Bay p(BCML) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the Company's comprehensive financial data, including statements, notes, and management's analysis of performance and condition Item 1. Financial Statements This section presents the Company's unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, acquisitions, and financial instrument specifics Condensed Consolidated Balance Sheets This section details the Company's financial position, presenting assets, liabilities, and shareholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | ASSETS | | | | | | Cash and cash equivalents | $337,078 | $323,581 | $13,497 | 4.2% | | Loans, net of allowance for loan losses | $1,225,321 | $970,189 | $255,132 | 26.3% | | Total Assets | $1,770,710 | $1,478,395 | $292,315 | 19.8% | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | Noninterest and interest bearing deposits | $1,498,194 | $1,257,768 | $240,426 | 19.1% | | Total liabilities | $1,529,825 | $1,277,642 | $252,183 | 19.7% | | Total shareholders' equity | $240,885 | $200,753 | $40,132 | 20.0% | | Total Liabilities and Shareholders' Equity | $1,770,710 | $1,478,395 | $292,315 | 19.8% | Condensed Consolidated Statements of Income This section outlines the Company's financial performance over specific periods, detailing revenues, expenses, and net income Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three months ended Sep 30, 2019 (in thousands) | Three months ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | Nine months ended Sep 30, 2019 (in thousands) | Nine months ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Total interest and dividend income | $20,390 | $14,287 | $6,103 | 42.7% | $54,695 | $41,590 | $13,105 | 31.5% | | Total interest expense | $2,633 | $1,272 | $1,361 | 107.0% | $6,056 | $3,561 | $2,495 | 70.1% | | Net interest income | $17,757 | $13,015 | $4,742 | 36.4% | $48,639 | $38,029 | $10,610 | 27.9% | | Provision for loan losses | $479 | $1,081 | $(602) | -55.7% | $1,201 | $1,578 | $(377) | -23.9% | | Total noninterest income | $2,114 | $1,638 | $476 | 29.1% | $6,774 | $5,447 | $1,327 | 24.4% | | Total noninterest expense | $11,664 | $8,417 | $3,247 | 38.6% | $36,207 | $25,196 | $11,011 | 43.7% | | Net income | $5,563 | $3,518 | $2,045 | 58.1% | $12,731 | $11,875 | $856 | 7.2% | | Basic earnings per common share | $0.46 | $0.31 | $0.15 | 48.4% | $1.11 | $1.30 | $(0.19) | -14.6% | | Diluted earnings per common share | $0.46 | $0.31 | $0.15 | 48.4% | $1.11 | $1.30 | $(0.19) | -14.6% | Condensed Consolidated Statements of Comprehensive Income This section presents the Company's total comprehensive income, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three months ended Sep 30, 2019 (in thousands) | Three months ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | Nine months ended Sep 30, 2019 (in thousands) | Nine months ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Net income | $5,563 | $3,518 | $2,045 | 58.1% | $12,731 | $11,875 | $856 | 7.2% | | Change in unrealized gain (loss) on available-for-sale securities | $446 | $(301) | $747 | -248.2% | $2,391 | $(1,106) | $3,497 | -316.2% | | Other comprehensive income (loss), net of tax | $318 | $(212) | $530 | -250.0% | $1,707 | $(779) | $2,486 | -319.1% | | Total comprehensive income | $5,881 | $3,306 | $2,575 | 77.9% | $14,438 | $11,096 | $3,342 | 30.1% | Condensed Consolidated Statements of Changes in Shareholders' Equity This section details the changes in the Company's shareholders' equity over time, including common stock, retained earnings, and comprehensive income Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric | Dec 31, 2018 (in thousands) | Sep 30, 2019 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Common stock amount | $149,248 | $174,942 | $25,694 | 17.2% | | Retained earnings | $51,321 | $64,052 | $12,731 | 24.8% | | Accumulated other comprehensive income (loss), net of tax | $(103) | $1,604 | $1,707 | -1657.3% | | Total shareholders' equity | $200,753 | $240,885 | $40,132 | 20.0% | - Stock issued in acquisition contributed $24.89 million to common stock during the nine months ended September 30, 2019[14] Condensed Consolidated Statements of Cash Flows This section provides an overview of the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine months ended Sep 30, 2019 (in thousands) | Nine months ended Sep 30, 2018 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Net cash provided by operating activities | $5,381 | $1,758 | $3,623 | 206.1% | | Net cash provided by (used in) investing activities | $33,476 | $(25,571) | $59,047 | -230.9% | | Net cash (used in) provided by financing activities | $(25,360) | $87,177 | $(112,537) | -129.1% | | Increase in cash and cash equivalents | $13,497 | $63,364 | $(49,867) | -78.7% | | Cash and cash equivalents at end of period | $337,078 | $313,217 | $23,861 | 7.6% | - Non-cash investing activities for the nine months ended September 30, 2019, included the recognition of Right-of-Use (ROU) assets of $11.41 million and lease liabilities of $11.73 million due to new accounting standards[17] - Acquisition-related non-cash activities for the nine months ended September 30, 2019, included $289.55 million in assets acquired (net of cash received) and $267.17 million in liabilities assumed[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 – BASIS OF PRESENTATION This note describes the Company's business, its wholly-owned subsidiary, and significant acquisitions and accounting standard adoptions - BayCom Corp is a bank holding company with United Business Bank as its wholly-owned subsidiary, providing financial services to small and mid-sized businesses, service professionals, and individuals[19] - The Company completed the acquisition of Bethlehem Financial Corporation (BFC) on November 30, 2018, and Uniti Financial Corporation (Uniti) on May 24, 2019, significantly expanding its operations[22] - Post-September 30, 2019, on October 21, 2019, the Company completed the acquisition of TIG Bancorp, expanding its franchise into Colorado with 32 full-service offices[23] - Effective January 1, 2019, the Company adopted new lease accounting standards (Topic 842), recognizing right-of-use assets and lease liabilities of $7.8 million and $8.2 million, respectively, with no significant impact on regulatory capital[24] NOTE 2 - ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED This note outlines recently issued or adopted accounting standards and their expected or actual impact on the Company's financial statements - ASU No. 2016-13 (CECL model) will significantly change how credit losses are measured for financial assets, replacing the 'incurred loss' approach with an 'expected loss' model, effective after December 15, 2022, and is expected to increase the allowance for loan losses[30][31] - The Company adopted ASU 2017-08 (shortening amortization for callable debt securities premiums) and ASU 2018-07 (simplifying nonemployee share-based payment accounting) on January 1, 2019, neither of which had a material impact[33][34] - ASU No. 2017-04 (simplifying goodwill impairment) is effective after December 15, 2019, for public business entities, but the Company does not expect a material impact[32] NOTE 3 - ACQUISITIONS This note details the Company's recent mergers, including consideration, acquired assets, assumed liabilities, and related expenses - Uniti Merger (May 24, 2019): Total consideration of $62.7 million, consisting of 1,115,006 common shares and $37.8 million cash, adding three Southern California branches[40] - BFC Merger (November 30, 2018): Total consideration of $23.5 million cash, adding five New Mexico branches[41] - The primary reasons for these mergers were to expand geographic footprint, achieve operational scale, and realize efficiencies[42] Fair Value of Assets Acquired and Liabilities Assumed at Acquisition Date (in thousands) | Metric | Uniti Merger (May 24, 2019) | BFC Merger (Nov 30, 2018) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Total assets acquired | $318,018 | $157,820 | | Total liabilities assumed | $267,172 | $138,526 | | Cash consideration | $37,814 | $23,523 | | Common stock issued | $24,887 | $- | | Goodwill | $11,855 | $4,229 | Pro Forma Net Income and EPS (Nine Months Ended Sep 30) | Metric | 2019 (in thousands, except EPS) | 2018 (in thousands, except EPS) | | :------------------------- | :------------------------------ | :------------------------------ | | Net interest income | $51,904 | $53,106 | | Net income | $12,195 | $15,964 | | Basic earnings per share | $1.01 | $1.53 | | Diluted earnings per share | $1.01 | $1.53 | Acquisition Related Expenses (in thousands) | Expense Type | Uniti Merger (Nine months ended Sep 30, 2019) | BFC Merger (Year ended Dec 31, 2018) | | :-------------------- | :-------------------------------------------- | :----------------------------------- | | Professional fees | $535 | $130 | | Data processing | $2,657 | $1,290 | | Severance expense | $578 | $536 | | Other expense | $365 | $369 | | Total | $4,135 | $2,325 | NOTE 4 – INVESTMENT SECURITIES This note provides information on the Company's investment securities, including fair value, unrealized gains/losses, and contractual maturities Investment Securities Available-for-Sale (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :----------- | :----------- | | Amortized cost | $96,765 | $99,935 | | Gross unrealized gains | $2,346 | $368 | | Gross unrealized losses | $(94) | $(507) | | Estimated fair value | $99,017 | $99,796 | - At September 30, 2019, the Company held 208 investment securities, with 17 in an unrealized loss position for over twelve months and 19 for less than twelve months, primarily due to current interest rates. Full recovery of amortized cost is anticipated at maturity[52] Contractual Maturity of Available-for-Sale Securities (in thousands) | Maturity | Sep 30, 2019 (Amortized Cost, in thousands) | Sep 30, 2019 (Estimated Fair Value, in thousands) | Dec 31, 2018 (Amortized Cost, in thousands) | Dec 31, 2018 (Estimated Fair Value, in thousands) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------------------------- | :---------------------------------- | :---------------------------- | :---------------------------------- | | Due in one year or less | $7,788 | $7,823 | $14,292 | $14,279 | | Due after one through five years | $27,924 | $28,394 | $26,287 | $26,327 | | Due after five years through ten years | $20,971 | $21,603 | $20,840 | $20,758 | | Due after ten years | $40,082 | $41,197 | $38,516 | $38,432 | | Total | $96,765 | $99,017 | $99,935 | $99,796 | NOTE 5 – LOANS This note details the Company's loan portfolio by type, including impaired loans, nonaccrual loans, and troubled debt restructurings Loan Portfolio by Type (in thousands) | Loan Type | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Commercial and industrial | $160,173 | $121,855 | $38,318 | 31.4% | | Construction and land | $24,623 | $47,302 | $(22,679) | -47.9% | | Commercial real estate | $912,622 | $701,983 | $210,639 | 30.0% | | Residential | $133,466 | $102,708 | $30,758 | 29.9% | | Consumer | $1,375 | $1,847 | $(472) | -25.6% | | Total loans | $1,232,259 | $975,695 | $256,564 | 26.3% | | Net loans | $1,225,321 | $970,189 | $255,132 | 26.3% | Impaired Loans (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total recorded investment in impaired loans | $7,365 | $3,878 | $3,487 | 89.9% | | Specific allowance on impaired loans | $28 | $10 | $18 | 180.0% | Nonaccrual Loans (in thousands) | Loan Type | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Commercial and industrial | $2,317 | $1,878 | $439 | 23.4% | | Construction and land | $2,737 | $- | $2,737 | - | | Commercial real estate | $1,435 | $596 | $839 | 140.8% | | Residential | $119 | $654 | $(535) | -81.8% | | Total nonaccrual loans | $6,608 | $3,128 | $3,480 | 111.3% | - Troubled Debt Restructurings (TDRs) totaled $1.3 million at September 30, 2019, with $757,000 performing in accordance with modified terms. No TDRs defaulted within 12 months of modification during the nine months ended September 30, 2019[59] PCI Loans (in thousands) | Loan Type | Sep 30, 2019 (Unpaid Principal Balance, in thousands) | Sep 30, 2019 (Carrying Value, in thousands) | Dec 31, 2018 (Unpaid Principal Balance, in thousands) | Dec 31, 2018 (Carrying Value, in thousands) | | :---------------------------- | :------------------------------------ | :---------------------------- | :------------------------------------ | :---------------------------- | | Commercial and industrial | $1,193 | $521 | $125 | $2 | | Construction and land | $279 | $192 | $335 | $233 | | Commercial real estate | $14,562 | $12,330 | $12,605 | $10,776 | | Residential | $2,227 | $1,641 | $2,381 | $1,793 | | Total | $18,261 | $14,684 | $15,446 | $12,804 | NOTE 6 – ALLOWANCE FOR LOAN LOSSES This note outlines the activity and balances of the allowance for loan losses, reflecting changes in credit quality Allowance for Loan Losses Activity (in thousands) | Metric | Nine months ended Sep 30, 2019 (in thousands) | Nine months ended Sep 30, 2018 (in thousands) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $5,140 | $4,215 | | Provision for loan losses | $1,201 | $1,578 | | Charge-offs | $(22) | $(437) | | Recoveries | $41 | $144 | | Ending balance | $6,360 | $5,500 | - At September 30, 2019, the allowance for loan losses was $6.36 million, representing 0.52% of total loans and 96.25% of nonperforming loans, compared to 0.53% and 164.32% respectively, at December 31, 2018[77][173] NOTE 7 – PREMISES AND EQUIPMENT This note provides details on the Company's premises and equipment, including changes due to sales and lease accounting impacts Premises and Equipment, Net (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Premises owned, net | $4,622 | $9,667 | $(5,045) | -52.2% | | Total premises and equipment, net | $6,702 | $11,168 | $(4,466) | -40.0% | - The decrease was primarily due to the sale of a commercial building in Oakland, California, with a carrying value of $4.6 million, resulting in a $78,000 gain[80] - The Company leases 19 branches and administration offices, recognizing right-of-use assets and lease liabilities of $10.19 million and $10.39 million, respectively, as of September 30, 2019, following the adoption of Topic 842[81][8] NOTE 8 – GOODWILL AND INTANGIBLE ASSETS This note details the Company's goodwill and core deposit intangible assets, including acquisition-related changes and impairment assessments Goodwill (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Balance at beginning of period | $14,594 | $10,365 | $4,229 | 40.8% | | Acquired goodwill | $11,855 | $4,229 | $7,626 | 180.3% | | Balance at end of period | $26,449 | $14,594 | $11,855 | 81.2% | - The Company performed a qualitative assessment for goodwill impairment and concluded no impairment existed as of September 30, 2019[85] Core Deposit Intangible (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Balance at beginning of period | $7,205 | $4,772 | $2,433 | 51.0% | | Additions | $566 | $3,604 | $(3,038) | -84.3% | | Amortization | $(1,177) | $(1,171) | $(6) | 0.5% | | Balance at end of period | $6,594 | $7,205 | $(611) | -8.5% | - Core deposit intangible amortization expense was $1.2 million for the nine months ended September 30, 2019, compared to $868,000 for the same period in 2018[86] NOTE 9 – INTEREST RECEIVABLE AND OTHER ASSETS This note provides a breakdown of the Company's interest receivable and other asset categories Interest Receivable and Other Assets (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Deferred tax assets, net | $6,285 | $5,891 | $394 | 6.7% | | Accrued interest receivable | $4,318 | $3,676 | $642 | 17.5% | | Servicing asset | $2,197 | $814 | $1,383 | 169.9% | | Total | $19,451 | $17,381 | $2,070 | 11.9% | NOTE 10 – DEPOSITS This note categorizes the Company's deposits by type, including demand, NOW, savings, money market, and time deposits Deposits by Type (in thousands) | Deposit Type | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Demand deposits | $523,505 | $398,045 | $125,460 | 31.5% | | NOW accounts and savings | $254,835 | $246,288 | $8,547 | 3.5% | | Money market | $398,442 | $398,081 | $361 | 0.1% | | Time deposits - $250,000 or less | $179,711 | $117,653 | $62,058 | 52.7% | | Time deposits - more than $250,000 | $141,701 | $97,701 | $44,000 | 45.0% | | Total | $1,498,194 | $1,257,768 | $240,426 | 19.1% | NOTE 11 – INTEREST PAYABLE AND OTHER LIABILITIES This note provides a breakdown of the Company's interest payable and other liability categories Interest Payable and Other Liabilities (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Accrued expenses | $5,356 | $5,508 | $(152) | -2.8% | | Accrued interest payable | $1,556 | $198 | $1,358 | 685.9% | | Total | $9,472 | $8,375 | $1,097 | 13.1% | NOTE 12 – OTHER EXPENSES This note details the Company's other noninterest expenses, including professional fees and core deposit premium amortization Other Expenses (Nine Months Ended Sep 30, in thousands) | Expense Type | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Professional fees | $1,643 | $1,273 | $370 | 29.1% | | Core deposit premium amortization | $1,177 | $868 | $309 | 35.6% | | Marketing and promotions | $877 | $687 | $190 | 27.7% | | Total | $6,394 | $5,458 | $936 | 17.1% | NOTE 13 – EQUITY INCENTIVE PLANS This note describes the Company's equity incentive plans, including authorized shares, awards granted, and related compensation expense - The 2017 Omnibus Equity Incentive Plan authorizes up to 450,000 shares for equity incentive awards to employees and non-employee directors, with 170,715 restricted stock awards granted as of September 30, 2019[94] - Total compensation expense for equity incentive plans was $807,000 for the nine months ended September 30, 2019, and $367,000 for the three months ended September 30, 2019[97] - As of September 30, 2019, $2.8 million of unrecognized compensation cost related to non-vested restricted stock awards is expected to be recognized over approximately two years[98] NOTE 14 – FAIR VALUE MEASUREMENT This note explains the Company's fair value measurement hierarchy and provides tables for assets measured at fair value on recurring and nonrecurring bases - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[100][101] Assets Measured at Fair Value on a Recurring Basis (in thousands) | Asset Type | Sep 30, 2019 (Total, in thousands) | Sep 30, 2019 (Level 1, in thousands) | Sep 30, 2019 (Level 2, in thousands) | Sep 30, 2019 (Level 3, in thousands) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | U.S. Treasuries | $998 | $998 | $- | $- | | U.S. Government Agencies | $10,589 | $- | $10,589 | $- | | Municipal securities | $16,827 | $- | $16,827 | $- | | Mortgage-backed securities | $31,042 | $- | $31,042 | $- | | Collateralized mortgage obligations | $25,740 | $- | $25,740 | $- | | SBA securities | $3,632 | $- | $3,632 | $- | | Corporate bonds | $10,189 | $- | $10,189 | $- | | Total assets measured at fair value | $99,017 | $998 | $98,019 | $- | Assets Measured at Fair Value on a Nonrecurring Basis (in thousands) | Asset Type | Sep 30, 2019 (Total, in thousands) | Sep 30, 2019 (Level 1, in thousands) | Sep 30, 2019 (Level 2, in thousands) | Sep 30, 2019 (Level 3, in thousands) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | Performing impaired loans | $757 | $- | $- | $757 | | Nonperforming impaired loans | $6,608 | $- | $- | $6,608 | | OREO | $635 | $- | $- | $635 | | Total assets measured at fair value | $8,000 | $- | $- | $8,000 | - Impaired loans and OREO are measured at fair value on a nonrecurring basis, often classified as Level 3 due to significant unobservable inputs and management's assumptions regarding market trends and selling costs[106][107] NOTE 15 – COMMITMENTS AND CONTINGENCIES This note outlines the Company's off-balance sheet commitments, including loan commitments, letters of credit, and potential concentrations of credit risk - Undisbursed loan commitments totaled $115.3 million at September 30, 2019, up from $99.2 million at December 31, 2018[110] - Standby letter of credit commitments were $1.9 million at September 30, 2019, compared to $1.8 million at December 31, 2018[110] - A concentration of loans exists in commercial real estate, which could be adversely impacted by declines in the economy or real estate values[112] - The Company had remaining commitments of approximately $3.4 million for LIHTC and $473,000 for SBIC at September 30, 2019[113] - Deposits from the top ten depositors accounted for 10.4% ($155.9 million) of total deposits at September 30, 2019[114] NOTE 16 – SUBSEQUENT EVENTS This note discloses significant events occurring after the reporting period, including further acquisitions and a stock repurchase plan - On October 21, 2019, BayCom Corp completed the acquisition of TIG Bancorp for approximately $39.9 million (876,803 shares and $20.2 million cash), adding seven branch offices in the Denver metropolitan area, Colorado[117] - On November 4, 2019, the Company announced an agreement to acquire Grand Mountain Bancshares, Inc. for approximately $13.9 million in an all-cash transaction, expected to close in Q1 2020, further expanding its Colorado presence to 11 locations and a total of 36 full-service locations across all states[119] - On October 23, 2019, the Board authorized a stock repurchase plan for up to 5% (approximately 646,922 shares) of the Company's outstanding common shares[120] Pro Forma Net Income and EPS (Nine Months Ended Sep 30, including TIG Merger) | Metric | 2019 (in thousands, except EPS) | 2018 (in thousands, except EPS) | | :------------------------- | :------------------------------ | :------------------------------ | | Net interest income | $55,920 | $45,361 | | Net income | $14,408 | $13,462 | | Basic earnings per share | $1.17 | $1.32 | | Diluted earnings per share | $1.17 | $1.32 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting strategic objectives, key factors influencing profitability, and a detailed comparison of financial results and condition for the periods presented. It also discusses critical accounting policies, liquidity, and capital resources SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights the inherent uncertainties and risks associated with forward-looking statements, including those related to acquisitions and economic conditions - Forward-looking statements are based on current management expectations and involve risks and uncertainties, including those related to acquisitions (GMB, Uniti, TIG Mergers), economic conditions, interest rate fluctuations, and regulatory changes[122] - Key risk factors include difficulties in realizing expected benefits from acquisitions, business disruption, credit risks, changes in interest rates, regulatory examinations, and challenges in expanding into new markets[122] Executive Overview This section provides a high-level summary of the Company's strategic objectives, financial position, and key drivers of profitability - BayCom Corp's principal objective is to increase shareholder value and generate consistent earnings growth through strategic acquisitions and organic growth, expanding its commercial banking franchise[128] - As of September 30, 2019, the Company had $1.8 billion in total assets, $1.2 billion in total loans, $1.5 billion in total deposits, and $240.9 million in shareholders' equity, with 25 full-service branches[126] - Profitability primarily depends on net interest income after provision for loan losses, noninterest income, and noninterest expenses, which are impacted by banking operations growth and strategic acquisitions[129] Critical Accounting Policies and Estimates This section discusses the Company's key accounting policies and estimates, particularly those requiring significant judgment and potential for variability - The allowance for loan losses is a critical accounting policy, requiring subjective estimates based on historical experience, loan portfolio characteristics, economic conditions, and borrower financial health, susceptible to significant change and regulatory review[136] - Business combinations are accounted for using the acquisition method, recognizing identifiable assets and liabilities at fair value, with any excess purchase price recorded as goodwill[143] - Goodwill is reviewed annually for impairment, with a qualitative assessment performed to determine if fair value exceeds carrying value. A decline in stock price or adverse changes in the operating environment could lead to future impairment charges[147][148][150] Comparison of Financial Condition This section analyzes changes in the Company's balance sheet items, including assets, liabilities, and equity, between reporting periods - Total assets increased $292.3 million (19.8%) to $1.8 billion at September 30, 2019, primarily driven by the Uniti Merger[152] - Loans receivable, net, increased $255.1 million (26.3%) to $1.2 billion, with commercial real estate and commercial and industrial loans showing significant growth, and organic loan originations increasing to $176.6 million for the first nine months of 2019[155] Loan Portfolio by Type (in thousands) | Loan Type | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------- | | Commercial and industrial | $159,652 | $121,853 | 31.0% | | Residential | $131,825 | $100,915 | 30.6% | | Owner occupied CRE | $368,244 | $270,204 | 36.3% | | Non-owner occupied CRE | $414,686 | $308,045 | 34.6% | | Construction and land | $24,431 | $47,069 | (48.1)% | | Total Loans | $1,232,259 | $975,695 | 26.3% | - Nonperforming assets increased $3.3 million (84.3%) to $7.2 million, with nonaccrual loans totaling $6.6 million (0.54% of total loans), primarily due to one construction loan[160] - Total deposits increased $240.4 million (19.1%) to $1.5 billion, mainly due to the Uniti Merger, with noninterest bearing demand deposits increasing by 31.5%[179][182] - Shareholders' equity increased $40.1 million (20.0%) to $240.9 million, driven by common stock issuance in the Uniti Merger and net income[185] Comparison of Results of Operations This section compares the Company's income statement performance over different periods, focusing on revenue, expenses, and profitability drivers - Net income increased by $2.0 million (58.1%) to $5.6 million for the three months ended September 30, 2019, and by $856,000 (7.2%) to $12.7 million for the nine months, primarily due to increased net interest income and noninterest income, partially offset by higher noninterest expense[186] - Diluted EPS was $0.46 for the three months (up $0.15) and $1.11 for the nine months (down $0.19) ended September 30, 2019[187] - Net interest income increased $4.7 million (36.4%) to $17.8 million for the three months and $10.6 million (27.9%) to $48.6 million for the nine months, driven by increased average interest-earning assets (loans) and higher loan yields, including accretion of purchase accounting fair value adjustments[196][197] - Net interest margin was 4.23% for the three months (up 17 bps) and 4.28% for the nine months (up 14 bps) ended September 30, 2019, enhanced by acquisition accounting discounts[196][197] - Noninterest income increased $476,000 (29.1%) to $2.1 million for the three months and $1.3 million (24.4%) to $6.8 million for the nine months, primarily from gains on loan sales, service charges, and loan servicing fees[206][208] - Noninterest expense increased $3.2 million (38.6%) to $11.7 million for the three months and $11.0 million (43.7%) to $36.2 million for the nine months, largely due to acquisition-related increases in salaries and employee benefits, occupancy, and data processing costs[210][211] Average Balances, Interest and Average Yields/Cost (Three Months Ended Sep 30, in thousands) | Metric | 2019 Average Balance (in thousands) | 2019 Interest (in thousands) | 2019 Average Yield/Cost | 2018 Average Balance (in thousands) | 2018 Interest (in thousands) | 2018 Average Yield/Cost | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :------------ | :---------------------- | :------------------- | :------------ | :---------------------- | | Total interest earning assets | $1,664,288 | $20,390 | 4.86% | $1,271,225 | $14,287 | 4.46% | | Total interest bearing liabilities | $994,512 | $2,633 | 1.05% | $787,993 | $1,272 | 0.64% | | Net interest income | | $17,757 | | | $13,015 | | | Interest rate spread | | | 3.81% | | | 3.82% | | Net interest margin | | | 4.23% | | | 4.06% | Average Balances, Interest and Average Yields/Cost (Nine Months Ended Sep 30, in thousands) | Metric | 2019 Average Balance (in thousands) | 2019 Interest (in thousands) | 2019 Average Yield/Cost | 2018 Average Balance (in thousands) | 2018 Interest (in thousands) | 2018 Average Yield/Cost | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :------------ | :---------------------- | :------------------- | :------------ | :---------------------- | | Total interest earning assets | $1,519,525 | $54,695 | 4.81% | $1,227,705 | $41,590 | 4.53% | | Total interest bearing liabilities | $917,293 | $6,056 | 0.88% | $788,953 | $3,561 | 0.60% | | Net interest income | | $48,639 | | | $38,029 | | | Interest rate spread | | | 3.93% | | | 3.93% | | Net interest margin | | | 4.28% | | | 4.14% | Liquidity and Capital Resources This section assesses the Company's ability to meet its financial obligations and maintain adequate capital levels, including sources of liquidity and regulatory compliance - Primary liquidity sources include deposits, loan payments, and proceeds from loan sales. Secondary sources include $535.1 million in FHLB borrowing capacity and $65.0 million in federal funds lines from correspondent banks as of September 30, 2019[215][217] - Net cash provided by operating activities was $5.4 million for the nine months ended September 30, 2019, up from $1.8 million in the prior year[219] - BayCom Corp and its subsidiary, United Business Bank, are considered 'well-capitalized' under Federal Reserve regulations, exceeding all minimum regulatory capital requirements under the Basel III framework as of September 30, 2019[221][222][225] Capital Ratios (Sep 30, 2019, in thousands, except ratios) | Capital Ratio | BayCom Corp (Amount, in thousands) | BayCom Corp (Ratio) | Minimum "Well-Capitalized" (Ratio) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------- | :------------------ | :--------------------------------- | | Leverage Ratio | $204,659 | 11.74% | 5.00% | | Common Equity Tier 1 Ratio | $204,659 | 16.15% | 6.50% | | Tier 1 Risk-Based Capital Ratio | $212,880 | 16.80% | 8.00% | | Total Risk-Based Capital Ratio | $219,615 | 17.33% | 10.00% | Off-Balance Sheet Arrangements This section describes the Company's off-balance sheet commitments and their associated risks, such as loan commitments and letters of credit - Off-balance sheet arrangements include loan commitments, lines of credit, and standby letters of credit, which carry elements of credit, interest rate, and liquidity risk[226] - These commitments are used to manage client funding requests and are further detailed in Note 15[227] Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is primarily exposed to interest rate risk through its lending and deposit activities, which is considered a significant market risk. Management assesses this risk quarterly, and no material change in exposure has occurred since the 2018 Annual Report - The Company's primary market risk exposure is interest rate risk, arising from lending and deposit gathering activities, which is measured and assessed quarterly[228] - No material change in interest rate risk exposure has occurred since the 2018 Annual Report[228] Item 4. Controls and Procedures The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2019, ensuring timely and accurate reporting. There were no significant changes in internal control over financial reporting during the nine months ended September 30, 2019, though management acknowledges inherent limitations in all control procedures - As of September 30, 2019, the Company's CEO and CFO concluded that disclosure controls and procedures were effective in ensuring timely and accurate reporting of required information under the Exchange Act[230] - No significant changes in internal control over financial reporting occurred during the nine months ended September 30, 2019[231] - Management acknowledges that disclosure controls and procedures, due to inherent limitations, provide only reasonable, not absolute, assurance against errors or fraud[229][231] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The Company is occasionally involved in legal proceedings in the normal course of business, but management believes any resulting liability would not have a material adverse effect on its financial condition or business - Management believes that any liability from occasional legal proceedings would not materially adversely affect the Company's business or financial condition[233] Item 1A. Risk Factors The Company's risk factors have not materially changed from those disclosed in its 2018 Annual Report filed on March 19, 2019 - As of September 30, 2019, the Company's risk factors have not materially changed from those disclosed in the 2018 Annual Report[234] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period Item 4. Mine Safety Disclosures This item is not applicable for the reporting period Item 5. Other Information This item is not applicable for the reporting period Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including merger agreements, organizational documents, certifications, and XBRL financial data - Exhibits include merger agreements for TIG Bancorp, Uniti Financial Corporation, and Bethlehem Financial Corporation[237] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[237] - XBRL formatted financial statements and notes for the quarter ended September 30, 2019, are provided[237] SIGNATURES This section provides the official signatures of the Company's authorized officers, certifying the accuracy of the report - The report was signed on November 12, 2019, by George Guarini (CEO) and Keary Colwell (SEVP, CFO, CAO)[240]