What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 174 added, 279 removed, 647 unchanged (41% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Income (unaudited)

Condensed Consolidated Statements of Comprehensive Income (unaudited)

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

4 unchanged sentences

(In thousands, except for share data)

September 30,

Cash and due from banks

6 unchanged sentences

Loans held for sale

Loans, net of allowance for loan losses of $ 17,300 at September 30, 2021 and $ 17,500 December 31, 2020

Loans, net of allowance for loan losses of $ 17,700 at March 31, 2022 and $ 17,700 December 31, 2021

Premises and equipment, net

Other real estate owned ("OREO")

Core deposit intangible

Core deposit intangible, net

Cash surrender value of bank owned life insurance ("BOLI") policies, net

Right-of-use assets ("ROU")

Right-of-use assets ("ROU"), net

Interest receivable and other assets

1 unchanged sentence

Noninterest and interest bearing deposits

Other borrowings

Junior subordinated deferrable interest debentures, net

8 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at both September 30, 2021 and December 31, 2020

no shares issued and outstanding at both March 31, 2022 and December 31, 2021

Common stock, no par value;

100,000,000 shares authorized;

10,685,511 and 11,295,397 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

13,677,729 and 10,680,386 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid in capital

7 unchanged sentences

Three months ended

Nine months ended

September 30,

Interest income:

9 unchanged sentences

Net interest income

Provision for (reversal of) loan losses

Provision for loan losses

Net interest income after provision for loan losses

3 unchanged sentences

Loan servicing and other loan fees

(Loss)/gain on sale of premises

Income on investment in Small Business Investment Company (“SBIC”) fund

(Loss)/gain on sale of OREO

Gain on sale of OREO

Bargain purchase gain

Other income and fees

14 unchanged sentences

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

Three months ended

Nine months ended

September 30,

Other comprehensive income:

Change in unrealized (loss) gain on available-for-sale securities

Deferred tax benefit (expense)

Other comprehensive (loss)/income, net of tax

Total comprehensive income

Other comprehensive loss:

Change in unrealized loss on available-for-sale securities

Deferred tax benefit

Other comprehensive loss, net of tax

Total comprehensive (loss) income

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except for share data)

(In thousands, except for share and per share data)

Comprehensive

2 unchanged sentences

Balance, December 31, 2020

Other comprehensive income, net

Restricted stock granted

Restricted stock forfeited

Stock based compensation

Repurchase of shares

Balance, March 31, 2020

Other comprehensive income, net

Restricted stock granted

Stock based compensation

Repurchase of shares

Balance, June 30, 2020

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Stock based compensation

Repurchase of shares

Balance, September 30, 2020

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Stock based compensation

Repurchase of shares

Balance, March 31, 2021

Balance, December 31, 2021

2 unchanged sentences

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.05 per share

Stock based compensation

1 unchanged sentence

Balance, March 31, 2022

Other comprehensive income, net

Restricted stock granted

Restricted stock forfeited

Stock based compensation

Repurchase of shares

Balance, June 30, 2021

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Stock based compensation

Repurchase of shares

Balance, September 30, 2021

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(In thousands)

Nine months ended

September 30,

Three months ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

(Reversal of) provision for loan losses

Increase in deferred tax assets

Provision for loan losses

Increase (decrease) in deferred tax assets

Accretion on acquired loans

Gain on sale of loans

Gain on sale of securities

Proceeds from sale of loans

Loans originated for sale

(Loss)/gain on sale of premises, net

Gain on sale of premises, net

Gain on sale of OREO

Bargain purchase gain

Accretion on junior subordinated debentures

4 unchanged sentences

Stock based compensation expense

Increase in deferred loan origination fees, net

(Decrease) increase in deferred loan origination fees, net

Increase in interest receivable and other assets

Increase in salary continuation plan, net

Decrease in interest payable and other liabilities

(Decrease) increase in interest payable and other liabilities

Net cash provided by operating activities

4 unchanged sentences

Proceeds from the sales of investment securities

Purchase of Federal Home Loan Bank stock

Purchase of Federal Reserve Bank stock

Decrease (increase) in loans, net

Redemption (purchase) of Federal Reserve Bank stock

Increase in loans, net

Proceeds from sale of premises

1 unchanged sentence

Purchase of equipment and leasehold improvements, net

Net cash paid out for acquisitions

Net cash used in investing activities

Net cash received for acquisitions

Net cash provided by investing activities

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(In thousands)

Nine months ended

September 30,

Three months ended

Cash flows from financing activities:

1 unchanged sentence

Decrease in time deposits, net

Repayment of junior subordinated debentures

Proceeds from issuance of subordinated debt, net

Repayment of Federal Home Loan Bank borrowings

Increase in other borrowings

Repayment of other borrowings

Repurchase of common stock

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Increase in cash and cash equivalents

6 unchanged sentences

Non-cash investing and financing activities:

Change in unrealized (loss) gain on available-for-sale securities, net of tax

Change in unrealized loss on available-for-sale securities, net of tax

Transfer of loans to other real estate owned

1 unchanged sentence

Recognition of lease liability

Cash dividends declared on common stock

Assets acquired, net of cash received

Liabilities assumed

Cash consideration

Common stock issued

BAYCOM CORP AND SUBSIDIARY

4 unchanged sentences

United Business Bank (the “Bank”), the Company’s wholly owned banking subsidiary, is a California state-chartered bank which provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals.

In the 17 years of operation, the Bank has grown to 33 full-service banking branches with 15 locations in California and two in Washington, five in Central New Mexico and 11 in Colorado.

In the 17 years of operation, the Bank has grown to 34 full-service banking branches with 16 locations in California, two in Washington, five in Central New Mexico and 11 in Colorado.

The condensed consolidated financial statements include the accounts of the Company and the Bank.

11 unchanged sentences

Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

On February 4, 2020 , the Company completed its acquisition of Grand Mountain Bancshares, Inc.

(“GMB”) and its wholly owned subsidiary Grand Mountain Bank, headquartered in Granby, Colorado (“GMB Merger”).

See “Note 3 – Acquisitions” for additional information on the GMB Merger.

On February 1, 2022 , the Company completed its acquisition of Pacific Enterprise Bancorp (“PEB”) and its wholly owned subsidiary of Pacific Enterprise Bank, headquartered in Irvine, California (“PEB Merger”).

See “Note 3 – Acquisitions” for additional information on the PEB Merger.

NOTE 2 - ACCOUNTING GUIDANCE NOT YET EFFECTIVE AND ADOPTED ACCOUNTING GUIDANCE

Recent Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 provides that state franchise or similar taxes that are based, at least in part on an entity’s income, be included in an entity’s income tax recognized as income-based taxes.

The ASU further clarifies that the effect of any change in tax laws or rates used in the computation of the annual effective tax rate are required to be reflected in the first interim period that includes the enactment date of the legislation.

Technical changes to eliminate exceptions to Topic 740 related to intra-period tax allocations for entities with losses from continuing operations, deferred tax liabilities related to change in ownership of foreign entities, and interim-period tax allocations for businesses with losses where the losses are expected to be realized.

The Company adopted ASU 2019-12 on December 15, 2020 .

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

In October 2020, the FASB issued ASU 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”).

ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period.

The Company adopted ASU 2020-08 on December 15, 2020.

The adoption of ASU 2020-08 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and subsequent amendment to the initial guidance in November 2018, ASU No.

2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and in May 2019, ASU 2019-05 Financial Instruments — Credit Losses, Topic 326, all of which clarifies codification and corrects unintended application of the guidance.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the initial guidance in November 2018, ASU No.

2018-19, April 2019, ASU 2019-04, May 2019, ASU 2019-05, November 2019, ASU 2019-11, February 2020, ASU 2020-02, and March 2020, ASU 2020-03, all of which clarifies codification and corrects unintended application of the guidance.

ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

6 unchanged sentences

For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today.

As a result, entities will recognize improvements to estimated credit losses immediately

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

in earnings rather than as interest income over time, as they do today.

The ASU also simplifies the accounting model for purchased credit-impaired (“PCI”) debt securities and loans.

25 unchanged sentences

The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

In March 2022 the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

The ASU eliminates the accounting guidance for loans modified as troubled debt restructurings (“TDR loans”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

This ASU will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Corporation’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology.

NOTE 3 – ACQUISITIONS

Pending Acquisition of Pacific Enterprise Bancorp

On September 7, 2021, the Company entered into a definitive agreement with Pacific Enterprise Bancorp (“PEB”), which is headquartered in Irvine, California.

Pursuant to the merger agreement PEB will merge with and into the Company, with the Company as the surviving corporation in the merger.

Immediately after the merger, Pacific Enterprise Bank, a California state-chartered bank and wholly owned subsidiary of PEB, will merge with and into the Bank, with the Bank as the surviving bank.

Pacific Enterprise Bank originates commercial and consumer loans and receives deposits from its customers who are predominately small and middle-market businesses and individuals located primarily in Orange County, California.

Upon consummation of the merger, each PEB shareholder will receive 1.0292 shares of Company common stock (the “Exchange Ratio”) in exchange for each share of PEB common stock.

Options to purchase PEB common stock outstanding at the effective time of the merger will be cancelled for a cash payment equal to the product of (i) the total number of shares of PEB common stock underlying the PEB option multiplied by (ii) the amount, if any, that the product of the volume weighted average closing price per share of Company common stock, as reported on the NASDAQ for the 15 trading days immediately preceding the closing date multiplied by the Exchange Ratio, exceeds the exercise price per share of such PEB option.

The transaction is valued at approximately $ 53.1 million in aggregate based on the closing price of Company common stock of $ 17.28 on September 3, 2021.

The total value of the merger consideration will fluctuate until closing based on the value of the Company's stock price.

Upon consummation of the merger, the shareholders of PEB will own approximately 22.2 % of the combined company.

The transaction was approved and adopted by the Board of Directors of each company and is expected to be completed in the first calendar quarter of 2022, subject to customary closing conditions, regulatory approval, and approval of the Company’s and PEB’s shareholders.

Acquisition of Grand Mountain Bancshares, Inc.

On February 4, 2020 , the Company completed the GMB Merger.

As of the acquisition date, GMB merged into the Company and Grand Mountain Bank, GMB’s wholly owned bank subsidiary, merged into United Business Bank.

The acquisition expanded the Company’s market share in Colorado with the addition of four branches located in Grand County, Colorado.

Under the terms of the merger agreement, the Company paid GMB shareholders $ 3.40 in cash for each share or approximately $ 13.9 million.

Acquisition of Pacific Enterprise Bancorp (“PEB”)

On February 1, 2022, the Company completed the PEB Merger.

As of the acquisition date, PEB merged into the Company and Pacific Enterprise Bank, PEB’s wholly owned bank subsidiary, merged into United Business Bank.

The acquisition expanded the Company’s market share in California with one branch in Irvine.

Pursuant to the merger agreement, at the effective time of the PEB Merger, BayCom paid aggregate consideration to PEB shareholders of approximately $ 64.1 million consisting of 3,032,579 shares of BayCom common stock and $ 275,000 in cash.

Noninterest income for the current quarter included $ 1.6 million in bargain purchase gain, offset by $ 3.1 million of nonrecurring acquisition-related expenses included in noninterest expense related to the Company’s acquisition of PEB.

BAYCOM CORP AND SUBSIDIARY

5 unchanged sentences

Cash and due from banks

Federal funds sold

Total cash and cash equivalents

6 unchanged sentences

Deferred tax assets, net

Servicing asset

Interest receivable and other assets

3 unchanged sentences

Total Deposits

Junior subordinated debentures, net

Interest payable and other liabilities

Total liabilities assumed

Stock consideration

Cash consideration

Bargain purchase gain

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

The following table presents the net assets acquired and the estimated fair value adjustments, which resulted in goodwill at the acquisition date:

The following table presents the net assets acquired and the estimated fair value adjustments, which resulted in bargain purchase gain at the acquisition date:

February 1, 2022

1 unchanged sentence

Fair value adjustments:

Investments available-for-sale

Premises and equipment, net

Write-down on OREO

Core deposit intangible

Time deposits

Write-down on servicing assets

Junior subordinated debentures, net

Write-down other (assets) liabilities

Reserve for unfunded commitments

Write-up right-of-use asset

Total purchase accounting adjustments

Fair value of net assets acquired

Common stock issued

Total price paid

Tax effect of purchase accounting adjustments at 27.9 %

Fair value of assets acquired

Value of stock issued/cash paid for stock options

Bargain purchase gain

Pro Forma Results of Operations

The operating results of the Company for the three and nine months ended September 30, 2021 in the condensed consolidated statements of income include the operating results of GMB, since its acquisition date.

The following table represents the net interest income, net income, basic and diluted earnings per share, as if the GMB Merger was effective January 1, 2020.

The operating results of the Company for the three months ended March 31, 2022 in the condensed consolidated statements of income include the operating results of PEB, since its acquisition date.

The following table represents the net interest income, net income, basic and diluted earnings per share, as if the PEB Merger was effective January 1, 2021.

The unaudited pro forma information in the following table is intended for informational purposes only and is not necessarily indicative of future operating results or operating results that would have occurred had the mergers been completed at the beginning of the respective years.

1 unchanged sentence

Unaudited pro forma net interest income, net income and earnings per share are presented below:

Three months ended

Nine months ended

Three Months Ended March 31,

Net interest income

2 unchanged sentences

These amounts include the third-party acquisition related-expenses, accretion of the discounts on acquired loans and amortization of the fair value mark adjustments on core deposit intangible.

Acquisition expenses

Acquisition expenses are recognized as incurred and continue until all systems are converted and operational functions become fully integrated.

No third-party acquisition expenses were recognized in the consolidated statements of

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

Acquisition expenses

Acquisition expenses are recognized as incurred and continue until all systems are converted and operational functions become fully integrated.

No third-party acquisition expenses were recognized in the consolidated statements of income for the three months ended September 30, 2021 and 2020 and for the nine months ended September 30, 2021.

The Company recognized third-party acquisition expenses for the nine months ended September 30, 2020 as follows:

Professional fees

Data processing

income for the three months ended March 31, 2021.

The Company recognized third-party acquisition expenses for the three months ended March 31, 2022, as follows:

Severance expense

Occupancy expense

Data processing

Professional fees

Other expenses

1 unchanged sentence

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale at the dates indicated are summarized as follows:

September 30, 2021

March 31, 2022

Government Agencies

7 unchanged sentences

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

During the three and nine months ended September 30, 2021, the Company sold six securities available-for-sale for gross realized gains of $ 22,000 and did not sell any securities available-for-sale for the three and nine months ended September 30, 2020.

During the three months ended March 31, 2022, the Company sold one available-for-sale securities for minimal realized gains and did not sell any securities available-for-sale for the three months ended March 31, 2021.

BAYCOM CORP AND SUBSIDIARY

4 unchanged sentences

12 months or more

September 30, 2021

March 31, 2022

Government Agencies

Preferred Equity Securities

Municipal securities

Mortgage-backed securities

5 unchanged sentences

December 31, 2021

Government Agencies

Municipal securities

3 unchanged sentences

Corporate bonds

At September 30, 2021, the Company held 324 investment securities, of which 18 were in an unrealized loss position for more than twelve months and 19 were in an unrealized loss position for less than twelve months.

At March 31, 2022, the Company held 348 investment securities, of which 20 were in an unrealized loss position for more than twelve months and 163 were in an unrealized loss position for less than twelve months.

These temporary unrealized losses relate principally to current interest rates for similar types of securities.

The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment.

Deterioration in market and economic conditions related to the COVID-19 pandemic may, however, have an adverse impact on credit quality in the future and result in other-than-temporary impairment charges.

The amortized cost and estimated fair value of securities available-for-sale at the dates indicated by contractual maturity are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2021

March 31, 2022

December 31, 2021

9 unchanged sentences

The Company’s loan portfolio at the dates indicated is summarized below:

September 30,

Commercial and industrial

3 unchanged sentences

Allowance for loan losses

The Company’s total impaired loans, including nonaccrual loans, loans modified as troubled debt restructurings (“TDR loans”), and accreting purchase credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are summarized as follows:

During the first quarter of 2022, the Bank continued its participation in the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), by processing applications for PPP loan forgiveness.

The Company’s total impaired loans, including nonaccrual loans TDR loans, and accreting purchase credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are summarized as follows:

and industrial

September 30, 2021

March 31, 2022

Recorded investment in impaired loans:

9 unchanged sentences

Specific allowance on impaired loans

Three months ended September 30, 2021

Average recorded investment in impaired loans

Interest recognized

Nine months ended September 30, 2021

Average recorded investment in impaired loans

Interest recognized

Three months ended September 30, 2020

Three months ended March 31, 2022

Average recorded investment in impaired loans

Interest recognized

Nine months ended September 30, 2020

Three months ended March 31, 2021

Average recorded investment in impaired loans

1 unchanged sentence

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.

Impaired loans on accrual are comprised solely of TDR

Impaired loans on accrual are comprised solely of TDR loans performing under modified loan agreements, whose principal and interest is determined to be collectible.

Nonaccrual loans are loans where principal and interest have been determined to not be fully collectible.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

loans performing under modified loan agreements, whose principal and interest is determined to be collectible.

Nonaccrual loans are loans where principal and interest have been determined to not be fully collectible.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR loan.

1 unchanged sentence

These loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured debt.

For the three and nine months ended September 30, 2021 and 2020, the Company recorded no charge-offs related to TDR loans.

During the three and nine months ended September 30, 2021 and 2020, there were no TDR loans for which there was a payment default within the first 12 months of the modification.

As of September 30, 2021 and December 31, 2020, TDR loans had a related allowance of $ 130,000 and $ 35,000 , respectively.

As of September 30, 2021 and December 31, 2020, $ 765,000 and $ 798,000 , respectively, of TDR loans were performing in accordance with their modified terms.

For the three months ended March 31, 2022 and 2021, the Company recorded no charge-offs related to TDR loans.

During the three months ended March 31, 2022 and 2021, there were no TDR loans for which there was a payment default within the first 12 months of the modification.

As of March 31, 2022 and December 31, 2021, TDR loans had a related allowance of $ 878,000 and $ 31,000 , respectively.

As of March 31, 2022 and December 31, 2021, $ 794,000 and $ 805,000 , respectively, of TDR loans were performing in accordance with their modified terms.

All TDR loans are also included in the loans individually evaluated for impairment as part of the calculation of the allowance for loan losses.

There were no commitments to lend additional amounts to borrowers with outstanding loans that are classified as TDR loans at September 30, 2021.

There were no commitments to lend additional amounts to borrowers with outstanding loans that are classified as TDR loans at March 31, 2022.

A summary of TDR loans by type of concession and type of loan, as of the periods indicated:

September 30, 2021

March 31, 2022

Commercial and industrial

1 unchanged sentence

Commercial real estate

September 30, 2020

March 31, 2021

Commercial and industrial

1 unchanged sentence

Commercial real estate

There were no loans and one loan modified as a TDR during the three and nine months ended September 30, 2021, respectively.

There was one loan and two loans modified as a TDR during the three and nine months ended September 30, 2020, respectively.

During the third quarter of 2021, the Bank continued its participation in the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), by processing applications for PPP loan forgiveness.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

There was one loan modified as a TDR during the three months ended March 31, 2022.

There were two loans modified as TDRs during the three months ended March 31, 2021.

Risk Rating System

5 unchanged sentences

Loans with low to average credit risk are assigned a lower risk grade than those with higher credit risk as determined by the individual loan characteristics.

All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification is reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.

The Company’s Pass loans includes loans with acceptable business or individual credit risk where the borrower’s operations, cash flow or financial condition provides evidence of low to average levels of risk.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

Loans that are assigned higher risk grades are loans that exhibit the following characteristics:

23 unchanged sentences

Doubtful loans have a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of the credit.

Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure.

Recoveries on loans previously charged off are credited to the allowance for loan losses.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure.

Recoveries on loans previously charged off are credited to the allowance for loan losses.

The following tables present the internally assigned risk grade by class of loans at the dates indicated:

September 30, 2021

March 31, 2022

Commercial and industrial

6 unchanged sentences

The following tables provide an aging of the Company’s loans receivable as of the dates indicated:

September 30, 2021

March 31, 2022

Commercial and industrial

5 unchanged sentences

Commercial real estate

The balance of nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, was $ 841,000 at September 30, 2021 compared to $ 850,000 at December 31, 2020.

At September 30, 2021 and

The balance of nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, was $ 822,000 at March 31, 2022 compared to $ 841,000 at December 31, 2021.

At March 31, 2022 and December 31, 2021, nonaccrual loans included $ 5.6 million and $ 6.9 million, respectively, of loans 30-89 days past due and $ 2.2 million and $ 2.5 million of loans less than 30 days past due, respectively.

At March 31, 2022, nonaccrual loans 30-89 days past due of $ 5.6 million was primarily comprised of one $ 4.9 million commercial and industrial loan

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

December 31, 2020, nonaccrual loans included $ 2.5 million and $ 620,000 of loans 30-89 days past due and $ 2.5 million and $ 4.1 million of loans less than 30 days past due, respectively.

At September 30, 2021, nonaccrual loans 30-89 days past due of $ 2.5 million primarily was comprised of two loans and the $ 2.5 million of loans less than 30 days past due was comprised of 13 small balance loans.

At December 31, 2020, nonaccrual loans 30-89 days past due of $ 620,000 primarily was comprised of four loans and the $ 4.1 million of loans less than 30 days past due are comprised of 12 small balance loans.

All of these loans were placed on nonaccrual due to concerns over the client’s financial condition.

Interest foregone on nonaccrual loans was approximately $ 61,000 and $ 157,500 for the three and nine months ended September 30, 2021 compared to $ 117,500 and $ 338,500 for the three and nine months ended September 30, 2020, respectively.

restructured as a TDR during the three months ended March 31, 2022 and seven smaller loans, and the $ 2.2 million of loans less than 30 days past due are comprised of 11 loans.

All of these loans were placed on nonaccrual due to concerns over the financial condition of the borrowers.

There was one loan totaling $ 117,000 that was 90 days or more past due and still accruing at March 31, 2022, compared to no loans at December 31, 2021.

Interest foregone on nonaccrual loans was approximately $ 84,600 for the three months ended March 31, 2022 compared to $ 88,300 for the three months ended March 31, 2021.

Purchased Credit Impaired Loans

7 unchanged sentences

The unpaid principal balance and carrying value of the Company’s PCI loans at the dates indicated are as follows:

September 30, 2021

March 31, 2022

December 31, 2021

4 unchanged sentences

Three months ended

Nine months ended

September 30,

Balance at beginning of period

4 unchanged sentences

NOTE 6 – ALLOWANCE FOR LOAN LOSSES

The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment by type of loan as of or for the three and nine months ended September 30, 2021 and 2020:

and industrial

Three months ended September 30, 2021

Allowance for loan losses

Beginning balance

Provision for (reversal of) loan losses

Ending balance

Nine months ended September 30, 2021

March 31, 2022

Allowance for loan losses

2 unchanged sentences

Ending balance

September 30, 2021

Allowance for loan losses by methodology:

4 unchanged sentences

Collectively evaluated for impairment

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

and industrial

Three months ended September 30, 2020

Allowance for loan losses

Beginning balance

Provision for loan losses

Ending balance

Nine months ended September 30, 2020

March 31, 2021

Allowance for loan losses

Beginning balance

Provision (reclassification) for loan losses

Provision for (reversal of) loan losses

Ending balance

September 30, 2020

Allowance for loan losses by methodology:

4 unchanged sentences

Collectively evaluated for impairment

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

NOTE 7 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at the dates indicated:

September 30,

Premises owned

3 unchanged sentences

Total premises and equipment, net

Depreciation and amortization included in occupancy and equipment expense totaled $ 519,000 and $ 1.5 million for the three and nine months ended September 30, 2021 and $ 445,000 and $ 1.3 million for the three and nine months ended September 30, 2020, respectively.

Depreciation and amortization included in occupancy and equipment expense totaled $ 507,000 and $ 502,000 for the three months ended March 31, 2022 and 2021, respectively.

NOTE 8 – LEASES

1 unchanged sentence

These leases expire on various dates through 2030.

The Company’s leases often have an option to renew one or more times, at the Company’s discretion,

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

following the expiration of the initial term.

The Company’s leases often have an option to renew one or more times, at the Company’s discretion, following the expiration of the initial term.

If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

1 unchanged sentence

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of September 30, 2021:

For the remainder of 2021

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of March 31, 2022:

For remainder of 2022

Total undiscounted cash flows

1 unchanged sentence

The following table presents the weighted average lease term and discount rate at the date indicated:

September 30, 2021

March 31, 2022

Weighted-average remaining lease term

Weighted-average discount rate

Rental expense included in occupancy and equipment on the consolidated statements of income totaled $ 906,000 and $ 2.6 million for the three and nine months ended September 30, 2021 and $ 829,000 and $ 2.5 million for the three and nine months ended September 30, 2020, respectively.

Rental expense included in occupancy and equipment on the consolidated statements of income totaled $ 1.3 million and $ 810,000 for the three months ended March 31, 2022 and 2021, respectively.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

NOTE 9 – GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

Core deposit intangible represents the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and amortized over an estimated useful live of seven to ten years .

The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Impairment exists when a reporting unit’s fair value is less than its carrying amount, including goodwill.

Due to the adverse and unknown economic impacts resulting from the COVID-19 pandemic, the Company performed a goodwill impairment qualitative assessment during the third quarter of 2021 to determine if it is not more likely than not that the fair value of the Company’s reporting unit exceeded its carrying value, including goodwill.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

(Tables in thousands, except for share and per share data)

As of September 30, 2021, the Company’s qualitative assessment which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during the first nine months of 2021, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

Any impairment charge could have a material adverse effect on the Company’s results of operations and financial condition.

Changes in the Company's goodwill at September 30, 2021 and December 31, 2020 are as follows:

September 30,

Changes in the Company's goodwill at March 31, 2022 and December 31, 2021 are as follows:

Balance at beginning of period

2 unchanged sentences

Core Deposit Intangible

Changes in the Company’s core deposit intangible at September 30, 2021 and December 31, 2020 were as follows:

September 30,

Changes in the Company’s core deposit intangible at March 31, 2022 and December 31, 2021 were as follows:

Balance at beginning of period

1 unchanged sentence

Balance at end of period

Estimated annual amortization expense at September 30, 2021 is as follows:

For the remainder of 2021

Estimated annual amortization expense at March 31, 2022 is as follows:

For remainder of 2022

BAYCOM CORP AND SUBSIDIARY

3 unchanged sentences

The Company’s interest receivable and other assets at the dates indicated consisted of the following:

September 30,

Tax assets, net

Accrued interest receivable

Investment in SBIC Fund

Investment in Small Business Investment Company ("SBIC") fund

Investment in Community Reinvestment Act fund

Prepaid assets

Servicing assets

Low income housing partnerships, net

Investment in Low Income Housing Tax Credit ("LIHTC") partnerships, net

Investment in statutory trusts

At March 31, 2022, the Company had remaining commitments to the LIHTC partnerships and the SBIC fund of $ 3.2 million and $ 122,000 , respectively.

NOTE 11 – DEPOSITS

The Company’s deposits consisted of the following at the dates indicated:

September 30,

Demand deposits

3 unchanged sentences

Other borrowings – The Bank has an approved secured borrowing facility with the Federal Home Loan Bank of San Francisco (the “FHLB”) for up to 25 % of total assets for a term not to exceed five years under a blanket lien of certain types of loans.

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.

At December 31, 2020, the first tranche was repaid.

At September 30, 2021, the second tranche was repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco at that date.

The Bank has Federal Funds lines with four corresponding banks.

Cumulative available commitments totaled $ 75.0 million at both September 30, 2021 and December 31, 2020.

There were no amounts outstanding under these facilities at September 30, 2021 and December 31, 2020.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures, totaling $ 8.4 million net of mark-to-market adjustments at September 30, 2021 with a weighted average interest rate of 2.70 % , compared to $ 8.3 million with a weighted average rate of 2.80 % at December 31, 2020 .

At both March 31, 2022 and December 31, 2021, the Company had no FHLB advances outstanding.

The Company has Federal Funds lines with four corresponding banks.

Cumulative available commitments totaled $ 65.0 million at both March 31, 2022 and December 31, 2021.

There were no amounts outstanding under these facilities at both March 31, 2022 and December 31, 2021.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures, totaling $ 8.4 million net of mark-to-market adjustments March 31, 2022 with a weighted average interest rate of 3.44 % , compared to $ 8.4 million with a weighted average rate of 2.79 % at December 31, 2021 .

The junior subordinated deferrable interest debentures have a stated maturity term of 30 years .

Subordinated debt – On August 6, 2020, the Company issued and sold $ 65.0 million aggregate principal amount of 5.25 % Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”) at a public offering price equal to 100 % of the aggregate principal amount of the Notes.

The offering of the Notes closed on August 10, 2020.

The Notes initially bears a fixed interest rate of 5.25 % per year.

Commencing on September 15, 2025, the interest rate on the Notes resets

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

quarterly to the three-month Secured Overnight Financing rate plus a spread of 521 basis points ( 5.21 %), payable quarterly in arrears.

the aggregate principal amount of the Notes.

The offering of the Notes closed on August 10, 2020.

The Notes initially bears a fixed interest rate of 5.25 % per year.

Commencing on September 15, 2025, the interest rate on the Notes resets quarterly to the three-month Secured Overnight Financing rate plus a spread of 521 basis points ( 5.21 %), payable quarterly in arrears.

Interest on the Notes is payable semi-annually on March 15 and September 15 of each year through September 15, 2025 and quarterly thereafter on March 15, June 15, September 15 and December 15 of each year through the maturity date or early redemption date.

The Company, at its option, may redeem the Notes, in whole or in part, on any interest payment date on or after September 15, 2025, without a premium.

At September 30, 2021, the Company had outstanding Notes, net of cost to issue, totaling $ 63.5 million.

At March 31, 2022 and December 31, 2021, the Company had outstanding Notes, net of cost to issue, totaling $ 63.6 million and $ 63.5 million, respectively.

NOTE 13 – INTEREST PAYABLE AND OTHER LIABILITIES

The Company’s interest payable and other liabilities at the dates indicated consisted of the following:

September 30,

Accrued expenses

6 unchanged sentences

Three months ended

Nine months ended

September 30,

Professional fees

9 unchanged sentences

The Company expenses marketing and promotions costs as they are incurred.

Advertising expense included in marketing and promotions totaled $ 13,000 and $ 55,000 for the three and nine months ended September 30, 2021 and $ 59,000 and $ 193,000 for the three and nine months ended September 30, 2020, respectively.

NOTE 15 – EQUITY INCENTIVE PLANS

2017 Omnibus Equity Incentive Plan

The shareholders approved the Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017.

The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-

Advertising expense included in marketing and promotions totaled $ 21,000 and $ 17,000 for the three months ended March 31, 2022 and 2021, respectively.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

employee directors.

NOTE 15 – EQUITY INCENTIVE PLANS

Equity Incentive Plans

2017 Omnibus Equity Incentive Plan

The shareholders approved the Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017.

The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-employee directors.

An equity incentive award may be an option, stock appreciation rights, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan.

6 unchanged sentences

Awarded shares of restricted stock vest over (i) a one-year period following the date of grant, in the case of the non-employee directors, and (ii) a three-year or five-year period following the date of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers.

As of September 30, 2021, a total of 117,322 shares were available for future issuance under the 2017 Plan.

As of March 31, 2022, a total of 95,381 shares were available for future issuance under the 2017 Plan.

2014 Omnibus Equity Incentive Plan

4 unchanged sentences

The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

Total compensation expense for these plans was $ 325,000 and $ 1.1 million for the three and nine months ended September 30, 2021 and 2020 and $ 385,000 and $ 1.1 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, there was $ 1.7 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards.

For the three months ended March 31, 2022 and 2021, total compensation expense for these plans was $ 324,000 and $ 413,000 , respectively.

As of March 31, 2022, there was $ 1.5 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards.

The cost is expected to be recognized over the remaining weighted-average vesting period of approximately three years .

4 unchanged sentences

Non-Vested, at March 31,

Non-Vested, at June 30,

Non-Vested, at September 30,

BAYCOM CORP AND SUBSIDIARY

19 unchanged sentences

The following assets are measured at fair value on a recurring basis as of the dates indicated:

September 30, 2021

March 31, 2022

Government Agencies

10 unchanged sentences

Government Agencies

Preferred equity securities

Municipal securities

4 unchanged sentences

The following assets are measured at fair value on a nonrecurring basis as of the dates indicated:

September 30, 2021

March 31, 2022

Performing impaired loans

22 unchanged sentences

Fair value measurements

September 30, 2021

March 31, 2022

Financial assets:

6 unchanged sentences

Financial liabilities:

Other borrowings

Junior subordinated deferrable interest debentures, net

13 unchanged sentences

Financial liabilities:

Other borrowings

Junior subordinated deferrable interest debentures, net

16 unchanged sentences

The following table presents a summary of commitments described above as of the dates indicated:

September 30,

Commitments to extend credit

5 unchanged sentences

The Company’s outstanding loan commitments are made using the same underwriting standards as comparable outstanding loans.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 415,000 at both September 30, 2021 and December 31, 2020.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 315,000 at both March 31, 2022 and December 31, 2021.

Commercial Real Estate Concentrations

At September 30, 2021 and December 31, 2020, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

At March 31, 2022 and December 31, 2021, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

The Company’s commercial real estate loans are secured by owner-occupied and non-owner occupied commercial real estate and multifamily properties.

Although management believes that loans within these concentrations have no more than the normal risk of collectability, a decline in the performance of the economy in general or a decline in real estate value in the Company’s primary market areas in particular, could have an adverse impact on collectability .

The Company has commitments to fund Low Income Housing Tax Credit Partnerships (“LIHTC”) and a SBIC.

During the second quarter of 2021, the Company entered into a new LIHTC with a total commitment of $ 2.0 million.

The Company’s net investment in LIHTC was $ 3.2 million and $ 1.1 million at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, the remaining commitments to the LIHTC and SBIC were approximately $ 3.3

The Company has commitments to fund investments in LIHTC partnerships and an SBIC fund.

At March 31, 2022, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 3.2 million and $ 122,000 , respectively.

At December 31, 2021, the remaining commitments to the LIHTC partnerships and the SBIC fund were $ 2.3 million and $ 122,000 , respectively.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(Tables in thousands, except for share and per share data)

million and $ 122,000 , respectively.

At December 31, 2020, the remaining commitments to the LIHTC and SBIC were approximately $ 899,000 and $ 122,000 , respectively.

At September 30, 2021, approximately $ 182.7 million, or 9.1 %, of the Company's deposits were derived from its top ten depositors.

At March 31, 2022, approximately $ 265.9 million, or 11.4 %, of the Company's deposits were derived from its top ten depositors.

At December 31, 2021, approximately $ 198.6 million, or 10.0 %, of the Company's deposits were derived from its top ten depositors.

2 unchanged sentences

The Company is required to provide collateral for certain local agency deposits in the states of California, Colorado, New Mexico and Washington.

As of September 30, 2021 and December 31, 2020, the FHLB issued letters of credit on behalf of the Company totaling $ 41.5 million and $ 30.1 million, respectively, as collateral for local agency deposits.

At both March 31, 2022 and December 31, 2021, the FHLB issued letters of credit on behalf of the Company totaling $ 42.0 million as collateral for local agency deposits.

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.

What changed 10-Q

Item 1. Financial Statements