resumed their normal loan payments.
−Removed: Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.
−Removed: As of December 31, 2020, the remaining 43 loans totaling $66.7 million have entered into additional payment forbearance agreements and we had no new pending requests for payment relief.
−Removed: All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.
−Removed: Loan modifications in accordance with the CARES Act and related banking agency guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.
−Removed: The following table shows COVID-19 modifications by loan type with additional forbearance agreements for loans which have not returned to normal scheduled payments as of December 31, 2020.
−Removed: Number of loans
−Removed: Balance as of
−Removed: Total Loan Type
−Removed: under Payment Relief
−Removed: As of December 31, 2020
−Removed: As of December 31, 2020
−Removed: Loan type with outstanding balances
−Removed: (Dollars in thousands)
−Removed: Construction and land
−Removed: Investor residential
−Removed: Branch Operations and Additional Client Support .
−Removed: We have taken various steps to ensure the safety of our clients and our personnel.
−Removed: Many of our employees are working remotely or have flexible work schedules, and we have established protective measures within our offices to help ensure the safety of those employees who must work on-site.
−Removed: The Families First Coronavirus Response Act, which requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19, also provides additional flexibility to our employees to help navigate their individual challenges.
−Removed: The COVID-19 pandemic has caused varying degrees of disruption to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and community needs.
−Removed: To ensure the safety of our clients and employees, services are offered through drive up facilities, ATMs, online banking, our call center operations and/or by appointment.
−Removed: We have installed counter shields and hand sanitizing stations, limited the number of clients in a branch at any one time, required social distancing and the wearing of masks within branches, diligent disinfecting of common area high touchpoints, such as tables, doorknobs, light switches, countertops, and the like, and encouraged the use of our digital and electronic banking channels.
−Removed: We continuously monitor and conform our practices based on updates from the Center for Disease Control, World Health Organization, Financial Regulatory Agencies, and local and state health departments.
−Removed: Overdraft and fee reversals are waived on a case-by-case basis.
−Removed: We are cautious when paying overdrafts beyond the client's total deposit relationship, overdraft protection options or their overdraft coverage limits.
+Added: The Company maintains its commitment to supporting its community and clients during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its clients.
+Added: As of December 31, 2021, all Bank branches were open with normal hours and substantially all employees had returned to their normal working environments.
+Added: The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.
Comparison of Financial Condition at December 31, 2021 and 2020
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Total assets increased $155.0 million, or 7.1%, to $2.4 billion at December 31, 2021 from $2.2 billion at December 31, 2020.
−Removed: The increase was primarily due to a $175.6 million, or 12.1%, increase in total loans receivable, net.
−Removed: This increase was driven by the completion of our acquisition of GMB during the first quarter of 2020, and new loan originations, primarily PPP loans.
+Added: The increase was primarily due to an $80.4 million, or 26.8%, increase in cash and cash equivalents, a $58.8 million, or 50.9%, increase in total investment available for sale securities and a $21.4 million, or 1.3%, increase in loans, net of allowance for loan losses.
+Added: These increases in total assets were primarily funded by deposit growth.
Cash and cash equivalents.
Cash and cash equivalents increased $80.4 million, or 26.8%, to $379.7 million at December 31, 2021 from $299.3 million at December 31, 2020.
+Added: The increase was primarily a result of loan repayments and an increase in total deposits, which exceeded the funds required for loan originations and used for purchases of investment securities.
We intend to invest our excess cash in loans and marketable securities until such funds are needed to support acquisitions or other growth oriented operating or strategic initiatives.
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It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complements our lending activities.
−Removed: The policy dictates the criteria for classifying securities as either available for sale or held to maturity.
+Added: The policy dictates the criteria for
+Added: classifying securities as either available for sale or held to maturity.
The policy permits investment in various types of liquid assets permissible under applicable regulations, which include U.S.
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Investment in non-investment grade bonds and stripped mortgage-backed securities is not permitted under the policy.
−Removed: Investment securities, all of which are classified as available-for-sale, decreased $4.3 million, or 3.6%, to $115.6 million at December 31, 2020 from $119.9 million at December 31, 2019.
−Removed: The decrease was primarily due to the routine amortization and repayment of investment principal balances, partially offset by $4.4 million of securities acquired in the GMB acquisition.
−Removed: The following table sets forth the amortized cost and fair value of available-for-sale securities by type as of the dates indicated.
−Removed: At December 31, 2020, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies or United States Government Sponsored Enterprises.
−Removed: At December 31,
−Removed: (Dollars in thousands)
−Removed: Government Agencies
−Removed: Municipal securities
−Removed: Mortgage-backed securities
−Removed: Collateralized mortgage obligations
−Removed: SBA securities
−Removed: Corporate bonds
+Added: Investment securities, all of which are classified as available-for-sale, increased $58.8 million, or 50.9%, to $174.4 million at December 31, 2021 from $115.6 million at December 31, 2020.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of December 31, 2021.
Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
−Removed: Yields are calculated on a pre-tax basis.
+Added: 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.
+Added: Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
Amount Due or Repricing Within:
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(Dollars in thousands)
+Added: Preferred equity securities
Government Agencies
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Corporate bonds
+Added: See “Note 3 – Investment Securities” in the Notes to Consolidated Financial Statements contained in “Part II.
+Added: Financial Statements and Supplementary Data” of this report on Form 10-K for additional information on our investment securities.
We originate a wide variety of loans with a focus on commercial real estate loans and commercial and industrial loans.
Loans receivable, net of allowance for loan losses, increased $21.4 million, or 1.3%, to $1.7 billion at December 31, 2021, from $1.6 billion at December 31, 2020.
−Removed: The increase was primarily driven by $135.6 million of PPP loans and $98.4 million of loans acquired in the GMB acquisition.
−Removed: Loan originations for 2020 totaled $331.6 million, compared to $249.8 million for 2019.
−Removed: Loan originations in 2020 were concentrated in California markets, primarily Los Angeles, San Francisco Bay Area and Sacramento/Northern California with commercial and multifamily real estate secured loans accounting for the majority of the originations.
+Added: The increase was primarily due to loan originations totaling $532.7 million including $98.7 million in PPP loans partially offset by loan repayments totaling $467.5 million, including $164.8 million in PPP loan forgiveness repayments from the SBA.
We also sold $45.8 million of the guaranteed portion of SBA loans during 2021.
+Added: Loan originations in 2021 were concentrated in California markets, primarily Los Angeles, San Francisco Bay Area and Sacramento/Northern California with commercial and multifamily real estate secured loans accounting for the majority of the originations.
The following table provides information about our loan portfolio by type of loan, with PCI loans presented as a separate balance, at the dates presented.
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Allowance for loan losses
−Removed: (1) Includes $135.6 million of PPP loans as of December 31, 2020 .
+Added: (1) Includes $69.6 million and $135.6 million of PPP loans as of December 31, 2021 and 2020, respectively .
The following table shows at December 31, 2021, the geographic distribution of our loan portfolio in dollar amounts and percentages.
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Total real estate
−Removed: (1) Includes Alameda, Contra Costa, Solano, Napa, Sonoma, Marin, San Francisco, San Joaquin, San Mateo and Santa Clara counties.
+Added: (1) Includes Alameda, Contra Costa, Solano, Sonoma, Marin, San Francisco, San Joaquin, San Mateo and Santa Clara counties.
(2) Includes loans located in the states of Colorado, New Mexico, Washington and other states.
At December 31, 2021, loans in Colorado, New Mexico and Washington totaled $123.2 million, $69.5 million and $86.6 million, respectively.
−Removed: The following table provides information about our loan portfolio segregated by legacy and acquired loans at the dates presented.
+Added: The following table provides information about our loan portfolio segregated by legacy and acquired loans, net of their discounts at the dates presented.
As of December 31,
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The schedule does not reflect the effects of possible prepayments or enforcement of due on sale clauses.
+Added: After Fifteen
(Dollars in thousands)
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Consumer and other
−Removed: Deferred loan fees and costs, net
−Removed: Allowance for loan losses
−Removed: The following table sets forth the amounts of loans by floating/adjustable or fixed rate maturing after December 31, 2020.
+Added: The following table sets forth the amounts of loans due after December 31, 2022 with fixed or adjustable rates:
(Dollars in thousands)
Commercial and industrial
−Removed: Multifamily residential
−Removed: Owner-occupied CRE
−Removed: Non-owner occupied CRE
+Added: Commercial Real Estate
Construction and land
1 unchanged sentence
Consumer and other
−Removed: The total amount of loans due after December 31, 2021, which have predetermined interest rates is $662.8 million, while the total amount of loans which have floating or adjustable interest rates is $873.3 million.
The following table sets forth the originations, purchases, sales and repayments of loans as of the dates indicated.
13 unchanged sentences
Commercial and Industrial
+Added: Owner occupied CRE
+Added: Non-owner occupied CRE
Principal repayments
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Nonperforming assets consist of nonaccrual loans, accruing loans more than 90 days delinquent and other real estate owned.
−Removed: Nonperforming assets increased $1.4 million to $9.1 million at December 31, 2020 from $7.7 million at December 31, 2019, primarily due to an increase in nonaccrual loans.
+Added: Nonperforming assets decreased $2.2 million to $6.9 million at December 31, 2021 from $9.1 million at December 31, 2020, primarily due to a decrease in nonaccrual loans.
The Company had nonaccrual loans totaling $6.9 million or 0.41% of total loans, of which $822,000 are guaranteed by governmental agencies at December 31, 2021, compared to $8.4 million or 0.51% of total loans at December 31, 2020.
−Removed: Included in nonaccrual loans at December 31, 2020 and December 31, 2019, are $567,000 and $3.6 million, respectively, of TDRs.
−Removed: This increase in nonaccrual loans during 2020 was primarily driven by the addition of four loans within the commercial real estate portfolio, partially offset by the payoff of two other loans in that category.
−Removed: At December 31, 2020, accruing loans past due 30 to 89 days totaled $734,000, compared to $11.8 million at December 31, 2019.
−Removed: This decrease reflects our efforts to process loan extensions, loan renewals and collect past due payments .
−Removed: At December 31, 2020, there are $233,000 of loans which were past due 90 days or more and still accruing interest, compared to $250,000 at December 31, 2019.
+Added: Included in nonaccrual loans at December 31, 2021 and December 31, 2020, are $1.6 million and $567,000, respectively, of TDRs.
+Added: This decrease in nonaccrual loans during 2021 was primarily driven by an $830,000 decline in nonaccrual commercial real estate loans and a $608,000 decline in nonaccrual consumer loans.
+Added: There were no loans that were 90 days or more past due and still accruing at December 31, 2021, compared to one loan totaling $233,000 at December 31, 2020.
+Added: At December 31, 2021, accruing loans past due 30 to 89 days totaled $2.6 million, compared to $734,000 at December 31, 2020.
+Added: The increase in past due 30 to 89 days at December 31, 2021 primarily related to five loans totaling $1.4 million that were less than 60 days past due and have since been brought current.
+Added: At December 31, 2021, there were no loans which were past due 90 days or more and still accruing interest, compared to $233,000 at December 31, 2020.
Other real estate owned totaled $21,000 and $429,000 at December 31, 2021, and December 31, 2020, respectively.
22 unchanged sentences
The accruing TDR loans are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to the restructured status.
−Removed: There were related allowance for loan losses on the TDR loans of $35,000 and $171,000 at December 31, 2020 and December 31, 2019, respectively.
−Removed: As discussed above, the Company elected to apply the temporary relief under the CARES Act and related bank regulatory guidance to certain eligible short-term modifications and past due loans.
−Removed: Qualifying loan modifications were not classified as TDR for accounting or disclosure purposes until 180 days following a loan's initial modification under the CARES Act and related bank regulatory guidance.
−Removed: Potential problem loans .
−Removed: Potential problem loans are those loans that are currently accruing interest and are not considered impaired, but which we are monitoring because the financial information of the borrower causes us concern as to their ability to comply with their loan repayment terms.
−Removed: We define potential problem loans as loans with a risk rating of “Substandard”, “Doubtful” or “Loss” that are not included in the amounts of non-accrual or restructured loans.
−Removed: During the ordinary course of business, management may become aware of borrowers that may not be able to meet the contractual requirements of their loan agreements.
−Removed: Such loans are placed under closer supervision with consideration given to placing the loan on non-accrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or full charge-off .
−Removed: At December 31, 2020, there are $12.7 million of potential problem loans, compared to $12.3 million at December 31, 2019.
−Removed: Also, see Note 4 — Loans in the Notes to the Consolidated Financial Statements contained in “Item 8.
−Removed: Financial Statements and Supplementary Data” of this Form 10-K.
−Removed: Past due loans decreased $13.6 million to $5.3 million at December 31, 2020, from $18.9 million at December 31, 2019.
−Removed: The following tables set forth the amounts of past due loans as of the dates indicated:
−Removed: (Dollars in thousands)
−Removed: December 31, 2020
−Removed: Commercial and industrial
−Removed: Construction and land
−Removed: Commercial real estate
−Removed: (Dollars in thousands)
−Removed: December 31, 2019
−Removed: Commercial and industrial
−Removed: Construction and land
−Removed: Commercial real estate
+Added: There was a related allowance for loan losses on the TDR loans of none and $35,000 at December 31, 2021 and December 31, 2020, respectively.
+Added: The Company provided payment and financial relief programs for borrowers impacted by COVID-19.
+Added: All loans modified due to COVID-19 were separately monitored and any request for continuation of relief beyond the initial modification was reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating was appropriate.
+Added: As December 31, 2021, the Company had two commercial real estate loans totaling $2.7 million operating under forbearance agreements due to COVID-19, compared to 43 loans totaling $66.7 million at December 31, 2020.
+Added: Since these loans were performing loans that were current on their payments prior to COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings at December 31, 2021, pursuant to applicable accounting and regulatory guidance.
+Added: All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.
+Added: Loan modifications in accordance with the CARES Act and related banking agency guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.
+Added: Past due loans totaled $7.0 million at December 31, 2021, as compared to $5.3 million at December 31, 2020.
The following table sets forth the nonperforming loans, nonperforming assets and troubled debt restructured loans as of the dates indicated:
−Removed: As of December 31,
(Dollars in thousands)
−Removed: Loans accounted for on a non-accrual basis:
+Added: Loans accounted for on a nonaccrual basis:
Commercial and industrial
5 unchanged sentences
Total nonaccrual loans
−Removed: More than 90 days past due and still accruing
+Added: Accruing loans 90 days or more past due
Total nonperforming loans
6 unchanged sentences
Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above.
−Removed: At December 31, 2020, and December 31, 2019, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.
−Removed: For the year ended December 31, 2020, interest foregone on nonaccrual loans was approximately $118,000, none of which was included in interest income.
−Removed: For the year ended December 31, 2019, interest foregone on nonaccrual loans was $238,000, none of which was included in interest income.
+Added: At both December 31, 2021, and December 31, 2020, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.
Allowance for loan losses.
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If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment.
−Removed: If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due.
+Added: If an impaired loan is not collateral-dependent, the impairment amount is determined using the
+Added: negative difference, if any, between the estimated discounted cash flows and the loan amount due.
For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected.
9 unchanged sentences
The $69.6 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at December 31, 2021 as these loans are fully guaranteed by the SBA.
−Removed: See, “BayCom’s response to COVID-19 – PPP Participation ” above.
−Removed: When determining the appropriate allowance for loan losses during 2020, management took into consideration the impact of the COVID-19 pandemic, including the amount and timing of financial assistance provided by the government, in the determination of qualitative loss factors.
−Removed: Deterioration of economic conditions as a result of the COVID-19 pandemic resulted in a significant increase in the allowance for loan losses during the current year.
−Removed: In addition, the provision for loan losses also reflects risk rating downgrades on loans that are considered at risk due to the COVID-19
−Removed: Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate.
−Removed: In addition, t he $135.6 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at December 31, 2020 as these loans are fully guaranteed by the SBA and management expects that the great majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reduce the Bank’s loan balance for the amount forgiven.
−Removed: The following table presents an analysis of changes in the allowance for loan losses for the periods presented.
+Added: The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations.
Years ended December 31,
(Dollars in thousands)
−Removed: Balance at beginning of period
−Removed: Provisions for loan losses
−Removed: Commercial and industrial
−Removed: Owner occupied CRE
−Removed: Non-owner occupied CRE
−Removed: Total recoveries
+Added: Allowance for loan losses as a percentage of total loans outstanding at period end
+Added: Allowance for loan losses
+Added: Total loans outstanding
+Added: Non-accrual loans as a percentage of total loans outstanding at period end
+Added: Total non-accrual loans
+Added: Total loans outstanding
+Added: Allowance for loan losses as a percentage of non-accrual loans at period end
+Added: Allowance for loan losses
+Added: Total non-accrual loans
+Added: Net charge-offs/(recoveries) during period to average loans outstanding:
Commercial and industrial:
−Removed: Owner occupied CRE
−Removed: Non-owner occupied CRE
−Removed: Total charge-offs
+Added: Net charge-offs
+Added: Average loans outstanding
+Added: Construction and land:
+Added: Net (recoveries)/charge-offs
+Added: Average loans outstanding
+Added: Commercial estate:
Net charge-offs/(recoveries)
−Removed: Balance at end of period
−Removed: Allowance for loan losses as a percentage of total loans
−Removed: Allowance for loan losses to total loans excluding PCI loans (1)
−Removed: Allowance for loan losses excluding acquired loans (loans not covered by the allowance) (1)
−Removed: Allowance for loan losses excluding acquired loans and PPP loans (loans not covered by the allowance) (1)
−Removed: Allowance for loan losses as a percentage of total nonperforming loans
−Removed: Net (charge-offs)/recoveries as a percentage of average loans outstanding for the period
−Removed: (1) See non-GAAP financial measures in above section.
+Added: Average loans outstanding
+Added: Net charge-offs
+Added: Average loans outstanding
+Added: Net charge-offs
+Added: Average loans outstanding
+Added: Net charge-offs
+Added: Average loans outstanding
+Added: Total net charge-offs
+Added: Total average loans outstanding
The following table shows the allocation of the allowance for loan losses at the indicated dates.
7 unchanged sentences
Total real estate
−Removed: As of December 31,
−Removed: (Dollars in thousands)
−Removed: Commercial and industrial
−Removed: Multifamily residential
−Removed: Owner-occupied CRE
−Removed: Non-owner occupied CRE
−Removed: Construction and land
−Removed: Total real estate
−Removed: The allowance for loan losses increased by $10.1 million, or 136.5%, to $17.5 million at December 31, 2020, from $7.4 million at December 31, 2019.
+Added: The allowance for loan losses increased $200,000, or 1.1%, to $17.7 million at December 31, 2021, from $17.5 million at December 31, 2020.
+Added: The increase in the allowance for loan losses at December 31, 2021 was primarily due to the increase in total loans, partially offset by the continued improvement since December 31, 2020 in the national and local economy associated with the recovery from the COVID-19 pandemic, which reduced the loss rates utilized to calculate the allowance for loan losses at December 31, 2021 as compared to the uncertain economic outlook and loss rates utilized at December 31, 2020, as well as net charge offs of $226,000 during 2021.
+Added: PPP loans were omitted from the calculation of the required allowance for loan losses at December 31, 2021 and December 31, 2020 as these loans are fully guaranteed by the SBA and management expects that a majority of SBA PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA, which in turn, the SBA will reimburse the Bank for the amount forgiven.
Included in the carrying value of loans are net discounts on acquired loans which may reduce the need for an allowance for loan losses on these loans because they are carried at their estimated fair value on the date on which they were acquired.
2 unchanged sentences
As of December 31, 2020, we identified $9.2 million in impaired loans, inclusive of $8.4 million of nonperforming loans and $798,000 of accruing TDR loans.
−Removed: Of these impaired loans, only $464,000 had a specific allowance of $171,000 recorded as of December 31, 2019.
+Added: Of these impaired loans, only $ 1.3 million had a specific allowance of $521,000 recorded as of December 31, 2020.
Management considers the allowance for loan losses at December 31, 2021 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.
12 unchanged sentences
Adoption of these accounting standards did not have a significant effect on the Company’s regulatory capital measures.
−Removed: Right-of-use assets decreased $3.2 million, or 21.2%, to $12.1 million at December 31, 2020 from $15.3 million at December 31, 2019.
−Removed: Lease liabilities decreased $3.3 million, or 21.0%, to $12.3 million at December 31, 2020 from $15.6 million at December 31, 2019.
−Removed: Both decreases were due to reductions caused by monthly rent payments.
+Added: Right-of-use assets increased $78,000, or 0.6%, to $12.1 million at December 31, 2021 from $12.1 million at December 31, 2020.
+Added: Lease liabilities increased $329,000, or 2.7%, to $12.7 million at December 31, 2021 from $12.3 million at December 31, 2020.
Premises and Equipment.
−Removed: Premises and equipment increased $4.6 million, or 43.8%, to $15.1 million at December 31, 2020 from $10.5 million at December 31, 2019.
−Removed: This increase in premises and equipment was driven by a $3.9 million increase related to the GMB acquisition, $1.5 million for the installation of new ATMs and video conferencing equipment in branches and $900,000 in leasehold improvements.
−Removed: These increases were partially offset by an increase in amortization and depreciation expenses associated with these assets .
+Added: Premises and equipment decreased $769,000, or 5.1%, to $14.4 million at December 31, 2021 from $15.1 million at December 31, 2020.
+Added: This decrease in premises and equipment was driven by an increase in amortization and depreciation expenses associated with these assets.
Deposits are our primary source of funding and consists of core deposits from the communities served by our branch and office locations.
3 unchanged sentences
Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.
−Removed: Total deposits increased $137.2 million, or 8.1%, to $1.8 billion at December 31, 2020 from $1.7 billion at December 31, 2019, primarily due to $118.1 million of deposits acquired in the GMB acquisition, proceeds from PPP loans deposited directly into customer accounts and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.
+Added: Total deposits increased $146.8 million, or 8.0%, to $2.0 billion at December 31, 2021 from $1.8 billion at December 31, 2020, primarily due to organic growth in client relationships, proceeds from PPP loans and government stimulus checks deposited directly into client accounts, and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.
Noninterest bearing deposits totaled $710.1 million, or 35.8% of total deposits, at December 31, 2021 compared to $678.4 million, or 36.9% of total deposits, at December 31, 2020.
3 unchanged sentences
NOW accounts and savings
−Removed: Money market under
Time deposits
3 unchanged sentences
2.00% and above
−Removed: The following table indicates the amount of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2020.
−Removed: (Dollars in thousands)
−Removed: Time deposits under $100,000
−Removed: Time deposits $100,000 and over
+Added: As of December 31, 2021 and 2020, approximately $1.0 billion and $843.0 million, respectively, of our total deposit portfolio was uninsured.
+Added: The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.
+Added: The following table sets forth the portion of our time deposits that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2021.
+Added: 3 months or less
+Added: Over 3 through 6 months
+Added: Over 6 through 12 months
+Added: Over 12 months
+Added: For additional information regarding our deposits, see “Note 11 – Deposits” of the Notes to Consolidated Financial Statements contained in “Part II.
+Added: Financial Statements and Supplementary Data” of this report on Form 10-K.
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.
3 unchanged sentences
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.
−Removed: In May 2020, the Bank secured a $10.0 million advance from the FHLB of San Francisco, comprised of two $5.0 million tranches, at no cost, maturing in November 2020 and May 7, 2021.
−Removed: As of December 31, 2020, the first tranche was repaid and the second tranche matures on May 7, 2021.
−Removed: At December 31, 2020 and December 31, 2019, we had the ability to borrow up to $421.2 million and $542.4 million, respectively.
−Removed: At December 31, 2019, there were no FHLB advances outstanding.
+Added: At December 31, 2021, the Company had no FHLB advances outstanding, compared to $5.0 million of FHLB advances outstanding at December 31, 2020.
+Added: At December 31, 2021 and December 31, 2020, we had the ability to borrow from the FHLB up to $483.1 million and $421.2 million, respectively.
+Added: In addition to the availability of liquidity from the FHLB of San Francisco, the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco, with available credit capacity of $69.6 million and $135.6 million as of December 31, 2021 and December 31, 2020, respectively, based on loans that qualify as collateral for the FRB line of credit.
+Added: At both December 31, 2021 and December 31, 2020, there were no FRB borrowings outstanding.
On August 6, 2020, the Company issued and sold the Notes in an underwritten offering, resulting in net proceeds, after underwriting discounts and offering expenses, $63.4 million.
3 unchanged sentences
We are required to provide collateral for certain local agency deposits.
−Removed: As of December 31, 2020 and December 31, 2019, the FHLB of San Francisco had issued a letter of credit on behalf of the Bank totaling $30.1 million and $21.5 million, respectively as collateral for local agency deposits.
−Removed: We are also authorized to utilize the Federal Reserve’s PPPLF, pursuant to which the Company would pledge its PPP loans as collateral at face value to obtain FRB non-recourse loans.
−Removed: During 2020, we had no borrowings pursuant to the PPPLF.
−Removed: The following table sets forth the maximum balances and daily average balances of subordinated debt and other borrowings at and for the periods indicated.
−Removed: At and For December 31,
−Removed: (Dollars in thousands)
−Removed: Maximum balance:
−Removed: Junior subordinated deferrable interest debentures
−Removed: Subordinated debt
−Removed: FHLB and other borrowings
−Removed: Average balance:
−Removed: Junior subordinated deferrable interest debentures
−Removed: Subordinated debt
−Removed: FHLB and other borrowings
−Removed: Weighted average rate:
−Removed: Junior subordinated deferrable interest debentures, net
−Removed: Subordinated debt, net
−Removed: FHLB and other borrowings
+Added: As of December 31, 2021 and December 31, 2020, the FHLB had issued a letter of credit on behalf of the Bank totaling $42.0 million and $30.1 million, respectively as collateral for local agency deposits.
At December 31, 2021, we had $8.4 million in aggregate principal (net of mark-to-market adjustments) of junior subordinated debentures issued in connection with the sale of trust preferred securities by two statutory business trusts, which we assumed in our acquisitions.
4 unchanged sentences
The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures.
−Removed: The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the
−Removed: indentures governing the Debentures, plus any accrued but unpaid interest to the redemption date.
+Added: The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures, plus any accrued but unpaid interest to the redemption date.
The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity.
5 unchanged sentences
Shareholders’ equity.
−Removed: Shareholders’ equity decreased $1.6 million, or 0.6%, to $252.6 million at December 31, 2020 from $254.2 million at December 31, 2019.
−Removed: The decrease in shareholders’ equity was primarily due to the repurchase of $18.3 million of our common stock, partially offset by $13.7 million of net income and a $1.4 million increase in other comprehensive income representing an increase in the unrealized gains on investments securities, net of tax.
+Added: Shareholders’ equity increased $10.0 million, or 4.0%, to $262.6 million at December 31, 2021 from $252.6 million at December 31, 2020.
+Added: The increase in shareholders’ equity was primarily due to $20.7 million of net income, partially offset by the repurchase of $11.6 million of our common stock during 2021.
During the year ended December 31, 2021, the Company repurchased a total of 648,734 shares of its common stock at a total cost of $11.6 million, or $17.81 per share.
At December 31, 2021, 742,532 shares remain available for future purchases under the current stock repurchase plan .
−Removed: Subsequent to December 31, 2020, the Board of Directors authorized the repurchase of up to 560,000 shares, or approximately 5% of the Company's outstanding common shares.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Stock Repurchases” contained in this report.
1 unchanged sentence
Earnings summary.
−Removed: We reported net income of $13.7 million for the year ended December 31, 2020, compared to $17.3 million for the year ended December 31, 2019, a decrease of $3.6 million, or 20.7%.
−Removed: Net income for the year ended December 31, 2020 was significantly impacted by the higher provision for loan losses primarily related to the consideration of probable loan losses as a result of the COVID-19 pandemic.
−Removed: Diluted earnings per share were $1.15 for the year ended December 31, 2020, a decrease of $0.32 from diluted earnings per share of $1.47 for the year ended December 31, 2019.
+Added: We reported net income of $20.7 million for the year ended December 31, 2021, compared to $13.7 million for the year ended December 31, 2020, an increase of $7.0 million, or 50.7%.
+Added: Net income for the year ended December 31, 2021 primarily reflects a $9.9 million, or 95.5%, decrease in the provision for loan losses, a $3.4 million, or 6.0%, decrease in noninterest expense and a $2.5 million, or 28.4%, increase in noninterest income, partially offset by a $5.6 million, or 7.0%, decrease in interest income and a $3.3 million, or 73.0%, increase in the provision for income taxes.
+Added: The $9.9 million decrease in the provision for loan losses was primarily due to continued improvements in the economic forecasts during 2021, as compared to last year when the uncertainty surrounding the COVID-19 pandemic significantly impacted economic conditions.
+Added: The increase in noninterest income was related to increases in gain on sale of loans of $3.0 million, and increased income from an investment in a Small Business Investment Company (“SBIC”) fund of $399,000, partially offset by a decrease in loan servicing and other fees of $145,000.
+Added: Noninterest expense during the year ended December 31, 2020, included $3.0 million of acquisition-related expenses for the acquisition of GMB and its wholly owned subsidiary Grand Mountain Bank.
+Added: Diluted earnings per share were $1.90 for the year ended December 31, 2021, an increase of $0.75 from diluted earnings per share of $1.15 for the year ended December 31, 2020.
Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 65.57% for the year ended December 31, 2021, compared to 67.21% for the year ended December 31, 2020.
−Removed: Increases in noninterest expenses, primarily reflecting growth in our operations from recent acquisitions, outpaced net interest income and noninterest income which were negatively impacted by the effects of the COVID-19 pandemic.
−Removed: Noninterest income decreased during the year ended December 31, 2020, primarily due to lower gains on sale of loans as SBA loans originated for sale and sold have declined because of the pandemic.
+Added: The improvement in the efficiency ratio during the year ended December 31, 2021 was primarily due the reduced noninterest expense during 2021.
Interest income.
−Removed: Interest income for the year ended December 31, 2020 was $87.2 million, compared to $76.5 million for the year ended December 31, 2019, an increase of $10.7 million, or 13.9%.
−Removed: The increase in interest income primarily was due to an increase in average interest earning assets, principally loans, which was driven primarily by our recent acquisitions and PPP lending .
−Removed: Interest income on loans increased $16.7 million as a result of a $509.3 million increase in the average total loan balance, partially offset by a 74 basis point decrease in the average loan yield during the year ended December 31, 2020 as compared to this same period in 2019 .
+Added: Interest income for the year ended December 31, 2021 was $81.6 million, compared to $87.2 million for the year ended December 31, 2020, a decrease of $5.6 million, or 6.4%.
+Added: The decrease in interest income primarily was due to a decrease in both the average balance and yield for interest earning assets, principally loans.
+Added: Interest income on loans decreased $6.1 million as a result of a $39.6 million decrease in the average balance of loans outstanding and a 25 basis point decrease in the average loan yield during the year ended December 31, 2021 as compared to 2020 .
The average yield earned on loans for the year ended December 31, 2021 was 4.69%, compared to 4.94% for the year ended December 31, 2020.
−Removed: Interest income included $1.7 million in fees earned related to PPP loans during the year ended December 31, 2020, compared to none in same period a year ago.
+Added: Interest income included $5.4 million in fees earned related to PPP loans during the year ended December 31, 2021, compared to $1.7 million in same period a year ago.
As of December 31, 2021, total unrecognized fees on PPP loans were $2.1 million.
For the year ended December 31, 2021, the average balance of PPP loans was $78.4 million and the average yield was 7.83%.
−Removed: Although the average balance of loans increased, the average yield on net loans decreased compared to the same period in the prior year due primarily to decreases in interest rates on adjustable rate instruments following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the targeted federal funds rate in March 2020 due to the COVID-19 pandemic, and secondarily due to the impact of PPP loans.
The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, and will cease completely after the maturity of these loans.
−Removed: Approximately two-thirds of the PPP loans are set to mature by the
−Removed: end of 2022, while the remaining loans have a five-year maturity date.
+Added: Approximately two-thirds of the PPP loans are set to mature by the end of 2022, while the remaining loans have a five-year maturity date.
Interest income on loans for the year ended December 31, 2021 included $2.7 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $5.1 million for the year ended December 31, 2020.
The remaining net discount on these acquired loans was $2.1 million and $3.3 million at December 31, 2021 and 2020, respectively.
−Removed: Interest income on interest bearing deposits decreased $6.2 million as a result of a $90.5 million decrease in the average balance of interest earning deposits and a 171 basis point decrease in the yield on interest earning deposits to 0.51% for the year ended December 31, 2020 from 2.22% for the year ended December 31, 2019.
−Removed: Interest income on investment securities increased slightly by $134,000 as a result of a $10.8 million increase in the average balance of investment securities, partially offset by a 14 basis point decrease in the yield on investment securities to 2.56% for the year ended December 31, 2020 from 2.70% for the year ended December 31, 2019.
−Removed: Like yields on loans, yields on investments were significantly impacted by declines in short-term rates over the last year.
+Added: Interest income on investment securities increased $930,000 as a result of a $9.7 million, increase in the average balance of investment securities and 46 basis point increase in the yield on such securities to 3.02% for the year ended December 31, 2021 from 2.56% for the year ended December 31, 2020.
+Added: Interest income on interest bearing deposits in banks decreased $585,000 due to a 35 basis point decline in the yield on interest bearing deposits to 0.16% for the year ended December 31, 2021 from 0.51% for the year ended December 31, 2020, partially offset by a $9.7 million increase in the average balance of interest bearing deposits in banks during 2021 compared to 2020.
Interest expense.
−Removed: Interest expense increased by $167,000, or 1.9%, to $8.9 million for the year ended December 31, 2020 from $8.7 million for the year ended December 31, 2019.
−Removed: The increase was primarily driven by the issuance of the $65.0 million of Notes during 2020, partially offset by a decrease in deposit interest expense.
−Removed: Total average interest bearing liabilities increased by $254.9 million, or 26.4%, to $1.2 billion for the year ended December 31, 2020, from $966.5 million for the year ended December 31, 2019.
−Removed: Interest expense on deposits decreased $1.2 million, or 14.8%, to $7.0 million during the year ended December 31, 2020 from $8.2 million in 2019, primarily due to decreases in the targeted federal funds rate, earlier in the year, and despite an increase in the average balance of deposits .
+Added: Interest expense decreased by $97,000, or 1.1%, to $8.8 million for the year ended December 31, 2021 from $8.9 million for the year ended December 31, 2020.
+Added: The decrease was driven by a $2.1 million decrease in interest expense on deposits, primarily time deposits and money market accounts, and to a lesser extent a $196,000 decrease in interest expense paid on junior subordinated debentures, net and other borrowings.
+Added: These decreases were partially offset by a $2.2 million increase in interest expense on subordinated debt, net.
+Added: T he average rate paid on interest bearing liabilities decreased six basis points to 0.67% during the year ended December 31, 2021 from 0.73% during the same period in 2020.
+Added: The total average balance of interest bearing liabilities increased by $91.7 million, or 7.5%, to $1.3 billion for the year ended December 31, 2021, from $1.2 billion for the year ended December 31, 2020, primarily due to the issuance of our Notes.
+Added: Interest expense on deposits decreased $2.1 million, or 29.9%, to $4.9 million during the year ended December 31, 2021 from $7.0 million in 2020, primarily due to decreases in the average rate paid on interest bearing deposits and a $46.0 million, or 16.7%, decrease in the average balance of higher costing time deposits.
The average rate paid on interest bearing deposits decreased to 0.39% for the year ended December 31, 2021, from 0.59% for the year ended December 31, 2020.
1 unchanged sentence
The average balance of noninterest bearing deposits increased $55.3 million, or 8.25%, to $725.4 million for the year ended December 31, 2021 compared to $670.1 million during the comparable period during 2020.
−Removed: The market’s response to lowering deposit pricing to reflect the targeted federal funds rate decreases over the past year typically lags declines in the yield on interest earning assets.
−Removed: T he average rate paid on interest bearing liabilities decreased 17 basis points to 0.73% during the year ended December 31, 2020 from 0.90% during the same period in 2019.
−Removed: Interest expense on borrowings increased $1.3 million, or 243.1%, to $1.9 million for the year ended December 31, 2020, from $567,000 for the year ended December 31, 2019, as a result of the issuance of the Notes on August 10, 2020, which currently have a 5.25% interest rate.
−Removed: The average balance of borrowing outstanding increased $29.0 million to $38.5 million during the year ended December 31, 202 0, compared to $9.5 million during the comparable period in 2019.
−Removed: The increase in the average balance of borrowings outstanding was partially offset by a decline in the average cost of borrowing to 5.06% for the year ended December 31, 2020, from 5.98% for the year ended December 31, 2019.
+Added: The decrease in the cost of interest-bearing deposits between the years was driven by market and competitive factors following decreases in the target Fed Funds Rate during the first quarter of 2020 as well as a higher percentage of our interest-bearing deposits being lower costing non-time deposits.
+Added: Interest expense on borrowings increased $2.0 million, or 101.9%, to $3.9 million for the year ended December 31, 2021, from $1.9 million for the year ended December 31, 2020, as a result of the issuance of the Notes which were outstanding for the entire year in 2021 compared to five months during 2020.
+Added: The average balance of borrowings outstanding increased $35.1 million to $73.6 million during the year ended December 31, 202 1, compared to $38.5 million during 2020 for the same reason.
+Added: The average cost of borrowings increased to 5.34% for the year ended December 31, 2021, from 5.06% for the year ended December 31, 2020.
Net interest income.
−Removed: Net interest income increased $10.5 million, or 15.5%, to $78.3 million for the year ended December 31, 2020 compared to $67.8 million for the year ended December 31, 2019.
+Added: Net interest income decreased $5.5 million, or 7.0%, to $72.8 million for the year ended December 31, 2021 compared to $78.3 million for the year ended December 31, 2020.
Net interest margin for the year ended December 31, 2021 decreased 50 basis point to 3.34% from 3.84% for 2020.
−Removed: During the year, the combination of low interest rate environment putting downward pressure on adjustable rate instruments and the impact of the low loan yields of the PPP loan portfolio, adversely affected net interest margin.
+Added: During the year ended December 31, 2021, the net interest margin was impacted by lower yielding loans, including PPP loans and resetting adjustable rate instruments as well as reduced interest rates on new fixed-rate real estate loan and adjustable-rate commercial loan originations and the increase in low yielding overnight cash balances causing a decrease in the average yield on interest-earning assets that outweighed the contribution to net interest margin from the decrease in the average cost of interest-bearing liabilities.
+Added: The decrease in net interest margin was offset partially by an increase in deferred PPP loan fees
+Added: recognized due to the volume of forgiven SBA PPP loans during 2021, which benefited net interest margin compared to a reduction in net interest margin from the Company’s origination of low yielding PPP loans during the same period in 2020.
+Added: PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA.
+Added: The average yield on PPP loans was 4.52%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of 20 basis points during the year ended December 31, 2021, compared to an average yield of 2.71% and positive impact of 11 basis points during 2020.
+Added: The impact of PPP loans on net interest margin will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are net, but will cease completely after the maturity of the loans.
Accretion of acquisition accounting discounts on loans and the recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 17 basis points and 31 basis points during years ended December 31, 2021 and 2020, respectively.
−Removed: The average yield on interest earning assets for the year ended December 31, 2020 was 4.27%, a 50 basis point decrease from 4.77% for the year ended December 31, 2019.
−Removed: The average cost of interest bearing liabilities for the year ended December 31, 2020 was 0.73%, down 17 basis points from 0.90% the year ended December 31, 2019, due primarily to lower market interest rates during most of the year .
Average Balances, Interest and Average Yields/Cost.
10 unchanged sentences
Interest bearing deposits in banks
−Removed: Investments available-for-sale
+Added: Investments securities available-for-sale
Total interest earning assets
8 unchanged sentences
Total interest bearing liabilities
+Added: Noninterest bearing deposits
+Added: Other noninterest bearing liabilities
Noninterest bearing liabilities
43 unchanged sentences
See “Critical Accounting Policies and Estimates — Allowance for loan losses” above for a description of the manner in which the provision for loan losses is established.
−Removed: Based on management’s evaluation of the foregoing factors, we recorded a provision for loan losses of $10.3 million for the year ended December 31, 2020, compared to a provision for loan losses of $2.2 million for the year ended December 31, 2019, an increase of $8.1 million.
−Removed: T he provision for loan losses includes a provision related to the migration of acquired loans out of the discounted acquired loan portfolio and gives consideration of probable loan losses due to changes in economic conditions driven by the impact of COVID-19 on the U.S.
−Removed: and global economies .
−Removed: In addition, the provision for loan losses also reflects risk rating downgrades on loans that are considered at risk due to the COVID-19 pandemic.
−Removed: Our allowance for loan losses specific reserves increased to $521,000 at December 31, 2020, from $171,000 at December 31, 2019.
+Added: Based on management’s evaluation of the foregoing factors, we recorded a provision for loan losses of $466,000 for the year ended December 31, 2021, compared to a provision for loan losses of $10.3 million for the year ended December 31, 2020, a decrease of $9.9 million.
+Added: The decrease in the provision for loan losses was primarily due to an adjustment to the qualitative factors utilized to calculate the allowance for loan losses resulting from improvements in the economic forecast since December 31, 2020.
+Added: Our allowance for loan losses specific reserves was $930,000 at December 31, 2021, compared to $521,000 at December 31, 2020.
We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit impaired loans as accounted for in accordance with ASC Topic 310-20, for both the years ended December 31, 2021 and 2020.
−Removed: We recorded $107,000 of additional provisions on the purchase credit impaired loans accounted for in accordance with ASC Topic 310-30 during the year ended December 31, 2020, compared to none during 2019.
−Removed: We had a net charge-offs of $220,000 for the year ended December 31, 2020 compared to net recoveries of $36,000 for the year ended December 31, 2019.
−Removed: For the year ended December 31, 2020, charge-offs increased due primarily to $184,000 of charge-offs related to a single commercial and industrial loan.
−Removed: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount
−Removed: to the loans contractual amounts.
+Added: We recorded $107,000 of reversal provisions on the purchase credit impaired loans accounted for in accordance with ASC Topic 310-30 during the year ended December 31, 2021, compared to none during 2020.
+Added: We had a net charge-offs of $226,000 for the year ended December 31, 2021 compared to net charge-offs of $220,000 for the year ended December 31, 2020.
+Added: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts.
Credit discounts are included in the determination of fair value and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.
−Removed: However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
+Added: However, the allowance for loan loss includes an estimate for credit deterioration of
+Added: acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
The discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios.
−Removed: The allowance for loan losses to total loans was 1.06% at December 31, 2020 compared to 0.51% at December 31, 2019.
+Added: The allowance for loan losses to total loans was 1.06% at both December 31, 2021 and 2020.
Management considers the allowance for loan losses at December 31, 2021 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.
3 unchanged sentences
Noninterest income.
−Removed: Noninterest income decreased $794,000, or 8.3%, to $8.8 million for the year ended December 31, 2020 compared to $9.6 million for the year ended December 31, 2019.
−Removed: The decrease in noninterest income was primarily due to a $1.2 million decrease in gain on sale of loans as our SBA loans originated for sale and sold have declined because of the COVID-19 pandemic, partially offset by increases in loan servicing and other loan fees and increases in income from our investment in a Small Business Investment Company (“SBIC”) fund.
+Added: Noninterest income increased $2.5 million, or 28.2%, to $11.3 million for the year ended December 31, 2021 compared to $8.8 million for the year ended December 31, 2020.
+Added: The increase in noninterest income was primarily due to a $3.0 increase in gain on sale of loans and a $399,000 increase in income from our investment in the SBIC fund, partially offset by a $632,000 decrease in loan servicing and other loan fees and a $45,000 decrease in service charges and other fees.
During the year ended December 31, 2021, the Company sold $45.8 million of SBA loans (the guaranteed portion), which generated a gain on sale of $4.8 million , compared to the sale of $24.0 million of SBA loans and a gain of $1.8 million during the year ended December 31, 2020 .
−Removed: Loan servicing and other loan fees increased $520,000, or 26.7%, to $2.4 million for the year ended December 31, 2020, compared to $1.9 million for the year ended December 31, 2019, primarily due to an increase in deposit accounts acquired in our recent acquisitions.
−Removed: SBIC income increased $206,000, or 30.8%, to $875,000 for the year ended December 31, 2020, compared to $669,000 for the year ended December 31, 2019, showing continued improved operating results throughout the year after sustaining COVID-19 related losses earlier in 2020.
+Added: SBIC income increased due to improved operating results throughout 2021 after sustaining COVID-19 related losses in 2020.
+Added: Loan servicing and other loan fees, and service charges and other fees decreased primarily due to lower transaction volume.
The following table presents the key components of noninterest income for the years ended December 31, 2021 and 2020.
3 unchanged sentences
Loan servicing and other loan fees
−Removed: Gain on sale of premises
+Added: Gain (loss) on sale of premises
Income on investment in SBIC fund
+Added: Gain on sale of OREO
Other income and fees
1 unchanged sentence
Noninterest expense.
−Removed: Noninterest expense increased $7.0 million, or 13.7%, to $58.5 million for the year ended December 31, 2020 compared to $51.5 million for the year ended December 31, 2019.
−Removed: The increase was primarily due to a $5.1 million, or 17.8%, increase in salary and benefits as a result of an i ncrease in the number of full-time equivalent employees and severance benefits paid in connection with the GMB merger and to a lesser extent normal salary increase .
−Removed: Occupancy and equipment expense increased $1.9 million, or 37.7%, due to our recent acquisitions.
−Removed: Data processing expense was slightly down for the year ended December 31, 2020 compared to the same period in 2019 due to lower acquisition-related expenses compared to the same period in 2019, partially offset by higher transaction volumes from the increase in the number of deposit accounts.
−Removed: Other non-interest expense increased slightly for the year ended December 31, 2020 compared to last year reflecting increased fees paid for employee recruiting and internal auditing and compliance
−Removed: related expenses, an increase in FDIC insurance premiums) as the application of $369,000 in FDIC small bank assessment credits reduced expenses in 2019 and the Bank utilized all of its remaining small bank assessment credits in 2020, and increased office expenses due to COVID-19 pandemic related expenses.
−Removed: These increases were partially offset by lower marketing and travel expenses due to a reduction in [direct mail and marketing campaigns], sponsored events and other meeting limitations imposed in response to the COVID-19 pandemic.
+Added: Noninterest expense decreased $3.4 million, or 5.8%, to $55.1 million for the year ended December 31, 2021 compared to $58.5 million for the year ended December 31, 2020.
+Added: The decrease was primarily attributable to a $2.7 million or 32.3% decrease in data processing expense related to reversing over accrued merger data processing expense related to our GMB acquisition as actual expenses were lower than original estimates.
+Added: In addition, other non-interest expense decreased slightly for the year ended December 31, 2021 compared to last year reflecting decreased fees paid for employee recruiting and internal auditing and compliance related expenses, and an increase in FDIC insurance premiums as the application of $369,000 in FDIC small bank assessment credits reduced expenses in 2020.
+Added: Salaries and employee benefits decreased slightly during the year ended December 31, 2021 compared to 2020, primarily due to a decrease in staffing levels.
+Added: Partially offsetting these decreases was a $296,000 or 4.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.
N oninterest expense for the year ended December 31, 2020 included $3.0 million of GMB acquisition-related expenses, comprised of $266,000 in salaries and benefits, $2.0 million in data processing expenses, $369,000 in professional fees and $383,000 in all other expenses.
−Removed: compared to $6.6 million of UFC and TIG acquisition-related expenses for the year ended December 31, 2019, comprised of $835,000 in salaries and benefits, $4.4 million in data processing expenses, $938,000 in professional fees and $480,000 in all other expenses.
−Removed: Excluding all acquisition-related expenses, noninterest expenses increased $10.7 million, or 23.8%, from the same period of 2019, comprised of increases of $5.7 million in salary and benefits, $1.9 million in occupancy and equipment, $2.2 million in data processing, $610,000 in professional fees and $177,000 in other noninterest expenses.
The following table presents the key components of noninterest expense for the periods indicated:
+Added: Year ended December 31,
(Dollars in thousands)
−Removed: Salaries and related benefits
+Added: Salaries and employee benefits
Occupancy and equipment
2 unchanged sentences
Income taxes.
−Removed: Income tax expense decreased $1.9 million, or 29.3%, to $4.5 million for the year ended December 31, 2020 from $6.4 million for the year ended December 31, 2019, reflecting a decrease in pre-tax income for the period ended December 31, 2020 and a decrease in our effective tax rate.
+Added: Income tax expense increased $3.3 million, or 73.0%, to $7.8 million for the year ended December 31, 2021 from $4.5 million for the year ended December 31, 2020, reflecting an increase in pre-tax income for the period ended December 31, 2021 and an increase in our effective tax rate.
The Company’s effective tax rate was 27.3% for the year ended December 31, 2021 compared to 24.7% for 2020.
−Removed: The decrease in the effective tax rate during the year ended December 31, 2020 was primarily due to higher proportion of favorable permanent adjustments relative to taxable income.
+Added: The increase in the effective tax rate during the year ended December 31, 2020 was primarily due to reduction in favorable permanent adjustments as compared to the prior year.
Comparison of Operating Results for the Years Ended December 31, 2020 and 2019
Earnings summary.
−Removed: We reported net income of $17.3 million for the year ended December 31, 2019, compared to $14.5 million for the year ended December 31, 2018, an increase of $2.8 million, or 19.5%.
−Removed: The increase in net income primarily was the result of increases in net interest income and noninterest income, partially offset by an increase in noninterest expense primarily due to UFC and TIG acquisition-related expenses and the operational costs of additional branch offices.
+Added: We reported net income of $13.7 million for the year ended December 31, 2020, compared to $17.3 million for the year ended December 31, 2019, a decrease of $3.6 million, or 20.7%.
+Added: Net income for the year ended December 31, 2020 was significantly impacted by the higher provision for loan losses primarily related to the consideration of probable loan losses as a result of the COVID-19 pandemic.
Diluted earnings per share were $1.15 for the year ended December 31, 2020, a decrease of $0.32 from diluted earnings per share of $1.47 for the year ended December 31, 2019.
Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 67.21% for the year ended December 31, 2020, compared to 66.51% for the year ended December 31, 2019.
−Removed: The change in the efficiency ratio for the year ended December 31, 2019 compared to the year ended December 31, 2018 is attributable to increases in noninterest expenses, exceeding increases in net interest income before provision for loan losses plus noninterest income, primarily driven by $6.6 million of merger-related expenses (UFC and TIG acquisitions).
+Added: Increases in noninterest expenses, primarily reflecting growth in our operations from recent acquisitions, outpaced net interest income and noninterest income which were negatively impacted by the effects of the COVID-19 pandemic.
+Added: Noninterest income decreased during the year ended December 31, 2020, primarily due to lower gains on sale of loans as SBA loans originated for sale and sold have declined because of the pandemic.
Interest income.
Interest income for the year ended December 31, 2020 was $87.2 million, compared to $76.5 million for the year ended December 31, 2019, an increase of $10.7 million, or 13.9%.
−Removed: The increase in interest income primarily was due to an increase in average interest earning assets, principally loans, which was driven by the UFC and TIG s acquisitions and, to a lesser extent, higher yields on interest earning assets, other than FHLB and FRB stock.
−Removed: income on loans increased $16.3 million as a result of a $246.3 million increase in the average total loan balance and a 26 basis point increase in the average yield.
+Added: The increase in interest income primarily was due to an increase in average interest earning assets, principally loans, which was driven primarily by our recent acquisitions and PPP lending .
+Added: Interest income on loans increased $16.7 million as a result of a $509.3 million increase in the average total loan balance, partially offset by a 74 basis point decrease in the average loan yield during the year ended December 31, 2020 as compared to this same period in 2019 .
The average yield earned on loans for the year ended December 31, 2020 was 4.94%, compared to 5.68% for the year ended December 31, 2019.
+Added: Interest income included $1.7 million in fees earned related to PPP loans during the year ended December 31, 2020, compared to none in same period a year ago.
+Added: As of December 31, 2020, total unrecognized fees on PPP loans were $3.5 million.
+Added: For the year ended December 31, 2020, the average balance of PPP loans was $129.5 million and the average yield was 2.33%.
+Added: Although the average balance of loans increased, the average yield on net loans decreased compared to the same period in the prior year due primarily to decreases in interest rates on adjustable rate instruments following decreases to short-term rates over the last year, including the emergency 150 basis point reduction in the targeted federal funds rate in March 2020 due to the COVID-19 pandemic, and secondarily due to the impact of PPP loans.
+Added: The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, and will cease completely after the maturity of these loans.
+Added: Approximately two-thirds of the PPP loans are set to mature by the end of 2022, while the remaining loans have a five-year maturity date.
Interest income on loans for the year ended December 31, 2020 included $5.1 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $4.8 million for the year ended December 31, 2019.
The remaining net discount on these acquired loans was $3.3 million and $8.0 million at December 31, 2020 and 2019, respectively.
−Removed: Interest income on interest bearing deposits increased $1.6 million as a result of a $58.0 million increase in the average balance of interest earning deposits and a 12 basis point increase in the yield on interest earning deposits to 2.22% for the year ended December 31, 2019 from 2.10% for the year ended December 31, 2018.
−Removed: Interest income on investment securities increased $1.6 million as a result of a $47.0 million increase in the average balance of investment securities and a 61 basis point increase in the yield on investment securities to 2.70% for the year ended December 31, 2019 from 2.09% for the year ended December 31, 2018.
+Added: Interest income on interest bearing deposits decreased $6.2 million as a result of a $90.5 million decrease in the average balance of interest earning deposits and a 171 basis point decrease in the yield on interest earning deposits to 0.51% for the year ended December 31, 2020 from 2.22% for the year ended December 31, 2019.
+Added: Interest income on investment securities increased slightly by $134,000 as a result of a $10.8 million increase in the average balance of investment securities, partially offset by a 14 basis point decrease in the yield on investment securities to 2.56% for the year ended December 31, 2020 from 2.70% for the year ended December 31, 2019.
+Added: Like yields on loans, yields on investments were significantly impacted by declines in short-term rates over the last year.
Interest expense.
−Removed: Interest expense increased by $3.7 million, or 76.7%, to $8.7 million for the year ended December 31, 2019 from $4.9 million for the year ended December 31, 2018.
−Removed: The average cost of interest bearing liabilities increased 28 basis points to 0.90% for the year ended December 31, 2019 from 0.62% for the year ended December 31, 2018.
−Removed: Total average interest bearing liabilities increased by $173.0 million, or 21.8%, to $966.5 million for the year ended December 31, 2019, from $793.5 million for the year ended December 31, 2018, due largely to the UFC and TIG acquisitions.
−Removed: Interest expense on deposits increased $3.7 million, or 83.0%, to $8.2 million during the year ended December 31, 2019 from $4.5 million in 2018, primarily due to higher market interest rates over the last year and higher interest rates paid on deposits acquired in the UFC acquisition compared to our legacy deposit base.
−Removed: The average rate paid on interest bearing deposits increased to 0.85% for the year ended December 31, 2019 from 0.57% for the year ended December 31, 2018.
−Removed: The effect of the increase in the average cost of deposits was partially offset by increases in noninterest bearing deposit average balances.
−Removed: The average balance of noninterest bearing deposits totaled $498.8 million for the year ended December 31, 2019, compared to $347.6 million for the year ended at December 31, 2018.
−Removed: Interest expense on borrowings was $567,000 for the year ended December 31, 2019, compared to $480,000 for 2018, as a result of the junior subordinated debentures assumed in connection with our acquisitions and the $6.0 million term loan obtained in connection with our United Business Bank, FSB acquisition, which was repaid in the second quarter of 2018.
+Added: Interest expense increased by $167,000, or 1.9%, to $8.9 million for the year ended December 31, 2020 from $8.7 million for the year ended December 31, 2019.
+Added: The increase was primarily driven by the issuance of the $65.0 million of Notes during 2020, partially offset by a decrease in deposit interest expense.
+Added: Total average interest bearing liabilities increased by $254.9 million, or 26.4%, to $1.2 billion for the year ended December 31, 2020, from $966.5 million for the year ended December 31, 2019.
+Added: Interest expense on deposits decreased $1.2 million, or 14.8%, to $7.0 million during the year ended December 31, 2020 from $8.2 million in 2019, primarily due to decreases in the targeted federal funds rate, earlier in the year, and despite an increase in the average balance of deposits .
+Added: The average rate paid on interest bearing deposits decreased to 0.59% for the year ended December 31, 2020, from 0.85% for the year ended December 31, 2019.
+Added: The overall average cost of deposits for the year ended December 31, 2020 declined to 0.38%, compared to 0.85% for the prior period of 2019 due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year.
+Added: The average balance of noninterest bearing deposits increased $171.3 million, or 34.4%, to $670.1 million for the year ended December 31, 2020 compared to $498.8 million during the comparable period during 2019.
+Added: The market’s response to lowering deposit pricing to reflect the targeted federal funds rate decreases over the past year typically lags declines in the yield on interest earning assets.
+Added: T he average rate paid on interest bearing liabilities decreased 17 basis points to 0.73% during the year ended December 31, 2020 from 0.90% during the same period in 2019.
+Added: Interest expense on borrowings increased $1.3 million, or 243.1%, to $1.9 million for the year ended December 31, 2020, from $567,000 for the year ended December 31, 2019, as a result of the issuance of the Notes on August 10, 2020, which currently have a 5.25% interest rate.
+Added: The average balance of borrowing outstanding increased $29.0 million to $38.5 million during the year ended December 31, 202 0, compared to $9.5 million during the comparable period in 2019.
+Added: The increase in the average balance of borrowings outstanding was partially offset by a decline in the average cost of borrowing to 5.06% for the year ended December 31, 2020, from 5.98% for the year ended December 31, 2019.
Net interest income.
Net interest income increased $10.5 million, or 15.5%, to $78.3 million for the year ended December 31, 2020 compared to $67.8 million for the year ended December 31, 2019.
−Removed: Net interest margin for the year ended December 31, 2019 increased seven basis point to 4.22% from 4.15% for 2018.
+Added: Net interest margin for the year ended December 31, 2020 decreased 38 basis point to 3.84% from 4.22% for 2019.
+Added: During the year, the combination of low interest rate environment putting downward pressure on adjustable rate instruments and the impact of the low loan yields of the PPP loan portfolio, adversely affected net interest margin.
Accretion of acquisition accounting discounts on loans and the recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 31 basis points and 42 basis points during years ended December 31, 2020 and 2019, respectively.
−Removed: The average yield on interest earning assets for the year ended December 31, 2019 was 4.77%, a 23 basis point increase from 4.54% for the year ended December 31, 2018, due primarily to the higher accretion on prior acquired loans and an increase in prevailing market interest rates.
−Removed: The average cost of interest bearing liabilities for the year ended December 31, 2019 was 0.90%, up 28 basis points from 0.62% the year ended December 31, 2018, due primarily to higher market interest rates during most of the year.
+Added: The average yield on interest earning assets for the year ended December 31, 2020 was 4.27%, a 50 basis point decrease from 4.77% for the year ended December 31, 2019.
+Added: The average cost of interest bearing liabilities for the year ended December 31, 2020 was 0.73%, down 17 basis points from 0.90% the year ended December 31, 2019, due primarily to lower market interest rates during most of the year .
Provision for loan losses.
−Removed: We recorded a provision for loan losses of $2.2 million for the year ended December 31, 2019, compared to a provision for loan losses of $1.8 million for the year ended December 31, 2018, an increase of $400,000.
−Removed: The provision primarily was a result of the migration of acquired loans out of the discounted acquired loan portfolio and their subsequent transition to the non-acquired loan pool which requires a reserve allocation.
−Removed: During the year ended December 31, 2019, our allowance for loan losses specific reserves increased to $171,000, from $10,000 the year prior.
+Added: We recorded a provision for loan losses of $10.3 million for the year ended December 31, 2020, compared to a provision for loan losses of $2.2 million for the year ended December 31, 2019, an increase of $8.1 million.
+Added: T he provision for loan losses includes a provision related to the migration of acquired loans out of the discounted acquired loan portfolio and gives consideration of probable loan losses due to changes in economic conditions driven by the impact of COVID-19 on the U.S.
+Added: and global economies .
+Added: In addition, the provision for loan losses also reflects risk rating downgrades on loans that are considered at risk due to the COVID-19 pandemic.
+Added: Our allowance for loan losses specific reserves increased to $521,000 at December 31, 2020, from $171,000 at December 31, 2019.
We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit impaired loans as accounted for in accordance with ASC Topic 310-20, for both the years ended December 31, 2020 and 2019.
−Removed: In addition, no additional provisions were recorded on the purchase credit impaired loans accounted for in accordance with ASC Topic 310-30 during 2019 and 2018 .
−Removed: We had a net recovery of $36,000 for the year ended December 31, 2019 compared to net charge-offs of $917,000 for the year ended December 31, 2018.
−Removed: For the year ended December 31, 2019, charge-offs decreased due to $669,000 of charge-offs related to a single commercial and industrial loan that occurred
−Removed: The ratio of net recoveries/charge-offs to average total loans outstanding was 0.00% for the year ended December 31, 2019 and (0.09)% for the year ended December 31, 2018.
+Added: $107,000 of additional provisions on the purchase credit impaired loans accounted for in accordance with ASC Topic 310-30 during the year ended December 31, 2020, compared to none during 2019.
+Added: We had a net charge-offs of $220,000 for the year ended December 31, 2020 compared to net recoveries of $36,000 for the year ended December 31, 2019.
+Added: For the year ended December 31, 2020, charge-offs increased due primarily to $184,000 of charge-offs related to a single commercial and industrial loan.
+Added: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts.
+Added: Credit discounts are included in the determination of fair value and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.
+Added: However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
+Added: The discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios.
The allowance for loan losses to total loans was 1.06% at December 31, 2020 compared to 0.51% at December 31, 2019.
Noninterest income.
−Removed: Noninterest income increased $2.5 million, or 35.1%, to $9.6 million for the year ended December 31, 2019 compared to $7.1 million for the year ended December 31, 2018.
−Removed: During the current year, the Company sold $38.4 million of SBA loans (guaranteed portion), which generated a gain on sale of $3.0 million.
−Removed: Servicing charges and other fees increased $668,000, or 33.2%, to $2.7 million for the year ended December 31, 2019, compared to $2.0 million for the year ended December 31, 2018, due to higher deposit balances and an increase in the number of deposit accounts, driven by the UFC and TIG acquisitions.
−Removed: Loan servicing and other loan fees increased $702,000, or 56.5%, to $1.9 million for the year ended December 31, 2019, compared to $1.2 million for the year ended December 31, 2018, due primarily to an increase in our SBA loan servicing portfolio and the related servicing fee income which was driven by the UFC and TIG acquisitions.
+Added: Noninterest income decreased $794,000, or 8.3%, to $8.8 million for the year ended December 31, 2020 compared to $9.6 million for the year ended December 31, 2019.
+Added: The decrease in noninterest income was primarily due to a $1.2 million decrease in gain on sale of loans as our SBA loans originated for sale and sold have declined because of the COVID-19 pandemic, partially offset by increases in loan servicing and other loan fees and increases in income from our investment in a Small Business Investment Company (“SBIC”) fund.
+Added: During the year ended December 31, 2020, the Company sold $24.0 million of SBA loans (the guaranteed portion), which generated a gain on sale of $1.8 million , compared to the sale of $38.4 million of SBA loans and a gain of $3.0 million during the year ended December 31, 2019 .
+Added: Loan servicing and other loan fees increased $520,000, or 26.7%, to $2.4 million for the year ended December 31, 2020, compared to $1.9 million for the year ended December 31, 2019, primarily due to an increase in deposit accounts acquired in our recent acquisitions.
+Added: SBIC income increased $206,000, or 30.8%, to $875,000 for the year ended December 31, 2020, compared to $669,000 for the year ended December 31, 2019, showing continued improved operating results throughout the year after sustaining COVID-19 related losses earlier in 2020.
The following table presents the key components of noninterest income for the years ended December 31, 2020 and 2019.
10 unchanged sentences
Noninterest expense increased $7.0 million, or 13.7%, to $58.5 million for the year ended December 31, 2020 compared to $51.5 million for the year ended December 31, 2019.
−Removed: The increase was primarily due to a $7.4 million, or 34.3%, increase in salary and benefits as a result of an increase in the number of employees and severance benefits of $800,000 paid due to the UFC and TIG acquisitions, and normal salary adjustments.
−Removed: Average full-time equivalent employees increased to 304 at December 31, 2019 compared to 214 for the same period in 2018.
−Removed: Occupancy and equipment expense increased $889,000, or 20.9%, primarily due additional occupancy costs related to the operation of the 10 branches acquired from UFC and TIG.
−Removed: As of December 31, 2019, we operated 32 full-service branches, compared to 22 a year earlier.
−Removed: Data processing expense increased $4.6 million, or 119.8%, for the year ended December 31, 2019 compared to last year due primarily to the UFC and TIG acquisitions and higher transaction volumes from the increase in the number of our deposit accounts.
−Removed: Noninterest expense for the year ended December 31, 2019 included $6.6 million of acquisition-related expenses comprised of $835,000 in salaries and benefits, $4.4 million in data processing expenses, $938,000 in professional fees and $480,000 in all other expenses.
+Added: The increase was primarily due to a $5.1 million, or 17.8%, increase in salary and benefits as a result of an i ncrease in the number of full-time equivalent employees and severance benefits paid in connection with the GMB merger and to a lesser extent normal salary increase .
+Added: Occupancy and equipment expense increased $1.9 million, or 37.7%, due to our recent acquisitions.
+Added: Data processing expense was slightly down for the year ended December 31, 2020 compared to the same period in 2019 due to lower acquisition-related expenses compared to the same period in 2019, partially offset by higher transaction volumes from the increase in the number of deposit accounts.
+Added: Other non-interest expense increased slightly for the year ended December 31, 2020 compared to last year reflecting increased fees paid for employee recruiting and internal auditing and compliance related expenses, an increase in FDIC insurance premiums) as the application of $369,000 in FDIC small bank assessment credits reduced expenses in 2019 and the Bank utilized all of its remaining small bank assessment credits in 2020, and increased office expenses due to COVID-19 pandemic related expenses.
+Added: These increases were partially offset by lower marketing and travel expenses due to a reduction in direct mail and marketing campaigns, sponsored events and other
+Added: meeting limitations imposed in response to the COVID-19 pandemic.
+Added: N oninterest expense for the year ended December 31, 2020 included $3.0 million of GMB acquisition-related expenses, comprised of $266,000 in salaries and benefits, $2.0 million in data processing expenses, $369,000 in professional fees and $383,000 in all other expenses;
+Added: compared to $6.6 million of UFC and TIG acquisition-related expenses for the year ended December 31, 2019, comprised of $835,000 in salaries and benefits, $4.4 million in data processing expenses, $938,000 in professional fees and $480,000 in all other expenses.
+Added: Excluding all acquisition-related expenses, noninterest expenses increased $10.7 million, or 23.8%, from the same period of 2019, comprised of increases of $5.7 million in salary and benefits, $1.9 million in occupancy and equipment, $2.2 million in data processing, $610,000 in professional fees and $177,000 in other noninterest expenses.
The following table presents the key components of noninterest expense for the periods indicated:
6 unchanged sentences
Income taxes.
−Removed: Income tax expense increased $377,000, or 6.3%, to $6.4 million for the year ended December 31, 2019 from $6.0 million for the year ended December 31, 2018, reflecting an increase in pre- tax income for the period ended December 31, 2019 and the nondeductible expenses incurred in the UFC and TIG acquisitions.
+Added: Income tax expense decreased $1.9 million, or 29.3%, to $4.5 million for the year ended December 31, 2020 from $6.4 million for the year ended December 31, 2019, reflecting a decrease in pre-tax income for the period ended December 31, 2020 and a decrease in our effective tax rate.
The Company’s effective tax rate was 24.7% for the year ended December 31, 2020 compared to 26.8% for 2019.
−Removed: The increase in the income tax expense and decrease in effective tax rate during the year ended December 31, 2019 were primarily due to a lower state income tax during the period.
+Added: The decrease in the effective tax rate during the year ended December 31, 2020 was primarily due to higher proportion of favorable permanent adjustments relative to taxable income.
Liquidity and Capital Resources
4 unchanged sentences
Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sale of loans.
+Added: During the years ended December 31, 2021, 2020 and 2019, the Bank sold $45.8 million, $24.0 million and $38.4 million in loans and loan participation interests, respectively.
+Added: During the years ended December 31, 2021, 2020 and 2019, the Bank received $490.3 million, $284.4 million and $191.7 million in principal repayments, respectively.
While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition.
−Removed: Our most liquid assets are cash, short term investments, including interest bearing demand deposits and securities available for sale.
−Removed: The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
−Removed: In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.
−Removed: To support the origination of PPP loans, the Federal Reserve authorized the PPPLF to supply liquidity to participating financial institutions through term financing on a non-recourse basis at a rate of 35 basis points, with PPP loans as collateral at face value.
−Removed: The maturity date of this extension of credit will equal the maturity date of the pledged PPP loan.
−Removed: We currently do not intend to use the PPPLF, as we held a substantial cash and cash equivalent position at December 31, 2020.
−Removed: Further, as of December 31, 2020, the Bank had an available borrowing capacity of $421.2 with the FHLB of San Francisco, and Federal Funds lines with available commitments totaling $75.0 million with four correspondent banks.
−Removed: There were no amounts outstanding under these facilities at December 31, 2020 and December 31, 2019.
−Removed: Additionally, the Company classifies its securities portfolio as available for sale, providing an additional source of liquidity.
+Added: Recently, the Bank’s liquidity has been positively impacted by increases in deposit levels.
+Added: During the years ended December 31, 2021 and 2020, deposits increased by $146.8 million, and $137.2 million, respectively.
+Added: As a result, our liquid assets in the form of cash and cash equivalents, interest bearing deposits in banks and investment securities available for sale increased to $135.1 million at December 31, 2021 from $5.6 million at December 31, 2020.
Management believes that our security portfolio is of high quality and the securities would therefore be marketable.
−Removed: We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.
−Removed: Loan commitments and letters of credit were $110.7 million and $128.9 million at December 31, 2020 and 2019, respectively, and certificates of deposit scheduled to mature in one year or less at December 31, 2020, totaled $193.4 million.
+Added: Securities purchased during the years ended December 31, 2021, and 2020 totaled $86.2 million, and $28.4 million, respectively, and securities repayments, maturities and sales in those periods were $15.9 million, and $10.9 million, respectively.
+Added: Certificates of deposit scheduled to mature in one year or less at December 31, 2021, totaled $131.6 million.
It is management’s policy to manage 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.
+Added: In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.
+Added: As of December 31, 2021, the Bank had an available borrowing capacity of $483.1 million with the FHLB of San Francisco and $69.6 million with the FRB of San Francisco.
+Added: Federal Funds lines with available commitments totaling $65.0 million with three correspondent banks.
+Added: There were no amounts outstanding under these facilities at December 31, 2021 and December 31, 2020.
+Added: 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.
+Added: Liquidity management is both a daily and long-term function of the Company’s management.
+Added: Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds.
+Added: On a longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S.
+Added: Government obligations and U.S.
+Added: agency securities.
+Added: We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.
+Added: Loan commitments and letters of credit were $104.1 million and $110.7 million, including $3.2 million and $13.0 million of undisbursed construction and development loan commitments, at December 31, 2021 and 2020, respectively.
+Added: For information regarding our commitments, see “Note 16 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8.
+Added: Financial Statements and Supplementary Data” of this Form 10 K.
Our cash flows are comprised of three primary classifications:
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Net cash provided by operating activities was $10.4 million and $10.0 million for the years ended December 31, 2021 and 2020, respectively.
−Removed: During the year ended December 31, 2020, net cash used in investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $73.7 million, compared to $927,000 of cash provided by investing activities for the year ended December 31, 2019.
−Removed: Net cash provided by financing activities, which is comprised primarily of net change in deposits, proceeds from the issuance of the Notes and other borrowings, was $67.6 million for the year ended December 31, 2020, compared to $36.1 million of net cash used in financing activities for the year ended December 31, 2019.
+Added: During the year ended December 31, 2021, net cash used in investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $60.4 million, compared to $73.7 million of cash used in investing activities for the year ended December 31, 2020.
+Added: Net cash provided by financing activities, which is comprised primarily of net change in deposits, proceeds from the issuance of the Notes and other borrowings, was $130.3 million for the year ended December 31, 2021, compared to $67.6 million for the year ended December 31, 2020.
+Added: We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets.
+Added: We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.
+Added: The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.
+Added: Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during the year ending December 31, 2022 that would materially impact liquidity.
+Added: We also have purchase obligations, generally with remaining terms of less than three years and contracts with various vendors to provide services, including information processing, for periods generally ranging from one to five years, for which our financial obligations are dependent upon acceptable performance by the vendor.
+Added: In addition, at December 31, 2021, we had other future obligations and accrued expenses of $26.5 million.
+Added: For the year ending December 31, 2022, we project that our commitments will include $12.7 million of operating lease payments.
+Added: There are $3.7 million of scheduled interest payments due on Notes and junior subordinate debentures in 2022 (excluding any other borrowings that may be made after December 31, 2021).
+Added: In addition, at December 31, 2021, there were other future obligations and accrued expenses of $12.9 million.
+Added: For information regarding our operating leases, see “Note 7, Leases” of the Notes to Consolidated Financial Statements included in “Item 8.
+Added: Financial Statements and Supplementary Data” of this Form 10-K.
+Added: We believe that our liquid assets combined with the available lines of credit provide adequate liquidity to meet our current financial obligations for at least the next 12 months.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity.
At December 31, 2021, the Company, on an unconsolidated basis, had liquid assets of $15.9 million.
−Removed: In addition to its operating expenses,
−Removed: the Company is responsible for paying any dividends declared to its shareholders, funds paid out for Company stock repurchases, and payments on trust-preferred securities and the Notes held at the Company level.
+Added: In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders, funds paid out for Company stock repurchases, and payments on trust-preferred securities and the Notes held at the Company level.
The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends.
+Added: As of December 31, 2021, the Company had not paid any cash dividends on its common stock.
+Added: Subsequent to year end, however, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share on the Company’s outstanding common stock, payable on April 15, 2022 to shareholders of record as of the close of business on March 11, 2022.
+Added: The Company expects to continue to pay quarterly cash dividends on its common stock subject to the Board of Director’s discretion to modify or terminate this practice at any time and for any reason without prior notice.
+Added: Assuming continued payment during 2022 at this rate of $0.05 per share, our average total dividend paid each quarter would be approximately $686,000 based on the number of our current outstanding shares (which assumes no increases or decreases in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards).
+Added: The dividends, if any, we may pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I.
+Added: Business” of this Form 10-K.
+Added: From time to time, our Board of Directors has authorized stock repurchase plans.
+Added: In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders.
+Added: Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.
+Added: In December 2021, the Company’s board of directors approved its fifth stock repurchase program pursuant to which the Company may repurchase up to seven percent of the Company’s common stock, or approximately 747,000 shares, of which 742,532 shares remain available for repurchase at December 31, 2021.
+Added: The repurchase program 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.
+Added: The repurchase program does not obligate the Company to purchase any particular number of shares.
+Added: See "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” contained in Item 5, Part II of this Form 10-K for additional information relating to stock.
+Added: Regulatory capital.
The Bank, as a state-chartered, federally insured commercial bank, and member of the Federal Reserve is subject to the capital requirements established by the Federal Reserve.
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For additional information see “Item 1.
−Removed: Business-Supervision and Regulation — Bank Regulation — Capital Matters”, “Regulatory Capital Compliance” and Note 19, “Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8.
+Added: 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”, within this report.
−Removed: Off-Balance Sheet Arrangements
−Removed: In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial statements.
−Removed: These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.
−Removed: Such transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit.
−Removed: For information about our loan commitments, unused lines of credit and standby letters of credit, see Note 16 — Commitment and Contingencies in the Notes to the Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data” within this report.
−Removed: We have not engaged in any other off-balance sheet transactions in the normal course of our lending activities.
Quantitative and Qualitative Disclosures About Market and Interest Rate Risk
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(1) This data does not reflect any actions that we may undertake in response to changes in interest rates such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on net interest income, if any.
−Removed: The overall lower NII sensitivity, with respect to a drop in interest rates, at December 31, 2020 compared to December 31, 2019, is primarily due the current low interest rate environment and the decrease in the amount of variable loans in our total loan portfolio (primarily due to fixed rate PPP loans originated during the year ended December 31, 2020).
−Removed: Not only did the proportion of variable loans go down, but a significantly higher proportion of these variable loans are already at their floor interest rate.
−Removed: In addition, our long-term debt is tied to fixed rates and the proportion of noninterest bearing deposits in our total deposit base is increasing, which are two factors that limit the sensitivity of interest expense to any change in rates.
As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above.
9 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.