What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-15 compared with 2022-11-10 · 347 added, 348 removed, 575 unchanged (55% 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 Income (Loss) (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

Cash due from banks

Federal funds sold and interest-bearing balances in banks

1 unchanged sentence

Time deposits in banks

Investment securities available-for-sale

Investment securities available-for-sale (AFS), at fair value, net of allowance for credit losses of $ 1,100 at March 31, 2023 and $ 0 at December 31, 2022

Federal Home Loan Bank ("FHLB") stock, at par

1 unchanged sentence

Loans held for sale

Loans, net of allowance for loan losses of $ 18,050 at September 30, 2022 and $ 17,700 December 31, 2021

Loans, net of allowance for credit losses of $ 20,400 at March 31, 2023 and $ 18,900 at December 31, 2022

Premises and equipment, net

16 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at both September 30, 2022 and December 31, 2021

no shares issued and outstanding at both March 31, 2023 and December 31, 2022

Common stock, no par value;

100,000,000 shares authorized;

13,075,447 and 10,680,386 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

12,443,977 and 12,838,462 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid in capital

Accumulated other comprehensive (loss) income, net of tax

Accumulated other comprehensive loss, net of tax

Retained earnings

5 unchanged sentences

Three months ended

Nine months ended

September 30,

Interest income:

7 unchanged sentences

Subordinated debt

Other borrowings

Junior subordinated debt

Total interest expense

Net interest income

Provision for (reversal of) loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income:

2 unchanged sentences

Loan servicing and other loan fees

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

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

Bargain purchase gain

15 unchanged sentences

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Three months ended

Nine months ended

September 30,

Other comprehensive income (loss):

Other comprehensive loss:

Change in unrealized loss on available-for-sale securities

1 unchanged sentence

Other comprehensive loss, net of tax

Total comprehensive income

Total comprehensive income (loss)

BAYCOM CORP AND SUBSIDIARY

7 unchanged sentences

Restricted stock granted

Stock based compensation

Repurchase of shares

Balance, March 31, 2021

Other comprehensive income, net

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

Balance, December 31, 2021

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

3 unchanged sentences

Balance, March 31, 2022

Other comprehensive loss, net

Restricted stock forfeited

Cash dividends of $ 0.05 per share

Stock based compensation

Repurchase of shares

Balance, June 30, 2022

Balance, December 31, 2022

Other comprehensive loss, net

Cumulative change from adoption of ASU 2016-13, net of tax

Restricted stock granted

2 unchanged sentences

Repurchase of shares

Balance, September 30, 2022

Balance, March 31, 2023

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:

Provision for (reversal of) loan losses

Decrease in deferred tax assets

Provision for credit losses

Increase 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 on sale of premises, net

Gain on sale of OREO

Bargain purchase gain

5 unchanged sentences

Stock based compensation expense

(Decrease) increase in deferred loan origination fees, net

Increase in interest receivable and other assets

Decrease in deferred loan origination fees, net

Increase (decrease) in interest receivable and other assets

Increase in salary continuation plan, net

2 unchanged sentences

Cash flows from investing activities:

Proceeds from maturities of time deposits in banks

Proceeds from maturities of interest bearing deposits in banks

Purchase of investment securities

1 unchanged sentence

Proceeds from the sales of investment securities

Purchase of Federal Home Loan Bank stock

Purchase of Federal Reserve Bank stock

Increase in loans, net

Proceeds from sale of premises

(Redemption) purchase of Federal Reserve Bank stock

(Decrease) increase in loans, net

Proceeds from sale of OREO

1 unchanged sentence

Net cash received for acquisitions

Net cash provided by (used in) investing activities

Net cash (used in) 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:

(Decrease) increase in noninterest and interest bearing deposits

Decrease in time deposits, net

Repayment of Federal Home Loan Bank borrowings

Increase (decrease) in time deposits, net

Repurchase of common stock

Cash dividends declared on common stock

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

Income taxes paid, net

Non-cash operating activities:

Increase in allowance for credit losses upon adoption of ASU 2016-03

Non-cash investing and financing activities:

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

Recognition of ROU assets

Recognition of lease liability

Cash dividends declared on common stock

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

Cash dividends declared on common stock not yet paid

Assets acquired, net of cash received

Liabilities assumed

Cash consideration

Common stock issued

5 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 18 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.

In its 18 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.

7 unchanged sentences

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) was signed into law.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for public companies that qualify as an “emerging growth company”, or EGC.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for a public company that qualifies as an “emerging growth company”, or EGC.

The Company qualifies as an EGC and will remain an EGC until December 31, 2023, the last day of the Company’s fiscal year following the fifth anniversary of the completion of the Company’s initial public offering, or sooner under certain circumstances (none of which currently apply).

2 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 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”).

On February 1, 2022 , the Company completed its acquisition of Pacific Enterprise Bancorp (“PEB”) and PEB’s wholly owned subsidiary bank, 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 Guidance Not Yet Effective

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.

The standard will replace today’s “incurred loss” approach with an “expected loss” model.

The new model, referred to as the current expected credit loss (“CECL”) model, will apply to:

(1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.

This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.

The CECL model does not apply to available-for-sale (“AFS”) debt securities.

For AFS debt securities with unrealized losses, entities will measure credit losses in a manner

Accounting Guidance Adopted in 2023

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments — Credit Losses (ASC 326):

Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.

In addition, ASU 2016-13 made changes to the accounting for available for sale debt securities.

One such change requires increases or decreases in credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities, based on management's intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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.

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

ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses.

In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments.

ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.

The amendments in these ASUs are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted for smaller reporting companies, such as the Company.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

We plan to adopt this new standard on January 1, 2023.

The Company has established a multidisciplinary project team and implementation plan, evaluated various loss methodologies to determine their correlation to our various loan categories historical performance, captured and validated data, and engaged an outside third-party CECL vendor to develop loan loss driver models.

Based on these activities, we determined that our primary credit loss methodology will utilize a discounted cash flow approach that considers the probability of default and loss given default.

Ongoing CECL implementation activities include, among other things, refining segmentation of the loan portfolio, refining forecast methodologies and sourcing tools to forecast future economic conditions, running multiple loan loss driver analyses that correlate our credit loss experience with one or more economic factors, and evaluating the qualitative factor framework and assumptions.

In addition, the Company also continues to focus on researching and resolving interpretive accounting issues in the ASU, contemplating various related accounting policies, developing processes and related controls and considering various reporting disclosures.

The magnitude of the change in the Company’s allowance for credit losses at the adoption date will depend upon the nature and characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that time, and other management judgements .

We are not yet able to disclose the quantitative effect on our consolidated financial position and results of operations as we are continuing to evaluate the impact of the adoption of this ASU.

In March 2020, the FASB issued ASU No.

cost and off-balance sheet credit exposures.

Results for the reporting periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable generally accepted accounting principles in the United States (“GAAP”).

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under Accounting Standard Codification (“ASC”) 310-30.

In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption.

The Company recognized an increase in the allowance for credit loss on loans totaling $ 1.5 million (which included a reclassification of the net credit discounts on acquired PCI loans to the allowance for credit losses of $ 845,000 ) and an increase to the allowance for credit losses on unfunded commitments of $ 45,000 , as a cumulative effect adjustment from change in accounting policies, with a corresponding after-tax decrease to opening retained earnings of $ 491,000 .

On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments — Credit Losses:

Troubled Debt Restructurings and Vintage Disclosures .

The amendment eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs .

On a prospective basis, entities are subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty.

In addition, the amendment requires that an entity include in its vintage disclosures the current period-gross loan charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The Company adopted these amendments on January 1, 2023 using a prospective transition method, and has thus far observed no material impact to deferred fees and costs and the related timing of net interest income recognition as a result of adoption.

See “Critical Accounting Estimates” for additional information on the Company’s allowance for credit losses methodology.

Recent Accounting Guidance Not Yet Effective

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-04, Reference Rate Reform (Topic 848) .

Facilitation of the Effects of reference Rate Reform on Financial Reporting .

This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts (e.g., loans, debt securities, derivatives, borrowings) or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

In January 2021, ASU 2021-01 updated amendments in the new ASU to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

Amendments in this ASU to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply the amendments in this ASU on a full retrospective basis.

The amendments in this ASU have differing effective dates, beginning with an interim period including and subsequent to March 12, 2020 through December 31, 2022.

The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden of accounting for, or recognizing the effects of, reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this ASU may be elected through December 31, 2024 (as amended by ASU No.

2022-06 discussed below).

An entity may elect the amendments in this update for an interim period with adoption methods varying based on transaction type.

We have not elected to apply amendments at this time and will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

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 disclosure

In December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

The objective of the guidance in Topic 848 was to provide temporary relief during the transition period, as noted in the discussion of ASU 2020-04 above, under which the sunset provision was based on an expectation that the LIBOR would cease being published after December 31, 2021.

In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of certain tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848.

Therefore, this amendment deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

of 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 referred to as the current expected credit loss model.

NOTE 3 – ACQUISITIONS

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.

On February 1, 2022, the Company completed its acquisition of PEB.

As of the acquisition date, PEB merged into the Company and Pacific Enterprise Bank, PEB’s wholly owned bank subsidiary, merged into the 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 nine months ended September 30, 2022 included $ 1.6 million in bargain purchase gain, and included in noninterest expense was $ 3.1 million of nonrecurring acquisition-related expenses related to the Company’s acquisition of PEB.

At the effective time of the PEB merger, the Company paid aggregate consideration to PEB shareholders of approximately $ 64.1 million consisting of 3,032,579 shares of the Company’s common stock and $ 275,000 in cash.

Noninterest income for the three months ended March 31, 2022 included $ 1.6 million in bargain purchase gain, and included in noninterest expense was $ 3.1 million of nonrecurring acquisition-related expenses related to the Company’s acquisition of PEB.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date:

21 unchanged sentences

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

14 unchanged sentences

Pro Forma Results of Operations

The operating results of the Company for the three and nine months ended September 30, 2022 in the condensed consolidated statements of income include the operating results of PEB, since its acquisition date.

The operating results of the Company for the three months ended March 31, 2023 and 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, 2022.

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.

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 merger been completed at the beginning of the respective periods.

No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Unaudited pro forma net interest income, net income and earnings per share for the three months ended March 31, 2023 and 2022 are presented below:

Net interest income

6 unchanged sentences

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

income for the three and nine months ended September 30, 2021.

The Company recognized third-party acquisition expenses for the three and nine months ended September 30, 2022, as follows:

Three month ended

Nine months ended

income for the three months ended March 31, 2023.

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

Severance expense

5 unchanged sentences

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, 2022

Allowance for

credit losses

March 31, 2023

Government Agencies

5 unchanged sentences

Corporate bonds

Allowance for

credit losses

December 31, 2022

6 unchanged sentences

Corporate bonds

During the three and nine months ended September 30, 2022, the Company sold no ne and one available-for-sale securities for minimal realized gains, respectively, and the Company sold six securities available-for-sale for net realized gains of $ 22,000 during the three and nine months ended September 30, 2021.

During the three months ended March 31, 2023, the Company sold no available-for-sale securities and sold one available-for-sale security for a minimal realized gain during the three months ended March 31, 2022.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

2 unchanged sentences

12 months or more

September 30, 2022

March 31, 2023

Preferred Equity Securities

7 unchanged sentences

December 31, 2022

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

At September 30, 2022, the Company held 348 investment securities, of which 38 were in an unrealized loss position for more than twelve months and 256 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.

At March 31, 2023, the Company held 338 investment securities, of which 209 were in an unrealized loss position for more than twelve months and 78 were in an unrealized loss position for less than twelve months.

The securities that were in an unrealized loss position as of March 31, 2023, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors.

In making this assessment, management considers the length of time and the extent to which fair value is less than amortized cost, the nature of the security, the underlying collateral, and the financial condition and prospects of the issuer, among other factors.

This assessment also includes a determination of whether the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses.

As of March 31, 2023, the Company expects to recover the amortized cost basis of its securities, has no present intent to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost and the decline in fair value is largely attributed to changes in interest rates and other market conditions.

The issuers of these securities continue to make timely principal and interest payments.

No additional allowances for credit losses have been recognized on investment securities available-for-sale in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality at March 31, 2023, except that at March 31, 2023 a $ 1.1 million allowance for credit losses on investment securities available-for-sale was recorded to fully reserve for one preferred equity security due to reasons of credit quality.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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, 2022

March 31, 2023

December 31, 2022

4 unchanged sentences

Due after ten years

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

The table below presents a roll-forward by major security type for the three months ended March 31, 2023 of the allowance for credit losses on debt investment securities available-for-sale at period-end:

Preferred Equity Securities

(Dollars in thousands)

Beginning balance January 1, 2023

Provision for credit losses

Ending balance March 31, 2023

NOTE 5 – LOANS

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

September 30,

Commercial and industrial (1)

2 unchanged sentences

Net deferred loan fees

Allowance for loan losses

(1) During the third quarter of 2022, the Bank continued its participation in the U.S.

Allowance for credit losses (2)

(1) During the first quarter of 2023, the Bank continued its participation in the U.S.

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

Total loans include $ 35.4 million and $ 69.6 million of PPP loans as of September 30, 2022 and December 31, 2021, respectively.

Total loans include $ 5.9 million and $ 11.1 million of PPP loans as of March 31, 2023 and December 31, 2022, respectively.

(2) Allowance for credit losses at March 31, 2023 is estimated under CECL whereas at December 31, 2022, the allowance for loan losses is estimated under the incurred loss methodology.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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:

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

and industrial

September 30, 2022

March 31, 2023

Recorded investment in impaired loans:

9 unchanged sentences

Specific allowance on impaired loans

Three months ended September 30, 2022

Average recorded investment in impaired loans

Interest recognized

Nine months ended September 30, 2022

Average recorded investment in impaired loans

Interest recognized

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

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 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.

TDR loans are generally placed on nonaccrual status at the time of restructuring and included in impaired loans.

From time to time, the Company may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties.

Prior to 2023, a modified loan was classified as a troubled debt restructuring (TDR) if the borrower was experiencing financial difficulties and a concession was made at the time of the modification.

TDR loans are generally placed on nonaccrual status at the time of restructuring.

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, 2022, the Company recorded TDR loan charge-offs of $ 750,000 and $ 3.2 million, respectively, related to a participation interest in a national shared credit.

For additional information see “Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021-Provision for Loan Losses” included in “Item 2.

Management’s Discussion and Analysis of Financial Condition” of Part I this report.

For the three and nine months ended September 30, 2021, the Company recorded no charge-offs

Effective January 1, 2023, the Company adopted ASU No.

2022-02, which eliminated the accounting guidance for TDR loans while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty.

The Company adopted ASU No.

2022-02 using the prospective transition method.

At the date of adoption, the Company was no longer required to utilize a loan-level discounted cash flow approach for determining the allowance for certain modified loans previously classified as TDR loans.

The ACL on a TDR is measured using the same method as individually evaluated loans.

There was no material impact upon adopting this standard as the Company elected to not change how it measured credit losses on TDRs.

During the three months ended March 31, 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

During the three months ended March 31, 2022, there was one commercial and industrial loan modified as a TDR.

The type of modification was a suspension of interest payments with principal payments designated payments-in-kind, with no change to the pre-modification and post modification amortized cost balance of $ 4.9 million.

The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts.

All loans to borrowers experiencing financial difficulty

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

related to TDR loans.

During the three and nine months ended September 30, 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 September 30, 2022 and December 31, 2021, TDR loans had a related allowance of $ 282,000 and $ 259,000 , respectively.

As of September 30, 2022 and December 31, 2021, $ 759,000 and $ 765,000 , 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, 2022.

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

September 30, 2022

that were modified during the three months ended March 31, 2023 were current in their contractual payments as of March 31, 2023.

There were no commitments to lend additional amounts to borrowers with outstanding loans that are classified as TDR loans at March 31, 2023.

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

March 31, 2023

Commercial and industrial

1 unchanged sentence

Commercial real estate

September 30, 2021

March 31, 2022

Commercial and industrial

1 unchanged sentence

Commercial real estate

There were three loans and four loans modified as a TDR during the three and nine months ended September 30, 2022, respectively.

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

For the three months ended March 31, 2023 the Company recorded a $ 125,000 charge-off for one TDR loan compared to no charge-offs for TDR loans for the three months ended March 31, 2022.

During the three months ended March 31, 2023 and 2022, there were no TDR loans for which there was a payment default within the first 12 months of the modification.

As of March 31, 2023 and December 31, 2022, individually evaluated TDR loans had a related allowance of $ 298,000 and $ 393,000 , respectively.

As of March 31, 2023 and December 31, 2022, $ 768,000 and $ 759,000 , respectively, of TDR loans were performing in accordance with their modified terms.

Accruing TDRs are included in the loans individually evaluated as part of the calculation of the allowance for credit losses for loans.

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.

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.

The Company’s Pass loans include 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.

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

4 unchanged sentences

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

5 unchanged sentences

Loans classified substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

The potential loss does not have to be recognizable in an individual credit for that credit to be risk rated Substandard.

12 unchanged sentences

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.

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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

September 30, 2022

Term loans - amortized cost by origination year

amortized cost

March 31, 2023

Commercial and industrial:

Special mention

Total commercial and industrial

Construction and land:

Special mention

Total construction and land

Commercial real estate:

Special mention

Total commercial real estate

Special mention

Total residential

Special mention

Total consumer

Gross current period charge-offs

Total loans outstanding

Special mention

Total loans outstanding

Total gross current period charge-offs

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Term loans - amortized cost by origination year

amortized cost

December 31, 2022

Commercial and industrial:

Special mention

Total commercial and industrial

Construction and land:

Special mention

Total construction and land

Commercial real estate:

Special mention

Total commercial real estate

Special mention

Total residential

Special mention

Total consumer

Gross current period charge-offs

Total loans outstanding

Special mention

Total loans outstanding

Total gross current period charge-offs

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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

September 30, 2022

March 31, 2023

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 $ 862,000 at September 30, 2022 compared to $ 822,000 at December 31, 2021.

At September 30, 2022, nonaccrual loans included $ 19,000 of loans 30-89 days past due and $ 7.0 million of loans less than 30 days past due.

At December 31, 2021, nonaccrual loans included $ 113,000 of loans 30-89 days past due and $ 2.5 million of loans less than 30 days past due.

At September 30, 2022, nonaccrual loans 30-89 days past due of $ 19,000 was comprised of one loan and the $ 7.0 million of loans less than 30 days past due was comprised of 20 loans.

The balance of nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, was $ 818,000 at March 31, 2023 compared to $ 839,000 at December 31, 2022.

At March 31, 2023, nonaccrual loans included $ 483,000 of loans 30-89 days past due and $ 3.9 million of loans less than 30 days past due.

At December 31, 2022, nonaccrual loans included $ 2.5 million of loans 30-89 days past due and $ 4.0 million of loans less than 30 days past due.

At March 31, 2023, nonaccrual loans 30-89 days past due of $ 483,000 was comprised of six loans and the $ 3.9 million of loans less than 30 days past due was comprised of 14 loans.

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

There were 21 loans totaling $ 3.3 million in accruing SBA guaranteed PPP loans which matured, are 90 days or more past due, and are in the process of forgiveness at September 30, 2022.

There were no other loans that were 90 days or more past due and still accruing at December 31, 2021.

Interest foregone on nonaccrual loans was approximately $ 230,000 and $ 388,000 for the three and nine months ended September 30, 2022 compared to $ 61,000 and $ 157,500 for the three and nine months ended September 30, 2021, respectively.

Purchased Credit Impaired Loans

In connection with the Company's acquisitions, the contractual amount and timing of undiscounted principal and interest payments and the estimated amount and timing of undiscounted expected principal and interest payments were

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

used to estimate the fair value of PCI loans at the acquisition date.

There were no loans that were 90 days or more past due and still accruing at March 31, 2023 compared to one such loan at December 31, 2022.

Interest foregone on nonaccrual loans was approximately $ 235,000 for the three months ended March 31, 2023 compared to $ 846,000 for the three months ended March 31, 2022.

Purchased Credit Deteriorated Loans

The difference between these two amounts represented the nonaccretable difference.

1 unchanged sentence

The accretable yield is then measured at each financial reporting date and represented the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

For PCI loans the accretable yield is accreted into interest income over the life of the estimated remaining cash flows.

At each financial reporting date, the carrying value of each PCI loan is compared to an updated estimate of expected principal payment or recovery on each loan.

To the extent that the loan carrying amount exceeds the updated expected principal payment or recovery, a provision of loan loss would be recorded as a charge to income and an allowance for loan loss established.

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

September 30, 2022

December 31, 2021

Commercial and industrial

Construction and land

Commercial real estate

The following table reflects the changes in the accretable yield of PCI loans for the periods indicated:

Three months ended

Nine months ended

September 30,

Balance at beginning of period

Balance at end of period

For PCD loans the accretable yield is accreted into interest income over the life of the estimated remaining cash flows.

At each financial reporting date, the carrying value of each PCD loan is compared to an updated estimate of expected principal payment or recovery on each loan.

To the extent that the loan carrying amount exceeds the updated expected principal payment or recovery, a provision for credit loss would be recorded as a charge to income and an allowance for credit losses for loans established.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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, 2022 and 2021:

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS

The following tables summarize the Company’s allowance for credit losses for loans, reserve for unfunded commitments, and loan balances individually and collectively evaluated by type of loan as of or for the three months ended March 31, 2023 and 2022:

and industrial

Three months ended September 30, 2022

Allowance for loan losses

Beginning balance

Provision for (reversal of) loan losses

Ending balance

Nine months ended September 30, 2022

Allowance for loan losses

unfunded commitments

Three months ended March 31, 2023

Allowance for credit losses

Beginning balance

Provision for (reversal of) loan losses

Impact of CECL adoption

Provision for (reversal of) credit losses

Ending balance

September 30, 2022

Allowance for loan losses by methodology:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

March 31, 2023

Allowance for credit losses by methodology:

Loans individually evaluated

Loans collectively evaluated

Loans receivable by methodology:

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated

Collectively evaluated

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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

Three Months Ended March 31, 2022

Allowance for loan losses

2 unchanged sentences

Ending balance

September 30, 2021

Allowance for loan losses by methodology:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

At March 31, 2022

Loans individually evaluated

Loans collectively evaluated

Loans receivable by methodology:

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated

Collectively evaluated

The provision for allowance for credit losses for loans during the three months ended March 31, 2023 was primarily due to replenishment of the reserve from charge-offs and a $ 23.3 million increase in loans.

These increases were partially offset by a decrease in the quantitative reserve, due to the impact of slight improvements in the national unemployment rate and national gross domestic product forecasts over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption.

There was no change in the determined risk level for each of the qualitative factors since adoption.

The reserve for individually evaluated loans decreased from adoption as five non-accrual loans, which were fully reserved for, were charged-off during the current quarter.

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent non-accrual loans by loan and collateral type at March 31, 2023 and December 31, 2022.

Allowance for

Credit/loan losses

March 31, 2023

Commercial and industrial

Construction and land

Commercial real estate

December 31, 2022

Commercial and industrial

Construction and land

Commercial real estate

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

The following table shows the amortized cost and allowance for credit losses for loans on non-accrual status as of March 31, 2023 and the amortized cost and allowance for loan losses for loans on non-accrual status as of December 31, 2022.

As of March 31, 2023

As of December 31, 2022

with no allowance

with allowance

with no allowance

with allowance

for credit losses

for loan losses

Commercial and industrial

Construction and land

Commercial real estate

Interest income recognized on non-accrual loans was $ 65,000 and $ 15,000 for the three months ended March 31, 2023 and December 31, 2022, respectively.

As part of the acquisition of PEB, the Company acquired certain small business loans to borrowers qualified under The California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”).

PEB ceased originating loans under this loan program in 2017.

Under this loan program, the borrower, CalCAP and the Company contributed funds to a loss reserve account that is held in a demand deposit account at the Bank.

The borrower contributions to the loss reserve account are attributed to the Company.

Under this loan program, the borrower, CalCAP and the participating lender contributed funds to a loss reserve account that is held in a demand deposit account at the participating lender.

The borrower contributions to the loss reserve account are attributed to the participating lender.

Losses on qualified loans are charged to this account after approval by CalCAP.

Under the program, if a loan defaults, the Company has immediate coverage of 100 % of the loss.

The Company must return recoveries from the borrower, less expenses, to the loan loss reserve account.

The funds in the loss reserve account are the property of CalCAP, however, in the event that the Company leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the Company and provided there are no pending claims for reimbursement, are distributed to CalCAP and the Company based on their respective contributions to the loss reserve account.

Funds contributed by the Company to the loss reserve account are treated as a receivable from CalCAP and evaluated for impairment quarterly.

As of September 30, 2022, the Company had $ 30.0 million of loans enrolled in this loan program.

The Company had a loss reserve account of $ 13.7 million as of September 30, 2022.

Under the program, if a loan defaults, the participating lender has immediate coverage of 100 % of the loss.

The participating lender must return recoveries from the borrower, less expenses, to the credit loss reserve account.

The funds in the loss reserve account are the property of CalCAP;

however, in the event that the participating lender leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the participating lender and provided there are no pending claims for reimbursement, the remaining excess funds are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account.

Funds contributed by the participating lender to the loss reserve account are treated as a receivable from CalCAP and evaluated for impairment quarterly.

As of March 31, 2023, the Company had $ 26.3 million of loans enrolled in this loan program.

The Company had a loss reserve account of $ 13.7 million as of March 31, 2023.

In addition, as successor to PEB, the Company was approved by the CalCAP, in partnership with the California Air Resources Board, to originate loans to California truckers in the On-Road Heavy-Duty Vehicle Air Quality Loan Program.

Under this loan program, CalCAP solely contributes funds to a loss reserve account that is held in a demand deposit account at the Bank.

Under this loan program, CalCAP solely contributes funds to a loss reserve account that is held in a demand deposit account at the participating lender.

Losses are handled in the same manner as described above.

1 unchanged sentence

When the loss reserve account balance exceeds the total associated loan balance, the excess is to be remitted to CalCAP.

The Company has originated $ 4.4 million of loans under this program during the nine months ended September 30, 2022.

As of September 30, 2022, the Company had $ 29.3

The Company originated $ 481,000 of loans under this program during the three months ended March 31, 2023.

As of March 31, 2023, the Company had $ 22.7 million of loans enrolled in this program and a loss reserve account of $ 6.3 million.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

million of loans enrolled in this program.

The Company had a loss reserve account of $ 6.1 million as of September 30, 2022.

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 $ 489,000 and $ 1.5 million for the three and nine months ended September 30, 2022 and $ 519,000 and $ 1.5 million for the three and nine months ended September 30, 2021, respectively.

Depreciation and amortization included in occupancy and equipment expense totaled $ 453,000 and $ 507,000 for the three months ended March 31, 2023 and 2022, respectively.

NOTE 8 – LEASES

The Company leases 19 branches under noncancelable operating leases.

The Company leased 19 branches under noncancelable operating leases as of March 31, 2023.

These leases expire on various dates through 2030.

3 unchanged sentences

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, 2022:

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of March 31, 2023:

For remainder of 2023

1 unchanged sentence

Present value of lease payments

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

September 30, 2022

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

March 31, 2023

March 31, 2022

Weighted-average remaining lease term

Weighted-average discount rate

Rental expense included in occupancy and equipment expense totaled $ 999,000 and $ 1.3 million for the three months ended March 31, 2023 and 2022, respectively.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Rental expense included in occupancy and equipment expense totaled $ 934,000 and $ 3.2 million for the three and nine months ended September 30, 2022 and $ 906,000 and $ 2.6 million for the three and nine months ended September 30, 2021, respectively.

NOTE 9 – GOODWILL AND INTANGIBLE ASSETS

2 unchanged sentences

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

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.

Changes in the Company's goodwill at September 30, 2022 and December 31, 2021 are as follows:

September 30,

Changes in the Company's goodwill during the three months ended March 31, 2023 and year ended December 31, 2022 were as follows:

Balance at beginning of period

2 unchanged sentences

Core Deposit Intangible

Changes in the Company’s core deposit intangible at September 30, 2022 and December 31, 2021 were as follows:

September 30,

Changes in the Company’s core deposit intangible during the three months ended March 31, 2023 and year ended December 31, 2022 were as follows:

Balance at beginning of period

1 unchanged sentence

Balance at end of period

Estimated annual amortization expense at March 31, 2023 was as follows:

For remainder of 2023

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Estimated annual amortization expense at September 30, 2022 is as follows:

For remainder of 2022

NOTE 10 – INTEREST RECEIVABLE AND OTHER ASSETS

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

September 30,

Tax assets, net

6 unchanged sentences

Investment in statutory trusts

CalCAP reserve receivable

NOTE 11 – DEPOSITS

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

September 30,

Demand deposits

1 unchanged sentence

Time deposits

Included in time deposits are certificates of deposit over $ 250 thousand totaling $ 63.7 million and $ 57.8 million at March 31, 2023 and December 31, 2022, respectively.

NOTE 12 – BORROWINGS

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.

At both September 30, 2022 and December 31, 2021, the Company had no FHLB advances outstanding.

At both March 31, 2023 and December 31, 2022, the Company had no FHLB advances outstanding.

The Bank has Federal Funds lines with four corresponding banks.

Cumulative available commitments totaled $ 65.0 million at both March 31, 2023 and December 31, 2022.

There were no amounts outstanding under these facilities at March 31, 2023 or December 31, 2022.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company assumed junior subordinated deferrable interest debentures, totaling $ 8.5 million net of fair value adjustments at March 31, 2023 with a weighted average interest rate of 7.46 % , compared to $ 8.5 million with a weighted average rate

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

The Company has Federal Funds lines with four corresponding banks.

Cumulative available commitments totaled $ 65.0 million at both September 30, 2022 and December 31, 2021.

There were no amounts outstanding under these facilities at September 30, 2022 or December 31, 2021.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures, totaling $ 8.5 million net of mark-to-market adjustments September 30, 2022 with a weighted average interest rate of 5.95 % , 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 .

of 7.34 % at December 31, 2022 .

The junior subordinated deferrable interest debentures mature in 2034, subject to earlier redemption by the Company.

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.

The Notes initially bear 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.

1 unchanged sentence

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, 2022 and December 31, 2021, the Company had outstanding Notes, net of cost to issue, totaling $ 63.7 million and $ 63.5 million, respectively.

At March 31, 2023 and December 31, 2022, the Company had outstanding Notes, net of cost to issue, totaling $ 63.8 million and $ 63.7 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

3 unchanged sentences

Other liabilities

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

NOTE 14 – OTHER EXPENSES

1 unchanged sentence

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 $ 12,000 and $ 54,000 for the three and nine months ended September 30, 2022 and $ 13,000 and $ 55,000 for the three and nine months ended September 30, 2021, respectively.

Advertising expense included in marketing and promotions totaled $ 5,000 and $ 21,000 for the three months ended March 31, 2023 and 2022, respectively.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

NOTE 15 – EQUITY INCENTIVE PLANS

3 unchanged sentences

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.

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

Factors considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period.

2 unchanged sentences

The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors.

The annual stock grant limit per person for officers and employees is the lessor of 50,000 shares or a value of $ 2.0 million, and per person for directors, the maximum is 25,000 shares.

The annual stock grant limit per person for officers and employees is the lesser of 50,000 shares or a value of $ 2.0 million, and per person for directors, the maximum is 25,000 shares.

All unvested restricted shares outstanding vest in the event of a change in control of the Company.

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, 2022, a total of 86,085 shares were available for future issuance under the 2017 Plan.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

As of March 31, 2023, a total of 57,693 shares were available for future issuance under the 2017 Plan.

2014 Omnibus Equity Incentive Plan

In 2014, the shareholders approved the Omnibus Equity Incentive Plan (the “2014 Plan”).

In 2014, the shareholders approved the 2014 Equity Incentive Plan (the “2014 Plan”).

A total of 148,962 equity incentive awards were granted under the 2014 Plan.

2 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 $ 232,000 and $ 797,000 for the three and nine months ended September 30, 2022 and $ 325,000 and $ 1.1 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, there was $ 1.2 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards.

Total compensation expense for these plans was $ 250,000 and $ 324,000 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, there was $ 1.3 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 .

The following table provides the restricted stock grant activity for the periods indicated:

Three months ended March 31,

Weighted-average

2 unchanged sentences

Non-Vested, at March 31,

Non-Vested, at June 30,

Non-Vested, at September 30,

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

NOTE 16 – FAIR VALUE MEASUREMENT

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market inputs that are not directly observable but are derived from or corroborated by observable market data.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

Level 3 – Unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

1 unchanged sentence

For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements.

Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangible, and other long-lived assets.

Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangible, and other long-lived assets.

In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy.

1 unchanged sentence

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process.

There were no transfers between levels during 2022 or 2021.

There were no transfers between levels during the three months ended March 31, 2023 and 2022.

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

September 30, 2022

March 31, 2023

Government Agencies

5 unchanged sentences

Corporate bonds

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

December 31, 2022

7 unchanged sentences

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

September 30, 2022

Performing impaired loans

Nonperforming impaired loans

March 31, 2023

Individually evaluated

December 31, 2022

1 unchanged sentence

Nonperforming impaired loans

(1) At March, 31, 2023, with the adoption of CECL, the one performing TDR was collectively evaluated in determining the estimated allowance for credit losses.

The Company does not record loans at fair value on a recurring basis.

However, from time to time, a loan may be considered impaired and an allowance for loan losses is established.

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.

The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise and liquidation value and discounted cash flows.

Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the impaired loan as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value or the appraised value contains a significant assumption and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

The Company records OREO at fair value on a nonrecurring basis based on the collateral value of the property.

However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and are individually evaluated for credit reserves.

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

The fair value of individually evaluated loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise and liquidation value and discounted cash flows.

Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the individually evaluated loan as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is less than the appraised value or the appraised value contains a significant assumption and there is no observable market price, the Company records the individually evaluated loan as nonrecurring Level 3.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

The Company records foreclosed assets, or OREO, at fair value on a nonrecurring basis based on the collateral value of the property.

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the OREO as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value or the appraised value contains a significant assumption, and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

When an appraised value is not available or management determines the fair value of the collateral is less than the appraised value or the appraised value contains a significant assumption, and there is no observable market price, the Company records the OREO as nonrecurring Level 3.

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.

1 unchanged sentence

Such adjustments and assumptions are typically significant and result in a Level 3 classification of the inputs for determining fair value.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value disclosure for financial instruments:

The carrying amounts and fair values of the Company’s financial instruments at the dates indicated are presented below:

Fair value measurements

September 30, 2022

March 31, 2023

Financial assets:

11 unchanged sentences

Undisbursed loan commitments, lines of credit, standby letters of credit

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Fair value measurements

13 unchanged sentences

Undisbursed loan commitments, lines of credit, standby letters of credit

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

NOTE 18 – COMMITMENTS AND CONTINGENCIES

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In the normal course of business, the Company enters into various commitments to extend credit, which are not reflected in the financial statements.

These commitments consist of the undisbursed balance on personal, commercial lines, including commercial real estate secured lines of credit, and of undisbursed funds on construction and development loans.

These commitments consist of the undisbursed balance on home equity and unsecured personal lines of credit, commercial lines of credit, including commercial real estate secured lines of credit, and of undisbursed funds on construction and development loans.

The Company also issues standby letter of credit commitments, primarily for the third-party performance obligations of clients.

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

September 30,

Commitments to extend credit

Standby letters of credit

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Total commitments

3 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 $ 315,000 at both September 30, 2022 and December 31, 2021.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 320,000 at March 31, 2023 and $ 315,000 at December 31, 2022.

Commercial Real Estate Concentrations

At September 30, 2022 and December 31, 2021, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

At March 31, 2023 and December 31, 2022, 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 .

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 values in the Company’s primary market areas in particular, could have an adverse impact on collectability .

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

At September 30, 2022, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 3.1 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

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

At September 30, 2022, approximately $ 190.8 million, or 9.17 %, of the Company's deposits were derived from its top ten depositors.

At both March 31, 2023 and December 31, 2022, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 2.1 million and $ 122,000 , respectively.

At March 31, 2023, approximately $ 200.9 million, or 10.4 %, of the Company's deposits were derived from its top ten depositors.

At December 31, 2022, approximately $ 215.1 million, or 11.0 %, of the Company's deposits were derived from its top ten depositors.

As of March 31, 2022 and December 31, 2022, approximately $ 1.0 billion, or 48.7 % and $ 1.1 billion, or 53.3 %, of our total deposits were uninsured, respectively.

The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.

Local Agency Deposits and Other Advances

1 unchanged sentence

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

At both September 30, 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.

At March 31, 2023 and December 31, 2022, the FHLB issued letters of credit on behalf of the Company totaling $ 42.6 million and $ 40.6 million, respectively, 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