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(a) Evaluation of Disclosure Controls and Procedures
−Removed: An evaluation of the disclosure controls and procedures as defined in Rule 13a 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) was carried out as of March 31, 2023 under the supervision and with the participation of the Company’s principal executive officer, principal financial officer and several other members of the Company’s senior management.
+Added: An evaluation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), was carried out as of June 30, 2023 under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and several other members of the Company’s senior management.
In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
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The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
−Removed: The Company’s principal executive officer and principal financial officer concluded that based on their evaluation at March 31, 2023, the Company’s disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to BayCom Corp’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.
+Added: The Company’s CEO and CFO concluded that based on their evaluation at June 30, 2023, the Company’s disclosure controls and procedures were not effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to BayCom Corp’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.
+Added: This conclusion was due to a material weakness in the Company’s internal control over financial reporting, which was described in Part II, Item 9A of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, and continued to exist as of June 30, 2023.
+Added: Notwithstanding the material weaknesses described below, management, based upon the work performed during the restatement and revision process, has concluded that the Company's condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with accounting principles generally accepted in the United States (“GAAP”) for each of the periods presented herein.
+Added: Previously Disclosed Material Weakness in Internal Control Over Financial Reporting
+Added: The Company disclosed in Part II, Item 9A – Controls and Procedures in its Annual Report on Form 10-K/A (“Item 9A”) for the year ended December 31, 2022, that it had identified an error related to the accounting for unrealized losses on preferred equity securities that resulted in material misstatements of noninterest income and accumulated other comprehensive income.
+Added: 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 ASC Topic 320 – Investments-Debt Securities .
+Added: 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).
+Added: However, as a result of subsequent research and third-party consultation, the Company determined that the securities should instead have been accounted for under ASC Topic 321 – Investments-Equity Securities .
+Added: The result of this change in classification of the preferred equity securities is that the change in the fair value of the securities for the prior periods should have been
+Added: recorded in noninterest income on the consolidated statements of income.
+Added: The Company determined that this error constituted a “material weakness” in its internal control over financial reporting.
+Added: Remediation Plan and Status
+Added: In response to the identified material weakness, our management, with the oversight of the audit committee of our board of directors, has begun to dedicate additional resources, including additional employee training and engagement of third-party expertise, toward improving our internal control over financial reporting.
+Added: We are also in the process of redesigning and enhancing control activities related to investment security classification and review at the acquisition date.
+Added: We believe the measures described above will remediate the material weakness we have identified and strengthen our internal control over financial reporting.
+Added: We are committed to improving our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures.
+Added: We may also take additional measures to address control deficiencies or modify certain of the remediation measures described above.
+Added: This material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
(b) Changes in Internal Controls
−Removed: There were no significant changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2023, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
+Added: There were no changes made to our internal control over financial reporting that occurred during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud.
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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.