Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward- looking statements as a result of a wide variety or range of factors including, but not limited to:
● adverse economic conditions in general and in California, Nevada, Colorado, New Mexico and Washington in particular, as well as other markets where the Company has lending relationships;
● employment levels, labor supply, inflation, recessionary pressures, or the level of economic growth ;
● changes in interest rate levels and volatility, and the timing and pace of such changes, including actions by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
● the impact of inflation and monetary and fiscal policy responses and their effects on consumer and business behavior;
● fiscal policy disputes or disruptions, including the effects of any federal government shutdown, or delays in federal budget approvals;
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● the credit risks of lending and securities activities, including delinquencies, write-offs, and changes in our allowance for credit losses and provision for credit losses;
● changes in the levels of general interest rates and the relative differences between short and long-term interest rates and loan and deposit interest rates;
● unexpected outflows of uninsured deposits, which may require us to sell investment securities at a loss;
● our net interest margin and funding sources;
● fluctuations in the demand for loans, unsold homes, land and other properties;
● fluctuations in real estate values in our market areas;
● secondary market conditions for loans and our ability to sell loans in the secondary market;
● results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for credit losses, write down asset values or increase our capital levels, affect our ability to borrow funds or maintain or increase deposits;
● risks related to our acquisition strategy, including our ability to identify future suitable acquisition candidates, exposure to potential asset and credit quality risks and unknown or contingent liabilities, the need for capital to finance such transactions, our ability to obtain required regulatory approvals and possible failures in realizing the anticipated benefits from acquisitions;
● challenges arising from attempts to expand into new geographic markets, products, or services;
● goodwill impairment;
● bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment;
● legislative or regulatory changes, including changes in banking , securities and tax laws, in regulatory policies and principles, or the interpretation of regulatory capital or other rules ;
● our ability to attract and retain deposits, including the risk that changes to federal deposit insurance limits or coverage rules, or customer concerns regarding the safety of uninsured deposits, could adversely affect deposit stability ;
● our ability to control operating costs and expenses;
● use of estimates in determining the fair value of certain of our assets and liabilities, which may prove incorrect;
● staffing fluctuations in response to product demand or corporate implementation strategies;
● the effectiveness of our risk management framework;
● vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or cyberattacks;
● our ability to adapt to rapid technological changes, including advancements in artificial intelligence (“AI”), digital banking platforms, and cybersecurity;
● risks associated with the use of AI in credit underwriting, customer service, and operations, including model error, algorithmic bias, regulatory scrutiny under fair lending laws, and reliance on third-party AI providers;
● risks associated with dependence on the members of our senior management team and our ability to attract, motivate and retain qualified personnel;
● costs and effects of litigation, including settlements and judgments;
● our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;
● liquidity issues, including our ability to borrow funds or raise additional capital, if needed or desired;
● the loss of our large loan and deposit relationships;
● increased competitive pressures, including repricing and competitors’ pricing initiatives, and their impact on our market position and our loan and deposit products;
● changes in consumer spending, borrowing and savings habits;
● the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
● our ability to pay dividends on our common stock;
● the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;
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● the inability of key third-party providers to perform their obligations;
● changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;
● environmental, social and governance matters;
● geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;
● effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic political unrest and other external events;
● other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
● risks described in other reports filed with or furnished to the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Annual Report”) and this Form 10-Q.
In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for the remainder of 2026 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect our consolidated financial condition and results of operations as well as our stock price performance.
Executive Overview
General. BayCom is a bank holding company headquartered in Walnut Creek, California. BayCom’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services to businesses and business owners as well as individuals through its network of 34 full-service branches at March 31, 2026, with 16 locations in California, one in Nevada, one in Washington, five in New Mexico and 11 in Colorado. BayCom’s business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.
Our principal business objective is to enhance shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through organic growth, strategic loan and deposit transactions, and strategic acqusitons. Since its founding in 2010, growth has been predominantly acquisition-driven, and we have expanded our geographic footprint through ten successful strategic acquisitions. We believe that our selective acquisition of community banks has yielded economies of scale and improved our efficiency. We have also achieved organic growth by leveraging opportunities within the metropolitan and community markets in which we operate. These markets provide significant opportunities to expand our commercial client base, increase interest-earning assets, and enhance market share. We believe our geographic footprint, which now includes the San Francisco Bay Area; the metropolitan markets of Los Angeles, California, Seattle, Washington, Denver, Colorado, and Las Vegas, Nevada; and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand Counties, Colorado, provides access to low-cost, stable core deposits in community markets that can be used to fund commercial loan growth. We strive to create an enhanced banking experience for our clients by providing a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service associated with a community bank. At March 31, 2026, on a consolidated basis, the Company had approximately $2.6 billion in total assets, $2.0 billion in total loans, $2.3 billion in total deposits and $344.0 million in shareholders’ equity.
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We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth. At March 31, 2026, our $2.0 billion total loan portfolio included $204.2 million, or 10.2 %, of loans acquired through business combinations (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.8 billion, or 89.8%, consisted of loans we originated or purchased not as part of a business combination.
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. Our net income is also affected by other factors, including the provision for credit losses on loans, noninterest income and noninterest expense.
Set forth below is a discussion of the primary factors affecting our results of operations:
Net interest income. Net interest income represents interest income less interest expense. We generate interest income from interest and fees received on interest earning assets, including loans and investment securities and dividends on Federal Home Loan Bank of San Francisco (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) stock we own. We incur interest expense from interest paid on interest bearing liabilities, including interest bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest margin; and (iv) the regulatory risk weighting associated with our assets. Net interest margin is calculated as the annualized net interest income divided by average interest earning assets. Because noninterest bearing sources of funds, such as noninterest bearing deposits and shareholders’ equity, also fund interest earning assets, net interest margin reflects the benefit of these noninterest bearing sources.
Changes in market interest rates, the slope of the yield curve, and the rates we earn on interest earning assets or pay on interest bearing liabilities have a significant impact on our net interest spread, net interest margin and net interest income. During 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) lowered the target range for the federal funds rate in response to continued moderation in inflation and evolving economic conditions. The FOMC reduced the target range by 75 basis points, from 4.25%–4.50% at December 31, 2024, to 3.50%–4.25% by year-end 2025, where it remained as of March 31, 2026. All reductions occurred between September and December 2025. Correspondingly, the prime rate, which generally moves in relation to the federal funds rate, was approximately 6.75% at March 31, 2026. These rate levels influenced both asset yields and funding costs during the first quarter of 2026. Net interest income increased $2.3 million, or 10.1%, to $25.2 million for the three months ended March 31, 2026, compared to the same period in 2025, driven primarily by growth in loan interest income and higher FHLB dividend income, partially offset by a decrease in interest income on investment securities and interest-bearing balances. Total interest expense decreased $412,000, or 4.2%, primarily reflecting the full redemption of the Company’s subordinated notes in the third quarter of 2025, partially offset by higher deposit interest expense and increased junior subordinated debenture expense. Additional details regarding net interest income are discussed below.
Noninterest income. Noninterest income consists of, among other things: (i) service charges on loans and deposits; (ii) gain on sale of loans; (iii) gain (loss) on equity securities; and (iv) other noninterest income. Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of Small Business Administration (“SBA”) loans, capitalized loan servicing rights and other related income.
Provision for credit losses. We have established an allowance for credit losses by charging amounts to provision for credit losses at a level required to reflect estimated credit losses in the loan and available-for sale investment securities portfolios. For loans, management considers many factors, including, among others, historical loss experience, types and amounts of loans in the portfolio and adverse situations that may affect borrowers’ ability to repay. See “Critical Accounting Policies and Estimates - Allowance for Credit Losses” for a description of the manner in which the provision for credit losses is established.
For investments, the Company evaluates available-for-sale debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Such situations 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
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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 if 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. If the present value of the cash flows expected to be collected from the security is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses for available-for-sale securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for credit losses for available-for-sale securities is recognized in other comprehensive income. Changes in the allowance for credit losses for available-for-sale securities are recorded as provision for (or reversal of) credit loss. Losses are charged against the allowance for credit losses for available-for-sale securities, with a corresponding adjustment to the security's amortized cost basis, when management believes the uncollectibility of an available-for-sale security is confirmed or when either criteria regarding intent or requirement to sell is met.
Noninterest expense. Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing expense; (iv) Federal Deposit Insurance Corporation (“FDIC”) and state assessments; (v) outside and professional services; and (vi) other general and administrative expenses, including amortization of intangible assets. Salaries and related benefits include compensation, employee benefits and employment tax expenses for our personnel. Occupancy and equipment expense includes depreciation expense on our owned properties and equipment, lease expense on our leased properties and other occupancy-related expenses. Data processing expense includes fees paid to our third-party data processing system provider and other data service providers. FDIC and state assessments expense represents the assessments that we pay to the FDIC for deposit insurance and other regulatory costs to various states. Outside and professional fees include legal, accounting, consulting and other outsourcing arrangements. Amortization of intangibles represents the amortization of our core deposit intangible from various acquisitions. Other general and administrative expenses include expenses associated with travel, meals, training, supplies and postage.
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the dates of the financial statements. As this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
These critical accounting policies and estimates include determining the allowance for credit losses and related provision.
There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2025 Annual Report. For a detailed discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in the Company’s 2025 Annual Report, which was filed with the SEC on March 16, 2026.
Comparison of Financial Condition at March 31, 2026 and December 31, 2025
Total assets. Total assets increased $54.9 million, or 2.1%, to $2.6 billion at March 31, 2026, from December 31, 2025. The increase primarily was due to a $99.4 million, or 48.1%, increase in cash and cash equivalents and a $9.7 million, or 5.4%, increase in investment securities available-for-sale, at fair value, partially offset by a $55.1 million, or 2.7%, decrease in loans receivable, net.
Cash and cash equivalents. Cash and cash equivalents increased $99.4 million, or 48.1%, to $305.9 million at March 31, 2026, from $206.5 million at December 31, 2025. The increase primarily was due to a $107.6 million increase in federal funds sold due repayments on loans outpacing loan growth and an increase in deposits.
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Investment securities available-for-sale. Investment securities available-for-sale increased $9.7 million, or 5.4%, to $189.4 million at March 31, 2026 from $179.7 million at December 31, 2025. The increase was primarily attributable to purchases of investment securities, partially offset by routine maturities, principal repayments, and calls of investment securities, and to a lesser extent downward fair value adjustments related to unrealized losses on investment securities available-for-sale.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of March 31, 2026. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
Amount Due or Repricing Within:
One Year
Over One
Over Five
Over
or Less
to Five Years
to Ten Years
Ten Years
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
(Dollars in thousands)
Municipal securities
$
1,236
1.45
8,887
1.62
6,010
3.30
9,858
4.57
%
$
25,991
3.12
%
Mortgage-backed securities
11
2.52
5,301
1.65
8,489
3.06
47,156
5.16
60,957
4.57
Collateralized mortgage obligations
1,151
4.43
2,226
2.38
1,738
1.93
39,021
4.08
44,136
3.92
SBA securities
—
—
3
3.88
1,775
4.06
827
5.31
2,605
4.46
ABS securities
—
—
—
—
—
—
1,616
4.70
1,616
4.70
Corporate bonds
3,000
5.00
1,500
7.80
57,603
4.50
750
3.37
62,853
4.59
Total
$
5,398
4.06
%
$
17,917
2.24
%
$
75,615
4.17
%
$
99,228
4.66
%
$
198,158
4.24
%
Equity securities. Equity securities increased $58,000, or 0.5%, to $12.6 million at March 31, 2026 from $12.6 million at December 31, 2025, primarily due to mark-to-market adjustments recorded during the three months ended March 31, 2026.
Loans receivable, net. We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans. Total loans decreased $55.1 million, or 2.7%, to $2.0 billion at March 31, 2026 from $2.1 billion at December 31, 2025. The decrease was due to $90.5 million of loan repayments, partially offset by $34.7 million of new loan originations and $3.2 million of loan purchases. During the current quarter, the Company sold loans totaling $2.4 million, of which $919,000 were nonperforming assets.
The following table provides information about our loan portfolio by type of loan, with purchase credit deteriorated (“PCD”) loans presented as a separate balance, at the dates presented .
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March 31,
December 31,
2026
2025
% Change
(Dollars in thousands)
Commercial and industrial
$
167,311
$
175,409
(4.6)
%
Real estate:
Residential
111,443
113,143
(1.5)
Multifamily residential
310,210
309,331
0.3
Owner occupied CRE
483,342
500,419
(3.4)
Non-owner occupied CRE
914,221
940,469
(2.8)
Construction and land
10,137
8,958
13.2
Total real estate
1,829,353
1,872,320
(2.3)
Consumer
1,292
1,175
10.0
PCD loans
12,798
16,788
(23.8)
Total Loans
2,010,754
2,065,692
(2.7)
Net deferred loan fees
528
644
(18.0)
Allowance for credit losses
(20,600)
(21,210)
(2.9)
Loans, net
$
1,990,682
$
2,045,126
(2.7)
%
The following table shows as of March 31, 2026, the geographic distribution of our loan portfolio, by type of loan, in dollar amounts and percentages:
San Francisco Bay
Total in State of
Area (1)
Other California (2)
California
All Other States (3)
Total
% of
% of
% of
% of
% of
Total in
Total in
Total in
Total in
Total in
Amount
Category
Amount
Category
Amount
Category
Amount
Category
Amount
Category
(Dollars in thousands)
March 31, 2026
Commercial and industrial
$
28,274
7.2
%
$
60,922
6.9
%
$
89,196
7.0
%
$
78,115
10.6
%
$
167,311
8.3
%
Real estate:
Residential
12,203
3.1
50,222
5.7
62,425
4.9
49,050
6.7
111,475
5.5
Multifamily residential
64,233
16.4
170,138
19.3
234,371
18.4
76,813
10.4
311,184
15.5
Owner occupied CRE
138,101
35.2
279,680
31.7
417,781
32.8
71,291
9.7
489,072
24.3
Non-owner occupied CRE
149,838
38.2
312,397
35.4
462,235
36.2
458,048
62.3
920,283
45.8
Construction and land
—
—
9,522
1.1
9,522
0.7
615
0.1
10,137
0.5
Total real estate
364,375
821,959
1,186,334
655,817
1,842,151
Consumer
42
—
%
2
—
%
44
—
%
1,248
0.2
%
1,292
0.1
%
Total loans
$
392,691
$
882,883
$
1,275,574
$
735,180
$
2,010,754
December 31, 2025
Commercial and industrial
$
30,421
7.6
%
$
66,697
7.4
%
$
97,118
7.4
%
$
78,291
10.3
%
$
175,409
8.5
%
Real estate:
Residential
11,625
2.9
50,603
5.6
$
62,228
4.8
50,958
6.7
113,186
5.5
Multifamily residential
64,813
16.1
170,570
18.9
235,383
18.0
74,944
9.8
310,327
15.0
Owner occupied CRE
143,624
35.7
292,914
32.5
436,538
33.5
69,661
9.1
506,199
24.5
Non-owner occupied CRE
151,619
35.7
312,832
34.7
464,451
35.6
485,987
63.8
950,438
46.0
Construction and land
—
—
8,408
0.9
8,408
0.6
550
0.1
8,958
0.4
Total real estate
371,681
835,327
1,207,008
682,100
1,889,108
Consumer
43
—
%
1
—
%
44
—
%
1,131
0.1
%
1,175
0.1
%
Total loans
$
402,145
$
902,025
$
1,304,170
$
761,522
$
2,065,692
(1) Includes Alameda, Contra Costa, Solano, Sonoma, Marin, San Francisco, San Mateo and Santa Clara counties.
(2) Includes loans in Sacramento and Northern California counties totaling $92.2 million and loans in Los Angeles and Orange counties totaling $590.3 million at March 31, 2026. At December 31, 2025, loans in Sacramento and Northern California counties and loans in Los Angeles and Orange counties totaled $92.3 million and $601.5 million, respectively.
(3) Includes loans primarily in the states of Colorado, Nevada, New Mexico and Washington and other states. At March 31, 2026, loans in Colorado, Nevada, New Mexico, Washington and other states totaled $119.4 million, $47.7 million, $72.8 million, $88.4 million and $454.6 million, respectively. At December 31, 2025, loans in Colorado, Nevada, New Mexico, Washington and other states totaled $132.2 million, $44.5 million, $69.6 million, $89.9 million, and $425.3 million respectively .
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Acquired loans. As of March 31, 2026, our total loan portfolio included $204.2 million, or 10.2%, of loans acquired through business combinations (all of which were recorded at their estimated fair values as of the time of acquisition), of which $108.4 million had no remaining net premium or discount.
As of March 31, 2026, acquired non-PCD loans totaled $96.6 million, with a remaining net premium of $1.3 million, compared to $121.1 million with a remaining net premium of $397,000 as of December 31, 2025. The net premium for acquired non-PCD loans includes a credit discount based on estimated losses in the acquired loans, partially offset by any premium based on market interest rates on the date of acquisition.
As of March 31, 2026, acquired PCD loans totaled $12.1 million, with a remaining net non-credit discount of $648,000, compared to $16.1 million with a remaining net non-credit discount of $1.2 million as of December 31, 2025.
Nonperforming assets and loans. Nonperforming assets generally consist of nonperforming loans and other real estate owned (“OREO”). Nonperforming loans include nonaccrual loans and accruing loans 90 days or more past due. Nonperforming assets increased $3.2 million to $16.7 million, or 0.83% of total loans, at March 31, 2026, compared to $13.4 million, or 0.65% of total loans, at December 31, 2025. The Company held no OREO at either date.
Nonperforming loans totaled $16.7 million, or 0.83% of total loans, at March 31, 2026, compared to $13.4 million, or 0.65% of total loans, at December 31, 2025. The increase from the prior quarter-end was primarily due to one $4.9 million commercial real estate loan being placed on nonaccrual during the current quarter, partially offset by payoffs of five nonaccrual loans totaling $1.6 million. The majority of nonperforming loans remain concentrated in the commercial real estate portfolio, while consumer and other commercial loans continue to exhibit low levels of delinquencies. At March 31, 2026, nonaccrual loans included $7.0 million of loans 30–89 days past due and $6.3 million of loans less than 30 days past due. The $7.0 million of loans 30-89 days past due consisted of four loans and the $6.3 million of nonaccrual loans less than 30 days past due consisted of 15 loans, all of which were placed on nonaccrual due to borrower-specific financial concerns, indicators of credit deterioration, and other credit related factors, which provided reasonable doubt about the full collectability of principal and interest, rather than delinquency. At December 31, 2025, nonaccrual loans included $562,000 of loans 30–89 days past due and $9.4 million of loans less than 30 days past due. At December 31, 2025, the $9.4 million of loans less than 30 days past due was comprised of 15 loans all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
Of the nonperforming loans at March 31, 2026, approximately $932,000 were guaranteed by governmental agencies, compared to $1.7 million at December 31, 2025. The decrease in government-guaranteed nonaccrual loans during this period reflects the pay-off of one nonaccrual loan during the current quarter.
In general, loans are placed on nonaccrual status after being contractually delinquent for more than 90 days, or earlier, if management believes full collection of future principal and interest on a timely basis is unlikely. When a loan is placed on nonaccrual status, all interest accrued but not received is charged against interest income. When the ability to fully collect nonaccrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Interest received on such loans is recognized as interest income when received. A nonaccrual loan is restored to an accrual basis when principal and interest payments are brought current, and full payment of principal and interest is probable. Loans that are well secured and in the process of collection will remain on accrual status .
Loans may be acquired at a premium or discount to par value, in which case the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, over time, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off before maturity. Upon the payoff of a loan before maturity, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income.
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Modified loans to borrowers experiencing financial difficulty. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal is forgiven, the amount of the forgiveness is charged-off against the allowance for credit losses for loans. Upon the Company’s subsequent determination that a modified loan (or a portion thereof) is uncollectible, the loan (or portion thereof) is charged off. The amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses for loans is adjusted by the same amount.
Modified loans to borrowers experiencing financial difficulty as of March 31, 2026 and December 31, 2025, totaled $1.2 million and $1.4 million, respectively. All such modified loans were on nonaccrual status as of each respective reporting date. Modified loans that are accruing and performing in accordance with their modified terms are not classified as nonperforming loans because they continue to accrue interest and demonstrate satisfactory payment performance despite their modified terms. There were no such modified loans at March 31, 2026 and December 31, 2025. At both March 31, 2026 and December 31, 2025, individually evaluated modified loans to borrowers experiencing financial difficulty had no related allowance.
The following table provides information regarding nonperforming loans, nonperforming assets and modified loans as of the dates indicated:
March 31,
December 31,
2026
2025
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial and industrial
$
895
$
839
Real estate:
Residential
687
716
Multifamily residential
—
—
Owner occupied CRE
7,877
4,513
Non-owner occupied CRE
7,222
7,375
Construction and land
—
—
Total real estate
15,786
12,604
Consumer
—
—
Total nonaccrual loans
16,681
13,443
Accruing loans 90 days or more past due
—
—
Total nonperforming loans
16,681
13,443
Real estate owned
—
—
Total nonperforming assets (1)
$
16,681
$
13,443
Performing modified loans to borrowers experiencing financial difficulty – performing
$
—
$
—
PCD loans
$
12,798
$
16,788
Nonperforming assets to total assets (1)
0.63
%
0.52
%
Nonperforming loans to total loans (1)
0.83
%
0.65
%
(1)
Performing modified loans to borrowers experiencing financial difficulty are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios. PCD loans are considered performing and are not included in nonperforming assets in the table above.
Interest foregone on nonaccrual loans was approximately $200,000 and $269,000 for the three months ended March 31, 2026 and 2025, respectively. Interest income recognized on nonaccrual loans was approximately $140,000 and $35,000 for the three months ended March 31, 2026 and 2025, respectively.
Allowance for credit losses for loans. The allowance for credit losses is determined by the Company on a quarterly basis, although management monitors the appropriate level of the allowance more frequently. We assess the allowance for credit losses based on three categories: (i) originated loans, (ii) acquired non-PCD loans, and (iii) acquired
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PCD loans. The allowance for credit losses reflects management’s estimate of current expected credit losses inherent in the loan portfolios. The computation includes elements of judgment and high levels of subjectivity.
At March 31, 2026, the Company’s allowance for credit losses for loans was $20.6 million, or 1.02% of total loans, compared to $21.2 million, or 1.03% of total loans, at December 31, 2025. Management currently believes that the allowance for credit losses at March 31, 2026 is adequate to absorb expected credit losses inherent in the Company’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
The decrease in the allowance for credit losses at March 31, 2026 compared to December 31, 2025, was primarily attributable to a decrease in the reserve for pooled loans due to lower loan balances, partially offset by changes in macroeconomic forecasts, including lower forecasted unemployment and an improved national gross domestic product outlook. In addition, there was an $82,000 decrease in the reserve for individually evaluated loans during the current quarter. Qualitative risk factor classifications remained unchanged during the current quarter.
Net charge-offs were $15,000 for the three months ended March 31, 2026, compared to net charge-offs of $102,000 for the three months ended March 31, 2025.
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The following table presents certain credit ratios at the dates and for the periods indicated and each component of the ratio’s calculations:
Three months ended March 31,
2026
2025
(Dollars in thousands)
Allowance for credit losses on loans as a percentage of total loans outstanding at period end
1.02
%
0.94
%
Allowance for credit losses on loans
$
20,600
$
18,500
Total loans outstanding
2,011,282
1,966,668
Nonaccrual loans as a percentage of total loans outstanding at period end
0.83
%
0.50
%
Total nonaccrual loans
$
16,681
$
9,834
Total loans outstanding
2,011,282
1,966,668
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end
123.49
%
188.12
%
Allowance for credit losses on loans
$
20,600
$
18,500
Total nonaccrual loans
16,681
9,834
Net charge-offs during period to average loans outstanding:
Commercial and industrial:
(0.00)
%
0.05
%
Net (recoveries) charge-offs
$
(2)
$
98
Average loans outstanding
177,162
179,071
Construction and land:
—
%
—
%
Net charge-offs
$
—
$
—
Average loans outstanding
13,531
4,913
Commercial real estate:
0.00
%
—
%
Net charge-offs
$
16
$
—
Average loans outstanding
1,736,790
1,659,779
Residential:
—
%
—
%
Net charge-offs
$
—
$
—
Average loans outstanding
112,523
107,920
Consumer:
0.08
%
0.76
%
Net charge-offs
$
1
$
4
Average loans outstanding
1,114
523
Total loans:
0.00
%
0.01
%
Total net charge-offs
$
15
$
102
Total average loans outstanding
2,041,119
1,952,206
As of March 31, 2026, the Company individually evaluated $15.1 million in loans, of which $4.4 million had a specific allowance totaling $1.3 million as of March 31, 2026. As of December 31, 2025, the Company individually evaluated $14.9 million in loans, of which $4.5 million had a specific allowance totaling $1.4 million.
Management considers the allowance for credit losses for loans at March 31, 2026 to be adequate to cover expected credit losses inherent in the loan portfolio based on the assessment of current portfolio performance, historical loss experience, and relevant qualitative and quantitative factors, including current economic conditions and reasonable and supportable forecasts. While management believes the estimates and assumptions used in determining the adequacy of the allowance are reasonable, actual credit losses may differ from those expected. Changes in economic conditions, borrower performance, or other factors could result in actual losses exceeding the current allowance, which could adversely affect the Company’s financial condition and results of operations. In addition, the methodology, assumptions, and judgments used in determining the allowance for credit losses is subject to review by bank regulators, as part of their routine examination process, which may result in adjustments to the provision for credit losses based upon information available to them at the time of their examination.
Deposits. Deposits are our primary source of funding and generally consist of core deposits from the communities served by our branch and office locations. We offer a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include interest bearing and noninterest bearing demand accounts,
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savings accounts, money market accounts, certificates of deposit and individual retirement accounts. These accounts earn interest at rates established by management based on competitive market factors, management’s desire to increase certain product types or maturities, and consistent with our asset/liability, liquidity and profitability objectives. Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.
Total deposits increased $51.8 million, or 2.3%, to $2.3 billion at March 31, 2026, compared to December 31, 2025. At March 31, 2026, noninterest-bearing demand deposits totaled $609.2 million, or 26.9% of total deposits, compared to $578.1 million, or 26.1% of total deposits, at December 31, 2025, representing an increase of $31.2 million. From December 31, 2025 to March 31, 2026, interest-bearing deposits generally increased, with time deposits increasing $19.9 million, money market accounts increasing $13.3 million, and savings accounts increasing $905,000. By contrast, NOW accounts declined $13.6 million during the same period. Time deposits included no brokered deposits as of March 31, 2026, and December 31, 2025.
The overall increase in total deposits from December 31, 2025 primarily reflects noninterest-bearing demand deposit growth, partially offset by a decline in NOW accounts. In addition, the increase in money market and time deposits was driven by growth, and to a lesser extent a shift in deposit composition reflecting continued customer migration toward interest-bearing products in response to the prevailing rate environment. Management continues to monitor deposit mix and pricing strategies in the context of funding costs, liquidity needs, and interest rate risk.
We consider our deposit base to be seasoned, stable and well-diversified, and we do not have any significant industry concentrations among our non-insured deposits. We also offer our customers the ability to place deposits in Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) money market product services via the IntraFi Network, to insure deposits above FDIC insurance limits. At March 31, 2026, our average deposit account size (excluding public funds), calculated by dividing period-end deposits by the population of accounts with balances, was approximately $63,000. See “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for information regarding our top ten depositors.
The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.
March 31,
December 31,
2026
2025
% Change
(Dollars in thousands)
Demand deposits (1)
$
609,226
$
578,068
5.4
%
NOW accounts
251,401
264,967
(5.1)
Saving
72,071
71,166
1.3
Money market
745,570
732,256
1.8
Time deposits
587,122
567,183
3.5
Total
$
2,265,390
$
2,213,640
2.3
%
(1) Noninterest-bearing.
Borrowings. Although deposits are our primary source of funds, we may from time to time utilize borrowings as a cost-effective source of funds when they can be invested at a positive interest rate spread, for additional capacity to fund loan demand or to meet our asset/liability management goals. We are a member of and may obtain advances from the FHLB of San Francisco, which is part of the Federal Home Loan Bank System. The eleven regional Federal Home Loan Banks provide a central credit facility for their member institutions. These advances are provided upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.
At March 31, 2026 and December 31, 2025, we could borrow up to $599.3 million and $580.7 million, respectively, from the FHLB of San Francisco. At both March 31, 2026 and December 31, 2025, there were no FHLB advances outstanding.
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At March 31, 2026 and December 31, 2025, we could borrow up to $43.4 million and $49.3 million, respectively, from the FRB of San Francisco. At both March 31, 2026 and December 31, 2025, there were no FRB advances outstanding.
At both March 31, 2026 and December 31, 2025, we had a total of $65.0 million in federal funds lines available from third-party correspondent banks and no balances outstanding at these dates.
At both March 31, 2026 and December 31, 2025, the Company had outstanding junior subordinated deferrable interest debentures, net of fair value adjustments, assumed in connection with its previous acquisitions totaling $5.9 million and $8.7 million, respectively. The decrease reflects the redemption of one debenture during the first quarter of 2026.
At both March 31, 2026 and December 31, 2025, the Company had no outstanding subordinated debt.
We are required to provide collateral for certain local agency deposits. At both March 31, 2026 and December 31, 2025, the FHLB of San Francisco had issued letters of credit on behalf of the Bank totaling $42.1 million and $41.6 million, respectively, as collateral for local agency deposits.
Shareholders’ equity. Shareholders’ equity increased $5.4 million, to $344.0 million at March 31, 2026 from $338.6 million at December 31, 2025. The increase in shareholders’ equity primarily was due to $8.2 million of net income earned during the first quarter of 2026 and $340,000 of other comprehensive income, net of taxes, related mainly to changes in unrealized gains on available-for-sale securities. These items were partially offset by $3.3 million of accrued cash dividends. During the three months ended March 31, 2026, the Company did not repurchase any shares of common stock, compared to the repurchase of $1.3 million of common stock during the three months ended March 31, 2025. For additional information see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”
Comparison of Results of Operations for the Three months Ended March 31, 2026 and 2025
Earnings summary. Net income was $8.2 million for the three months ended March 31, 2026, compared to $5.7 million for the three months ended March 31, 2025, an increase of $2.5 million or 43.5%. The increase was primarily as a result of a $2.3 million increase in net interest income and a $1.3 million favorable change in the provision for credit losses, reflecting a net recovery in the current quarter compared to a $642,000 provision in the prior-year quarter, as well as a $105,000 increase in noninterest income. These changes were partially offset by a $517,000 increase in noninterest expense and a $738,000 increase in the provision for income taxes. Basic and diluted earnings per share were $0.75 for the three months ended March 31, 2026, compared to $0.51 for the three months ended March 31, 2025.
Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income, was 61.73% and 65.74% for the three months ended March 31, 2026, and 2025, respectively. The improvement in the efficiency ratio for the current quarter was primarily driven by higher net interest income.
Interest income. Interest income for the three months ended March 31, 2026 was $34.6 million, compared to $32.6 million for the three months ended March 31, 2025, an increase of $1.9 million or 5.8%. Increased yields earned on interest-earning assets, along with an increase in the average balance of loans, were the primary drivers of the increase in interest income, partially offset by decreases in the average balances of investment securities and fed funds sold and interest-bearing balances in banks.
Interest income on loans, including fees, increased $2.4 million, or 8.9%, to $29.6 million for the three months ended March 31, 2026 from $27.1 million for the three months ended March 31, 2025, due to an $89.2 million increase in the average balance of loans and a 23 basis point increase in the average loan yield. The average balance of loans was $2.0 billion for the first quarter of 2026, up 4.6% compared to the first quarter of 2025. The average yield on loans was 5.87% for the first quarter of 2026, compared to 5.64% for the first quarter of 2025. The increase in the average yield on loans reflected increased rates on variable rate loans, as well as new loans being originated at higher market interest rates.
Interest income on loans for the three months ended March 31, 2026 and 2025 included $600,000 and $215,000 in accretion of the net discount on acquired loans. During the current quarter, one $4.0 million acquired commercial real
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estate loan paid off, resulting in $555,000 of discount accretion and recovery of interest of $610,000. Accretion of the net discount and recovery of interest positively impacted the average loan yield by 11 and 12 basis points, respectively during the current quarter, compared to minimal impact during the first quarter of 2025. Remaining net discounts on these acquired loans totaled $649,000 and $223,000 at March 31, 2026 and 2025, respectively. The combined approximately $1.2 million of discount accretion and interest recovery recognized during the current quarter as a result of the $4.0 million single loan payoff is non-recurring in nature. With only $649,000 of remaining net discount available for future accretion, the contribution of acquired loan accretion to loan yields and net interest margin is expected to be minimal in future periods. Additionally, interest income on loans for the three months ended March 31, 2026 and 2025, included $17,000 and $162,000, respectively, in fees related to prepayment penalties.
Interest income on investment securities decreased $322,000, or 13.1%, to $2.1 million for the three months ended March 31, 2026, compared to $2.5 million for the three months ended March 31, 2025, as a result of decreases in the average balance and average yield. The average balance of investment securities totaled $188.2 million for the three months ended March 31, 2026, compared to $210.2 million for the three months ended March 31, 2025. The average yield on investment securities was 4.59% for the three months ended March 31, 2026, compared to 4.73% for the three months ended March 31, 2025. The decreases in the average balance and the average yield from the same quarter a year ago were due to paydowns and calls on higher variable-rate securities and rate resets on variable rate securities. In addition, during the first quarter of 2026, we received $709,000 in cash dividends on our FRB and FHLB stock, including $330,000 in special dividends from the FHLB, compared to $393,000 during the first quarter of 2025. The $330,000 in special dividends received from the FHLB during the current quarter is not expected to recur at a predictable frequency. These special dividends contributed approximately five basis points to the reported net interest margin. Excluding special dividends, FHLB and FRB dividend income would have remained essentially unchanged between periods.
Interest income on federal funds sold and interest-bearing balances in banks decreased $513,000, or 19.4%, to $2.1 million for the three months ended March 31, 2026, compared to $2.6 million for the three months ended March 31, 2025, as a result of decreases in both the average yield and average balance. The average yield decreased 77 basis points to 3.70% for the three months ended March 31, 2026, compared to 4.47% for the three months ended March 31, 2025, reflecting decreases in Federal Reserve policy rates. The average balance of federal funds sold and interest-bearing balance in banks totaled $234.2 million and $240.3 million for the three months ended March 31, 2026 and 2025, respectively.
Interest expense. Interest expense decreased $412,000, or 4.2%, to $9.4 million for the three months ended March 31, 2026, compared to $9.8 million for the three months ended March 31, 2025. The decrease was primarily due to the Company’s redemption of all outstanding subordinated debt in the first quarter of 2026, which is expected to reduce interest expense by approximately $55,000 per quarter going forward, partially offset by a one-time charge of $222,000 to write off remaining debt issuance costs in connection with the redemption of a junior subordinated debenture during the quarter.
Interest expense on deposits increased $281,000, or 3.2%, to $9.0 million for the three months ended March 31, 2026, compared to $8.7 million for the same period in 2025. The increase was primarily due to growth in average balances of money market and time deposit accounts, partially offset by lower rates paid on those accounts. The average rate paid on money market accounts decreased 17 basis points to 2.14% during the first quarter of 2026, compared to 2.31% in the same period of 2025, and the average rate on time deposits declined 27 basis points to 3.51%, compared to 3.78% for the prior-year period. The average cost of all interest-bearing deposits was 2.21% for the three months ended March 31, 2026, compared to 2.32% for the three months ended March 31, 2025. The overall average cost of deposits was 1.63% for the first quarter of 2026, compared to 1.66% for the first quarter of 2025. The average cost of total interest-bearing liabilities was 2.29% for the first quarter of 2026, compared to 2.49% for the first quarter of 2025. The average balance of interest-bearing deposits was $1.6 billion and $1.5 billion for the three months ended March 31, 2026 and 2025.
Total average interest-bearing liabilities increased $63.2 million, or 4.0%, to $1.7 billion for the three months ended March 31, 2026, compared to $1.6 billion for the three months ended March 31, 2025. The average balance of interest-bearing deposits increased to $1.6 billion for the three months ended March 31, 2026, from $1.5 billion for the same period in 2025. Within this category, the average balance of money market accounts rose $85.1 million, or 13.0%, to $739.9 million, while time deposits increased $53.9 million, or 10.3%, to $576.2 million. In contrast, average balances for savings accounts declined over the same period.
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The average balance of noninterest-bearing deposits decreased $17.2 million, or 2.9%, to $586.5 million for the three months ended March 31, 2026, compared to $603.7 million for the same period in 2025. This shift in deposit composition from noninterest-bearing demand deposits and savings accounts to interest-bearing time, NOW, and money market accounts reflects continued customer migration toward higher-yielding products in response to prevailing market rates and competitive offerings.
Interest expense on borrowings decreased $693,000, or 64.0%, to $390,000 for the three months ended March 31, 2026, compared to $1.1 million for the three months ended March 31, 2025. The decrease was primarily due to the Company’s redemption of all outstanding subordinated debt in the third quarter of 2025, resulting in lower interest expense. The average cost of total borrowings increased to 19.3% for the three months ended March 31, 2026, compared to 6.1% for the three months ended March 31, 2025. The average cost of borrowings was negatively impacted due to the Company’s redemption of one junior subordinated debenture in the current quarter, which included $222,000 of accelerated amortized debt issuance costs. The average balance of borrowings decreased $64.2 million to $8.2 million during the three months ended March 31, 2026, compared to $72.4 million during the three months ended March 31, 2025.
Net interest income and net interest margin. Net interest income increased $2.3 million, or 10.1%, to $25.2 million for the three months ended March 31, 2026, compared to $22.9 million for the three months ended March 31, 2025. The increase in net interest income primarily reflects increases in interest income on loans, including fees, which rose by $2.4 million or 8.9%, due to higher average balances and yields, and FHLB dividends, and a decrease in interest expense on subordinated debt. These changes were partially offset by decreases in interest income on fed funds sold and interest-bearing balances in banks and on investment securities, which declined by $322,000 or 13.1%. Average interest-earning assets increased $59.9 million, or 2.4%, compared to the first quarter of 2025.
The average annualized yield on interest-earning assets was 5.64% for the three months ended March 31, 2026, representing an 18 basis point increase from 5.46% for the three months ended March 31, 2025. This increase reflects the origination of new loans at higher rates, a special dividend received from the FHLB, accretion of net discount and recovery of interest on payoff of an acquired loan discussed above, partially offset by a lower average yield on interest-bearing balances in banks. The average annualized cost of interest-bearing liabilities was 2.29% for the three months ended March 31, 2026, representing a 20 basis point decrease from 2.49% for the three months ended March 31, 2025. This decrease reflects the payoff of the subordinated debt and lower rates paid on money market and time deposits, reflecting similar market-driven repricing conditions. As a result, the annualized net interest margin increased to 4.11% for the three months ended March 31, 2026, compared to 3.83% for the same period in 2025. The reported net interest margin of 4.11% includes the effects of the following non-recurring items: (i) $555,000 of discount accretion and $610,000 of interest recovery on the payoff of a single acquired CRE loan, together contributing approximately 23 basis points to the net interest margin; (ii) $330,000 of FHLB special dividends, contributing approximately five basis points to the net interest margin; and (iii) $222,000 of accelerated debt issuance cost amortization on junior subordinated debentures, reducing net interest margin by approximately four basis points.
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Average Balances, Interest and Average Yields/Cost. The following tables present, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest income; (iv) the interest rate spread; and (v) net interest margin. Nonaccrual loans have been included in the table as loans carrying a zero yield. Yields have been calculated on a pre-tax basis. Loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.
Three months ended March 31,
2026
2025
Annualized
Annualized
Average
Average
Average
Average
Balance(4)
Interest
Yield/Cost
Balance(4)
Interest
Yield/Cost
(Dollars in thousands)
Interest earning assets
Fed Funds sold and interest bearing balances in banks
$
234,249
$
2,136
3.70
%
$
240,324
$
2,649
4.47
%
Investments securities
188,193
2,132
4.59
%
210,242
2,454
4.73
%
FHLB Stock
11,524
584
20.56
%
11,313
249
8.92
%
FRB Stock
7,725
120
6.30
%
9,650
145
6.07
%
Total loans (1)
2,042,084
29,578
5.87
%
1,952,897
27,149
5.64
%
Total interest earning assets
2,483,775
34,550
5.64
%
2,424,426
32,646
5.46
%
Noninterest earning assets
135,083
134,518
Total average assets
$
2,618,858
$
2,558,944
Interest bearing liabilities
Savings
$
72,460
$ 22
0.12
%
$
80,734
25
0.13
%
NOW accounts
259,703
53
0.08
%
262,926
59
0.09
%
Money market
739,888
3,897
2.14
%
654,829
3,735
2.31
%
Time deposits
576,245
4,992
3.51
%
522,374
4,864
3.78
%
Total interest bearing deposit accounts
1,648,296
8,964
2.21
%
1,520,863
8,683
2.32
%
Subordinated debt, net
—
—
—
%
63,752
891
5.67
%
Junior subordinated debentures, net
8,196
390
19.29
%
8,653
192
9.01
%
Other borrowings
—
—
—
%
—
—
—
%
Total interest bearing liabilities
1,656,492
9,354
2.29
%
1,593,268
9,766
2.49
%
Noninterest bearing deposits
586,459
603,703
Other noninterest bearing liabilities
32,811
32,387
Noninterest bearing liabilities
619,270
636,090
Total average liabilities
2,275,762
2,229,358
Average equity
343,096
329,586
Total average liabilities and equity
$
2,618,858
$
2,558,944
Net interest income
$
25,196
$
22,880
Interest rate spread (2)
3.35
%
2.97
%
Net interest margin (3)
4.11
%
3.83
%
Ratio of average interest earning assets to average interest bearing liabilities
149.94
%
152.17
%
(1) Loan average balances are net of deferred origination fees and costs. Nonaccrual loans are included in the average balances. Interest income on nonaccruing loans is reflected in the period that it is collected, to the extent it is not applied to principal.
(2) Interest rate spread is calculated as the average rate earned on interest earning assets minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is calculated as net interest income divided by total average interest earning assets.
(4) Average balances are computed using average daily balances.
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Rate/Volume Analysis. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume.
Three months ended March 31,
2026 compared to three months ended March 31, 2025
Increase/(Decrease)
Attributable to
Rate
Volume
Total
(Dollars in thousands)
Interest earning assets
Fed funds sold and interest bearing balances in banks
$
(446)
$
(67)
$
(513)
Investments securities
(65)
(257)
(322)
FHLB stock and FRB stock
342
(32)
310
Total loans
1,189
1,240
2,429
Total interest income
1,020
884
1,904
Interest bearing liabilities
Savings
(1)
(2)
(3)
NOW accounts
(5)
(1)
(6)
Money market accounts
(323)
485
162
Time deposits
(374)
502
128
Total deposit accounts
(703)
984
281
Subordinated debt, net
—
(891)
(891)
Junior subordinated debentures, net
208
(10)
198
Total interest expense
(495)
83
(412)
Net interest income
$
1,515
$
801
$
2,316
Provision for credit losses. We recorded a reversal of provision for credit losses of $670,000 for the three months ended March 31, 2026, compared to provision of $642,000 for the three months ended March 31, 2025. The reversal of provision for credit losses during the three months ended March 31, 2026, was primarily driven by a decrease in total loans outstanding and, to a lesser extent, decreasing quantitative loss rates due to favorable changes in forecasted economic conditions. We recorded $15,000 in net charge-offs for the first quarter of 2026, compared to $102,000 in net charge-offs for the first quarter of 2025.
Noninterest income. Noninterest income increased $105,000, or 7.3%, to $1.5 million for the first quarter of 2026, compared to $1.4 million for the first quarter of 2025. The increase was primarily due to a $313,000 swing in equity securities, which went from a loss of $255,000 for the three months ended March 31, 2025 to a gain of $58,000 for the three months ended March 31, 2026, and a $194,000 increase in gain on a SBIC fund investment. These changes were partially offset by a $204,000 decrease in service charges and other fees due to lower customer deposits placed in Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) money market product services via the IntraFi Network, a $102,000 decrease in loan servicing fees and other fees primarily due to a decrease in late charges, and a $75,000 decrease in gain on sale of loans.
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The following table presents the key components of noninterest income for the periods indicated:
Three months ended March 31,
2026
2025
$ Change
% Change
(Dollars in thousands)
Gain on sale of loans
$
123
$
198
$
(75)
(37.9)
%
Gain (loss) on equity securities
58
(255)
313
N/M
Service charges and other fees
741
945
(204)
(21.6)
%
Loan servicing and other loan fees
287
389
(102)
(26.2)
%
Gain (loss) on investment in SBIC fund
85
(109)
194
N/M
Other income and fees
251
272
(21)
(7.7)
%
Total noninterest income
$
1,545
$
1,440
$
105
7.3
%
N/M - Not meaningful
Noninterest expense. Noninterest expense increased $517,000, or 3.2%, to $16.5 million for the three months ended March 31, 2026, compared to $16.0 million for the three months ended March 31, 2025. The increase was primarily due to a $914,000 increase in salaries and employee benefits, resulting from higher incentive expense, increased base wages, higher employee insurance claims, and lower deferred salary costs due to lower loan originations, as well as a $185,000 increase in data processing expense due to newly implemented services in 2026 and higher vendor data processing charges. These changes were partially offset by a $573,000 decrease in other expense, primarily due to $450,000 of excess funds being returned to the Bank in the first quarter of 2026 from the CalCAP loss reserve account, while no unused CalCAP funds were returned in the first quarter of 2025, as well as lower legal and professional service costs and reduced deposit premium amortization.
The following table details the components of noninterest expense for the periods indicated:
Three months ended March 31,
2026
2025
$ Change
% Change
(Dollars in thousands)
Salaries and employee benefits
$
10,849
$
9,935
$
914
9.2
%
Occupancy and equipment
2,127
2,136
(9)
(0.4)
%
Data processing
2,038
1,853
185
10.0
%
Other
1,492
2,065
(573)
(27.7)
%
Total noninterest expense
$
16,506
$
15,989
$
517
3.2
%
Subsequent to March 31, 2026, the Company announced an executive leadership transition that is expected to result in material charges to noninterest expense, including cash severance, equity award acceleration, and continuation of benefits, beginning in the second quarter of 2026. See “Note 19 — Subsequent Events” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income taxes. The provision for income taxes increased $738,000, or 37.1%, to $2.7 million for the three months ended March 31, 2026, compared to $2.0 million for the three months ended March 31, 2025, due to higher taxable income.
The Company’s effective tax rate was 25.0% and 25.8% for the three months ended March 31, 2026, and 2025, respectively. The effective tax rate decreased for the three months ended March 31, 2026, compared to the same period in 2025, primarily due to true-up adjustments for state apportionment and other adjustments related to the filing of the Company’s 2025 tax return .
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Liquidity and Capital Resources
Planning for our normal business liquidity needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term basis, it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management software model projections.
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run off that may occur in the normal course of business. We rely on multiple sources to meet our potential liquidity needs. Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sales of loans. During the three months ended March 31, 2026, the Bank sold $2.4 million in loan participation interests and received $90.5 million in principal loan repayments. While maturities and scheduled amortizations of loans are generally predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.
Deposits increased $51.8 million to $2.3 billion at March 31, 2026 from $2.2 billion at December 31, 2025 and liquid assets, in the form of cash and cash equivalents, increased $99.4 million to $305.9 million at March 31, 2026 from $206.5 million at December 31, 2025. In addition, investment securities available-for-sale increased $9.7 million to $189.4 million at March 31, 2026 from $179.7 million at December 31, 2025. Management believes that our securities portfolio is of high quality and that the securities would therefore be marketable. Securities purchased during the three months ended March 31, 2026 were $19.7 million, while securities repayments, maturities and sales during that period totaled $10.3 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2026, totaled $503.7 million. It is management’s policy to maintain deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that most of our maturing certificates of deposit will remain with us.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of March 31, 2026, the Bank had an available borrowing capacity of $599.3 million with the FHLB of San Francisco, with no borrowings outstanding at that date or at December 31, 2025. At March 31, 2026, we had the ability to borrow up to $43.4 million from the FRB of San Francisco, with no borrowings outstanding at that date or at December 31, 2025. The Bank also had, as of March 31, 2026, federal funds lines with four correspondent banks, with available commitments totaling $65.0 million. There were no amounts outstanding under these facilities at March 31, 2026 and December 31, 2025. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, to repay maturing debt and to take advantage of investment opportunities to the extent feasible.
Liquidity management is both a daily and long-term function of the Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and U.S. agency securities. We use our sources of funds primarily to meet our ongoing commitments, to pay maturing deposits and fund withdrawals, and to fund loan commitments. At March 31, 2026, loan commitments and letters of credit totaled $65.4 million, including $194,000 of undisbursed construction and development loan commitments. For information regarding our commitments, see “Note 17 – Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in “Item 1. Financial Information” of Part I of this report.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities for the three months ended March 31, 2026 and 2025 was $7.0 million and $9.3 million, respectively. During the three months ended March 31, 2026, net cash provided by investing activities was $47.0 million, which consisted primarily of a $59.0 million net decrease in loans, reflecting principal repayments and loan sales, and $10.3 million in proceeds from maturities, repayments and calls of investment securities available-for-sale, partially offset by $19.7 million in purchases of investment securities and $3.2 million in loan purchases, compared to $8.6 million of net cash used in investing activities for the three months ended March 31, 2025. Net cash provided by financing activities for the three months ended March 31, 2026 was $45.4 million, which was comprised primarily of a $31.8 million increase in noninterest and interest-bearing deposits and a $19.9 million increase in time deposits, partially offset by $3.3 million in dividend payments to shareholders and $3.1 million in repayment of a junior subordinated debenture, compared to $108.2 million of net cash used in financing activities during the three months ended March 31, 2025. Management believes our capital sources are adequate to meet
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all reasonably foreseeable short-term and long-term cash requirements. There has not been a material change in our liquidity and capital resources since the information disclosed in our 2025 Annual Report other than set forth above. We are not aware of any reasonably likely material changes in the mix and relative cost of such resources.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity. At March 31, 2026, BayCom Corp had liquid assets of $1.7 million. In addition to its operating expenses, BayCom Corp is responsible for paying to its shareholders any dividends that have been declared, funding stock repurchases, and making payments on its junior subordinated debentures. BayCom Corp can receive dividends and other capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends and make other capital distributions. BayCom Corp’s liquidity needs are primarily met through dividends received from the Bank, which management believes will be sufficient to satisfy obligations at the holding company level for the foreseeable future.
On February 19, 2026, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.30 per share on the Company’s outstanding common stock, which was paid on April 9, 2026 to shareholders of record as of the close of business on March 12, 2026. The Company expects to continue to pay quarterly cash dividends on its common stock, subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment of the cash dividend at the rate of $0.30 per share, our average total dividend paid each quarter would be approximately $3.3 million based on the number of our outstanding shares at March 31, 2026. The dividends we pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I. Item 1. Business” of the 2025 Annual Report.
From time to time, our Board of Directors has authorized stock repurchase programs. In general, stock repurchases allow us to proactively manage our capital position and return excess capital to shareholders. Stock repurchases also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. As of March 31, 2026, 202,444 shares remained available for repurchase under the Company’s current stock repurchase program. For additional information on the Company’s stock repurchases, see “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” contained in Part II of this report.
Regulatory Capital
The Bank, as a state-chartered, federally insured commercial bank and member of the Board of Governors of the Federal Reserve System, is subject to capital requirements established by the Federal Reserve. The Federal Reserve requires the Bank to maintain levels of capital adequacy that generally parallel the FDIC’s requirements. The capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital. The FDIC requires the Bank to maintain minimum ratios of Total Capital, Tier 1 Capital, and Common Equity Tier 1 Capital to risk-weighted assets as well as Tier 1 Leverage Capital to average assets. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations. Based on capital levels at March 31, 2026 and December 31, 2025, the Bank was considered Well Capitalized at both of those dates.
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The table below shows the capital ratios under the Basel III capital framework as of the dates indicated:
At March 31, 2026
At December 31, 2025
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Leverage Ratio
BayCom Corp
$
308,887
12.20
%
$
303,598
12.21
%
Minimum requirement for “Well Capitalized”
126,545
5.00
%
124,277
5.00
%
Minimum regulatory requirement
101,236
4.00
%
99,421
4.00
%
United Business Bank
300,354
11.70
%
291,596
11.45
%
Minimum requirement for “Well Capitalized”
128,325
5.00
%
127,308
5.00
%
Minimum regulatory requirement
102,660
4.00
%
101,846
4.00
%
Common Equity Tier 1 Ratio
BayCom Corp
308,887
14.84
%
303,598
14.32
%
Minimum requirement for “Well Capitalized”
135,285
6.50
%
137,847
6.50
%
Minimum regulatory requirement
93,659
4.50
%
95,433
4.50
%
United Business Bank
300,354
14.54
%
291,596
13.84
%
Minimum requirement for “Well Capitalized”
134,288
6.50
%
136,946
6.50
%
Minimum regulatory requirement
92,969
4.50
%
94,809
4.50
%
Tier 1 Risk-Based Capital Ratio
BayCom Corp
315,279
15.15
%
313,083
14.76
%
Minimum requirement for “Well Capitalized”
166,505
8.00
%
169,658
8.00
%
Minimum regulatory requirement
124,879
6.00
%
127,243
6.00
%
United Business Bank
300,354
14.54
%
291,596
13.84
%
Minimum requirement for “Well Capitalized”
165,278
8.00
%
168,549
8.00
%
Minimum regulatory requirement
123,958
6.00
%
126,412
6.00
%
Total Risk-Based Capital Ratio
BayCom Corp
336,214
16.15
%
334,703
15.78
%
Minimum requirement for “Well Capitalized”
208,131
10.00
%
212,072
10.00
%
Minimum regulatory requirement
166,505
8.00
%
169,658
8.00
%
United Business Bank
321,289
15.55
%
313,216
14.87
%
Minimum requirement for “Well Capitalized”
206,597
10.00
%
210,686
10.00
%
Minimum regulatory requirement
165,278
8.00
%
168,549
8.00
%
In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. At March 31, 2026, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank-only basis and the Federal Reserve expects the holding company’s subsidiary bank(s) to be Well Capitalized under the prompt corrective action regulations. If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2026, the Company would have exceeded all regulatory capital requirements.
For additional information, see “Item 1. Business — Supervision and Regulation — United Business Bank — Capital Requirements” and “Note 18 - Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8. Financial Statements and Supplementary Data” in our 2025 Annual Report.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.