Bay p(BCML) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information for BayCom Corp, including financial statements, management's discussion, market risk disclosures, and controls and procedures ITEM 1. FINANCIAL STATEMENTS This section presents BayCom Corp's unaudited condensed consolidated financial statements for Q1 2023, detailing balance sheets, income, cash flows, and notes on key accounting policies and acquisitions Condensed Consolidated Balance Sheets (unaudited) This table presents the unaudited condensed consolidated balance sheets for BayCom Corp as of March 31, 2023, and December 31, 2022 | ASSETS (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------------------------------------------------------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $197,538 | $176,815 | | Investment securities available-for-sale (AFS), at fair value, net of allowance for credit losses of $1,100 at March 31, 2023 and $0 at December 31, 2022 | 165,261 | 167,761 | | Loans, net of allowance for credit losses of $20,400 at March 31, 2023 and $18,900 at December 31, 2022 | 2,024,136 | 2,002,224 | | Total assets | $2,548,060 | $2,513,334 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | | | | Noninterest and interest bearing deposits | $2,127,769 | $2,085,479 | | Total liabilities | 2,234,588 | 2,196,185 | | Total Shareholders' equity | 313,472 | 317,149 | Condensed Consolidated Statements of Income (unaudited) This table presents the unaudited condensed consolidated statements of income for BayCom Corp for the three months ended March 31, 2023 and 2022 | (In thousands, except for share and per share data) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest and dividend income | $30,056 | $24,805 | | Total interest expense | 4,799 | 2,452 | | Net interest income | 25,257 | 22,353 | | Provision for credit losses | 1,375 | 7 | | Net interest income after provision for credit losses | 23,882 | 22,346 | | Total noninterest income | 2,457 | 4,399 | | Total noninterest expense | 16,529 | 18,321 | | Income before provision for income taxes | 9,810 | 8,424 | | Provision for income taxes | 2,764 | 1,936 | | Net income | $7,046 | $6,488 | | Basic earnings per common share | $0.55 | $0.51 | | Diluted earnings per common share | $0.55 | $0.51 | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) This table presents the unaudited condensed consolidated statements of comprehensive income (loss) for BayCom Corp for the three months ended March 31, 2023 and 2022 | (In thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------- | :-------------------------------- | :-------------------------------- | | Net income | $7,046 | $6,488 | | Other comprehensive loss, net of tax | (1,152) | (6,952) | | Total comprehensive income (loss) | $5,894 | $(464) | Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited) This table presents the unaudited condensed consolidated statements of changes in shareholders' equity for BayCom Corp for the three months ended March 31, 2023 | (In thousands, except for share data) | Balance, December 31, 2022 | Net income | Other comprehensive loss, net | Cumulative change from adoption of ASU 2016-13, net of tax | Cash dividends of $0.10 per share | Stock based compensation | Repurchase of shares | Balance, March 31, 2023 | | :------------------------------------ | :------------------------- | :--------- | :---------------------------- | :--------------------------------------------------------- | :-------------------------------- | :----------------------- | :------------------- | :---------------------- | | Total Shareholders' Equity | $317,149 | $7,046 | $(1,152) | $(491) | $(1,264) | $250 | $(8,066) | $313,472 | Condensed Consolidated Statements of Cash Flows (unaudited) This table presents the unaudited condensed consolidated statements of cash flows for BayCom Corp for the three months ended March 31, 2023 and 2022 | (In thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $7,544 | $2,846 | | Net cash (used in) provided by investing activities | (21,045) | 77,463 | | Net cash provided by (used in) financing activities | 34,224 | (32,797) | | Increase in cash and cash equivalents | 20,723 | 47,512 | | Cash and cash equivalents at end of period | $197,538 | $427,199 | Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies, acquisitions, and financial instrument specifics NOTE 1 – BASIS OF PRESENTATION This note outlines the basis of presentation for the financial statements, including the company's structure and emerging growth company status - BayCom Corp is a bank holding company headquartered in Walnut Creek, California, with its wholly-owned subsidiary, United Business Bank, operating 34 full-service branches across California, Washington, New Mexico, and Colorado[28] - The Company qualifies as an 'emerging growth company' (EGC) until December 31, 2023, allowing it to delay adoption of new or revised accounting pronouncements applicable to public companies[31] NOTE 2 - ACCOUNTING GUIDANCE NOT YET EFFECTIVE AND ADOPTED ACCOUNTING GUIDANCE This note details the adoption of new accounting guidance, including CECL methodology and ASU 2022-02, and their financial impacts - Effective January 1, 2023, the Company adopted ASU 2016-13 (CECL methodology), resulting in a $1.5 million increase in the allowance for credit loss on loans and a $45,000 increase for unfunded commitments, with a corresponding after-tax decrease to opening retained earnings of $491,000[33][35] - The Company also adopted ASU 2022-02, eliminating recognition measurement guidance for troubled debt restructured (TDR) loans and introducing new disclosure requirements for modifications to borrowers experiencing financial difficulty, with no material impact observed on deferred fees and costs[36] - The Company has not yet elected to apply amendments from ASU No. 2020-04 and ASU No. 2022-06 regarding Reference Rate Reform (LIBOR transition), but does not expect a material impact on its financial statements[37][38] NOTE 3 – ACQUISITIONS This note provides details on the acquisition of Pacific Enterprise Bancorp, including its financial impact and related noninterest items - On February 1, 2022, BayCom Corp completed the acquisition of Pacific Enterprise Bancorp (PEB) for approximately $64.1 million, consisting of 3,032,579 shares of common stock and $275,000 in cash, expanding the Company's market share in California[32][41] - Noninterest income for Q1 2022 included a $1.6 million bargain purchase gain from the PEB acquisition, while noninterest expense included $3.1 million of nonrecurring acquisition-related expenses[41][51] PEB Acquisition Date Financials (February 1, 2022) | Item | Acquisition Date February 1, 2022 (in thousands) | | :--------------------------------------- | :----------------------------------------------- | | Total assets acquired | $446,135 | | Total liabilities assumed | 380,055 | | Stock consideration | 64,140 | | Cash consideration | 275 | | Bargain purchase gain | $1,665 | NOTE 4 – INVESTMENT SECURITIES This note details the Company's investment securities portfolio, including available-for-sale securities and associated credit loss allowances Investment Securities Available-for-Sale (AFS) Summary (in thousands) | Category | March 31, 2023 Amortized Cost | March 31, 2023 Estimated Fair Value | December 31, 2022 Amortized Cost | December 31, 2022 Estimated Fair Value | | :------------------------------------ | :---------------------------- | :-------------------------- | :----------------------------- | :--------------------------- | | U.S. Government Agencies | $1,502 | $1,502 | $1,505 | $1,505 | | Preferred equity securities | 18,303 | 12,834 | 18,330 | 13,757 | | Municipal securities | 21,045 | 19,862 | 21,099 | 19,557 | | Mortgage-backed securities | 34,714 | 31,121 | 37,199 | 33,010 | | Collateralized mortgage obligations | 29,662 | 27,234 | 28,153 | 25,424 | | SBA securities | 4,158 | 4,094 | 4,381 | 4,305 | | Corporate bonds | 79,400 | 68,614 | 77,900 | 70,203 | | Total | $188,784 | $165,261 | $188,567 | $167,761 | - As of March 31, 2023, the Company held 338 investment securities, with 209 in an unrealized loss position for over twelve months and 78 for less than twelve months[55] - A $1.1 million allowance for credit losses was recorded for one preferred equity security due to credit quality concerns[57] NOTE 5 – LOANS This note provides a detailed breakdown of the loan portfolio, including impaired loans and the impact of new accounting standards Loan Portfolio Summary (in thousands) | Loan Type | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Commercial and industrial | $197,573 | $188,538 | | Construction and land | 10,265 | 13,163 | | Commercial real estate | 1,737,927 | 1,704,716 | | Residential | 96,591 | 110,606 | | Consumer | 2,196 | 4,183 | | Total loans | 2,044,552 | 2,021,206 | | Net deferred loan fees | (16) | (82) | | Allowance for credit losses | (20,400) | (18,900) | | Net loans | $2,024,136 | $2,002,224 | - Total loans include $5.9 million and $11.1 million of PPP loans as of March 31, 2023 and December 31, 2022, respectively[62] - The Company adopted ASU No. 2022-02 on January 1, 2023, eliminating the TDR classification, but continues to monitor modified loans to borrowers experiencing financial difficulty[66] - As of March 31, 2023, there were 10 such loans totaling $6.1 million, primarily term modifications[70] Recorded Investment in Impaired Loans (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Total recorded investment in impaired loans | $13,857 | $15,048 | | Specific allowance on impaired loans | $822 | $1,168 | NOTE 6 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS This note details the allowance for credit losses for loans, including the impact of CECL adoption, charge-offs, and nonaccrual loans Allowance for Credit Losses (ACL) for Loans (in thousands) | Item | Three months ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | | Beginning balance | $18,900 | | Impact of CECL adoption | 1,500 | | Charge-offs | (334) | | Recoveries | 19 | | Provision for credit losses | 315 | | Ending balance | $20,400 | - The provision for credit losses for loans in Q1 2023 was primarily due to new loan originations and net charge-offs of $315,000, partially offset by improvements in national unemployment and GDP forecasts[94][214] Nonaccrual Loans (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total non-accrual loans | $13,089 | $14,289 | | Interest income recognized on non-accrual loans | $65 | $15 | - The Company has $26.3 million of loans enrolled in the CalCAP for Small Business program with a $13.7 million loss reserve account, and $22.7 million in the On-Road Heavy-Duty Vehicle Air Quality Loan Program with a $6.3 million loss reserve account[100][101] NOTE 7 – PREMISES AND EQUIPMENT This note provides a summary of premises and equipment, net of depreciation and amortization Premises and Equipment, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Premises owned | $11,154 | $11,120 | | Leasehold improvements | 2,259 | 2,259 | | Furniture, fixtures and equipment | 6,901 | 6,760 | | Less accumulated depreciation and amortization | (7,306) | (6,861) | | Total premises and equipment, net | $13,008 | $13,278 | - Depreciation and amortization expense was $453,000 for Q1 2023, down from $507,000 in Q1 2022[104] NOTE 8 – LEASES This note outlines the Company's operating lease commitments, including remaining lease terms and undiscounted payment schedules - The Company leases 19 branches under noncancelable operating leases expiring through 2030, with a weighted-average remaining lease term of 5.2 years and a weighted-average discount rate of 3.1% as of March 31, 2023[105][106] Undiscounted Lease Payments Maturity Schedule (in thousands) | Period | Amount | | :-------------------------- | :----- | | 2023 (remainder) | $2,862 | | 2024 | 3,997 | | 2025 | 3,175 | | 2026 | 2,423 | | 2027 | 1,936 | | Thereafter | 3,649 | | Total undiscounted payments | 18,042 | | Less: imputed interest | (1,713) | | Present value of lease liabilities | $16,329 | NOTE 9 – GOODWILL AND INTANGIBLE ASSETS This note details the Company's goodwill and core deposit intangible assets, including amortization Goodwill (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Balance at beginning of period | $38,838 | $38,838 | | Acquired goodwill | — | — | | Impairment | — | — | | Balance at end of period | $38,838 | $38,838 | Core Deposit Intangible (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Balance at beginning of period | $5,201 | $6,489 | | Additions | — | 756 | | Less amortization | (369) | (2,044) | | Balance at end of period | $4,832 | $5,201 | NOTE 10 – INTEREST RECEIVABLE AND OTHER ASSETS This note provides a breakdown of interest receivable and other assets, including tax assets and accrued interest Interest Receivable and Other Assets (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------------------------------------------- | :------------- | :---------------- | | Tax assets, net | $16,568 | $18,762 | | Accrued interest receivable | 8,101 | 7,659 | | Investment in Small Business Investment Company ("SBIC") fund | 4,711 | 4,389 | | CalCAP reserve receivable | 4,023 | 4,023 | | Total | $43,832 | $45,532 | NOTE 11 – DEPOSITS This note details the composition of the Company's deposit base, including demand, savings, money market, and time deposits Deposits (in thousands) | Deposit Type | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Demand deposits | $705,941 | $773,274 | | NOW accounts and savings | 424,106 | 441,064 | | Money market | 607,782 | 577,792 | | Time deposits | 389,940 | 293,349 | | Total | $2,127,769 | $2,085,479 | - Time deposits include certificates of deposit over $250 thousand totaling $63.7 million at March 31, 2023, up from $57.8 million at December 31, 2022[119] NOTE 12 – BORROWINGS This note outlines the Company's borrowing capacity and outstanding subordinated debt - The Company had no FHLB advances or Federal Funds lines outstanding at March 31, 2023, with available borrowing capacity of $506.2 million from FHLB and $65.0 million from correspondent banks[120][223][255] Subordinated Debt (in thousands) | Debt Type | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Junior subordinated deferrable interest debentures, net | $8,504 | $8,484 | | Subordinated debt, net | 63,754 | 63,711 | NOTE 13 – INTEREST PAYABLE AND OTHER LIABILITIES This note provides a summary of interest payable and other liabilities, including accrued expenses and unfunded commitments Interest Payable and Other Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Accrued expenses | $5,368 | $8,598 | | Accounts payable | 633 | 452 | | Reserve for unfunded commitments | 320 | 315 | | Accrued interest payable | 1,141 | 1,413 | | Other liabilities | 5,849 | 5,755 | | Total | $13,311 | $16,533 | NOTE 14 – OTHER EXPENSES This note details the components of other noninterest expenses, such as professional fees and marketing costs Other Expenses (in thousands) | Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Professional fees | $447 | $1,306 | | Core deposit premium amortization | 369 | 495 | | Marketing and promotions | 146 | 296 | | Total | $2,001 | $3,312 | NOTE 15 – EQUITY INCENTIVE PLANS This note describes the Company's equity incentive plans, including shares available and compensation expense - The Company has two equity incentive plans: the 2017 Omnibus Equity Incentive Plan (450,000 shares maximum, 57,693 shares available for future issuance as of March 31, 2023) and the 2014 Equity Incentive Plan (no future awards)[128][129] - Total compensation expense for these plans was $250,000 for Q1 2023, down from $324,000 for Q1 2022[129] - Unrecognized compensation cost related to non-vested shares was $1.3 million as of March 31, 2023, expected to be recognized over approximately three years[129] NOTE 16 – FAIR VALUE MEASUREMENT This note explains the Company's fair value measurement hierarchy and details assets measured at fair value on a recurring and nonrecurring basis - The Company uses a three-level hierarchy for fair value measurements, with Level 1 for quoted prices in active markets, Level 2 for observable inputs other than Level 1, and Level 3 for unobservable inputs[133][134] - There were no transfers between levels during Q1 2023 and Q1 2022[136] Assets Measured at Fair Value on a Recurring Basis (in thousands) | Item | March 31, 2023 Total | March 31, 2023 Level 1 | March 31, 2023 Level 2 | | :------------------------------------ | :------------------- | :------------------- | :------------------- | | U.S. Government Agencies | $1,502 | $1,502 | — | | Preferred equity securities | 12,834 | 12,834 | — | | Municipal securities | 19,862 | — | 19,862 | | Mortgage-backed securities | 31,121 | — | 31,121 | | Collateralized mortgage obligations | 27,234 | — | 27,234 | | SBA securities | 4,094 | — | 4,094 | | Corporate bonds | 68,614 | — | 68,614 | | Total | $165,261 | $12,834 | $152,427 | Assets Measured at Fair Value on a Nonrecurring Basis (in thousands) | Item | March 31, 2023 Total | March 31, 2023 Level 3 | | :------------------------------------ | :------------------- | :------------------- | | Individually evaluated loans | $13,090 | $13,090 | | OREO | 21 | 21 | | Total | $13,111 | $13,111 | NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS This note presents the fair value of the Company's financial assets and liabilities compared to their carrying amounts Fair Value of Financial Assets (in thousands) | Financial Assets | March 31, 2023 Carrying Amount | March 31, 2023 Fair Value | | :------------------------------------ | :----------------------------- | :------------------------ | | Cash and cash equivalents | $197,538 | $197,538 | | Investment securities available-for-sale | 165,261 | 165,261 | | Loans, net | 2,024,136 | 1,970,297 | | Total Financial Assets | $2,389,184 | $2,335,246 | Fair Value of Financial Liabilities (in thousands) | Financial Liabilities | March 31, 2023 Carrying Amount | March 31, 2023 Fair Value | | :------------------------------------ | :----------------------------- | :------------------------ | | Deposits | $2,127,769 | $2,129,654 | | Junior subordinated deferrable interest debentures, net | 8,504 | 8,486 | | Subordinated debt, net | 63,754 | 63,754 | | Total Financial Liabilities | $2,200,027 | $2,201,894 | NOTE 18 – COMMITMENTS AND CONTINGENCIES This note outlines the Company's lending and letter of credit commitments, legal proceedings, and deposit concentration - The Company is not currently party to any legal proceedings expected to have a material adverse effect on its financial condition or operations[148] Lending and Letter of Credit Commitments (in thousands) | Commitment Type | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Commitments to extend credit | $85,515 | $96,774 | | Standby letters of credit | 878 | 768 | | Total commitments | $86,393 | $97,542 | - At March 31, 2023, approximately $200.9 million (10.4%) of deposits were from its top ten depositors, and $1.0 billion (48.7%) of total deposits were uninsured[154] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of the Company's financial condition and results for Q1 2023, covering key metrics, accounting policies, and capital adequacy SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This note highlights that the report contains forward-looking statements subject to various risks and uncertainties, including economic and regulatory factors - The report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, integration of acquisitions, credit risks, interest rate changes, deposit outflows, regulatory actions, and technological advancements[156][159] Executive Overview This section provides an executive overview of BayCom Corp's strategic goals, market presence, and key financial metrics - BayCom Corp aims to increase shareholder value and earnings growth through strategic acquisitions and organic growth, expanding its commercial banking franchise across California, Washington, New Mexico, and Colorado[161][162] Key Financial Metrics as of March 31, 2023 (in millions) | Metric | Amount | | :-------------------- | :----- | | Total assets | $2,500 | | Total loans | $2,000 | | Total deposits | $2,100 | | Shareholders' equity | $313.5 | - The loan portfolio consists of 24.3% acquired loans ($497.4 million) and 75.7% originated loans ($1.5 billion)[163] Discussion of Primary Factors Affecting Results of Operations This section discusses the primary factors influencing the Company's results of operations, including net interest income, noninterest income, and expenses Net interest income This section explains how net interest income, a key profitability driver, is influenced by asset yields, liability costs, and federal funds rate changes - Net interest income is the primary driver of profitability, influenced by yields on interest-earning assets and costs of interest-bearing liabilities[164] - The Federal Open Market Committee (FOMC) increased the federal funds rate by 475 basis points since March 2022, including 50 basis points in Q1 2023, positively impacting variable-rate interest-earning assets[167] Noninterest income This section describes the components of noninterest income, including service charges, loan sales, and other fees - Noninterest income includes service charges, gain on sale of loans (especially SBA loans), and other fees[168] Provision for credit losses This section explains the provision for credit losses, established to cover estimated credit losses in loan and investment portfolios - The allowance for credit losses is established to reflect estimated credit losses in loan and available-for-sale investment securities portfolios, considering historical experience, portfolio types, and borrower repayment ability[168][169] Noninterest expense This section details noninterest expenses, such as salaries, occupancy, and data processing, which generally increase with business growth - Noninterest expense includes salaries, occupancy, data processing, FDIC assessments, professional services, and amortization of intangible assets[170] - These expenses generally increase with business growth and acquisitions[171] Critical Accounting Policies and Estimates This section outlines the Company's critical accounting policies and estimates, particularly the adoption and application of the CECL methodology - The Company adopted ASU 2016-13 (CECL methodology) on January 1, 2023, which significantly changed the measurement of expected credit losses for financial assets and off-balance sheet credit exposures[173] - The CECL methodology for loans incorporates historical experience, current conditions, and reasonable and supportable forecasts over the contractual life of an asset, using quantitative models (PD, LGD, EAD) and qualitative factors[177][179][182][185][186][187] - For available-for-sale debt securities, credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited by the amount fair value is less than amortized cost, with non-credit related impairment recognized in other comprehensive income[174][175] Comparison of Financial Condition at March 31, 2023 and December 31, 2022 This section compares the Company's financial condition at March 31, 2023, to December 31, 2022, focusing on asset, liability, and equity changes Total assets This section analyzes the changes in total assets, primarily driven by increases in net loans and cash equivalents - Total assets increased by $34.7 million (1.4%) to $2.5 billion at March 31, 2023, primarily driven by a $21.9 million increase in net loans receivable and a $20.7 million increase in cash and cash equivalents[191] Cash and cash equivalents This section details the increase in cash and cash equivalents, mainly due to federal funds sold and interest-bearing balances - Cash and cash equivalents increased by $20.7 million (11.7%) to $197.5 million at March 31, 2023, mainly due to an $18.9 million increase in federal funds sold and interest-bearing balances in banks[191] Securities This section discusses the decrease in investment securities available-for-sale, attributed to unrealized losses and credit loss allowances - Investment securities available-for-sale decreased by $2.5 million (1.5%) to $165.3 million at March 31, 2023, primarily due to increased unrealized losses ($1.5 million) and a $1.1 million allowance for credit losses on one preferred equity security[192] Loans receivable, net This section analyzes the increase in net loans receivable, driven by new originations partially offset by repayments and sales - Loans receivable, net, increased by $21.9 million (1.1%) to $2.0 billion at March 31, 2023, driven by $85.1 million in new originations, partially offset by $56.3 million in repayments and $6.3 million in sales[193] Loan Portfolio by Type (in thousands) | Loan Type | March 31, 2023 | December 31, 2022 | % Change | | :-------------------------- | :------------- | :---------------- | :------- | | Commercial and industrial | $193,101 | $184,521 | 4.6% | | Residential | 95,975 | 109,927 | (12.7)% | | Multifamily residential | 243,965 | 234,868 | 3.9% | | Owner occupied CRE | 667,940 | 641,815 | 4.1% | | Non-owner occupied CRE | 801,532 | 807,996 | (0.8)% | | Construction and land | 9,964 | 9,109 | 9.4% | | Consumer | 2,196 | 4,183 | (47.5)% | | PCD loans | 29,879 | 28,787 | 3.8% | | Total Loans | $2,044,552 | $2,021,206 | 1.2% | Nonperforming assets and loans This section details the decrease in nonperforming assets and loans, including the impact of loan renewals and charge-offs - Nonperforming assets decreased by $2.1 million (14.0%) to $13.1 million (0.51% of total assets) at March 31, 2023, from $15.2 million (0.61% of total assets) at December 31, 2022[198] - Nonperforming loans totaled $13.1 million (0.64% of total loans) at March 31, 2023, down from $15.2 million (0.75% of total loans) at December 31, 2022, due to the renewal of one loan and the charge-off of five non-accrual loans[198][199] Nonaccrual Loans (in thousands) | Loan Type | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Commercial and industrial | $792 | $869 | | Residential | 1,737 | 2,213 | | Multifamily residential | 5,337 | 5,351 | | Owner occupied CRE | 5,178 | 5,491 | | Non-owner occupied CRE | 45 | 365 | | Total nonaccrual loans | $13,089 | $14,289 | Troubled Loan Modifications This section reports on loan modifications for borrowers experiencing financial difficulty, including performing modified loans - Loan modifications to borrowers experiencing financial difficulty totaled $6.1 million at March 31, 2023, with $768,000 performing according to modified terms, a slight decrease from $6.3 million and $759,000, respectively, at December 31, 2022[203] Allowance for credit losses for loans and unfunded commitments This section details the allowance for credit losses for loans under the CECL framework, including provisions and nonaccrual loan coverage - The allowance for credit losses for loans was $20.4 million (1.0% of total loans) at March 31, 2023, under the CECL framework, up from $18.9 million (0.94% of total loans) at December 31, 2022, under the ALLL framework[214][217] - A $275,000 provision for credit losses for loans was recorded in Q1 2023, compared to $7,000 in Q1 2022, primarily due to new loan production and net charge-offs of $315,000[214] - The allowance for credit losses for loans as a percentage of nonaccrual loans increased to 155.86% at March 31, 2023, from 142.35% at March 31, 2022[217] Deposits This section analyzes the changes in total deposits, including the decrease in noninterest-bearing demand deposits and uninsured deposits - Total deposits increased by $42.3 million (2.0%) to $2.1 billion at March 31, 2023[221] - Noninterest-bearing demand deposits decreased by 8.7% to $705.9 million, representing 33.2% of total deposits[225] - Uninsured deposits totaled $1.0 billion at March 31, 2023, down from $1.1 billion at December 31, 2022[221] Borrowings This section outlines the Company's borrowing status, including FHLB advances, federal funds lines, and subordinated debt - The Company had no FHLB advances or Federal Funds lines outstanding at March 31, 2023[223] - Junior subordinated debt remained at $8.5 million, and subordinated debt increased slightly to $63.8 million[224] Shareholders' equity This section details the decrease in shareholders' equity, primarily due to stock repurchases, cash dividends, and CECL adoption impact - Shareholders' equity decreased by $3.7 million to $313.5 million at March 31, 2023, primarily due to $8.1 million in common stock repurchases, $1.3 million in cash dividends, and a $491,000 after-tax decrease to retained earnings from CECL adoption[227] - Increased unrealized losses on available-for-sale securities also adversely impacted shareholders' equity by $1.2 million[227] Comparison of Results of Operations for the Three Months Ended March 31, 2023 and 2022 This section compares the Company's results of operations for Q1 2023 and Q1 2022, focusing on earnings, income, and expense trends Earnings summary This section summarizes the Company's earnings performance, including net income, diluted EPS, and efficiency ratio improvements - Net income increased by $558,000 (8.6%) to $7.0 million for Q1 2023, compared to $6.5 million for Q1 2022[228] - Diluted EPS was $0.55 for Q1 2023, up from $0.51 for Q1 2022[228] - The efficiency ratio improved to 59.64% for Q1 2023, from 68.48% for Q1 2022, due to lower noninterest expenses and higher revenues[229] Interest income This section analyzes the increase in interest income, driven by higher yields and average balances across interest-earning assets - Interest income increased by $5.3 million (21.2%) to $30.1 million for Q1 2023, driven by higher yields and average balances across all interest-earning asset categories[230] Interest Income Changes (Q1 2023 vs Q1 2022, in thousands) | Category | Change in Interest Income | | :------------------------------------ | :------------------------ | | Loans, including fees | +$3,300 | | Fed funds sold and interest-bearing balances in banks | +$1,600 | | Investment securities available-for-sale | +$243 | Interest expense This section details the increase in interest expense, primarily due to higher average cost of deposits and borrowings - Interest expense increased by $2.3 million (95.7%) to $4.8 million for Q1 2023, primarily due to a 69 basis point increase in the average cost of deposits to 1.10%[236][237] - The average cost of borrowings increased to 6.05% for Q1 2023, from 5.53% for Q1 2022[238] Net interest income and net interest margin This section discusses the increase in net interest income and the improvement in net interest margin, reflecting asset mix and market rates - Net interest income increased by $2.9 million (13.0%) to $25.3 million for Q1 2023, driven by higher interest income on loans and cash equivalents, partially offset by increased funding costs[239] - The annualized net interest margin improved to 4.26% for Q1 2023, from 3.63% for Q1 2022, reflecting an improved mix of interest-earning assets and higher market interest rates[240] Average Balances, Interest and Average Yields/Cost This table presents average balances, interest, and average yields/costs for interest-earning assets and interest-bearing liabilities Average Yields/Costs (Q1 2023 vs Q1 2022) | Item | Q1 2023 Average Yield/Cost | Q1 2022 Average Yield/Cost | | :------------------------------------ | :------------------------- | :------------------------- | | Total interest earning assets | 5.07% | 4.03% | | Total interest bearing liabilities | 1.35% | 0.64% | | Interest rate spread | 3.72% | 3.39% | | Net interest margin | 4.26% | 3.63% | Rate/Volume Analysis This table provides a rate/volume analysis of changes in net interest income for Q1 2023 compared to Q1 2022 Net Interest Income Increase Attributable to Rate/Volume (Q1 2023 vs Q1 2022, in thousands) | Item | Increase/(Decrease) Attributable to Rate | Increase/(Decrease) Attributable to Volume | Total | | :------------------------------------ | :--------------------------------------- | :----------------------------------------- | :---- | | Total interest income | $3,670 | $1,581 | $5,251 | | Total interest expense | $2,396 | $(49) | $2,347 | | Net interest income | $1,274 | $1,630 | $2,904 | Provision for credit losses This section details the provision for credit losses for loans and investment securities, driven by new loan production and economic forecasts - Provision for credit losses for loans was $275,000 for Q1 2023, up from $7,000 for Q1 2022, due to new loan production, deteriorating economic forecasts, and $315,000 in net charge-offs[245] - An additional $1.1 million provision was recorded for investment securities due to credit quality concerns[245] Noninterest income This section analyzes the decrease in noninterest income, primarily due to the absence of a bargain purchase gain and lower loan sale gains - Noninterest income decreased by $1.9 million (44.2%) to $2.5 million for Q1 2023, primarily due to the absence of a $1.6 million bargain purchase gain recognized in Q1 2022 and a $725,000 decrease in gain on sale of loans[246] Noninterest Income Components (Q1 2023 vs Q1 2022, in thousands) | Item | Q1 2023 | Q1 2022 | % Change | | :------------------------------------ | :------ | :------ | :------- | | Gain on sale of loans | $412 | $1,137 | (63.8)% | | Service charges and other fees | 885 | 630 | 40.5% | | Income on investment in SBIC fund | 489 | 197 | 148.2% | | Bargain purchase gain | — | 1,665 | N/M | | Total noninterest income | $2,457 | $4,399 | (44.1)% | Noninterest expense This section details the decrease in noninterest expense, mainly due to the absence of acquisition-related expenses from the prior year - Noninterest expense decreased by $1.8 million (10.0%) to $16.5 million for Q1 2023, mainly due to the absence of $3.1 million in nonrecurring acquisition-related expenses from the PEB merger in Q1 2022[248] - Excluding acquisition-related expenses, noninterest expenses increased by $1.2 million, driven by higher salaries and employee benefits ($1.3 million) and data processing expenses ($265,000)[249] Income taxes This section discusses the increase in provision for income taxes and the effective tax rate, influenced by non-taxable gains in the prior year - Provision for income taxes increased by $828,000 (42.8%) to $2.8 million for Q1 2023[250] - The effective tax rate rose to 28.2% from 23.0% in Q1 2022, due to the non-taxable bargain purchase gain in the prior year[250] Liquidity and Capital Resources This section outlines the Company's liquidity management strategies, borrowing capacity, cash flow activities, and share repurchase programs - The Company manages liquidity daily and long-term, relying on deposits, loan payments, and proceeds from loan sales[251][254] - Liquid assets increased by $18.2 million to $365.0 million at March 31, 2023[256] - Available borrowing capacity includes $506.2 million from FHLB and $65.0 million from federal funds lines, with no outstanding borrowings at March 31, 2023[255] - Net cash provided by operating activities was $7.5 million for Q1 2023, while net cash used in investing activities was $21.0 million, and net cash provided by financing activities was $34.2 million[257] - The Board declared a quarterly cash dividend of $0.10 per share, payable April 14, 2023[259] - The Company repurchased 422,877 shares for $8.1 million in Q1 2023, with 58,915 shares remaining under the existing program and a new program for up to 619,000 shares approved in April 2023[259][262] Regulatory Capital This section confirms United Business Bank's 'Well Capitalized' status and presents its regulatory capital ratios - United Business Bank maintains 'Well Capitalized' status under Federal Reserve regulations, exceeding all minimum capital ratios at March 31, 2023, and December 31, 2022[263][265] Regulatory Capital Ratios (March 31, 2023) | Capital Ratio | BayCom Corp Ratio | United Business Bank Ratio | Minimum Requirement for "Well Capitalized" | | :------------------------------------ | :---------------- | :------------------------- | :----------------------------------------- | | Leverage Ratio | 11.71% | 13.26% | 5.00% | | Common Equity Tier 1 Ratio | 13.99% | 16.41% | 6.50% | | Tier 1 Risk-Based Capital Ratio | 14.46% | 16.41% | 8.00% | | Total Risk-Based Capital Ratio | 18.69% | 17.44% | 10.00% | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's significant market risk is interest rate risk, assessed quarterly, with no material change since the 2022 Annual Report - Interest rate risk is a significant market risk for the Company, measured and assessed quarterly, with no material change since the 2022 Annual Report[270] ITEM 4. CONTROLS AND PROCEDURES The Company's disclosure controls and procedures were effective as of March 31, 2023, with no significant changes in internal control over financial reporting - As of March 31, 2023, the Company's disclosure controls and procedures were deemed effective by its principal executive and financial officers[271][272] - There were no significant changes in the Company's internal control over financial reporting during the three months ended March 31, 2023[272] PART II — OTHER INFORMATION This section provides other information not covered in Part I, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS The Company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition or operations - The Company is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition or operations[275] ITEM 1A. RISK FACTORS No material changes have occurred in the risk factors previously disclosed in the Company's 2022 Annual Report on Form 10-K - No material changes in the Risk Factors previously disclosed in Item 1A of the 2022 Annual Report[276] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company repurchased 422,877 shares for $8.1 million in Q1 2023, with a new repurchase program for up to 619,000 shares approved in April 2023 Stock Repurchases (Three Months Ended March 31, 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :------------------------------------ | :--------------------- | :--------------------------- | | January 1, 2023 - January 31, 2023 | 129,526 | $19.32 | | February 1, 2023 - February 28, 2023 | 91,300 | $19.65 | | March 1, 2023 - March 31, 2023 | 202,051 | $18.66 | | Total | 422,877 | $19.05 | - As of March 31, 2023, 58,915 shares remained available under the existing stock repurchase program[278] - A new program for up to 619,000 shares (approximately 5.0% of outstanding common stock) was approved in April 2023[262][278] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the Company for the reporting period ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company for the reporting period ITEM 5. OTHER INFORMATION No other information is reported under this item ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL financial statements - Exhibits include Articles of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and XBRL formatted financial statements[281] SIGNATURES The report is signed by George J. Guarini, President and CEO, and Keary L. Colwell, Senior Executive VP, CFO, and Secretary, on May 15, 2023 - The report is signed by George J. Guarini, President and CEO, and Keary L. Colwell, Senior Executive VP, CFO, and Secretary, on May 15, 2023[285]