What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 340 added, 219 removed, 703 unchanged (44% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Income (unaudited)

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

Condensed Consolidated Statements of Comprehensive Income (unaudited)

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

4 unchanged sentences

(In thousands, except for share data)

(As Restated)

Cash due from banks

2 unchanged sentences

Time deposits in banks

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

Investment securities available-for-sale ("AFS"), at fair value, net of allowance for credit losses of $ 0 at both June 30, 2023 and December 31, 2022

Equity securities

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

1 unchanged sentence

Loans held for sale

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

Loans, net of allowance for credit losses of $ 19,100 at June 30, 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 March 31, 2023 and December 31, 2022

no shares issued and outstanding at both June 30, 2023 and December 31, 2022

Common stock, no par value;

100,000,000 shares authorized;

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

11,900,022 and 12,838,462 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid in capital

3 unchanged sentences

Total liabilities and shareholders’ equity

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

2 unchanged sentences

Three months ended

Six months ended

(As Restated)

Interest income:

7 unchanged sentences

Subordinated debt

Junior subordinated debt

Junior subordinated deferrable interest debentures

Total interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

(Reversal of) provision for credit losses

Net interest income after (reversal of) provision for credit losses

Noninterest income:

Gain on sale of loans

Loss on equity securities

Service charges and other fees

14 unchanged sentences

Basic earnings per common share

Weighted average shares outstanding

Weighted average common shares outstanding

Diluted earnings per common share

Weighted average shares outstanding

Weighted average common shares outstanding

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three months ended

Six months ended

(As Restated)

Other comprehensive loss:

2 unchanged sentences

Other comprehensive loss, net of tax

Total comprehensive income (loss)

Total comprehensive income

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

4 unchanged sentences

Income/(Loss)

Balance, December 31, 2021

Three months ended June 30, 2023

Balance, April 1, 2023

(As Restated)

Other comprehensive loss, net

Restricted stock granted

Cash dividends of $ 0.10 per share

Stock based compensation

Repurchase of shares

Balance, June 30, 2023

Three months ended June 30, 2022

Balance, April 1, 2022

(As Restated)

Other comprehensive loss, net

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.05 per share

1 unchanged sentence

Repurchase of shares

Balance, March 31, 2022

Balance, December 31, 2022

Balance, June 30, 2022

(As Restated)

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

Comprehensive

Shareholders’

Income/(Loss)

Six months ended June 30, 2023

Balance, January 1, 2023

(As Restated)

Other comprehensive loss, net

4 unchanged sentences

Repurchase of shares

Balance, March 31, 2023

Balance, June 30, 2023

Six months ended June 30, 2022

Balance, January 1, 2022

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.10 per share

Stock based compensation

Repurchase of shares

Balance, June 30, 2022

(As Restated)

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(In thousands)

Three months ended

Six months ended

(As Restated)

Cash flows from operating activities:

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

Provision for credit losses

Increase in deferred tax assets

(Reversal of) provision for credit losses

(Decrease) increase in deferred tax assets

Accretion on acquired loans

2 unchanged sentences

Loans originated for sale

Loss on sale of OREO

Bargain purchase gain

2 unchanged sentences

Amortization/accretion of premiums/discounts on investment securities, net

Loss on equity securities

Depreciation and amortization

2 unchanged sentences

Decrease in deferred loan origination fees, net

Increase (decrease) in interest receivable and other assets

Net change in interest receivable and other assets

Increase in salary continuation plan, net

Decrease in interest payable and other liabilities

Net change in interest payable and other liabilities

Net cash provided by operating activities

2 unchanged sentences

Purchase of investment securities

Proceeds from the maturities, repayments and calls of investment securities

Proceeds from the sales of investment securities

(Redemption) purchase of Federal Reserve Bank stock

(Decrease) increase in loans, net

Proceeds from sale of OREO

Proceeds from maturities, repayments and calls of investment securities

Proceeds from sales of investment securities

Purchase of Federal Home Loan Bank stock

Purchase of Federal Reserve Bank stock

Increase in loans, net

Purchase of equipment and leasehold improvements, net

Net cash received for acquisitions

Net cash (used in) provided by investing activities

Net cash provided by investing activities

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(In thousands)

Three months ended

Six months ended

(As Restated)

Cash flows from financing activities:

(Decrease) increase in noninterest and interest bearing deposits

Decrease in noninterest and interest bearing deposits in banks, net

Increase (decrease) in time deposits, net

Repurchase of common stock

Dividends paid on common stock

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Increase (decrease) 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:

3 unchanged sentences

Liabilities assumed

Cash consideration

Common stock issued

See Notes to Condensed Consolidated Financial Statements.

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 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.

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 New Mexico and 11 in Colorado.

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

2 unchanged sentences

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America.

Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Results of operations for interim periods are not necessarily indicative of results for the full year.

5 unchanged sentences

As an EGC, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

We intend to take advantage of the benefits of this extended transition period.

We have taken, and intend to continue to take, advantage of the benefits of this extended transition period.

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

1 unchanged sentence

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

Restatement of Previously Issued Consolidated Financial Statements

On July 18, 2023, the audit committee of the Company’s board of directors concluded that the Company’s previously issued unaudited interim consolidated financial statements for the period ended March 31, 2023 and the consolidated financial statements for the year ended December 31, 2022, as well as for the unaudited interim periods included in that fiscal year (collectively, “Restated Periods”), should no longer be relied upon because of errors related to the accounting for unrealized losses on preferred equity securities that resulted in material misstatements of noninterest income and accumulated other comprehensive income.

At the time of its purchase of the preferred equity securities for investment purposes, the Company inappropriately accounted for them as available-for-sale debt securities under Accounting Standards Codification (“ASC”) Topic 320 – Investments-Debt Securities .

As such, the changes in the fair value of these securities were not recorded as part of net income but rather as a component of shareholders’ equity (in accumulated other comprehensive income, net of tax).

However, as a result of subsequent research and third-party consultation, the Company determined

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

that the securities should instead have been accounted for under ASC Topic 321 – Investments-Equity Securities .

The result of this change in classification of the preferred equity securities is that the change in the fair value of the securities each quarter should have been recorded in noninterest income on the consolidated statements of income.

On July 25, 2023, the Company filed amendments to its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023, September 30, 2022, June 30, 2022, and March 31, 2022, and its Form 10-K for the year ended December 31, 2022, (the “Original Reports”) with the Securities and Exchange Commission (“SEC”), to reflect the restatement of the Company’s consolidated financial statements for the Restated Periods (the “Amended Form 10-Qs” and the “Amended Form 10-K,” collectively, the “Amended Reports”).

As disclosed in the Original Reports, the Company recorded the change, net of taxes, in the fair value of preferred equity securities as part of other comprehensive loss, net of taxes, under ASC Topic 320 – Investments-Debt Securities rather than as part of non-interest income under ASC Topic 321 – Investments-Equity Securities .

In addition, various footnotes in the Amended Reports reflect the effects of these restatements.

For additional information on the effects of the restatement, see Note 2 Restatement of Consolidated Financial Statements in the Notes to Consolidated Financial Statements contained in the Amended Form 10-K and Note 3.

Restatement of the Consolidated Financial Statements in the Notes to Condensed Consolidated Financial Statements contained in each of the Amended Form 10-Qs.

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

2 unchanged sentences

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.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, 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.

1 unchanged sentence

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 CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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 Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for the reporting periods beginning on and 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”).

In accordance with the ASU 2016-13, 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.

2 unchanged sentences

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 .

ASU 2022-02 eliminates the recognition measurement guidance for

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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.

In addition, ASU 2022-02 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 ASU 2022-02 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.

13 unchanged sentences

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.

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 was beyond the original 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 CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

NOTE 3 – ACQUISITIONS

4 unchanged sentences

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.

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

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

February 1, 2022

37 unchanged sentences

Pro Forma Results of Operations

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 operating results of the Company for the three and six months ended June 30, 2023 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.

1 unchanged sentence

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 for the three months ended March 31, 2023 and 2022 are presented below:

Unaudited pro forma net interest income, net income and earnings per share for the three and six months ended June 30, 2023 and 2022 are presented below:

Three Months Ended June 30,

Six Months Ended June 30,

2022 (As Restated)

Net interest income

8 unchanged sentences

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

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:

income for the three and six months ended June 30, 2023.

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

Three months ended

Six months ended

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:

Allowance for

credit losses

March 31, 2023

June 30, 2023

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

Allowance for

credit losses

December 31, 2022

December 31, 2022 (As Restated)

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

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.

Amortized cost and fair values exclude accrued interest receivable of $ 1.3 million and $ 1.2 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

During the three and six months ended June 30, 2023, the Company sold no securities available-for-sale.

During the three and six months ended June 30, 2022, the Company sold no securities available-for-sale and one security available-for-sale for a minimal realized gain, respectively.

BAYCOM CORP AND SUBSIDIARY

4 unchanged sentences

12 months or more

March 31, 2023

Preferred Equity Securities

June 30, 2023

Municipal securities

5 unchanged sentences

12 months or more

December 31, 2022

Preferred equity securities

December 31, 2022 (As Restated)

Municipal securities

3 unchanged sentences

Corporate bonds

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.

At June 30, 2023, the Company held 322 securities available-for-sale, of which 297 were in an unrealized loss position for more than twelve months and 17 were in an unrealized loss position for less than twelve months.

The securities that were in an unrealized loss position as of June 30, 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.

As of June 30, 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, 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.

No 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 June 30, 2023.

BAYCOM CORP AND SUBSIDIARY

3 unchanged sentences

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.

March 31, 2023

June 30, 2023

December 31, 2022

(As Restated)

Available-for-sale

3 unchanged sentences

Due after ten years

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

Equity Securities – The Company recognized a net loss on equity securities of $ 917,000 and $ 1.8 million for the three and six months ended June 30, 2023, and recognized a net loss on equity securities of $ 1.8 million and $ 3.6 million for the three and six months ended June 30, 2022, respectively, due to a decrease in fair value of the equity securities.

Equity securities were $ 11.9 million and $ 13.8 million as of June 30, 2023 and December 31, 2022, respectively.

NOTE 5 – LOANS

3 unchanged sentences

Commercial real estate

Net deferred loan fees

Net deferred loan costs (fees)

Allowance for credit losses (2)

1 unchanged sentence

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

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.

Total loans include $ 4.9 million and $ 11.1 million of PPP loans as of June 30, 2023 and December 31, 2022, respectively.

(2) Allowance for credit losses at June 30, 2023 is estimated under CECL whereas at December 31, 2022, the allowance for loan losses is estimated under the incurred loss methodology.

Net loans exclude accrued interest receivable of $ 6.1 million and $ 6.2 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

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

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:

The Company’s total individually evaluated loans, including nonaccrual loans, modified loans to borrowers experiencing financial difficulty, 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

March 31, 2023

Recorded investment in impaired loans:

June 30, 2023

Recorded investment in loans individually evaluated:

With no specific allowance recorded

With a specific allowance recorded

Total recorded investment in impaired loans

Specific allowance on impaired loans

Total recorded investment in loans individually evaluated

Specific allowance on loans individually evaluated

December 31, 2022

Recorded investment in impaired loans:

Recorded investment in loans individually evaluated:

With no specific allowance recorded

With a specific allowance recorded

Total recorded investment in impaired loans

Specific allowance on impaired loans

Total recorded investment in loans individually evaluated

Specific allowance on loans individually evaluated

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.

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

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

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

3 unchanged sentences

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.

The ACL on a modified loan to a borrower experiencing financial difficulty 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

During the three and six months ended June 30, 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

During the three and six months ended June 30, 2022, there were no loans and four total modifications of loans to borrowers experiencing financial difficulty, consisting of two commercial real estate loans, one residential real estate loan, and one commercial and industrial loan, respectively.

The type of modification for the two commercial real estate loans and the one residential real estate loan was a term extension, with no change to the pre-modification and post modification amortized cost balance, which for these three loans totaled $ 4.1 million.

The type of modification for the commercial and industrial loan 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.

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

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

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

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

There were no commitments to lend additional amounts for modified loans to borrowers experiencing financial difficulty at June 30, 2023.

A summary of modified loans to borrowers experiencing financial difficulty by type of concession and type of loan, as of the dates indicated, is set forth below (number of loans not in thousands):

loans outstanding

June 30, 2023

Commercial and industrial

1 unchanged sentence

Commercial real estate

March 31, 2022

loans outstanding

June 30, 2022

Commercial and industrial

1 unchanged sentence

Commercial real estate

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.

For the three and six months ended June 30, 2023, the Company recorded no charge-offs for modified loans to borrowers experiencing financial difficulty.

During the three and six months ended June 30, 2022, the Company recorded a $ 2.4 million charge-off related to one modified loan to a borrower experiencing financial difficulty and no charge-offs related to modified loans to borrowers experiencing financial difficulty, respectively.

During the three and six months ended June 30, 2023, there were no modified loans to borrowers experiencing financial difficulty for which there was a payment default within the first 12 months of the modification.

During the three and six months ended June 30, 2022, there were no modified loans to borrowers experiencing financial difficulty for which there was a payment default within the first 12 months of the modification.

As of June 30, 2023 and December 31, 2022, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 296,000 and $ 393,000 , respectively.

As of June 30, 2023 and December 31, 2022, $ 774,000 and $ 759,000 of modified loans to borrowers experiencing financial difficulty were performing in accordance with their modified terms, respectively.

Accruing modified loans to borrowers experiencing financial difficulty are included in the loans individually evaluated as part of the calculation of the allowance for credit losses for loans.

Risk Rating System

The Company evaluates and assigns a risk grade to each loan based on certain criteria to assess the credit quality of each loan.

The Company evaluates and assigns a risk grade to each loan based on certain criteria to assess the credit quality of the loan.

The assignment of a risk rating is done for each individual loan.

1 unchanged sentence

Any adverse or beneficial trends will trigger a review of the loan risk rating.

Each loan is assigned a risk grade based on its characteristics.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

loan is assigned a risk grade based on its characteristics.

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.

5 unchanged sentences

A Special Mention rating is a temporary rating, pending the occurrence of an event that would cause the risk rating either to improve or to be downgraded.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Loans in this category would be characterized by any of the following situations:

26 unchanged sentences

amortized cost

March 31, 2023

June 30, 2023

Commercial and industrial:

1 unchanged sentence

Total commercial and industrial

YTD gross charge-offs

Construction and land:

6 unchanged sentences

Total residential

YTD gross charge-offs

Special mention

Total consumer

Gross current period charge-offs

YTD gross charge-offs

Total loans outstanding

1 unchanged sentence

Total loans outstanding

Total gross current period charge-offs

YTD gross charge-offs

BAYCOM CORP AND SUBSIDIARY

17 unchanged sentences

Total consumer

Gross current period charge-offs

Total loans outstanding

1 unchanged sentence

Total loans outstanding

Total gross current period charge-offs

BAYCOM CORP AND SUBSIDIARY

2 unchanged sentences

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

March 31, 2023

June 30, 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 $ 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.

Nonaccrual loans totaled $ 12.8 million at June 30, 2023 and $ 14.3 million at December 31, 2022.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 801,000 at June 30, 2023 compared to $ 839,000 at December 31, 2022.

At June 30, 2023, nonaccrual loans included $ 1.1 million of loans 30-89 days past due and $ 2.8 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 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.

At June 30, 2023, nonaccrual loans 30-89 days past due of $ 1.1 million was comprised of two loans and the $ 2.8 million of loans less than 30 days past due was comprised of 15 loans.

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

There were no loans that were 90 days or more past due and still accruing at June 30, 2023 compared to one such loan at December 31, 2022, which had a balance of $ 934,000 as of that date.

Interest foregone on nonaccrual loans was approximately $ 185,000 and $ 420,000 for the three and six months ended June 30, 2023 compared to $ 72,700 and $ 157,000 for the three and six months ended June 30, 2022.

Purchased Credit Deteriorated Loans

10 unchanged sentences

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

unfunded commitments

Three months ended March 31, 2023

Three months ended June 30, 2023

Allowance for credit losses

Beginning balance

(Reversal of) provision for credit losses

Ending balance

Six months ended June 30, 2023

Allowance for loan losses:

Beginning balance

Impact of CECL adoption

Provision for (reversal of) credit losses

Reversal of credit losses

Ending balance

March 31, 2023

June 30, 2023

Allowance for credit losses by methodology:

8 unchanged sentences

and industrial

Three Months Ended March 31, 2022

Three months ended June 30, 2022

Allowance for loan losses

2 unchanged sentences

Ending balance

At March 31, 2022

Six months ended June 30, 2022

Allowance for loan losses

Beginning balance

Provision for (reversal of) loan losses

Ending balance

June 30, 2022

Allowance for loan losses by methodology:

Loans individually evaluated

3 unchanged sentences

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.

For the three months ended June 20, 2023, the reversal of the allowance for credit losses was due to a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, and to a lesser extent, a decrease in outstanding loan balances, and $ 60,000 in net charge-offs for the three months ended June 30, 2023.

There was no change in the determined risk level for any of the qualitative factors during the three months ended June 30, 2023.

The reserve for individually evaluated loans decreased during the three months ended June 30, 2023 as one non-accrual loan, which was fully reserved for, was charged-off during the period.

For the six months ended June 20, 2023, the reversal of the allowance for credit losses was due to a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser extent, a decrease in outstanding loan balances, partially offset by replenishment of the reserve from $ 375,000 in net charge-offs for the six months ended June 30, 2023.

There was no change in the determined risk level for each of the qualitative factors during the six months ended June 30, 2023.

The reserve for individually evaluated loans decreased during the six months ended June 30, 2023 as six non-accrual loans, which were fully reserved for, were charged-off during the period.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent nonaccrual loans by loan and collateral type at June 30, 2023 and December 31, 2022.

Allowance for

Credit/Loan Losses

March 31, 2023

June 30, 2023

Commercial and industrial

5 unchanged sentences

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

The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of June 30, 2023 and the amortized cost and allowance for loan losses for loans on nonaccrual status as of December 31, 2022.

As of June 30, 2023

As of December 31, 2022

10 unchanged sentences

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.

Interest income recognized on nonaccrual loans was $ 16,000 and $ 81,000 for the three and six months ended June 30, 2023, and $ 18,000 and $ 33,000 for the three and six months ended June 30, 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”).

6 unchanged sentences

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.

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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.

As of June 30, 2023, the Company had $ 25.6 million of loans enrolled in this loan program.

The Company had a loss reserve account of $ 13.7 million as of June 30, 2023.

In addition, as successor to PEB, the Company was approved by 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 participating lender.

2 unchanged sentences

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

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 CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

The Company originated $ 2.5 million of loans under this program during the six months ended June 30, 2023.

As of June 30, 2023, the Company had $ 21.7 million of loans enrolled in this program and a loss reserve account of $ 6.2 million.

NOTE 7 – PREMISES AND EQUIPMENT

5 unchanged sentences

Total premises and equipment, net

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.

Depreciation and amortization included in occupancy and equipment expense totaled $ 430,000 and $ 883,000 for the three and six months ended June 30, 2023, and $ 503,000 and $ 1.0 million for the three and six months ended June 30, 2022, respectively.

NOTE 8 – LEASES

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

The Company leased 19 branches under noncancelable operating leases as of June 30, 2023.

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, 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.

If at lease inception, the Company considers the exercising of a

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

The Company uses the rate implicit in the lease whenever this rate is readily determinable.

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 March 31, 2023:

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of June 30, 2023:

For remainder of 2023

2 unchanged sentences

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

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 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 CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Rental expense included in occupancy and equipment expense totaled $ 1.0 million and $ 2.0 million for the three and six months ended June 30, 2023, and $ 893,000 and $ 2.2 million for the three and six months ended June 30, 2022, respectively.

NOTE 9 – GOODWILL AND INTANGIBLE ASSETS

5 unchanged sentences

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

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Changes in the Company's goodwill during the six months ended June 30, 2023 and year ended December 31, 2022 were as follows:

At and for the

six months ended

June 30, 2023

December 31, 2022

Balance at beginning of period

2 unchanged sentences

Core Deposit Intangible

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:

Changes in the Company’s core deposit intangible during the six months ended June 30, 2023 and year ended December 31, 2022 were as follows:

At and for the

six months ended

June 30, 2023

December 31, 2022

Balance at beginning of period

1 unchanged sentence

Balance at end of period

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

Estimated annual amortization expense at June 30, 2023 was as follows:

For remainder of 2023

6 unchanged sentences

Accrued interest receivable

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

Investment in SBIC fund

Investment in Community Reinvestment Act fund

9 unchanged sentences

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.

Included in time deposits are certificates of deposit over $ 250 thousand totaling $ 71.5 million and $ 57.8 million at June 30, 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 March 31, 2023 and December 31, 2022, the Company had no FHLB advances outstanding.

At both June 30, 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

Cumulative available commitments totaled $ 65.0 million at both June 30, 2023 and December 31, 2022.

There were no amounts outstanding under these facilities at June 30, 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, with a weighted average interest rate of 8.12 % at June 30, 2023, compared to $ 8.5 million, net of fair value adjustments, with a weighted average rate of 7.34 % at December 31, 2022 .

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

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

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

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 10, 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 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.

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 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.

At June 30, 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

8 unchanged sentences

Three months ended

Six months ended

Professional fees

8 unchanged sentences

Courier expense

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

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

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

Advertising expense included in marketing and promotions totaled $ 15,000 and $ 21,000 for the three and six months ended June 30, 2023, and $ 21,000 and $ 42,000 for the three and six months ended June 30, 2022, respectively.

BAYCOM CORP AND SUBSIDIARY

4 unchanged sentences

2017 Omnibus Equity Incentive Plan

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

The Company’s shareholders approved the Company’s 2017 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 right, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan.

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

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.

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

As of June 30, 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 2014 Equity Incentive Plan (the “2014 Plan”).

In 2014, the Company’s shareholders approved the Company’s 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 $ 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.

Total compensation expense for these plans was $ 182,000 and $ 432,000 for the three and six months ended June 30, 2023 and $ 233,000 and $ 557,000 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, there was $ 996,000 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 Company has two forms of outstanding common stock:

fully vested common stock and unvested restricted stock awards.

Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings.

Under the two-class method, the difference in earnings per share is not significant for these participating securities.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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

Three months ended March 31,

At and for the three and six months ended June 30,

Weighted-average

2 unchanged sentences

Non-Vested, at March 31,

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Non-Vested, at June 30,

NOTE 16 – FAIR VALUE MEASUREMENT

10 unchanged sentences

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 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.

Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and 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 the three months ended March 31, 2023 and 2022.

There were no transfers between levels during the three and six months ended June 30, 2023 and 2022.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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

March 31, 2023

Total Estimated

Fair Value Measurements

June 30, 2023

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

Equity securities

Total Estimated

Fair Value Measurements

December 31, 2022

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

Equity securities

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

March 31, 2023

Total Estimated

Fair Value Measurements

June 30, 2023

Individually evaluated

Total Estimated

Fair Value Measurements

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.

(1) At June, 30, 2023, with the adoption of CECL, one performing modified loan to a borrower experiencing financial difficulty was individually 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, 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.

Loans for which it is probable that payment of interest and principal will not be made in accordance with the original

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

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.

2 unchanged sentences

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.

7 unchanged sentences

Fair value measurements

March 31, 2023

June 30, 2023

Financial assets:

2 unchanged sentences

Investment securities available-for-sale

Equity securities

Investment in FHLB and FRB Stock

Loans held for sale

Accrued interest receivable

14 unchanged sentences

Investment securities available-for-sale

Equity securities

Investment in FHLB and FRB Stock

16 unchanged sentences

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:

Commitments to extend credit

Standby letters of credit

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

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

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

Commitments to extend credit

Standby letters of credit

Total commitments

Commitments generally have fixed expiration dates or other termination clauses.

The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon.

The commitments are generally variable rate and include unfunded home equity lines of credit, commercial real estate construction where disbursement is made over the course of construction, commercial revolving lines of credit, and unsecured personal lines of credit.

The actual liquidity needs or the credit risk that the Company will experience will likely be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon.

The commitments are generally variable rate and include unfunded home equity lines of credit, commercial real estate construction loans where disbursement is made over the course of construction, commercial revolving lines of credit, and unsecured personal lines of credit.

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 $ 320,000 at March 31, 2023 and $ 315,000 at December 31, 2022.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 300,000 at June 30, 2023 and $ 315,000 at December 31, 2022.

Commercial Real Estate Concentrations

At March 31, 2023 and December 31, 2022, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

At June 30, 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.

1 unchanged sentence

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

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 June 30, 2023, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 1.5 million and $ 122,000 , respectively.

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

At June 30, 2023, approximately $ 186.7 million, or 8.66 %, 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.

As of June 30, 2023 and December 31, 2022, approximately $ 992.2 million, or 46.2 % 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.

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.

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.

At June 30, 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.

NOTE 19 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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

consolidated financial statements except for the matter described below, which constitutes a non-recognized (Type II) subsequent event.

Subsequent to June 30, 2023, the Company determined that a certificate of deposit-secured line of credit loan made to a revocable living trust (the “Trust” or the “Borrower”) with an outstanding balance of approximately $ 5.0 million as of June 30, 2023 was impaired as a result of the sole trustee and beneficiary of the Trust filing for personal bankruptcy in July 2023.

At June 30, 2023, the loan was performing in accordance with its payment terms and was secured by a $ 4.0 million certificate of deposit held at the Bank.

An additional $ 1.0 million in cash collateral securing the loan had previously been released by the Bank into a third-party escrow account at the request of the Borrower to be used as a refundable retainer in connection with a separate transaction by the Borrower.

The loan matured on July 16, 2023.

and the Bank received notification that the sole trustee and beneficiary of the Trust filed for personal bankruptcy on July 18, 2023.

After receiving this notification, the Bank used the $ 4.0 million certificate of deposit held at the Bank to offset amounts owed on the loan and contacted the third-party escrow agent for the return of the additional $ 1.0 million of collateral.

The Bank was advised by the escrow agent that the previously escrowed funds had been released by the escrow agent, which was done without the Bank’s consent and contrary to the written escrow instructions.

The Bank plans to initiate legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral.

As the results of the planned legal action and the Bank’s ability to recover the previously escrowed collateral are uncertain, the Company expects to record a $ 1.0 million reserve for the unsecured portion of the loan during the third quarter of 2023.

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