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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-31 · 687 added, 592 removed, 1041 unchanged (55% of the section changed)

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To the Shareholders and the Board of Directors of

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of BayCom Corp and Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of BayCom Corp and Subsidiary (the “Company”) as of December 31, 2023 and 2022 , the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023 , and the related notes (collectively referred to as the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control – Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022 , and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 , in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control – Integrated Framework ( 2013 ) issued by COSO.

Change in Accounting Principle

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company has changed its method of accounting for credit losses due to the adoption of Accounting Standards Update No.

2016-13, Financial Instruments – Credit Losses .

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting .

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Allowance for Credit Losses for Loans and Leases

As described in Notes 1 and 5 to the consolidated financial statements, the Company adopted Accounting Standards Update No.

2016-13 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , as of January 1, 2023, using the modified retrospective method.

Upon adoption, the Company recorded a decrease to retained earnings of $491,000, net of taxes, for the cumulative effect of adopting Topic 326.

The Company’s allowance for credit losses was $22 million as of December 31, 2023, and is estimated using relevant information, from both internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

We identified the elections and key assumptions involved in the adoption of Topic 326, as well as the estimation of qualitative internal and external risk factors and the application of forecasted economic conditions within the calculation of the allowance for credit losses as a critical audit matter.

The principal considerations for our determination of the allowance for credit losses as a critical audit matter is the subjectivity and significant judgment required by management in the determination of these elections and key assumptions.

Auditing management’s judgements regarding the

reasonable and supportable forecast and qualitative internal and external risk factors involved significant audit effort, including a high degree of subjectivity and judgment when performing the audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

● Testing the design, implementation and operating effectiveness of controls relating to management’s initial adoption of Topic 326 and the calculation of the allowance for credit losses on loans, including controls related to model development and validation and the evaluation of the qualitative internal and external risk factors.

● Evaluating the appropriateness of the Company’s elections and key assumptions involved in the adoption of Topic 326.

● Evaluating the reasonableness of the significant assumptions used by management as well as the relevance and reliability of the data used by management related to the qualitative internal and external risk factors.

● Evaluating the reasonableness of the significant assumptions used by management as well as the relevance and reliability of the data used by management related to the forecasted economic conditions.

● Tested the mathematical accuracy of the allowance for credit losses by reperforming or independently calculating significant elements of the estimate, as well as testing completeness and accuracy of the underlying data and model inputs used in the calculation.

/s/ Moss Adams LLP

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We have served as the Company’s auditor since 2018.

Hyperlink reference not valid.

BAYCOM CORP AND SUBSIDIARY

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(In thousands, except for share data)

(As Restated)

Cash due from banks

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Time deposits in banks

Investment securities available-for-sale

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

Federal Reserve Bank ("FRB") stock, at par

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

Equity securities

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

Federal Reserve Bank ("FRB") stock, at par

Loans held for sale

Loans, net of allowance for loan losses of $ 18,900 at December 31, 2022 and $ 17,700 at December 31, 2021

Loans, net of allowance for credit losses of $ 22,000 at December 31, 2023 and $ 18,900 at December 31, 2022

Premises and equipment, net

Other real estate owned ("OREO")

Core deposit intangible, net

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

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

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

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

Interest receivable and other assets

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Additional paid in capital

Accumulated other comprehensive (loss) income, net of tax

Accumulated other comprehensive loss, net of tax

Retained earnings

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

(As Restated)

Interest income:

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Subordinated debt

Junior subordinated debt

Junior subordinated deferrable interest debentures

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income:

Gain on sale of loans

Loss on equity securities

Service charges and other fees

Loan servicing and other loan fees

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

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

Bargain purchase gain

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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

The accompanying notes are an integral part of the consolidated financial statements.

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(In thousands)

Other comprehensive (loss) income:

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

Deferred tax benefit (expense)

Other comprehensive (loss) gain income, net of tax

(As Restated)

Other comprehensive loss:

Change in unrealized loss on available-for-sale securities

Deferred tax benefit

Other comprehensive loss, net of tax

Total comprehensive income

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Balance, January 1, 2021

Other comprehensive income, net

Other comprehensive loss, net

Restricted stock granted

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Repurchase of shares

( 1,276,869 )

Balance, December 31, 2021

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Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.20 per share

Stock based compensation

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Balance, December 31, 2022

(As Restated)

Other comprehensive loss, net

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

Restricted stock granted

Restricted stock forfeited

Cash dividends of $ 0.40 per share

Stock based compensation

Issuance of common shares to acquire Pacific Enterprise Bancorp

Repurchase of shares

( 1,329,040 )

Balance, December 31, 2023

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(In thousands)

(As Restated)

Cash flows from operating activities:

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

Provision for loan losses

Increase (decrease) in deferred tax assets

Provision for credit losses

Deferred tax expense (benefit)

Accretion on acquired loans

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Loss on sale of premises, net

Gain on sale of OREO

Loss (gain) on sale of OREO

Bargain purchase gain

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

Loss on equity securities

Depreciation and amortization

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Stock based compensation expense

(Decrease) increase in deferred loan origination fees, net

Increase in interest receivable and other assets

Increase in salary continuation plan, net

Increase (decrease) in interest payable and other liabilities

Decrease in deferred loan origination fees, net

Net change in interest receivable and other assets

(Decrease) increase in salary continuation plan, net

Net change in interest payable and other liabilities

Net cash provided by operating activities

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Proceeds from maturities of interest bearing deposits in banks

Purchase of investment securities

Proceeds from the maturities, repayments and calls of investment securities

Proceeds from the sales of investment securities

Purchase of Federal Home Loan Bank stock

Purchase of Federal Reserve Bank stock

Increase (decrease) in loans, net

Purchase of investment securities AFS

Proceeds from maturities, repayments and calls of investment securities AFS

Proceeds from sales of investment securities AFS

Purchase of FHLB stock

Purchase of FRB stock

Decrease (increase) in loans, net

Proceeds from sale of premises

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Purchase of equipment and leasehold improvements, net

Net cash received (paid) for acquisitions

Net cash received for acquisitions

Net cash provided by (used in) investing activities

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(In thousands)

(As Restated)

Cash flows from financing activities:

(Decrease) increase in noninterest and interest bearing deposits

(Decrease) increase in time deposits, net

Repayment of junior subordinated debentures

Proceeds from issuance of subordinated debt, net

Advances from Federal Home Loan Bank

(Decrease) increase in noninterest and interest bearing deposits in banks, net

Increase (decrease) in time deposits, net

Repayment of Federal Home Loan Bank borrowings

Increase in other borrowings

Repayment of other borrowings

Repurchase of common stock

Dividends paid 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 (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Income taxes paid, net

Non-cash investing and financing activities:

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

Transfer of loans to other real estate owned

Recognition of ROU assets

Recognition of lease liability

Non-cash investing and financing activities:

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

Cash dividends declared on common stock not yet paid

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Liabilities assumed

Cash consideration

Common stock issued

The accompanying notes are an integral part of the consolidated financial statements.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Bank provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals through its 35 full-service banking branches.

The main office is located in Walnut Creek, California and branch offices are located in Oakland, Castro Valley, Mountain View, Stockton, Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco, Buena Park, Los Angeles, and Garden Grove, Waterloo, Irvine, California, and Seattle, Washington ( 2 ), New Mexico ( 5 ) and Colorado ( 11 ).

The main office is located in Walnut Creek, California and branch offices are located in Oakland, Castro Valley, Mountain View, Stockton, Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco, Buena Park, Los Angeles, Garden Grove, Waterloo, Irvine, California, and Las Vegas, Nevada, and Seattle, Washington ( 2 ), New Mexico ( 5 ) and Colorado ( 11 ).

The Company is subject to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”).

The Bank is subject to regulation by the California Department of Financial Protection and Innovation (“DFPI”), which until September 29, 2020 was known as the California Department of Business Oversight, and as a state-member bank, by the Federal Reserve.

The Company has two subsidiary grantor trusts, First ULB Statutory Trust I (“FULB Trust”) and Bethlehem Capital Trust (“BFC Trust”) (collectively, the “Trusts”) which were established in connection with the issuance of trust preferred securities (see Note 13).

The Company has two subsidiary grantor trusts, First ULB Statutory Trust I (“FULB Trust”) and Bethlehem Capital Trust (“BFC Trust”) (collectively, the “Grantor Trusts”) which were established in connection with the issuance of trust preferred securities (see Note 13).

In accordance with generally accepted accounting principles in the United States (“U.S.

GAAP”), the accounts and transactions of the Trusts are not included in the accompanying consolidated financial statements.

The Trusts were acquired through acquisitions.

The accounting and reporting policies of the Company conform to U.S.

GAAP and prevailing practice within the banking industry.

As an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

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

As of December 31, 2022, there is no significant difference in the comparability of the consolidated financial statements as a result of this extended transition period.

The Grantor Trusts were acquired through acquisitions.

The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

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The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank.

The accounting and reporting policies of the Company conform to U.S.

GAAP, general practice, and regulatory guidance within the banking industry.

All material intercompany transactions and accounts have been eliminated in consolidation.

For financial reporting purposes, the Trusts are accounted for under the equity method and are included in other assets on the consolidated balance sheets.

The junior subordinated debentures issued and guaranteed by the Company and held by the Trusts are reflected as liabilities on the Company’s consolidated balance sheets.

The preparation of consolidated financial statements in conformity with U.S.

For financial reporting purposes, the Grantor Trusts are accounted for under the equity method and are included in other assets on the consolidated balance sheets.

The junior subordinated debentures issued and guaranteed by the Company and held by the Grantor Trusts are reflected as liabilities on the Company’s consolidated balance sheets.

The accounting preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions.

These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant accounting estimates reflected in the consolidated financial statements include the allowance for loan losses, the valuation for deferred tax assets, the valuation of financial assets and liabilities, and the determination, recognition and measurement of impaired loans.

Significant accounting estimates reflected in the consolidated financial statements include the allowance for credit losses on loans.

Actual results could differ from these estimates.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented to the nearest thousands of dollars except per share amounts.

If the amounts are above $1.0 million, they are rounded one decimal point, and if they are above $1.0 billion, they are rounded two decimal points.

Business Combinations

On February 1, 2022 , the Company acquired all of the assets and assumed all of the liabilities of Pacific Enterprise Bancorp (“PEB”) and its wholly owned subsidiary, Pacific Enterprise Bank , under a Merger and Plan of Reorganization dated September 7, 2021 .

On February 4, 2020 , the Company acquired all of the assets and assumed all of the liabilities of Grand Mountain Bancshares, Inc.

(“GMB”) and its wholly owned subsidiary Grand Mountain Bank , under a Merger and Plan of Reorganization dated November 4, 2019 .

The acquired assets and assumed liabilities, both tangible and intangible for all acquisitions were measured at estimated fair values, as required by the acquisition method of accounting for business combinations Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations.

We apply the acquisition method of accounting for business combinations.

Under the acquisition method, the acquiring entity in a business combination recognizes all the identifiable assets acquired and liabilities assumed at their acquisition date fair values.

Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.

Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.

Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized.

Acquisition related costs are expensed as incurred unless they are directly attributable to the issuance of the Company’s common stock in a business combination.

The acquired assets and assumed liabilities, both tangible and intangible for all acquisitions

were measured at estimated fair values, as required by the acquisition method of accounting for business combinations Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations.

Management made significant estimates and exercised significant judgment in accounting for the acquisition.

For additional information, see “Note 2-Acquisitions.”

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For the years ended December 31, 2023 and 2022, $ 166.3 million and $ 176.8 million in reserve balances were required, respectively.

As of December 31, 2022 and 2021, the Company had cash deposits at other financial institutions in excess of FDIC insured limits.

As of December 31, 2023 and 2022, the Company had cash deposits at other financial institutions in excess of Federal Deposit Insurance Corporation (“FDIC”) insured limits.

The Company places these deposits with major financial institutions and management monitors the financial condition of these institutions and believes the risk of loss to be minimal.

At both December 31, 2023 and December 31, 2022, the Company did not hold interest bearing money market accounts in these financial institutions.

Interest Bearing Deposits in Banks

Interest Bearing Time Deposits in Banks

The Company invests in certificates of time deposits with other banks.

At December 31, 2023 and 2022, the certificates of time deposits with other banks totaled $ 1.2 million and $ 2.2 million, with a yield of 2.64 % and 2.77 %, respectively.

These deposits do not exceed FDIC limits and mature between one and six years .

Investment Securities Available-for-Sale

Available-for-sale debt securities include bonds, notes, mortgage-backed securities, and debentures not classified as held-to-maturity securities.

These deposits do not exceed FDIC limits and mature between one and three years .

Investment Debt Securities Available-for-Sale

Investment debt securities AFS include bonds, notes, mortgage-backed securities, and debentures not classified as held-to-maturity securities.

These securities are carried at estimated fair value with unrealized holding gains and losses, net of tax impact, if any, reported as a net amount in a separate component of shareholders’ equity, accumulated other comprehensive income (loss), until realized.

Gains and losses on the sale of available-for-sale debt securities are determined using the specific identification method.

Gains and losses on the sale of AFS debt securities are determined using the specific identification method.

The amortization of premiums and accretion of discounts are recognized as adjustments to interest income over the period to maturity.

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This assessment 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.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

securities that are considered other than temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the amount of impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors.

For debt securities that are considered other than temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the amount of impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors.

The credit loss component is recognized in earnings and is calculated as the difference between the security’s amortized costs basis and the present value of its expected future cash flows.

The remaining difference between the security’s fair value and the present value of the future expected cash flow is deemed to be due to factors that are not credit related and is recognized in other comprehensive income (loss).

Allowance for Credit Losses for Investment Debt Securities Available-For-Sale

Prior to the adoption of ASU 2016-13, declines in the fair value of securities below their cost deemed to be other-than-temporary impairment ("OTTI") were reflected in operations as realized losses.

Upon adoption of ASU 2016-13, for investment debt securities available-for-sale in a loss position, the Company evaluates whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Impairment may result from either a decline in the financial condition of the issuing entity or in the case of fixed interest rate investments, from rising interest rates.

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.

Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes.

Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.

Changes in the allowance for available-for-sale securities are recorded as provision for (or reversal of) credit loss.

However, if the uncollectibility of an available-for-sale security is confirmed or if the Company intends to sell an impaired available-for-sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Investment Equity Securities

Equity securities include marketable preferred stock.

These securities are carried at estimated fair value with changes in unrealized holding gains and losses reported as part of non-interest income on the consolidated statement of income.

Gains and losses on the sale of equity securities are determined using the specific identification method.

The amortization of premiums and accretion of discounts are recognized as adjustments to interest income over the period to maturity.

Federal Home Loan Bank Stock

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Cash dividends are reported as interest income.

Loans are stated at the principal amount outstanding, net of the allowance for loan losses, net deferred fees, and unearned discounts, if any.

Loans are stated at the principal amount outstanding, net of the allowance for credit losses, net deferred fees, and unearned discounts, if any.

The Company holds loans receivable primarily for investment purposes.

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The participations are sold without recourse.

The Company acquires loans in business combinations that are recorded at estimated fair value as of their purchase date.

The purchaser cannot carryover the related allowance for loan losses as probable credit losses are considered in the estimation of fair value.

Purchased loans are accounted for under ASC 310-30, Loans and Debt Securities with Deteriorated Credit Quality , or ASC 310-20, Non-refundable Fees and other Costs .

Certain acquired loans exhibited credit quality deterioration since origination and are therefore being accounted for under ASC 310-30.

The acquired loans that did not exhibit credit quality deterioration are accounted for under ASC 310-20.

Interest on loans is calculated and accrued daily using the simple interest method based on the daily amount of principal outstanding.

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Loans are returned to accrual basis when principal and interest payments are being paid currently and full payment of principal and interest is probable.

The Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") and implemented by the U.S.

Small Business Administration (“SBA”), provided the Bank with delegated authority to process and originate PPP loans.

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The PPP expired on May 31, 2021.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Loans Purchased

From time to time, the Bank may purchase whole-loans including multi-family residential, single-family residential and commercial and industrial loans that were not acquired in bank acquisitions.

As of December 31, 2022 and 2021, purchased loans outstanding of collection totaled $ 134.5 million and $ 145.4 million respectively.

Purchase premiums remaining on the purchased loans totaled $ 10,000 and $ 533,000 at December 31, 2022 and 2021, respectively.

The purchased loans consist of adjustable-rate multi-family residential mortgages on properties within the Company’s markets and adjustable rate commercial and industrial loans both inside and outside the Company’s markets.

Loans Purchased and Acquired

From time to time, the Company may purchase whole-loans including multi-family residential, single-family residential and commercial and industrial loans both inside and outside its markets, to augment our loan portfolio.

The purchase decision is usually based on several factors, including current loan origination volumes, market interest rates, excess liquidity, our continuous efforts to meet the credit needs of certain borrowers under the Community Reinvestment Act (“CRA”), as well as other asset/liability management strategies.

All of the purchased loans are selected using the Bank’s normal underwriting criteria at the time of purchase, or in some cases guaranteed by third parties.

At December 31, 2022 and 2021, none of the purchased loans were past due 30 days or more.

At December 31, 2022 and 2021, the Company has allocated approximately $ 1.3 million and $ 1.5 million, respectively, of the allowance for loan losses to the purchased loans.

These loans are reserved for under the Company’s general allowance component.

The decrease in the reserves is consistent with the decrease in balance of purchased loans outstanding of collection at December 31, 2022.

Purchased Credit Impaired Loans

The Company purchases individual loans and groups of loans, some of which show evidence of credit deterioration since origination.

The purchased credit impaired (“PCI”) loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan losses.

PCI loans are accounted for individually or aggregated into pools of loans on common risk characteristics.

The Company estimates the amount and timing of expected cash flows for the loan or pool.

The expected cash flows in excess of the amount paid are recorded as interest income over the life of the loan (“accretable yield”).

The excess of the loan or pool’s contractual principal and interest over the expected cash flows is not recorded (“nonaccretable differences”).

Over the life of the loan or pool, expected cash flows continue to be estimated.

If the present value of the expected cash flows is less than the amount, a loss is recorded as a provision for loan losses.

If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of the future interest income.

Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity.

The Company adopted ASC 326 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 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.

An allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as acquired impaired, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

Acquired PCD loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination which may be determined through observation of missed payments, downgrade in risk rating, deterioration of a borrower's financial trends or other observable factors including subjectivity utilized by management.

PCD assets are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition.

The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the consolidated balance sheets.

An allowance for credit losses is determined using the same methodology as other loans held for investment.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.

Subsequent changes to the allowance for credit losses are recorded through credit loss expense.

Acquired non-PCD loans

Acquired non-PCD loans under business combinations are accounted for under ASC Subtopic 310-20, Receivables Nonrefundable Fees and Other Costs ("ASC 310-20").

The difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan.

While credit discounts are included in the determination of the fair value from non-PCD loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be

recorded at the acquisition date.

As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses in the consolidated statement of operations.

Any subsequent deterioration (improvement) in credit quality is recognized by recording a provision for (recapture of) credit losses.

Loan Fees and Costs

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Other loan fees and charges which represent income from delinquent payment charges, and miscellaneous loan or letter of credit services, are recognized as noninterest income when collected.

Salaries, employee benefits and other expenses totaling $ 2.2 million and $ 2.0 million were deferred as loan origination costs for the years ended December 31, 2022 and 2021, respectively.

Allowance for Loan Losses

The allowance for loan losses is evaluated on a regular basis by management.

Salaries, employee benefits and other expenses totaling $ 663,000 and $ 2.2 million were deferred as loan origination costs for the years ended December 31, 2023 and 2022, respectively.

Allowance for Credit Losses on Loans

The Company measures credit losses under ASU 2016-03 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology, and is referred to as the current expected credit loss, or CECL, methodology.

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

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

The allowance for credit losses is the combination of the allowance for credit losses for loans and the reserve for unfunded loan commitments.

The allowance for credit losses for loans is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "Interest payable and other liabilities" on the consolidated balance sheets.

The amortized cost basis of loans does not include accrued interest receivable, which is included in "Interest receivable and other assets" on the consolidated balance sheets.

The "Provision for credit losses" on the consolidated statements of income (loss) is a combination of the provision for credit losses for loans, unfunded loan commitments, and investment securities available-for-sale.

The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes uncollectibility of loan is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

Periodically, the Company charges current earnings with provisions for estimated probable losses of loans receivable.

The provision or adjustment takes into consideration the adequacy of the total allowance for loan losses giving due consideration to specifically identified problem loans, the financial condition of the borrower, fair value of the underlying collateral, recourse provisions, prevailing economic conditions, and other factors.

Additional consideration is given to the Company’s historical loan loss experience

BAYCOM CORP AND SUBSIDIARY

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relative to the Company’s loan portfolio concentrations related to industry, collateral and geography.

The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for loan losses.

Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.

Management estimates the allowance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The CECL model utilizes a discounted cash flow ("DCF") method to measure the expected credit losses on loans collectively evaluated that are sub-segmented by loan pools with similar credit risk characteristics, which generally correspond to federal regulatory reporting codes (i.e., Call Report codes), with PCD assets pooled separately by similar loan pools to evaluate and measure the allowance for credit losses.

In its loss forecasting framework, the Company incorporates forward-looking information through the use Federal Reserve Economic Data, more specifically macroeconomic forecasts such as national unemployment rates and national gross domestic product.

A loan may be considered to be placed on nonaccrual when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as nonaccrual.

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not included in the collective evaluation.

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, adjusted for undiscounted selling costs as appropriate.

When the discounted cash flow method is used to determine the allowance for credit losses, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments, or the loan’s obtainable market price.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a loan modification will be executed with an individual borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Portfolio segments identified by the Company include commercial and industrial, construction and land, commercial real estate including multifamily, residential real estate and consumer.

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Relevant risk characteristics for the Company’s loan portfolio segments include vintage of the loan, debt service coverage, loan-to-value ratios and other financial performance ratios.

At December 31, 2022 and 2021, management believes the allowance for loan losses adequately reflects the credit risk in the loan portfolio.

Generally, the allowance for loan losses consists of various components including a component for specifically identified weaknesses as a result of individual loans being impaired, a component for general non-specific weakness related to historical experience, economic conditions and other factors that indicate probable loss in the loan portfolio.

Loans determined to be impaired are individually evaluated by management for specific risk of loss.

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

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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.

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

Special Mention loans have potential weaknesses that deserve close attention.

If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

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

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

● Credit that is currently protected but is potentially a weak asset;

● Credit that is difficult to manage because of an inadequate loan agreement, the condition of and/or control over collateral, failure to obtain proper documentation, or any other deviation from product lending practices;

● Adverse financial trends.

Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged.

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.

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

A loan can be fully and adequately secured and still be considered Substandard.

Some characteristics of Substandard loans are:

● Inability to service debt from ordinary and recurring cash flow;

● Chronic delinquency;

● Reliance upon alternative sources of repayment;

BAYCOM CORP AND SUBSIDIARY

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● Term loans that are granted on liberal terms because the borrower cannot service normal payments for that type of debt;

● Repayment dependent upon the liquidation of collateral;

● Inability to perform as agreed, but adequately protected by collateral;

● Necessity to renegotiate payments to a non-standard level to ensure performance;

● The borrower is bankrupt, or for any other reason, future repayment is dependent on court action.

Doubtful loans have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and value, highly questionable and improbable.

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

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

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

A loan may be considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Troubled Debt Restructuring

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 troubled debt restructuring (“TDR”).

The Company measures any loss on the TDR in accordance with the guidance concerning impaired loans set forth above.

Additionally, loans modified in troubled debt restructurings are generally placed on nonaccrual status at the time of restructuring and included in impaired loans.

See Note 5 of the Notes to Consolidated Financial Statements for loan risk rating definitions.

PCD assets are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition.

The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the consolidated balance sheets, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the consolidated statements of income, consistent with originated loans.

For additional information regarding CECL, see “Critical Accounting Estimates” in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is established through a provision for credit losses-unfunded commitments, the changes of which are recorded in provision for credit losses and the reserve amount is included within "Interest payable and other liabilities" on the consolidated balance sheets.

The reserve for unfunded commitments is an amount that Management believes will be adequate to absorb probable losses inherent in existing commitments, including unused portions of revolving lines of credit and other loans, standby letters of credit, and unused deposit account overdraft privileges.

The reserve for unfunded commitments is based on evaluations of the collectability, and prior loss experience of unfunded commitments.

The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and

related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

Modifications for Financial Difficulty

The adoption of ASU 2022-02 on January 1, 2023 eliminated the recognition and measurement of trouble debt restructuring (“TDRs”) and enhanced the disclosures for modifications to loans related to borrowers experiencing financial difficulties.

Modified loans and leases are reviewed to determine if the modification was done for borrowers experiencing financial difficulty.

The concessions may be granted in various forms, including a reduction in the stated interest rate, reduction in the loan balance or accrued interest, extension of the maturity date, or a combination of these.

The Company measures any loss on the modified loan to a borrower experiencing financial difficulty in accordance with the guidance concerning individually evaluated loans set forth above.

Additionally, modified loans to borrowers experiencing financial difficulties 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.

Other Real Estate Owned

Other real estate owned (“OREO”) acquired through, or in lieu of foreclosure is held-for-sale and are initially recorded at fair value, less selling expenses.

At transfer, any write-downs to fair value are charged to the allowance for loan losses.

OREO acquired through, or in lieu of, foreclosure is held-for-sale and initially recorded at fair value, less selling expenses.

At transfer, any write-downs to fair value are charged to the allowance for credit losses.

Costs to hold OREO are expensed when incurred.

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Operating expenses of such properties, net of related income, are included in other expenses.

BAYCOM CORP AND SUBSIDIARY

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

Premises and Equipment

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Operating leases are capitalized at commencement and are discounted using the Company’s FHLB borrowing rate for a similar term borrowing unless the lease defines an implicit rate within the contract.

The operating lease right of use assets (“ROU”) represent the Company’s right to use an underlying asset for the lease term, and the operating lease liabilities represent the obligation to make lease payments arising from the lease.

Operating lease right of use assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term.

The operating lease right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and the operating lease liabilities represent the obligation to make lease payments arising from the lease.

Operating lease ROU assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term.

Some of the Company's lease agreements include options to renew at the Company's discretion.

The extensions are not reasonably certain to be exercised, therefore it was not considered in the calculation of the ROU asset and lease liability.

The extensions are not reasonably certain to be exercised, therefore they were not considered in

the calculation of the ROU asset and lease liability.

No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates.

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Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the net assets acquired and the liabilities assumed as of the acquisition date.

Goodwill and other intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

The Company performed its annual impairment analysis and determined no impairment existed as of December 31, 2022.

is reviewed for impairment annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit below its carrying amount.

We make a qualitative assessment whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less than its carrying amount.

Such indicators may include, among others:

a significant adverse change in legal factors or in the general business climate;

significant decline in the Company’s stock price and market capitalization;

unanticipated competition;

and an adverse action or assessment by a regulator.

Any adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and results of operations.

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 life of seven to ten years .

The Company performed its annual impairment analysis and determined no impairment existed as of December 31, 2023.

Bank Owned Life Insurance

The Bank owns life insurance policies (“BOLI”) on certain key current officers.

BOLI policies are maintained on certain key current officers.

BOLI is recorded on the consolidated balance sheets at the amount that can be realized based on cash surrender value.

BAYCOM CORP AND SUBSIDIARY

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Transfers of Financial Assets

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Servicing Assets and Liabilities

All servicing assets and liabilities are initially measured at fair value.

The Company amortizes servicing rights in proportion to and over the period of the estimated net servicing income or loss assuming prepayments and assesses the rights for impairment.

Loans serviced for others totaled $ 272.8 million and $ 253.7 million as of December 31, 2022 and 2021, respectively.

Servicing assets, included in interest receivable and other assets in the consolidated statements of financial condition, totaled $ 2.1 million and $ 1.9 million as of December 31, 2022 and 2021, respectively.

There were no servicing liabilities, included in interest payable and other liabilities on the consolidated balance sheets at both December 31, 2022 and December 31, 2021.

In connection with the sale of the Company’s SBA loans, the Company recognizes servicing assets when servicing rights are retained.

The gain or loss on sale of loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer.

All servicing assets and liabilities are initially measured at fair value.

The Company initially recognizes and measures at fair value servicing rights obtained by SBA loan sales.

The Company subsequently measures these servicing assets by using the amortization method, which amortizes servicing assets in proportion to, and over the period of, estimated net servicing income.

The amortization of the servicing assets is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates.

The amortization of the servicing assets is analyzed periodically for impairment, and is adjusted to reflect changes in prepayment rates and other estimates.

The servicing asset and the related amortization are netted against other non-operating income in the consolidated statement of income.

Gain or loss on sale of loans is included in noninterest income.

Loans serviced for others totaled $ 216.6 million and $ 272.8 million as of December 31, 2023 and 2022, respectively.

Servicing assets, included in interest receivable and other assets in the consolidated statements of financial condition, totaled $ 1.3 million and $ 2.1 million as of December 31, 2023 and 2022, respectively.

There were no servicing

liabilities, included in interest payable and other liabilities on the consolidated balance sheets at both December 31, 2023 and December 31, 2022.

Loans Held for Sale

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SBA loans are generally secured by the borrowing entities’ assets such accounts receivable, property and equipment and other business assets.

The Company generally recognizes gains and losses on these loan sales

BAYCOM CORP AND SUBSIDIARY

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

based on the differences between the sales proceeds received and the allocated carrying value of the loans sold (which can include deferred premiums and net origination fees and costs).

The Company generally recognizes gains and losses on these loan sales based on the differences between the sales proceeds received and the allocated carrying value of the loans sold (which can include deferred premiums and net origination fees and costs).

The non-guaranteed portion of the SBA loans is not typically sold by the Company and is classified as held for investment.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is established through a provision for losses-unfunded commitments, the changes of which are recorded in noninterest expense.

The reserve for unfunded commitments is based on evaluations of the collectability, and prior loss experience of unfunded commitments.

The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

The Company and the Bank file a United States consolidated federal income tax return and state income tax returns in California, Colorado and New Mexico.

The Company and the Bank file a United States consolidated federal income tax return and file state income tax returns, most notably in California, Colorado and New Mexico.

Income taxes are accounted for using the asset and liability method.

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The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period of change.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense.

A valuation allowance is established as a reduction to deferred tax assets to the extent that it is more than likely than not that the benefits associated with the deferred tax assets will not be realized.

A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized.

Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.

The determination, recognition, and measurement of deferred tax assets and the requirement for a related valuation allowance is based on estimated future taxable income.

The Company recognizes that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.

Accrued interest and penalties related to unrecognized tax benefits in tax expense.

Revenue Recognition

The Company records revenue from contracts with clients in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Clients” (“Topic 606”).

The Company records revenue from contracts with clients in accordance with ASC Topic 606, “Revenue from Contracts with Clients” (“Topic 606”).

Under Topic 606, the Company must identify the contract with a client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as our loans and investment securities.

In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance.

In addition, certain noninterest income streams such as

fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance.

The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values.

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The following are descriptions of revenues within the scope of ASC 606.

BAYCOM CORP AND SUBSIDIARY

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

Deposit fees and service charges

The Company earns fees from its deposit clients for account maintenance, transaction-based and overdraft services.

Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis.

The performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed.

Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts monthly.

The performance obligation is satisfied and the fees are recognized monthly as the service period is completed.

Transaction-based fees on deposit accounts are charged to deposit clients for specific services provided to the client, such as non-sufficient funds fees, overdraft fees, and wire fees.

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Earnings per Share

Earnings per common share (“EPS”) is computed based on the weighted average number of common shares outstanding during the period.

Basic EPS excludes dilution and is computed by dividing net earnings available to common

BAYCOM CORP AND SUBSIDIARY

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stockholders by the weighted average of common shares outstanding.

Non-vested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of basic earnings per share.

All of the Company’s non-vested restricted stock awards qualify as participating securities.

Earnings per share (“EPS”) is computed using the two-class method.

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, excluding any participating securities.

Participating securities include unvested restricted shares.

Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends at the same rate as the holders of the Company’s common stock.

Diluted EPS is computed by dividing net income available to common stockholders adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of common shares determined for the basic EPS plus the dilutive effect of common stock equivalents using the treasury stock method based on the average market price for the period.

Therefore, under the two-class method the difference in EPS is not significant for these participating securities.

Repurchase of Common Stock

In December 2021, the Company’s Board of Directors approved a fifth stock repurchase program for the repurchase up to 747,000 shares, or approximately 7.0 % , of the Company’s outstanding common stock over a one year period.

In October 2022, the Company’s Board of Directors approved a sixth stock repurchase program, to commence following completion of the fifth stock repurchase program, for the repurchase of up to 645,000 shares, or approximately 5.0 % , of the Company’s outstanding common stock over a one year period.

In April 2023, the Company’s Board of Directors approved the Company’s seventh stock repurchase program, which was completed in August 2023, authorizing the repurchase of up to 619,000 shares, or approximately 5.0 % , of the Company’s outstanding common stock over a one year period.

In August 2023, the Company’s Board of Directors approved the Company’s eighth stock repurchase program, authorizing the repurchase of up to 588,000 shares, or approximately 5.0 %, of the Company’s outstanding common stock over a one year period.

Under the repurchase programs, the Company was authorized to repurchase its common stock through open market purchases, privately-negotiated transactions, or pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in compliance with Rule 10b-18 of the Exchange Act.

The stock repurchase program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

As of December 31, 2022, 481,792 shares of Company common stock remained available for future purchases under the October 2022 stock repurchase plan.

As of December 31, 2023, 359,752 shares of Company common stock remained available for future purchases under the August 2023 stock repurchase plan.

Comprehensive Income (Loss)

Comprehensive income (loss) includes disclosure of other comprehensive income or loss that historically has not been recognized in the calculation of net income or loss.

Unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income or loss.

Unrealized gains and losses on the Company’s available-for-sale investment debt securities are included in other comprehensive income or loss.

Total comprehensive income or loss and the components of accumulated other comprehensive income are presented as a separate statement of comprehensive income.

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It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits, if any, will not have a material adverse effect on the financial position of the Company.

Recent 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 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.

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 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”).

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

In accordance with 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.

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 .

ASU 2022-02 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, 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.

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 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.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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).

This accounting pronouncement is applicable to the Company effective 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 forecast methodologies 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.

Internal controls related to CECL have been designed and are being evaluated;

however, all internal controls related to CECL implementation are not operational.

As of the implementation date, following sensitivity analyses and considering changes in economic conditions, credit quality of the loan portfolio and changes in interest rates, management estimates that our adoption of the CECL model will result in a $ 1 million to $ 3 million increase to our allowance for credit losses for loans.

Once finalized, the impact as a result of the adoption of this guidance will be recorded as a cumulative-effect, net of tax, adjustment to retained earnings effective January 1, 2023.

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, other management judgements, and continued refinement and validation of the model and methodologies.

In March 2020, the FASB issued ASU No.

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 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,

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

upon the Corporation’s adoption of the amendments in ASU 2016-13, which is referred to as the current expected credit loss model.

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.

Subsequent Events

3 unchanged sentences

None of the reclassifications impact net income or earnings per common share.

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 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.

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

3 unchanged sentences

Noninterest income for the year ended December 31, 2022 included $ 1.7 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.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

20 unchanged sentences

Bargain purchase gain

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

13 unchanged sentences

Pro Forma Results of Operations (Unaudited)

The operating results of the Company in the consolidated statements of income include the operating results of PEB and GMB, since their respective acquisition dates.

The following table represents the net interest income, net income, basic and diluted earnings per share, as if the mergers with PEB and GMB were effective January 1, 2022 and January 1, 2020, for the respective years in which each acquisition was closed.

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 each respective year.

The operating results of the Company in the consolidated statements of income include the operating results of PEB since its acquisition date.

The following table presents the net interest income, net income, basic and diluted earnings per share as if the merger with PEB was effective January 1, 2022, for the year in which the acquisition was closed.

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 PEB merger been completed at the beginning of the year.

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:

2022 (As Restated)

Net interest income

2 unchanged sentences

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Acquisition Expenses

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

No acquisition expenses were incurred in 2021.

The Company incurred third-party acquisition expenses in the consolidated statements of income for the periods indicated are as follows:

December 31, 2022

No acquisition expenses were incurred in 2023 and 2021.

The Company incurred third-party acquisition expenses in the consolidated statements of income for the year ended December 31, 2022, as follows:

December 31, 2022

5 unchanged sentences

INVESTMENT SECURITIES

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

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as AFS at the dates indicated are summarized as follows:

December 31, 2023

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

December 31, 2021

December 31, 2022 (As Restated)

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

For the year ended December 31, 2022, the Company sold one available-for-sale investment security for a minimal net realized gain, sold $ 3.0 million in available-for-sale investments for net realized gains of $ 41,000 for the year ended December 31, 2021 and did no t sell any available-for-sale investments for the year ended December 31, 2020.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The estimated fair value and gross unrealized losses for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position at the dates indicated are as follows:

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

For the year ended December 31, 2023, the Company sold no securities AFS, sold one security AFS for a minimal net realized gain for the year ended December 31, 2022 and sold $ 3.0 million in securities AFS for net realized gains of $ 41,000 for the year ended December 31, 2021.

The amortized cost and estimated fair value of securities AFS 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.

December 31, 2023

December 31, 2022

(As Restated)

Securities AFS

Due in one year or less

Due after one through five years

Due after five years through ten years

Due after ten years

At December 31, 2023 and 2022, there were no securities pledged.

The estimated fair value and gross unrealized losses for securities AFS aggregated by the length of time that individual securities have been in a continuous unrealized loss position at the dates indicated are as follows:

Less than 12 months

1 unchanged sentence

December 31, 2023

Preferred Equity Securities

Municipal securities

5 unchanged sentences

12 months or more

December 31, 2021

December 31, 2022 (As Restated)

Municipal securities

3 unchanged sentences

Corporate bonds

Certain investment securities shown in the previous tables have fair values less than amortized cost and therefore contain unrealized losses.

At December 31, 2022, management has evaluated all securities and has determined that no securities are other than temporarily impaired.

Because the Company does not intend to sell and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery, which may be maturity, the Company does not consider these securities to be other-than temporarily impaired.

At December 31, 2023, the Company held 334 investment securities, of which 297 were in an unrealized loss position for more than twelve months and 22 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.

At December 31, 2022, the Company held 333 investment securities, of which 102 were in an unrealized loss position for more than twelve months and 174 were in an unrealized loss position for less than twelve months.

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.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

December 31, 2022

December 31, 2021

Available-for-sale

Due in one year or less

Due after one through five years

Due after five years through ten years

Due after ten years

At December 31, 2022 and 2021, there were no securities pledged.

Allowance for credit losses on investment debt securities available-for-sale

The securities that were in an unrealized loss position as of December 31, 2023, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or changes in required yields by investors in these types of securities, among other factors.

This assessment first 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.

In making this assessment, management considers the nature of the security and any related government guarantees, any changes to the rating of the security by a rating agency, creditworthiness of the issuers/guarantors, the underlying collateral, the financial conditions and prospects of the issuer, and any adverse conditions specifically related to the security among other factors.

As of December 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, 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 allowances for credit losses have been recognized on investment debt 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 December 31, 2023.

Equity Securities

The Company recognized a net loss on equity securities of $ 1.1 million, $ 4.6 million, and zero for the years ended December 31, 2023, 2022 and 2021, respectively, due to a decrease in fair value of the equity securities.

Equity securities were $ 12.6 million and $ 13.8 million as of December 31, 2023 and 2022, respectively.

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

2 unchanged sentences

Commercial real estate

Net deferred loan fees

Allowance for loan losses

(1) At December 31, 2022, included PPP loans of $ 11.1 million, compared to $ 69.6 million as of December 31, 2021.

The Bank expects that the great majority of PPP borrowers will seek full or partial forgiveness of their loan obligations in accordance with the CARES Act.

For the years ended December 31, 2022 and 2021, impaired loans on nonaccrual were $ 14.3 million and $ 6.9 million, respectively.

Net deferred loan costs (fees)

Allowance for credit losses (2)

(1) Includes $ 3.8 million and $ 11.1 million of SBA PPP loans as of December 31, 2023 and December 31, 2022, respectively.

(2) Allowance for credit losses at December 31, 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 $ 6.7 million and $ 6.2 million at December 31, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated balance sheets.

For the years ended December 31, 2023 and 2022, the recorded investment in individually evaluated loans on nonaccrual were $ 13.0 million and $ 14.3 million, respectively.

Interest foregone on nonaccrual loans was approximately $ 871,000 and $ 580,000 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2022 and 2021, the Company had floating or variable rate loans totaling $ 1.3 billion and $ 955.2 million, respectively.

As of December 31, 2023 and 2022, the Company had floating or variable rate loans totaling $ 1.2 billion and $ 1.3 billion, respectively.

As of December 31, 2023, a total of $ 985.1 million have interest rate floors, of which $ 866.6 million, were at their floors.

As of December 31, 2022, a total of $ 965.8 million have interest rate floors, of which $ 854.0 million were at their floors.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

As of December 31, 2023 and 2022, purchased loans outstanding totaled $ 137.9 million and $ 134.5 million respectively.

At December 31, 2023, no purchase premiums remained on the purchased loans compared to $ 10,000 at December 31, 2022.

At December 31, 2023 and 2022, none of the purchased loans were past due 30 days or more.

These loans are reserved for under the Company’s general allowance component and at December 31, 2023 and 2022, the Company has allocated approximately $ 2.5 million and $ 1.3 million, respectively, of the allowance for credit losses to the purchased loans.

The Company’s total individually evaluated loans, including nonaccrual loans, modified loans to borrowers experiencing financial difficulty and accreting PCD loans that have experienced post-acquisition declines in cash flows expected to be collected are summarized as follows:

and industrial

December 31, 2023

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

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

Year ended December 31, 2022

Average recorded investment in impaired loans

Interest recognized

Year ended December 31, 2021

Average recorded investment in impaired loans

Interest recognized

For the year ended December 31, 2022, the Company recorded TDR loan charge-offs of $ 3.2 million.

For the year ended December 31, 2021 the Company recorded no TDR loan charge-offs.

As of December 31, 2022 and 2021, TDR loans had a related allowance of $ 393,000 and $ 259,000 , respectively.

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

As of December 31, 2022 and 2021, $ 759,000 and $ 765,000 of TDR loans were performing in accordance with their modified terms, respectively.

A summary of TDRs by type of concession and type of loan as of the years ended:

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 TDR if the borrower was experiencing financial difficulties and a concession was made at the time of the modification.

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.

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 allowance for credit losses on a modified loan did not change as a result of adopting this standard as the Company elected to not change how it measured credit losses on modified loans to borrowers experiencing financial difficulties.

During the year ended December 31, 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

During the year ended December 31, 2022, there were 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 which totaled $ 6.5 million.

The type of modification for the four loans were a term extension, with no change to the pre-modification and post modification amortized cost balances.

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

December 31, 2023

2 unchanged sentences

Commercial real estate

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

loans outstanding

December 31, 2022

2 unchanged sentences

Commercial real estate

The following tables present information for loans by class, modified as TDRs, during the years indicated:

Pre-Modification

Post-Modification

Outstanding Recorded

Year ended December 31, 2022

Commercial and industrial

Construction and land

Commercial real estate

Pre-Modification

Post-Modification

Outstanding Recorded

Year ended December 31, 2021

Commercial and industrial

Construction and land

Commercial real estate

The following tables represent the internally assigned risk grade by class of loans at the years indicated:

For the year ended December 31, 2023, the Company recorded no charge-offs for modified loans to borrowers experiencing financial difficulty.

During the year ended December 31, 2022, the Company recorded a $ 3.2 million charge-off related to one modified loan to a borrower experiencing financial difficulty.

As of December 31, 2023 and December 31, 2022, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 1.3 million and $ 393,000 , respectively.

As of December 31, 2023 and December 31, 2022, none 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 the loan.

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

Loans are graded from inception and on a continuing basis until the debt is repaid.

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.

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.

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:

Special Mention loans have potential weaknesses that deserve close attention.

If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date.

Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

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.

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

● Credit that is currently protected but is potentially a weak asset;

● Adverse financial trends.

Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged.

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

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.

A loan can be fully and adequately secured and still be considered Substandard.

Some characteristics of Substandard loans are:

● Inability to service debt from ordinary and recurring cash flow;

● Chronic delinquency;

● Reliance upon alternative sources of repayment;

● Term loans that are granted on liberal terms because the borrower cannot service normal payments for that type of debt;

● Repayment dependent upon the liquidation of collateral;

● Inability to perform as agreed, but adequately protected by collateral;

● Necessity to renegotiate payments to a non-standard level to ensure performance;

● The borrower is bankrupt, or for any other reason, future repayment is dependent on court action.

Doubtful loans have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and value, highly questionable and improbable.

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

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

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

Revolving loans that are converted to term loans are treated as new originations in the tables below and are presented by year of initial origination.

During the years ended December 31, 2023, and 2022, $ 7.1 million and $ 3.1 million of revolving loans were converted to term loans, respectively.

The following tables present a summary of loans by type, internally assigned risk grade, year of origination and current period gross charge-offs at the years indicated:

Term loans - amortized cost by origination year

amortized cost

December 31, 2023

Commercial and industrial:

Special mention

Total commercial and industrial

YTD gross charge-offs

Construction and land:

Special mention

Total construction and land

Commercial real estate:

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Special mention

Total commercial real estate

Special mention

Total residential

YTD gross charge-offs

Special mention

Total consumer

YTD gross charge-offs

Total loans outstanding

Special mention

Total loans outstanding

YTD gross charge-offs

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:

The following table provides an aging of the Company’s loans receivable as of the years indicated:

Special mention

Total commercial real estate

Special mention

Total residential

Special mention

Total consumer

YTD gross charge-offs

Total loans outstanding

Special mention

Total loans outstanding

YTD gross charge-offs

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

December 31, 2023

6 unchanged sentences

Commercial real estate

Nonaccrual loans totaled $ 13.0 million and $ 14.3 million at December 31, 2023 and December 31, 2022, respectively.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 740,000 at December 31, 2023 compared to $ 839,000 at December 31, 2022.

At December 31, 2023, nonaccrual loans included $ 927,000 of loans 30-89 days past due and $ 2.1 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 December 31, 2023, nonaccrual loans 30-89 days past due of $ 927,000 was comprised of five loans and the $ 2.1 million of loans less than 30 days past due was comprised of 16 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 December 31, 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 $ 871,000 for the year ended December 31, 2023 compared to $ 580,000 for the year ended December 31, 2022.

Purchased Credit Deteriorated Loans

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchase credit impaired (“PCI”) and accounted for under ASC 310-30.

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

December 31, 2022

December 31, 2021

Commercial and industrial

1 unchanged sentence

Commercial real estate

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The difference between these two amounts represented the nonaccretable difference.

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield.” 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.

At December 31, 2022, the accretable and nonaccretable differences were approximately $ 1.5 million and $ 1.3 million, respectively.

At December 31, 2021, the accretable and nonaccretable differences were approximately $ 508,000 and $ 1.5 million, respectively.

The Company had $ 18,000 of allowance for loan losses for PCI loans during the year ended December 31, 2022, compared to no allowance for any loan losses for PCI loans during the year ended December 31, 2021.

The Company had $ 18,000 and no allowance for loan losses for PCI loans during the years ended December 31, 2022 and 2021, respectively.

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

2 unchanged sentences

Balance at end of period

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

ALLOWANCE FOR LOAN LOSSES

The following table summarizes the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment by loan product and collateral type as of or for the periods ending as indicated.

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.14 billion and $ 940.7 million at December 31, 2023 and 2022, respectively.

For additional information, see Note 12, Other Borrowings.

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 year ended December 31, 2023 and 2022:

and industrial

unfunded commitments

December 31, 2023

Allowance for loan losses:

Allowance for credit losses:

Beginning balance

Provision for (reversal of) loan losses

Impact of CECL adoption

Provision for (reversal of) credit losses

Ending balance

Allowance for loan losses by methodology:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loans receivable by methodology:

Individually evaluated for impairment

Collectively evaluated for impairment

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2023

Allowance for credit losses:

Loans individually evaluated

Loans collectively evaluated

Loans receivable:

Individually evaluated

Collectively evaluated

and industrial

2 unchanged sentences

Beginning balance

(Reversal of) provision for loan losses

Provision for (reversal of) loan losses

Ending balance

Allowance for loan losses by methodology:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loans receivable by methodology:

Individually evaluated for impairment

Collectively evaluated for impairment

December 31, 2022

Allowance for loan losses:

Loans individually evaluated

Loans collectively evaluated

Loans receivable:

Individually evaluated

Collectively evaluated

For the year ended December 31, 2023, the provision for credit losses was primarily due to a $ 3.3 million increase in reserves for individually evaluated loans, $ 550,000 of net loan charge-offs during the year and an additional reserve taken on a loan to a Trust, as discussed below.

The increase in specific reserves included one commercial real estate loan and one multifamily loan.

Based on updated appraisals received during the fourth quarter of 2023, the underlying collateral values of these loans experienced declines due to property specific factors and conditions .

The change in the provision was partially offset by 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.

There was an adjustment to the determined risk level for the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio qualitative factor during the year ended December 31, 2023.

During the third quarter of 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 $ 1.0 million as of December 31, 2023 was placed on nonaccrual 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 had an outstanding balance of $ 5.0 million 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 has initiated legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral.

The results of the legal action and the Bank’s ability to recover the previously escrowed collateral are currently uncertain.

The loan was fully reserved for at December 31, 2023.

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

Allowance for

Credit/Loan Losses

December 31, 2023

Commercial and industrial

Construction and land

Commercial real estate

December 31, 2022

Commercial and industrial

Construction and land

Commercial real estate

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

As of December 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 nonaccrual loans was $ 208,000 for the year ended December 31, 2023, and $ 149,000 for the year ended December 31, 2022.

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”).

9 unchanged sentences

The Company had a loss reserve account of $ 13.7 million as of December 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.

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.

Losses are managed in the same manner as described above.

Losses are handled in the same manner as described above.

The funds are the property of CalCAP and are payable upon termination of the program.

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

The Company has originated $ 5.1 million of loans under this program during the year ended December 31, 2022.

As of December 31, 2022, the Company had $ 26.2 million of loans enrolled in this program.

The Company had a loss reserve account of $ 6.2 million as of December 31, 2022.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company originated $ 4.5 million of loans under this program during the year ended December 31, 2023.

As of December 31, 2023, the Company had $ 17.7 million of loans enrolled in this program and a loss reserve account of $ 6.2 million.

PREMISES AND EQUIPMENT

5 unchanged sentences

Total premises and equipment, net

Depreciation and amortization included in occupancy and equipment expense totaled $ 2.0 million for both years ended December 31, 2022 and December 31, 2021, compared to $ 1.9 million for the year ended December 31, 2020.

Depreciation and amortization included in occupancy and equipment expense totaled $ 1.7 million for year ended December 31, 2023, compared to $ 2.0 million for both years ended December 31, 2022 and 2021.

The Company owned 15 of its banking branches and leased the remaining 20 branches under noncancelable operating leases as of December 31, 2023.

10 unchanged sentences

December 31, 2023

December 31, 2022

Weighted-average remaining lease term

Weighted-average discount rate

Rental expense included in occupancy and equipment on the consolidated statements of income totaled $ 4.1 million, $ 3.4 million and $ 3.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table presents certain information related to the operating lease costs included in occupancy and equipment expense on the consolidated statements of income for the dates indicated:

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total operating lease cost, net

OTHER REAL ESTATE OWNED

Other real estate owned as of the dates indicated consisted of the following:

As of December 31, 2022, there were two residential mortgage loans in the process of foreclosure totaling $ 248,000 , compared to two residential mortgage loans in the process of foreclosure totaling $ 1.0 million at December 31, 2021.

As of December 31, 2023, there were no foreclosure, compared to two residential mortgage loans in the process of foreclosure totaling $ 248,000 at December 31, 2022.

GOODWILL AND INTANGIBLE ASSETS

Changes in the Company’s goodwill for the periods indicated are as follows:

Balance at beginning of period

Acquired goodwill

Balance at end of period

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

Due to the adverse and unknown economic impacts resulting from the COVID-19 pandemic, the Company performed a goodwill impairment qualitative assessment during each quarter of 2022 and 2021 to determine if it is not more likely than not that the fair value of the Company’s reporting unit exceeded its carrying value, including goodwill.

As of December 31, 2022 the Company’s qualitative assessment which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during 2022, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

The Company’s goodwill balance was $ 38.8 million at both December 31, 2023 and 2022.

There were no changes in the Company’s goodwill for the years ended December 31, 2023 and 2022.

As of December 31, 2023 the Company’s qualitative assessment which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during 2023, net interest margin, allowance for credit loss, and the continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

Core Deposit Intangible

Changes in the Company’s core deposit intangible for the periods indicated were as follows:

December 31, 2023

December 31, 2022

Balance at beginning of period

1 unchanged sentence

Balance at end of period

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Estimated annual amortization at December 31, 2023 is as follows:

4 unchanged sentences

Accrued interest receivable

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

Investment in Community Reinvestment Act fund

Investment in SBIC fund

Investment in CRA fund

Prepaid assets

Servicing assets

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

Investment in statutory trusts

4 unchanged sentences

Time deposits

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Included in time deposits above are brokered deposits of $ 43.6 million and $ 43.9 million as of December 31, 2023 and 2022, respectively.

At December 31, 2023, aggregate annual maturities of time deposits are as follows:

6 unchanged sentences

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

In addition to the availability of liquidity from the FHLB, during 2022 the Bank maintained a short-term borrowing line of credit with the Federal Reserve Bank (“FRB”) of San Francisco based on PPP loans pledged as collateral.

In addition to the availability of liquidity from the FHLB, during 2022 the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral.

This line was closed in 2023, with no FRB borrowings outstanding at both December 31, 2023 and December 31, 2022.

7 unchanged sentences

The entire proceeds of the issuance were invested by the BFC Trust in $ 3.1 million of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by BFC, with identical maturities, repricing and payment terms as the BFC Trust Preferred Securities.

The subordinated debentures have a variable interest rate based on the three months LIBOR plus 2.75 %, with quarterly repricing.

The debentures are redeemable by the Company subject to prior approval from the Federal Reserve on any March 15, June 15, September 15, or December 15.

The subordinated debentures have a variable interest rate based on the three months SOFR plus 2.75 %, with quarterly repricing.

The debentures are redeemable by the Company subject to prior approval from the Federal Reserve on March 15, June 15, September 15, or December 15.

The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the debenture.

The BFC Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the subordinated debentures or upon its maturity on June 17, 2034.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company acquired the FULB Trust in the acquisition of FULB.

2 unchanged sentences

The entire proceeds of the issuance were invested by the FULB Trust in $ 6.4 million of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by FULB, with identical maturities, repricing and payment terms as the FULB Trust Preferred Securities.

The subordinated debentures have a variable interest rate based on the three months LIBOR plus 2.5 %, with quarterly repricing.

The subordinated debentures have a variable interest rate based on the three months SOFR plus 2.5 %, with quarterly repricing.

The debentures are redeemable by the Company subject to prior approval from the Federal Reserve, on any March 15, June 15, September 15, or December 15.

1 unchanged sentence

The FULB Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the subordinated debentures or upon its maturity on September 15, 2034.

Holders of the trust preferred securities issued by the Trusts are entitled to a cumulative cash distribution on the liquidation amount of $ 1,000 per security.

Each of the Trusts has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default of the payment of interest on the subordinated debentures.

Holders of the trust preferred securities issued by the Grantor Trusts are entitled to a cumulative cash distribution on the liquidation amount of $ 1,000 per security.

Each of the Grantor Trusts has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default of the payment of interest on the subordinated debentures.

The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.

The Company has guaranteed, on a subordinated basis, distributions and other payments due on the trust preferred securities.

The following is a summary of the contractual terms of the subordinated debentures due to the Trusts at the date indicated:

The acquired debentures were recorded on the Company’s books at their fair values on the acquisition date.

The related fair value discounts to face value of these debentures are amortized over the remaining period in which their values are fully allowed to be included in the Company's capital ratio calculations using the effective interest method.

The following is a summary of the contractual terms of the subordinated debentures due to the Grantor Trusts at the date indicated:

December 31, 2023

Subordinated debenture

Mark to market

Fair value discount

Interest rate

2 unchanged sentences

Subordinated debenture

Mark to Market

Fair value discount

Interest rate

8 unchanged sentences

At December 31, 2023 and December 31, 2022, the Company had outstanding subordinate debt, net of costs to issue, totaling $ 63.9 million and $ 63.7 million, respectively.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Income tax expense for the dates indicated consisted of the following:

Year Ended December 31,

(As Restated)

Current income tax expense:

7 unchanged sentences

December 31, 2021

(As Restated)

Federal statutory tax rate

1 unchanged sentence

Tax exempt interest

Bank owned life insurance

Acquisition expenses

Total income tax expense

The Company is subject to US federal income tax as well as state income tax in multiple states, most notably California, Colorado and New Mexico.

The Company is subject to US federal income tax as well as state income tax in multiple states, most notably in California, Colorado and New Mexico.

Federal income tax returns for the years ended on or after December 31, 2020 are open to audit by the federal authorities and, with limited exception, state income tax returns for the years ended on or after December 31, 2019 are open to audit by state authorities.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Deferred tax assets at the dates indicated, included as a component of interest receivable and other assets in the consolidated balance sheets consisted of the following:

(As Restated)

Deferred tax assets

1 unchanged sentence

Salary continuation plan

Allowance for loan losses

Allowance for credit losses

Stock based compensation

2 unchanged sentences

Unrealized loss on AFS securities

Unrealized loss on equity securities

Total deferred tax assets

Deferred tax liabilities

Mark to market adjustment

Core deposit intangible

FHLB stock dividend

Unrealized gain on AFS securities

Partnership investments

Deferred loan costs and other

Total deferred tax liability

7 unchanged sentences

The Company had no unrecognized tax benefits as of December 31, 2023 and 2022.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

COMMITMENTS AND CONTINGENCIES

11 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 December 31, 2022 and December 31, 2021.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 225,000 at December 31, 2023, compared to $ 315,000 at December 31, 2022.

Commercial Real Estate Concentrations

2 unchanged sentences

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

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

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

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

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

At December 31, 2023, the remaining commitments to the LIHTC partnerships and SBIC fund were approximately $ 5.7 million and $ 122,000 , respectively.

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

At December 31, 2023, approximately $ 246.0 million, or 11.5 %, of the Company’s deposits are derived from the top ten depositors.

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Local Agency Deposits

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.

As of December 31, 2022 and December 31, 2021, the FHLB issued letters of credit on behalf of the Company totaling $ 40.6 million and $ 42.0 million, respectively, as collateral for local agency deposits.

As both of December 31, 2023 and 2022, the FHLB issued letters of credit on behalf of the Company totaling $ 40.6 million, as collateral for local agency deposits.

EMPLOYEE BENEFIT PLANS

5 unchanged sentences

In 2017, the Company extended coverage to two additional executive officers.

Under the agreements, the Company provides the executive, or their designated beneficiaries, with annual benefits for fifteen years after retirement or death.

Under the agreements, as amended, the Company provides the executive, or their designated beneficiaries, with annual benefits for fifteen years after retirement or death.

The contributions are based on the executive’s performance related to Company’s financial performance.

These benefits are substantially equivalent to those available under insurance policies purchased by the Company on the life of the executives.

At December 31, 2022, approximately $ 1.2 million of the salary continuation plan was related to plans assumed through the Company’s acquisitions.

At December 31, 2023 and 2022, approximately $ 1.0 million and $ 1.2 million, respectively, of the salary continuation plan was related to plans assumed through the Company’s acquisitions.

There are no further requirements to fund these plans.

The expense recognized included in salaries and benefits expense in the consolidated statements of income under the salary continuation agreements defined above totaled $ 648,000 , $ 594,000 and $ 577,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

In 2023, the Company did not recognize any expense included in salaries and benefits expense in the consolidated statements of income under the aforementioned salary continuation agreements due to be not able to meet the performance matrix, compared to $ 648,000 and $ 594,000 for the years ended December 31, 2022 and 2021, respectively.

EQUITY INCENTIVE PLANS

9 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.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2014 Omnibus Equity Incentive Plan

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

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

The awards are shares of restricted stock and have a vesting period of one to five years .

No future equity awards will be made from the 2014 Plan.

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

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

For the years ended December 31, 2022, 2021 and 2020, total compensation expense for these plans was $ 1.0 million, $ 1.4 million and $ 1.5 million, respectively.

For the years ended December 31, 2023, 2022 and 2021, total compensation expense for these plans was $ 726,000 , $ 1.0 million and $ 1.4 million, respectively.

As of December 31, 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 two years .

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

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

7 unchanged sentences

Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period or, with the approval of the DFPI, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year.

During the years ended December 31, 2022, the Bank paid $ 2.7 million of dividends to the Company.

The Bank did no t pay any dividend to the Company in 2021.

During the years ended December 31, 2023 and 2022 the Bank paid $ 40.0 million and $ 10.0 million of dividends to the Company, respectively.

Regulatory Capital

The Company is a bank holding company subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve, except that, pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act, effective August 30, 2018, a bank holding company with consolidated assets of less than $3 billion is generally not subject to the Federal Reserve’s capital regulations.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Under the capital regulations, the minimum capital ratios are:

16 unchanged sentences

There are no conditions or events since that notification that management believes would have changed the category.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following is a summary of actual capital amounts and ratios as of the dates indicated, for the Company (assuming it was subject to regulatory capital requirements) and the Bank compared to the requirements for minimum capital adequacy and classification as Well Capitalized:

1 unchanged sentence

As of December 31, 2022

(As Restated)

(Dollars in thousands)

Leverage Ratio

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

United Business Bank

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

Common Equity Tier 1 Ratio

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

United Business Bank

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

Tier 1 Risk-Based Capital Ratio

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

United Business Bank

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

3 unchanged sentences

United Business Bank

Minimum requirement for "Well Capitalized"

Minimum regulatory requirement

In addition to the minimum CET1 capital, Tier 1 capital, leverage ratio and total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5 % of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

RELATED PARTY TRANSACTIONS

4 unchanged sentences

Disbursements

End of year (1)

Undisbursed commitments to related parties

(1) Amounts include $ 8.5 million of outstanding loans to former directors who retired in 2023, for which the Bank no longer considers related parties as of December 31, 2023.

At December 31, 2023 and 2022, the Company had deposits with directors, officers and their associates which totaled approximately $ 26.3 million and $ 32.7 million, respectively.

8 unchanged sentences

Loan default related expense

Director fees

Director fees and expenses

Bank service charges

1 unchanged sentence

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

Advertising expense included in marketing and promotions totaled $ 71,000 for both the years ended December 31, 2022 and 2021, compared to $ 194,000 for the year ended December 31, 2020.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Advertising expense included in marketing and promotions totaled $ 48,000 for the year ended December 31, 2023, compared to $ 71,000 for both the years ended December 31, 2022 and 2021.

FAIR VALUE MEASUREMENTS

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 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.

3 unchanged sentences

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

Total Estimated

Fair Value Measurements

December 31, 2023

Government Agencies

Preferred equity securities

Municipal securities

3 unchanged sentences

Corporate bonds

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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:

Total Estimated

Fair Value Measurements

December 31, 2023

Performing impaired loans

Nonperforming impaired loans

Individually evaluated loans (1)

Total Estimated

Fair Value Measurements

December 31, 2022

1 unchanged sentence

Nonperforming impaired loans

(1) For each quarter the loan was outstanding in 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, 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.

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 placed on nonaccrual and 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 loans not requiring an allowance for credit losses 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 below 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.

The Company records 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 below 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.

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 CONSOLIDATED FINANCIAL STATEMENTS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Cash and cash equivalents — Cash and cash equivalents include cash and due from banks and Fed funds sold, and are valued at their carrying amounts because of the short-term nature of these instruments.

Interest bearing deposits in banks — Interest bearing deposits in banks are valued based on quoted interest rates for comparable instruments with similar remaining maturities.

Investment securities — The fair value of available-for-sale securities are based on quoted market prices, where available.

Cash and cash equivalents — Cash and cash equivalents include cash and due from bank, Federal funds sold and interest-bearing balances in banks, and are valued at their carrying amounts because of the short-term nature of these instruments.

Time deposits in banks — Interest bearing time deposits in banks are valued based on quoted interest rates for comparable instruments with similar remaining maturities.

Investment securities — The fair value of securities AFS are based on quoted market prices, where available.

If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.

Equity securities — The fair value of equity securities are based on quoted market prices, where available.

If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.

Investment in FHLB and FRB Stock — The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par.

3 unchanged sentences

The fair value of fixed rate with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities.

The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk.

The allowance for credit losses on loans is considered to be a reasonable estimate of the loan discount related to credit risk.

Interest receivable and payable — The accrued interest receivable and payable balance approximates its fair value.

8 unchanged sentences

Undisbursed loan commitments and standby letters of credit — The fair value of the off-balance sheet items is based on discounted cash flows of expected funding.

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

4 unchanged sentences

Time deposits in banks

Investment securities available-for-sale

Investment securities AFS

Equity securities

Investment in FHLB and FRB Stock

12 unchanged sentences

Time deposits in banks

Investment securities available-for-sale

Investment securities AFS

Equity securities

Investment in FHLB and FRB Stock

7 unchanged sentences

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

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

PARENT COMPANY ONLY

1 unchanged sentence

December 31, 2023 and 2022

(As Restated)

Cash and due from banks

Investment securities available-for-sale

Equity securities

Investment in bank subsidiary

13 unchanged sentences

Additional paid in capital

Accumulated other comprehensive income, net of tax

Accumulated other comprehensive loss, net of tax

Retained earnings

1 unchanged sentence

Total liabilities and shareholders' equity

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

STATEMENTS OF INCOME

For the years ended December 31, 2023, 2022 and 2021

(As Restated)

Interest income

Loss on equity securities

Earnings from bank subsidiary

Dividends from bank subsidiary

Dividends from statutory trusts

7 unchanged sentences

Income tax benefit

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

STATEMENTS OF CASH FLOWS

For the years ended December 31, 2023, 2022 and 2021

(As Restated)

Cash flows from operating activities:

5 unchanged sentences

Accretion of premiums/discounts on investment securities

Loss on equity securities

Accretion on junior subordinated debentures

Stock-based compensation expense

Increase in deferred tax asset

Increase (decrease) in deferred tax asset

Increase (decrease) in interest receivable and other assets

Increase in interest payable and other liabilities

(Decrease) increase in interest payable and other liabilities

Net cash provided by (used in) operating activities

1 unchanged sentence

Capital contribution to subsidiary

Purchase from sale of investment securities

Proceeds from the sales of investment securities

Net cash received (paid) for acquisitions

Purchase of equity securities

Net cash received for acquisitions

Net cash used in investing activities

Cash flows from financing activities:

Repayment of junior subordinated debentures

Proceeds from issuance of subordinated debt, net

Increase in other borrowings

Repayment of other borrowings

Restricted stock issued

Repurchase of common stock

Cash dividends paid on common stock

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Non-cash investing activities:

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

Change in unrealized (loss) gain on securities AFS, net of tax

Cash dividends declared on common stock not yet paid

3 unchanged sentences

(a) Evaluation of Disclosure Controls and Procedures:

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 conducted as of December 31, 2022 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.

An evaluation of the Company’s disclosure controls and procedures, as defined in Rule 13a 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), was conducted as of December 31, 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.

2 unchanged sentences

The Company’s CEO and CFO concluded that based on their evaluation at December 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 the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.

(b) Internal Control over Financial Reporting:

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

The design of any disclosure controls and procedures is also 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.

As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Furthermore, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our assessment, we concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was effective based on those criteria.

Previously Disclosed Material Weakness in Internal Control Over Financial Reporting

The Company disclosed in Part II, Item 9A – Controls and Procedures in its Annual Report on Form 10-K/A for the year ended December 31, 2022 and in Part I, Item 4 – Controls and Procedures in its Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2023, 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.

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.

The result of this change in classification of the preferred equity securities was that the change in the fair value of the securities for the prior periods should have been recorded in noninterest income on the consolidated statements of income.

The Company determined that this error constituted a “material weakness” in its internal control over financial reporting.

In response to the identified material weakness, our management, with the oversight of the audit committee of our board of directors, dedicated additional resources, including additional employee training and engagement of third-party expertise, toward improving our internal control over financial reporting.

During the quarter ended June 30, 2023, we redesigned and enhanced control activities related to investment security classification and review at the acquisition date.

Upon the acquisition of securities in the third and fourth quarters of 2023, we implemented the redesigned and enhanced controls.

We rigorously tested these controls, and through independent testing by internal audit, we confirmed their effective operation.

We believe that with the implementation and successful testing of these redesigned and enhanced controls, the identified material weakness as of December 31, 2023, has been remediated, thereby strengthening our internal control over financial reporting.

(b) Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act.

The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

As of December 31, 2023, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company assessed the effectiveness of its internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2023.

Moss Adams LLP, the independent registered public accounting firm that audited the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K, has also issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.

The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, is included in the “Report of Independent Registered Public Accounting Firm” contained under “Item 8 – Financial Statements and Supplementary Data” of this Form 10-K.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2022, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm.

We are an “emerging growth company,” as defined in the JOBS Act.

For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

As a result, for the year ended December 31, 2022 we were not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

There were no changes made to our internal control over financial reporting that occurred during the three months ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

(a) Nothing to report.

(b) During the quarter ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Corporation adopted or terminated a “ Rule 10b5-1 trading arrangement” or “ non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

3 unchanged sentences

Information concerning the Company’s directors is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Information concerning the executive officers of the Company is contained under the heading “Executive Officers” under Part I, Item 1 of this Form 10-K and is incorporated herein by reference.

Information concerning the executive officers of the Company is contained under the heading “Information About our Executive Officers” under Part I, Item 1 of this Form 10-K and is incorporated herein by reference.

Delinquent Section 16(a) Reports

Information concerning the Company’s delinquent section 16(a) Reports is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Code of Ethics

8 unchanged sentences

The Audit Committee operates under a formal written charter adopted by the Board of Directors.

The members of that committee currently consist of Directors Kendall, Chaudhary and Laverne, each of whom was considered independent under Nasdaq listing standards.

The members of that committee currently consist of Directors Kendall, Chaudhary (Chair), Davis, Laverne and Magid, each of whom was considered independent under Nasdaq listing standards.

The Board of Directors has determined that Mr.

4 unchanged sentences

and (iv) are able to read and understand fundamental financial statements, including our balance sheet, income statement, and cash flow statement.

Additional information concerning the Audit Committee is incorporated herein by reference from the Proxy Statement (except for information contained under the heading "Report of the Audit Committee"), a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Executive Compensation

41 unchanged sentences

Amended and Restated Employment Agreement, dated March 5, 2021, among BayCom Corp, United Business Bank and George Guarini ⁽ ⁵ ⁾

Amendment No.

1 dated January 17, 2024 to the Amended and Restated Employment Agreement, dated March 5, 2021, by among BayCom Corp, United Business Bank and George Guarini (6)

Amended and Restated Employment Agreement, dated March 5, 2021, among BayCom Corp, United Business Bank and Janet King ⁽ ⁵ ⁾

Amendment No.

1 dated January 17, 2024 to the Amended and Restated Employment Agreement, dated March 5, 2021, by among BayCom Corp, United Business Bank and Janet King (6)

Amended and Restated Employment Agreement, dated March 5, 2021, among BayCom Corp, United Business Bank and Keary Colwell ⁽ ⁵ ⁾

Amendment No.

1 to the Amended and Restated Employment Agreement, dated January 19, 2024, among BayCom Corp, United Business Bank and Keary Colwell (6)

Amended and Restated Executive Supplemental Compensation Agreement, dated February 20, 2018, between United Business Bank and George J.

2 unchanged sentences

Amended and Restated Joint Beneficiary Agreement between United Business Bank and George Guarini (1)

Bay Commercial Bank 2014 Equity Incentive Plan (1)

Form of Restricted Stock Award Agreement under the Bay Commercial Bank 2014 Equity Incentive Plan (1)

Amendment No.

1 to Amended and Restated Joint Beneficiary Agreement by and between United Business Bank and George J.

Guarini, Dated June 20, 2023 ⁽ ⁷ ⁾

BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (1)

4 unchanged sentences

Joint Beneficiary Agreement between United Business Bank and Janet King (1)

Amendment No.

1 to Joint Beneficiary Agreement by and between United Business Bank and Janet King, dated June 20, 2023 ⁽ ⁷ ⁾

Joint Beneficiary Agreement between United Business Bank and Keary Colwell (1)

Joint Beneficiary Agreement between United Business Bank and Mary Therese Curley (6)

Amendment No.

1 to Joint Beneficiary Agreement by and between United Business Bank and Keary Colwell, dated June 20, 2023 (7)

Joint Beneficiary Agreement between United Business Bank and Mery Therese Curley ⁽ ⁸ ⁾

Summary of Annual Incentive Bonus program (9)

6 unchanged sentences

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .

Policy relating to Recovery of Erroneously Awarded Compensation

The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 formatted in Extensible Business Reporting Language (XBRL):

(1) Condensed

(1) Consolidated Balance Sheets;

(2) Condensed Consolidated Statements of Income;

(3) Condensed Consolidated Statements of Comprehensive Income;

(4) Condensed Consolidated Statements of Changes in Shareholders’ Equity;

(5) Condensed Consolidated Statements of Cash Flows;

(2) Consolidated Statements of Income;

(3) Consolidated Statements of Comprehensive Income;

(4) Consolidated Statements of Changes in Shareholders’ Equity;

(5) Consolidated Statements of Cash Flows;

and (6) Notes to Consolidated Financial Statements.

6 unchanged sentences

(5) Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on March 9, 2021 (File No.

(6) Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on January 19, 2024 (File No.

(7) Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on June 23, 2023 (File No.

(8) Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the ended June 30, 2018, filed on August 14, 2018 (File No.

34 unchanged sentences

Colwell, Senior Executive Vice President, Chief Financial

Officer, Secretary and Director (Principal Financial and Accounting Officer)

Officer, Chief Administrative Officer, Secretary and Director (Principal Financial and Accounting Officer)

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-K

Item 8. Financial Statements and Supplementary Data