BayCom Corp - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2021

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

COMMISSION FILE NUMBER 001-38483

BAYCOM CORP

(Exact Name of Registrant as Specified in its Charter)


California		37-1849111
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 Ygnacio Valley Road, Suite 200, Walnut Creek, California		94596
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (925) 476-1800

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value per share	BCML	The NASDAQ Stock Market LLC

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of November 12, 2021, there were 10,685,511 shares of the registrant’s common stock outstanding.

Table of Contents

BAYCOM CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	2

ITEM 1. FINANCIAL STATEMENTS	2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61

ITEM 4. CONTROLS AND PROCEDURES	61

PART II — OTHER INFORMATION	62

ITEM 1. LEGAL PROCEEDINGS	62

ITEM 1A. RISK FACTORS	62

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63

ITEM 3. DEFAULTS OF SENIOR SECURITIES	63

ITEM 4. MINE SAFETY DISCLOSURES	63

ITEM 5. OTHER INFORMATION	63

ITEM 6. EXHIBITS	63

SIGNATURES	65

As used throughout this report, the terms “we,” “our,” “us,” “BayCom,” or the “Company” refer to BayCom Corp and its consolidated subsidiary, United Business Bank, which we sometimes refer to as the “Bank,” unless the context otherwise requires.

Table of Contents

BAYCOM CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements


	Condensed Consolidated Balance Sheets (unaudited)	3

	Condensed Consolidated Statements of Income (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (unaudited)	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

(unaudited)


	September 30,		December 31,
	2021		2020
ASSETS
Cash and due from banks	$	28,744	$	29,683
Federal funds sold		415,714		269,646
Cash and cash equivalents		444,458		299,329
Interest bearing deposits in banks		4,083		7,718
Investment securities available-for-sale		142,315		115,590
Federal Home Loan Bank ("FHLB") stock, at par		8,385		7,737
Federal Reserve Bank ("FRB") stock, at par		7,640		7,605
Loans held for sale		11,221		8,664
Loans, net of allowance for loan losses of $17,300 at September 30, 2021 and $17,500 December 31, 2020		1,623,536		1,625,812
Premises and equipment, net		14,580		15,139
Other real estate owned ("OREO")		21		429
Core deposit intangible		6,942		8,302
Cash surrender value of bank owned life insurance ("BOLI") policies, net		21,422		20,910
Right-of-use assets ("ROU")		11,113		12,049
Goodwill		38,838		38,838
Interest receivable and other assets		29,262		27,544
Total assets	$	2,363,816	$	2,195,666
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest and interest bearing deposits	$	2,007,751	$	1,838,397
Other borrowings		—		5,000
Junior subordinated deferrable interest debentures, net		8,383		8,322
Subordinated debt, net		63,499		63,372
Salary continuation plan		4,286		4,009
Lease liabilities		11,668		12,328
Interest payable and other liabilities		10,959		11,647
Total liabilities		2,106,546		1,943,075
Commitments and contingencies (Note 18)
Shareholders' equity
Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding at both September 30, 2021 and December 31, 2020		—		—
Common stock, no par value; 100,000,000 shares authorized; 10,685,511 and 11,295,397 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		156,874		167,242
Additional paid in capital		287		287
Accumulated other comprehensive income, net of tax		2,492		2,697
Retained earnings		97,617		82,365
Total shareholders’ equity		257,270		252,591
Total liabilities and shareholders’ equity	$	2,363,816	$	2,195,666

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Interest income:
Loans, including fees	$	18,451	$	20,136	$	56,348	$	62,511
Investment securities and interest bearing deposits in banks		1,275		875		3,193		3,400
FHLB dividends		125		95		346		274
FRB dividends		112		117		341		339
Total interest and dividend income		19,963		21,223		60,228		66,524
Interest expense:
Deposits		1,240		1,562		3,674		5,564
Subordinated debt		896		600		2,686		818
Other borrowings		85		56		261		150
Total interest expense		2,221		2,218		6,621		6,532
Net interest income		17,742		19,005		53,607		59,992
Provision for (reversal of) loan losses		477		2,293		(30)		8,404
Net interest income after provision for loan losses		17,265		16,712		53,637		51,588
Noninterest income:
Gain on sale of loans		2,176		176		3,705		1,030
Service charges and other fees		611		648		1,819		1,963
Loan servicing and other loan fees		458		608		1,423		1,849
(Loss)/gain on sale of premises		—		(25)		12		(25)
Income on investment in Small Business Investment Company (“SBIC”) fund		526		188		1,021		223
(Loss)/gain on sale of OREO		(21)		—		15		28
Other income and fees		257		233		704		640
Total noninterest income		4,007		1,828		8,699		5,708
Noninterest expense:
Salaries and employee benefits		8,163		8,482		25,158		25,442
Occupancy and equipment		1,945		1,749		5,610		5,334
Data processing		1,482		1,642		4,235		6,716
Other expense		2,290		2,283		6,371		7,118
Total noninterest expense		13,880		14,156		41,374		44,610
Income before provision for income taxes		7,392		4,384		20,962		12,686
Provision for income taxes		1,980		1,135		5,709		3,500
Net income	$	5,412	$	3,249	$	15,253	$	9,186
Earnings per common share:
Basic earnings per common share	$	0.51	$	0.27	$	1.39	$	0.76
Weighted average shares outstanding		10,692,781		11,865,058		10,949,286		12,078,407

Diluted earnings per common share	$	0.51	$	0.27	$	1.39	$	0.76
Weighted average shares outstanding		10,692,781		11,865,058		10,949,286		12,078,407

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)


		Three months ended			Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	5,412	$	3,249	$	15,253	$	9,186
Other comprehensive income:
Change in unrealized (loss) gain on available-for-sale securities		(830)		(13)		(282)		2,288
Deferred tax benefit (expense)		239		4		77		(659)
Other comprehensive (loss)/income, net of tax		(591)		(9)		(205)		1,629
Total comprehensive income	$	4,821	$	3,240	$	15,048	$	10,815

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except for share data)

(unaudited)


						Accumulated
		Common		Additional		Other				Total
	Number of	Stock		Paid in		Comprehensive		Retained		Shareholders’
	Shares	Amount		Capital		Income/(Loss)		Earnings		Equity
Balance, December 31, 2019	12,444,632	$	184,043	$	287	$	1,251	$	68,639	$	254,220
Net income									2,818		2,818
Other comprehensive income, net							810				810
Restricted stock granted	15,173										—
Restricted stock forfeited	(1,432)										—
Stock based compensation			309								309
Repurchase of shares	(228,525)		(4,596)								(4,596)
Balance, March 31, 2020	12,229,848		179,756		287		2,061		71,457		253,561
Net income									3,119		3,119
Other comprehensive income, net							828				828
Restricted stock granted	92,294										—
Stock based compensation			363								363
Repurchase of shares	(451,978)		(5,463)								(5,463)
Balance, June 30, 2020	11,870,164		174,656		287		2,889		74,576		252,408
Net income									3,249		3,249
Other comprehensive loss, net							(9)				(9)
Restricted stock granted	21,599										—
Restricted stock forfeited	—										—
Stock based compensation			385								385
Repurchase of shares	(58,648)		(684)								(684)
Balance, September 30, 2020	11,833,115		174,357		287		2,880		77,825		255,349
Net income									4,540		4,540
Other comprehensive loss, net							(183)				(183)
Restricted stock granted	—										—
Restricted stock forfeited	—										—
Stock based compensation			399								399
Repurchase of shares	(537,718)		(7,514)								(7,514)
Balance, December 31, 2020	11,295,397		167,242		287		2,697		82,365		252,591
Net income									4,532		4,532
Other comprehensive loss, net							(785)				(785)
Restricted stock granted	24,187										—
Restricted stock forfeited	—										—
Stock based compensation			413								413
Repurchase of shares	(132,123)		(2,201)								(2,201)
Balance, March 31, 2021	11,187,461		165,454		287		1,912		86,897		254,550
Net income									5,308		5,308
Other comprehensive income, net							1,171				1,171
Restricted stock granted	—										—
Restricted stock forfeited	—										—
Stock based compensation			351								351
Repurchase of shares	(488,020)		(8,831)								(8,831)
Balance, June 30, 2021	10,699,441		156,974		287		3,083		92,205		252,549
Net income									5,412		5,412
Other comprehensive loss, net							(591)				(591)
Restricted stock granted	12,228										—
Restricted stock forfeited	(2,692)										—
Stock based compensation			326								326
Repurchase of shares	(23,466)		(426)								(426)
Balance, September 30, 2021	10,685,511	$	156,874	$	287	$	2,492	$	97,617	$	257,270

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine months ended
	September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	15,253	$	9,186
Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal of) provision for loan losses		(30)		8,404
Increase in deferred tax assets		(671)		(1,888)
Accretion on acquired loans		(1,067)		(4,339)
Gain on sale of loans		(3,705)		(1,030)
Gain on sale of securities		22		—
Proceeds from sale of loans		36,025		14,993
Loans originated for sale		(43,612)		(20,036)
(Loss)/gain on sale of premises, net		(12)		25
Gain on sale of OREO		(15)		(28)
Accretion on junior subordinated debentures		61		60
Increase in cash surrender value of life insurance policies		(512)		(501)
Amortization/accretion of premiums/discounts on investment securities, net		442		543
Depreciation and amortization		1,535		1,198
Core deposit intangible amortization		1,359		1,379
Stock based compensation expense		1,090		1,057
Increase in deferred loan origination fees, net		118		4,124
Increase in interest receivable and other assets		(223)		(1,854)
Increase in salary continuation plan, net		277		265
Decrease in interest payable and other liabilities		(944)		(5,401)
Net cash provided by operating activities		5,391		6,157
Cash flows from investing activities:
Proceeds from maturities of interest bearing deposits in banks		3,635		9,065
Purchase of investment securities		(49,749)		(9,920)
Proceeds from the maturities, repayments and calls of investment securities		20,966		22,228
Proceeds from the sales of investment securities		1,306		—
Purchase of Federal Home Loan Bank stock		(648)		(398)
Purchase of Federal Reserve Bank stock		(35)		(863)
Decrease (increase) in loans, net		11,990		(141,802)
Proceeds from sale of premises		46		431
Proceeds from sale of OREO		423		518
Purchase of equipment and leasehold improvements, net		(1,092)		(2,869)
Net cash paid out for acquisitions		—		(8,432)
Net cash used in investing activities		(13,158)		(132,042)

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BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)

(In thousands)

(unaudited)


	Nine months ended
	September 30,
	2021		2020
Cash flows from financing activities:
Increase in noninterest and interest bearing deposits in banks, net		506,667		175,055
Decrease in time deposits, net		(337,313)		(85,739)
Repayment of junior subordinated debentures		—		(1,575)
Proceeds from issuance of subordinated debt, net		—		63,340
Repayment of Federal Home Loan Bank borrowings		(5,000)		—
Increase in other borrowings		—		116,000
Repayment of other borrowings		—		(106,000)
Repurchase of common stock		(11,458)		(10,743)
Net cash provided by financing activities		152,896		150,338
Increase in cash and cash equivalents		145,129		24,453
Cash and cash equivalents at beginning of period		299,329		295,382
Cash and cash equivalents at end of period	$	444,458	$	319,835

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense	$	7,704	$	7,137
Income taxes paid, net		5,218		5,940
Non-cash investing and financing activities:
Change in unrealized (loss) gain on available-for-sale securities, net of tax	$	(205)	$	1,629
Transfer of loans to other real estate owned		—		212
Recognition of ROU assets		832		760
Recognition of lease liability		833		707
Acquisition:
Assets acquired, net of cash received	$	—	$	109,429
Liabilities assumed		—		120,409
Cash consideration		—		13,886
Goodwill		—		3,372

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

NOTE 1 – BASIS OF PRESENTATION

BayCom Corp (the “Company”) is a bank holding company headquartered in Walnut Creek, California. United Business Bank (the “Bank”), the Company’s wholly owned banking subsidiary, is a California state-chartered bank which provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals. In the 17 years of operation, the Bank has grown to 33 full-service banking branches with 15 locations in California and two in Washington, five in Central New Mexico and 11 in Colorado. The condensed consolidated financial statements include the accounts of the Company and the Bank.

All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year information has been reclassified to conform to the current year presentation. None of the reclassifications impacted consolidated net income, earnings per share or shareholders’ equity.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

On February 4, 2020, the Company completed its acquisition of Grand Mountain Bancshares, Inc. (“GMB”) and its wholly owned subsidiary Grand Mountain Bank, headquartered in Granby, Colorado (“GMB Merger”). See “Note 3 – Acquisitions” for additional information on the GMB Merger.

NOTE 2 - ACCOUNTING GUIDANCE NOT YET EFFECTIVE AND ADOPTED ACCOUNTING GUIDANCE

Recent Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 provides that state franchise or similar taxes that are based, at least in part on an entity’s income, be included in an entity’s income tax recognized as income-based taxes. The ASU further clarifies that the effect of any change in tax laws or rates used in the computation of the annual effective tax rate are required to be reflected in the first interim period that includes the enactment date of the legislation. Technical changes to eliminate exceptions to Topic 740 related to intra-period tax allocations for entities with losses from continuing operations, deferred tax liabilities related to change in ownership of foreign entities, and interim-period tax allocations for businesses with losses where the losses are expected to be realized. The Company adopted ASU 2019-12 on December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

In October 2020, the FASB issued ASU 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”). ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The Company adopted ASU 2020-08 on December 15, 2020. The adoption of ASU 2020-08 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and subsequent amendment to the initial guidance in November 2018, ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and in May 2019, ASU 2019-05 Financial Instruments — Credit Losses, Topic 326, all of which clarifies codification and corrects unintended application of the guidance. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired (“PCI”) debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. ASU 2019-05 allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. The amendments in these ASUs are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted for smaller reporting companies, such as the Company. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is reviewing the requirements of these ASUs and expects to begin developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. Upon adoption, the Company expects changes in the processes and procedures used to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses which will also reflect the new requirement to include the nonaccretable principal differences on purchased credit-impaired loans; however, the Company is still in the process of determining the magnitude of the change and its impact on the Company's consolidated financial statements.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. In January 2021, ASU 2021-01 updated amendments in the new ASU to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this ASU to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply the amendments in this ASU on a full retrospective basis. The amendments in this ASU have differing effective dates, beginning with an interim period including and subsequent to March 12, 2020 through December 31, 2022. The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

NOTE 3 – ACQUISITIONS

Pending Acquisition of Pacific Enterprise Bancorp

On September 7, 2021, the Company entered into a definitive agreement with Pacific Enterprise Bancorp (“PEB”), which is headquartered in Irvine, California. Pursuant to the merger agreement PEB will merge with and into the Company, with the Company as the surviving corporation in the merger. Immediately after the merger, Pacific Enterprise Bank, a California state-chartered bank and wholly owned subsidiary of PEB, will merge with and into the Bank, with the Bank as the surviving bank. Pacific Enterprise Bank originates commercial and consumer loans and receives deposits from its customers who are predominately small and middle-market businesses and individuals located primarily in Orange County, California. Upon consummation of the merger, each PEB shareholder will receive 1.0292 shares of Company common stock (the “Exchange Ratio”) in exchange for each share of PEB common stock. Options to purchase PEB common stock outstanding at the effective time of the merger will be cancelled for a cash payment equal to the product of (i) the total number of shares of PEB common stock underlying the PEB option multiplied by (ii) the amount, if any, that the product of the volume weighted average closing price per share of Company common stock, as reported on the NASDAQ for the 15 trading days immediately preceding the closing date multiplied by the Exchange Ratio, exceeds the exercise price per share of such PEB option. The transaction is valued at approximately $53.1 million in aggregate based on the closing price of Company common stock of $17.28 on September 3, 2021. The total value of the merger consideration will fluctuate until closing based on the value of the Company's stock price. Upon consummation of the merger, the shareholders of PEB will own approximately 22.2% of the combined company. The transaction was approved and adopted by the Board of Directors of each company and is expected to be completed in the first calendar quarter of 2022, subject to customary closing conditions, regulatory approval, and approval of the Company’s and PEB’s shareholders.

Acquisition of Grand Mountain Bancshares, Inc.

On February 4, 2020, the Company completed the GMB Merger. As of the acquisition date, GMB merged into the Company and Grand Mountain Bank, GMB’s wholly owned bank subsidiary, merged into United Business Bank. The acquisition expanded the Company’s market share in Colorado with the addition of four branches located in Grand County, Colorado. Under the terms of the merger agreement, the Company paid GMB shareholders $3.40 in cash for each share or approximately $13.9 million.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

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


	GMB
	Acquisition
	Date
	February 4, 2020
Fair value of assets:
Cash and due from banks	$	5,454
Federal funds sold		—
Total cash and cash equivalents		5,454
Interest bearing deposits in banks		16,040
Investment securities available-for-sale		4,369
FHLB stock, at par		165
FRB stock, at par		—
Loans, net		98,410
Premises and equipment, net		3,879
OREO		—
Core deposit intangible		949
Deferred tax assets, net		728
Servicing asset		—
Interest receivable and other assets		929
Total assets acquired		130,923
Liabilities:
Deposits
Noninterest bearing		30,937
Interest bearing		87,210
Total Deposits		118,147

Junior subordinated debentures, net		1,575
Interest payable and other liabilities		687
Total liabilities assumed		120,409

Stock issued		—
Cash consideration		13,886
Goodwill	$	3,372

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

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


	GMB
	Acquisition
	Date
	February 4, 2020
Book value of net assets acquired	$	10,348
Fair value adjustments:
Investments available-for-sale		(10)
Loans, net		484
Premises and equipment, net		(1,000)
Write-down on OREO		—
Core deposit intangible		949
Tax assets		(139)
Time deposits		(25)
Write-down on servicing assets		—
Junior subordinated debentures, net		(98)
Write-down other (assets) liabilities		5
Total purchase accounting adjustments		166
Fair value of net assets acquired		10,514
Price paid:
Common stock issued		—
Cash paid		13,886
Total price paid		13,886
Goodwill	$	3,372

Pro Forma Results of Operations

The operating results of the Company for the three and nine months ended September 30, 2021 in the condensed consolidated statements of income include the operating results of GMB, since its acquisition date. The following table represents the net interest income, net income, basic and diluted earnings per share, as if the GMB Merger was effective January 1, 2020. The unaudited pro forma information in the following table is intended for informational purposes only and is not necessarily indicative of future operating results or operating results that would have occurred had the mergers been completed at the beginning of the respective years. No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions.

Unaudited pro forma net interest income, net income and earnings per share are presented below:


	2020
		Three months ended		Nine months ended
		September 30		September 30
Net interest income	$	19,005	$	60,443
Net income		3,249		8,569
Basic earnings per share	$	0.27	$	0.71
Diluted earnings per share		0.27		0.71

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

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

Acquisition expenses

Acquisition expenses are recognized as incurred and continue until all systems are converted and operational functions become fully integrated. No third-party acquisition expenses were recognized in the consolidated statements of income for the three months ended September 30, 2021 and 2020 and for the nine months ended September 30, 2021. The Company recognized third-party acquisition expenses for the nine months ended September 30, 2020 as follows:


Professional fees	$	369
Data processing		2,000
Severance expense		266
Other expenses		383
Total	$	3,018

NOTE 4 – INVESTMENT SECURITIES

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


			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
September 30, 2021
U.S. Government Agencies	$	1,949	$	1	$	—	$	1,950
Preferred equity securities		14,438		393		—		14,831
Municipal securities		13,491		500		—		13,991
Mortgage-backed securities		32,855		1,539		(198)		34,196
Collateralized mortgage obligations		23,385		626		(71)		23,940
SBA securities		6,539		78		(22)		6,595
Corporate bonds		46,158		780		(126)		46,812
Total	$	138,815	$	3,917	$	(417)	$	142,315


			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
December 31, 2020
U.S. Government Agencies	$	5,523	$	25	$	(4)	$	5,544
Municipal securities		15,992		695		—		16,687
Mortgage-backed securities		34,567		2,033		(22)		36,578
Collateralized mortgage obligations		26,649		1,054		(8)		27,695
SBA securities		7,661		52		(46)		7,667
Corporate bonds		21,417		85		(83)		21,419
Total	$	111,809	$	3,944	$	(163)	$	115,590

During the three and nine months ended September 30, 2021, the Company sold six securities available-for-sale for gross realized gains of $22,000 and did not sell any securities available-for-sale for the three and nine months ended September 30, 2020.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

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


	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	fair value		loss		fair value		loss		fair value		loss
September 30, 2021
Mortgage-backed securities	$	4,836	$	(191)	$	200	$	(7)	$	5,036	$	(198)
Collateralized mortgage obligations		3,796		(64)		704		(7)		4,500		(71)
SBA securities		—		—		1,116		(22)		1,116		(22)
Corporate bonds		14,380		(120)		1,501		(6)		15,881		(126)
Total	$	23,012	$	(375)	$	3,521	$	(42)	$	26,533	$	(417)


	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	fair value		loss		fair value		loss		fair value		loss
December 31, 2020
U.S. Government Agencies	$	1,511	$	(4)	$	—	$	—	$	1,511	$	(4)
Municipal securities		502		—		—		—		502		—
Mortgage-backed securities		2,164		(10)		478		(12)		2,642		(22)
Collateralized mortgage obligations		1,742		(3)		797		(5)		2,539		(8)
SBA securities		562		(1)		3,705		(45)		4,267		(46)
Corporate bonds		10,432		(81)		1,001		(2)		11,433		(83)
Total	$	16,913	$	(99)	$	5,981	$	(64)	$	22,894	$	(163)

At September 30, 2021, the Company held 324 investment securities, of which 18 were in an unrealized loss position for more than twelve months and 19 were in an unrealized loss position for less than twelve months. These temporary unrealized losses relate principally to current interest rates for similar types of securities. The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment. Deterioration in market and economic conditions related to the COVID-19 pandemic may, however, have an adverse impact on credit quality in the future and result in other-than-temporary impairment charges.

The amortized cost and estimated fair value of securities available-for-sale at the dates indicated by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2021				December 31, 2020
	Amortized		Estimated		Amortized		Estimated
	cost		fair value		cost		fair value
Available-for-sale
Due in one year or less	$	1,283	$	1,289	$	7,273	$	7,342
Due after one through five years		35,962		37,230		19,424		20,322
Due after five years through ten years		56,640		57,597		34,165		34,898
Due after ten years		44,930		46,199		50,947		53,028
Total	$	138,815	$	142,315	$	111,809	$	115,590

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 5 – LOANS

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


	September 30,		December 31,
	2021		2020
Commercial and industrial	$	283,631	$	309,961
Construction and land		16,424		22,696
Commercial real estate		1,215,611		1,144,560
Residential		125,075		164,724
Consumer		4,060		5,218
Total loans		1,644,801		1,647,159
Net deferred loan fees		(3,965)		(3,847)
Allowance for loan losses		(17,300)		(17,500)
Net loans	$	1,623,536	$	1,625,812

The Company’s total impaired loans, including nonaccrual loans, loans modified as troubled debt restructurings (“TDR loans”), and accreting purchase credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are summarized as follows:


	Commercial		Construction		Commercial
	and industrial		and land		real estate		Residential		Consumer		Total
September 30, 2021
Recorded investment in impaired loans:
With no specific allowance recorded	$	96	$	36	$	5,420	$	1,542	$	—	$	7,094
With a specific allowance recorded		595		—		262		146		—		1,003
Total recorded investment in impaired loans	$	691	$	36	$	5,682	$	1,688	$	—	$	8,097
Specific allowance on impaired loans	$	580	$	—	$	98	$	22	$	—		700

December 31, 2020
Recorded investment in impaired loans:
With no specific allowance recorded	$	120	$	36	$	5,689	$	2,040	$	—	$	7,885
With a specific allowance recorded		728		—		451		155		—		1,334
Total recorded investment in impaired loans	$	848	$	36	$	6,140	$	2,195	$	—	$	9,219
Specific allowance on impaired loans	$	420	$	—	$	77	$	24	$	—	$	521

Three months ended September 30, 2021
Average recorded investment in impaired loans	$	683	$	36	$	5,338	$	2,363	$	—	$	8,420
Interest recognized		17		—		15		27		—		59
Nine months ended September 30, 2021
Average recorded investment in impaired loans		796		36		5,711		2,609		—		9,152
Interest recognized		53		—		92		43		—		188

Three months ended September 30, 2020
Average recorded investment in impaired loans		1,136		2,692		2,814		1,710		—		8,352
Interest recognized		—		—		7		—		—		7
Nine months ended September 30, 2020
Average recorded investment in impaired loans		769		2,763		3,304		1,689		3		8,528
Interest recognized		4		151		37		—		—		192

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Impaired loans on accrual are comprised solely of TDR

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

loans performing under modified loan agreements, whose principal and interest is determined to be collectible. Nonaccrual loans are loans where principal and interest have been determined to not be fully collectible.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR loan. TDR loans are generally placed on nonaccrual status at the time of restructuring and included in impaired loans. These loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured debt.

For the three and nine months ended September 30, 2021 and 2020, the Company recorded no charge-offs related to TDR loans. During the three and nine months ended September 30, 2021 and 2020, there were no TDR loans for which there was a payment default within the first 12 months of the modification. As of September 30, 2021 and December 31, 2020, TDR loans had a related allowance of $130,000 and $35,000, respectively. As of September 30, 2021 and December 31, 2020, $765,000 and $798,000, respectively, of TDR loans were performing in accordance with their modified terms. All TDR loans are also included in the loans individually evaluated for impairment as part of the calculation of the allowance for loan losses. There were no commitments to lend additional amounts to borrowers with outstanding loans that are classified as TDR loans at September 30, 2021.

A summary of TDR loans by type of concession and type of loan, as of the periods indicated:


	Number of	Rate		Term		Rate & term
	loans	modification		modification		modification		Total
September 30, 2021
Commercial and industrial	2	$	—	$	26	$	—	$	26
Construction and land	—		—		—		—		—
Commercial real estate	4		—		2,267		—		2,267
Residential	1		—		146		—		146
Consumer	—		—		—		—		—
Total	7	$	—	$	2,439	$	—	$	2,439


	Number of	Rate		Term		Rate & term
	loans	modification		modification		modification		Total
September 30, 2020
Commercial and industrial	1	$	—	$	24	$	—	$	24
Construction and land	—		—		—		—		—
Commercial real estate	—		—		—		—		—
Residential	1		—		156		—		156
Consumer	—		—		—		—		—
Total	2	$	—	$	180	$	—	$	180

There were no loans and one loan modified as a TDR during the three and nine months ended September 30, 2021, respectively. There was one loan and two loans modified as a TDR during the three and nine months ended September 30, 2020, respectively.

During the third quarter of 2021, the Bank continued its participation in the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), by processing applications for PPP loan forgiveness.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

Risk Rating System

The Company evaluates and assigns a risk grade to each loan based on certain criteria to assess the credit quality of each loan. The assignment of a risk rating is done for each individual loan. Loans are graded from inception and on a continuing basis until the debt is repaid. Any adverse or beneficial trends will trigger a review of the loan risk rating. Each loan is assigned a risk grade based on its characteristics. Loans with low to average credit risk are assigned a lower risk grade than those with higher credit risk as determined by the individual loan characteristics. All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification is reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.

The Company’s Pass loans includes loans with acceptable business or individual credit risk where the borrower’s operations, cash flow or financial condition provides evidence of low to average levels of risk.

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

Special Mention loans have potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. A Special Mention rating is a temporary rating, pending the occurrence of an event that would cause the risk rating either to improve or to be downgraded.

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

●

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

●

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

●

Adverse financial trends.

Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans classified substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. The potential loss does not have to be recognizable in an individual credit for that credit to be risk rated Substandard. A loan can be fully and adequately secured and still be considered Substandard.

Some characteristics of Substandard loans are:

●

Inability to service debt from ordinary and recurring cash flow;

●

Chronic delinquency;

●

Reliance upon alternative sources of repayment;

●

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

●

Repayment dependent upon the liquidation of collateral;

●

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

●

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

●

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

Doubtful loans have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and value, highly questionable and improbable. Doubtful loans have a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of the credit.

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure. Recoveries on loans previously charged off are credited to the allowance for loan losses.

The following tables present the internally assigned risk grade by class of loans at the dates indicated:


			Special
	Pass		Mention		Substandard		Doubtful		Total
September 30, 2021
Commercial and industrial	$	269,068	$	10,326	$	4,237	$	—	$	283,631
Construction and land		15,262		1,126		36		—		16,424
Commercial real estate		1,181,790		26,173		7,648		—		1,215,611
Residential		122,074		1,260		1,741		—		125,075
Consumer		4,037		—		23		—		4,060
Total	$	1,592,231	$	38,885	$	13,685	$	—	$	1,644,801


			Special
	Pass		Mention		Substandard		Doubtful		Total
December 31, 2020
Commercial and industrial	$	295,245	$	10,466	$	4,250	$	—	$	309,961
Construction and land		22,346		313		37		—		22,696
Commercial real estate		1,112,085		26,329		6,146		—		1,144,560
Residential		161,161		1,333		2,230		—		164,724
Consumer		5,216		—		2		—		5,218
Total	$	1,596,053	$	38,441	$	12,665	$	—	$	1,647,159

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


															Recorded
					90 Days										investment >
	30–59 Days		60–89 Days		or more		Total						Total loans		90 days and
	past due		past due		past due		past due		Current		PCI loans		receivable		accruing
September 30, 2021
Commercial and industrial	$	34	$	465	$	1,620	$	2,119	$	281,208	$	304	$	283,631	$	1,000
Construction and land		1,067		—		36		1,103		15,281		40		16,424		—
Commercial real estate		8,425		2,463		513		11,401		1,193,881		10,329		1,215,611		—
Residential		27		—		1,119		1,146		122,029		1,900		125,075		—
Consumer		4		—		—		4		4,056		—		4,060		—
Total	$	9,557	$	2,928	$	3,288	$	15,773	$	1,616,455	$	12,573	$	1,644,801	$	1,000


															Recorded
					90 Days										investment >
	30–59 Days		60–89 Days		or more		Total						Total loans		90 days and
	past due		past due		past due		past due		Current		PCI loans		receivable		accruing
December 31, 2020
Commercial and industrial	$	265	$	128	$	707	$	1,100	$	308,239	$	622	$	309,961	$	—
Construction and land		65		—		269		334		22,311		51		22,696		233
Commercial real estate		254		406		1,518		2,178		1,129,966		12,416		1,144,560		—
Residential		80		155		1,412		1,647		160,556		2,521		164,724		—
Consumer		1		—		—		1		5,217		—		5,218		—
Total	$	665	$	689	$	3,906	$	5,260	$	1,626,289	$	15,610	$	1,647,159	$	233

The balance of nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, was $841,000 at September 30, 2021 compared to $850,000 at December 31, 2020. At September 30, 2021 and

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

December 31, 2020, nonaccrual loans included $2.5 million and $620,000 of loans 30-89 days past due and $2.5 million and $4.1 million of loans less than 30 days past due, respectively. At September 30, 2021, nonaccrual loans 30-89 days past due of $2.5 million primarily was comprised of two loans and the $2.5 million of loans less than 30 days past due was comprised of 13 small balance loans. At December 31, 2020, nonaccrual loans 30-89 days past due of $620,000 primarily was comprised of four loans and the $4.1 million of loans less than 30 days past due are comprised of 12 small balance loans. All of these loans were placed on nonaccrual due to concerns over the client’s financial condition. Interest foregone on nonaccrual loans was approximately $61,000 and $157,500 for the three and nine months ended September 30, 2021 compared to $117,500 and $338,500 for the three and nine months ended September 30, 2020, respectively.

Purchased Credit Impaired Loans

In connection with the Company's acquisitions, the contractual amount and timing of undiscounted principal and interest payments and the estimated amount and timing of undiscounted expected principal and interest payments were used to estimate the fair value of PCI loans at the acquisition date. The difference between these two amounts represented the nonaccretable difference. On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represented the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. For PCI loans the accretable yield is accreted into interest income over the life of the estimated remaining cash flows. At each financial reporting date, the carrying value of each PCI loan is compared to an updated estimate of expected principal payment or recovery on each loan. To the extent that the loan carrying amount exceeds the updated expected principal payment or recovery, a provision of loan loss would be recorded as a charge to income and an allowance for loan loss established.

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


	September 30, 2021				December 31, 2020
	Unpaid				Unpaid
	principal		Carrying		principal		Carrying
	balance		value		balance		value
Commercial and industrial	$	641	$	304	$	1,000	$	622
Construction and land		87		40		100		51
Commercial real estate		11,710		10,329		14,096		12,416
Residential		2,361		1,900		3,127		2,521
Total	$	14,799	$	12,573	$	18,323	$	15,610

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	316	$	571	$	383	$	554
Additions		—		25		—		247
Removals		(4)		—		(153)		(51)
Accretion		(139)		(62)		(57)		(216)
Balance at end of period	$	173	$	534	$	173	$	534

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 6 – ALLOWANCE FOR LOAN LOSSES

The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment by type of loan as of or for the three and nine months ended September 30, 2021 and 2020:


	Commercial		Construction		Commercial
	and industrial		and land		real estate		Residential		Consumer		Total
Three months ended September 30, 2021
Allowance for loan losses
Beginning balance	$	3,645	$	224	$	11,328	$	1,782	$	21	$	17,000
Charge-offs		(180)		—		(1)		—		—		(181)
Recoveries		3		1		—		—		—		4
Provision for (reversal of) loan losses		(113)		15		717		(141)		(1)		477
Ending balance	$	3,355	$	240	$	12,044	$	1,641	$	20	$	17,300

Nine months ended September 30, 2021
Allowance for loan losses
Beginning balance	$	4,042	$	378	$	11,211	$	1,856	$	13	$	17,500
Charge-offs		(182)		—		(1)		—		—		(183)
Recoveries		9		4		—		—		—		13
Provision for (reversal of) loan losses		(514)		(142)		834		(215)		7		(30)
Ending balance	$	3,355	$	240	$	12,044	$	1,641	$	20	$	17,300

September 30, 2021
Allowance for loan losses by methodology:
Loans individually evaluated for impairment	$	580	$	—	$	98	$	22	$	—	$	700
Loans collectively evaluated for impairment		2,775		240		11,928		1,616		20		16,579
PCI loans		—		—		18		3		—		21
Total loans	$	3,355	$	240	$	12,044	$	1,641	$	20	$	17,300

Loans receivable by methodology:
Individually evaluated for impairment	$	692	$	36	$	5,681	$	1,688	$	—	$	8,097
Collectively evaluated for impairment		282,635		16,348		1,199,601		121,487		4,060		1,624,131
PCI loans		304		40		10,329		1,900		—		12,573
Total loans	$	283,631	$	16,424	$	1,215,611	$	125,075	$	4,060	$	1,644,801

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)


	Commercial		Construction		Commercial
	and industrial		and land		real estate		Residential		Consumer		Total
Three months ended September 30, 2020
Allowance for loan losses
Beginning balance	$	3,474	$	351	$	8,245	$	1,428	$	2	$	13,500
Charge-offs		—		—		—		—		—		—
Recoveries		3		4		—		—		—		7
Provision for loan losses		478		257		1,352		204		2		2,293
Ending balance	$	3,955	$	612	$	9,597	$	1,632	$	4	$	15,800

Nine months ended September 30, 2020
Allowance for loan losses
Beginning balance	$	1,788	$	167	$	5,004	$	427	$	14	$	7,400
Charge-offs		—		—		—		(1)		(17)		(18)
Recoveries		10		4		—		—		—		14
Provision (reclassification) for loan losses		2,157		441		4,593		1,206		7		8,404
Ending balance	$	3,955	$	612	$	9,597	$	1,632	$	4	$	15,800

September 30, 2020
Allowance for loan losses by methodology:
Loans individually evaluated for impairment	$	475	$	25	$	71	$	20	$	—	$	591
Loans collectively evaluated for impairment		3,480		587		9,526		1,612		4		15,209
PCI loans		—		—		—		—		—		—
Total loans	$	3,955	$	612	$	9,597	$	1,632	$	4	$	15,800

Loans receivable by methodology:
Individually evaluated for impairment	$	1,396	$	2,463	$	2,777	$	1,701	$	—	$	8,337
Collectively evaluated for impairment		324,259		38,429		1,127,318		177,721		6,090		1,673,817
PCI loans		674		190		12,640		3,012		—		16,516
Total loans	$	326,329	$	41,082	$	1,142,735	$	182,434	$	6,090	$	1,698,670

NOTE 7 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at the dates indicated:


	September 30,		December 31,
	2021		2020
Premises owned	$	11,015	$	10,891
Leasehold improvements		2,944		3,274
Furniture, fixtures and equipment		5,956		6,940
Less accumulated depreciation and amortization		(5,335)		(5,966)
Total premises and equipment, net	$	14,580	$	15,139

Depreciation and amortization included in occupancy and equipment expense totaled $519,000 and $1.5 million for the three and nine months ended September 30, 2021 and $445,000 and $1.3 million for the three and nine months ended September 30, 2020, respectively.

NOTE 8 – LEASES

The Company leases 18 branches under noncancelable operating leases. These leases expire on various dates through 2030. The Company’s leases often have an option to renew one or more times, at the Company’s discretion,

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

following the expiration of the initial term. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

The Company uses the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of September 30, 2021:



For the remainder of 2021	$	1,139
2022		2,905
2023		2,431
2024		1,840
2025		1,183
Thereafter		3,390
Total undiscounted cash flows		12,888
Less: interest		(1,220)
Present value of lease payments	$	11,668

The following table presents the weighted average lease term and discount rate at the date indicated:


	September 30, 2021
Weighted-average remaining lease term	5.6	years
Weighted-average discount rate	2.73	%

Rental expense included in occupancy and equipment on the consolidated statements of income totaled $906,000 and $2.6 million for the three and nine months ended September 30, 2021 and $829,000 and $2.5 million for the three and nine months ended September 30, 2020, respectively.

NOTE 9 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and the liabilities assumed as of the acquisition date. Goodwill and other intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible represents the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and amortized over an estimated useful live of seven to ten years.

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

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

As of September 30, 2021, the Company’s qualitative assessment which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during the first nine months of 2021, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired. Any impairment charge could have a material adverse effect on the Company’s results of operations and financial condition.

Changes in the Company's goodwill at September 30, 2021 and December 31, 2020 are as follows:


	September 30,		December 31,
	2021		2020
Balance at beginning of period	$	38,838	$	35,466
Acquired goodwill		—		3,372
Impairment		—		—
Balance at end of period	$	38,838	$	38,838

Core Deposit Intangible

Changes in the Company’s core deposit intangible at September 30, 2021 and December 31, 2020 were as follows:


	September 30,		December 31,
	2021		2020
Balance at beginning of period	$	8,302	$	9,185
Additions		—		949
Less amortization		(1,359)		(1,832)
Balance at end of period	$	6,942	$	8,302

Estimated annual amortization expense at September 30, 2021 is as follows:



For the remainder of 2021	$	453
2022		1,813
2023		1,034
2024		970
2025		927
Thereafter		1,745
Total	$	6,942

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 10 – INTEREST RECEIVABLE AND OTHER ASSETS

The Company’s interest receivable and other assets at the dates indicated consisted of the following:


	September 30,		December 31,
	2021		2020
Tax assets, net	$	10,122	$	8,577
Accrued interest receivable		6,642		7,312
Investment in SBIC Fund		4,518		3,497
Prepaid assets		1,359		1,594
Servicing assets		1,969		1,783
Low income housing partnerships, net		3,197		3,002
Investment in statutory trusts		484		481
Other assets		971		1,298
Total	$	29,262	$	27,544

NOTE 11 – DEPOSITS

The Company’s deposits consisted of the following at the dates indicated:


	September 30,		December 31,
	2021		2020
Demand deposits	$	733,101	$	678,365
NOW accounts and savings		448,717		399,772
Money market		604,970		516,560
Time deposits		220,963		243,700
Total	$	2,007,751	$	1,838,397

NOTE 12 - BORROWINGS

Other borrowings – The Bank has an approved secured borrowing facility with the Federal Home Loan Bank of San Francisco (the “FHLB”) for up to 25% of total assets for a term not to exceed five years under a blanket lien of certain types of loans. In May 2020, the Bank secured a $10.0 million advance from the FHLB of San Francisco comprised of two $5.0 million tranches, at no cost. At December 31, 2020, the first tranche was repaid. At September 30, 2021, the second tranche was repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco at that date.

The Bank has Federal Funds lines with four corresponding banks. Cumulative available commitments totaled $75.0 million at both September 30, 2021 and December 31, 2020. There were no amounts outstanding under these facilities at September 30, 2021 and December 31, 2020.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures, totaling $8.4 million net of mark-to-market adjustments at September 30, 2021 with a weighted average interest rate of 2.70%, compared to $8.3 million with a weighted average rate of 2.80% at December 31, 2020. The junior subordinated deferrable interest debentures have a stated maturity term of 30 years.

Subordinated debt – On August 6, 2020, the Company issued and sold $65.0 million aggregate principal amount of 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”) at a public offering price equal to 100% of the aggregate principal amount of the Notes. The offering of the Notes closed on August 10, 2020. The Notes initially bears a fixed interest rate of 5.25% per year. Commencing on September 15, 2025, the interest rate on the Notes resets

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

quarterly to the three-month Secured Overnight Financing rate plus a spread of 521 basis points (5.21%), payable quarterly in arrears. Interest on the Notes is payable semi-annually on March 15 and September 15 of each year through September 15, 2025 and quarterly thereafter on March 15, June 15, September 15 and December 15 of each year through the maturity date or early redemption date. The Company, at its option, may redeem the Notes, in whole or in part, on any interest payment date on or after September 15, 2025, without a premium. At September 30, 2021, the Company had outstanding Notes, net of cost to issue, totaling $63.5 million.

NOTE 13 – INTEREST PAYABLE AND OTHER LIABILITIES

The Company’s interest payable and other liabilities at the dates indicated consisted of the following:


	September 30,		December 31,
	2021		2020
Accrued expenses	$	5,658	$	6,577
Accounts payable		588		384
Reserve for unfunded commitments		415		415
Accrued interest payable		328		1,401
Other liabilities		3,970		2,870
Total	$	10,959	$	11,647

NOTE 14 – OTHER EXPENSES

The Company’s other expenses for the periods indicated consisted of the following:


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Professional fees	$	620	$	531	$	1,668	$	2,055
Core deposit premium amortization		453		453		1,359		1,379
Marketing and promotions		196		200		413		639
Stationery and supplies		84		167		274		440
Insurance (including FDIC premiums)		206		212		618		377
Communication and postage		190		176		595		494
Loan default related expense		59		97		119		309
Director fees		81		81		241		239
Bank service charges		68		49		191		125
Courier expense		175		176		506		490
Other		158		141		387		571
Total	$	2,290	$	2,283	$	6,371	$	7,118

The Company expenses marketing and promotions costs as they are incurred. Advertising expense included in marketing and promotions totaled $13,000 and $55,000 for the three and nine months ended September 30, 2021 and $59,000 and $193,000 for the three and nine months ended September 30, 2020, respectively.

NOTE 15 – EQUITY INCENTIVE PLANS

2017 Omnibus Equity Incentive Plan

The shareholders approved the Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017. The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

employee directors. An equity incentive award may be an option, stock appreciation rights, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan. Factors considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period. Generally, awards are restricted and have a vesting period of no longer than ten years. Subject to adjustment as provided in the 2017 Plan, the maximum number of shares of common stock that may be delivered pursuant to awards granted under the 2017 Plan is 450,000. The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors. The annual stock grant limit per person for officers and employees is the lessor of 50,000 shares or a value of $2.0 million, and per person for directors, the maximum is 25,000 shares. All unvested restricted shares outstanding vest in the event of a change in control of the Company. Awarded shares of restricted stock vest over (i) a one-year period following the date of grant, in the case of the non-employee directors, and (ii) a three-year or five-year period following the date of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers. As of September 30, 2021, a total of 117,322 shares were available for future issuance under the 2017 Plan.

2014 Omnibus Equity Incentive Plan

In 2014, the shareholders approved the Omnibus Equity Incentive Plan (the “2014 Plan”). A total of 148,962 equity incentive awards were granted under the 2014 Plan. The awards are shares of restricted stock and have a vesting period of one to five years. No future equity awards will be made from the 2014 Plan.

The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date. Total compensation expense for these plans was $325,000 and $1.1 million for the three and nine months ended September 30, 2021 and 2020 and $385,000 and $1.1 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, there was $1.7 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately three years.

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


	2021			2020
		Weighted-average			Weighted-average
		grant date			grant date
	Shares	fair value		Shares	fair value
Non-vested at January 1,	204,515	$	17.71	142,103	$	20.76
Granted	24,187		15.17	15,173		22.60
Vested	(14,164)		18.50	(23,435)		19.62
Forfeited	—		—	(1,432)		18.93
Non-Vested, at March 31,	214,538	$	16.06	132,409	$	22.10
Granted	—		—	92,294		12.18
Vested	(63,028)		17.84	(32,264)		23.30
Non-Vested, at June 30,	151,510	$	15.32	192,439	$	17.14
Granted	12,228		18.16	21,599		10.28
Vested	(21,771)		10.33	(9,523)		21.34
Forfeited	(2,692)		18.45	—		—
Non-Vested, at September 30,	139,275	$	16.29	204,515	$	16.22

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 16 – FAIR VALUE MEASUREMENT

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 – Observable prices in active markets for similar assets and liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.

Level 3 – Unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

We use fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangible, and other long-lived assets.

In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process. There were no transfers between levels during 2021 or 2020.

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


	Total		Level 1		Level 2		Level 3
September 30, 2021
U.S. Government Agencies	$	1,950	$	—	$	1,950	$	—
Preferred equity securities		14,831		14,831		—		—
Municipal securities		13,991		—		13,991		—
Mortgage-backed securities		34,196		—		34,196		—
Collateralized mortgage obligations		23,940		—		23,940		—
SBA securities		6,595		—		6,595		—
Corporate bonds		46,812		—		46,812		—
Total	$	142,315	$	14,831	$	127,484	$	—

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)


	Total		Level 1		Level 2		Level 3
December 31, 2020
U.S. Government Agencies	$	5,544	$	—	$	5,544	$	—
Municipal securities		16,687		—		16,687		—
Mortgage-backed securities		36,578		—		36,578		—
Collateralized mortgage obligations		27,695		—		27,695		—
SBA securities		7,667		—		7,667		—
Corporate bonds		21,419		—		21,419		—
Total	$	115,590	$	—	$	115,590	$	—

The following assets are measured at fair value on a nonrecurring basis as of the dates indicated:


	Total		Level 1		Level 2		Level 3
September 30, 2021
Performing impaired loans	$	765	$	—	$	—	$	765
Nonperforming impaired loans		8,292		—		—		8,292
OREO		21		—		—		21
Total	$	9,078	$	—	$	—	$	9,078

	Total		Level 1		Level 2		Level 3
December 31, 2020
Performing impaired loans	$	798	$	—	$	—	$	798
Nonperforming impaired loans		8,421		—		—		8,421
OREO		429		—		—		429
Total	$	9,648	$	—	$	—	$	9,648

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise and liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value or the appraised value contains a significant assumption and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

The Company records OREO at fair value on a nonrecurring basis based on the collateral value of the property. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the OREO as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value or the appraised value contains a significant assumption, and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also incorporates assumptions regarding market trends or other relevant factors and selling and commission costs ranging from 5% to 7%. Such adjustments and assumptions are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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


	Carrying		Fair		Fair value measurements
	amount		value		Level 1		Level 2		Level 3
September 30, 2021
Financial assets:
Cash and cash equivalents	$	444,458	$	444,458	$	444,458	$	—	$	—
Interest bearing deposits in banks		4,083		4,083		4,083		—		—
Investment securities available-for-sale		142,315		142,315		14,831		127,484		—
Investment in FHLB and FRB Stock		16,025		16,025		16,025		—		—
Loans held for sale		11,221		11,221		—		11,221		—
Loans, net		1,623,536		1,651,959		—		—		1,651,959
Accrued interest receivable		6,642		6,642		—		6,642		—
Financial liabilities:
Deposits		2,007,751		2,009,148		—		2,009,148		—
Other borrowings		—		—		—		—		—
Junior subordinated deferrable interest debentures, net		8,383		8,871		—		—		8,871
Subordinated debt, net		63,499		63,499		—		63,499		—
Accrued interest payable		328		328		—		328		—
Off-balance sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit		96,285		95,870		—		—		95,870


	Carrying		Fair		Fair value measurements
	amount		value		Level 1		Level 2		Level 3
December 31, 2020
Financial assets:
Cash and cash equivalents	$	299,329	$	299,329	$	299,329	$	—	$	—
Interest bearing deposits in banks		7,718		7,718		7,718		—		—
Investment securities available-for-sale		115,590		115,590		—		115,590		—
Investment in FHLB and FRB Stock		15,342		15,342		15,342		—		—
Loans held for sale		8,664		8,664		—		8,664		—
Loans, net		1,625,812		1,658,605		—		—		1,658,605
Accrued interest receivable		7,312		7,312		—		7,312		—
Financial liabilities:
Deposits		1,838,397		1,839,973		—		1,839,973		—
Other borrowings		5,000		5,000		—		5,000		—
Junior subordinated deferrable interest debentures, net		8,322		8,124		—		—		8,124
Subordinated debt, net		63,372		63,372		—		63,372		—
Accrued interest payable		1,401		1,401		—		1,401		—
Off-balance sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit		110,702		110,287		—		—		110,287

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Lending and Letter of Credit Commitments

We operate in a highly regulated environment. From time to time we are a party to various claims and litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings where we believe the resolution would have a material adverse effect on our business, financial condition, or results of operations.

Nevertheless, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.

In the normal course of business, the Company enters into various commitments to extend credit, which are not reflected in the financial statements. These commitments consist of the undisbursed balance on personal, commercial lines, including commercial real estate secured lines of credit, and of undisbursed funds on construction and development loans. The Company also issues standby letter of credit commitments, primarily for the third-party performance obligations of clients.

The following table presents a summary of commitments described above as of the dates indicated:


	September 30,		December 31,
	2021		2020
Commitments to extend credit	$	93,986	$	108,376
Standby letters of credit		2,299		2,326
Total commitments	$	96,285	$	110,702

Commitments generally have fixed expiration dates or other termination clauses. The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon. The commitments are generally variable rate and include unfunded home equity lines of credit, commercial real estate construction where disbursement is made over the course of construction, commercial revolving lines of credit, and unsecured personal lines of credit. The Company’s outstanding loan commitments are made using the same underwriting standards as comparable outstanding loans. The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $415,000 at both September 30, 2021 and December 31, 2020.

Commercial Real Estate Concentrations

At September 30, 2021 and December 31, 2020, in management’s judgment, a concentration of loans existed in commercial real estate related loans. The Company’s commercial real estate loans are secured by owner-occupied and non-owner occupied commercial real estate and multifamily properties. Although management believes that loans within these concentrations have no more than the normal risk of collectability, a decline in the performance of the economy in general or a decline in real estate value in the Company’s primary market areas in particular, could have an adverse impact on collectability.

Other Assets

The Company has commitments to fund Low Income Housing Tax Credit Partnerships (“LIHTC”) and a SBIC. During the second quarter of 2021, the Company entered into a new LIHTC with a total commitment of $2.0 million. The Company’s net investment in LIHTC was $3.2 million and $1.1 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the remaining commitments to the LIHTC and SBIC were approximately $3.3

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BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED FINANCIAL STATEMENTS – (continued)

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

(unaudited)

million and $122,000, respectively. At December 31, 2020, the remaining commitments to the LIHTC and SBIC were approximately $899,000 and $122,000, respectively.

Deposits

At September 30, 2021, approximately $182.7 million, or 9.1%, of the Company's deposits were derived from its top ten depositors. At December 31, 2020, approximately $170.1 million, or 8.8%, of the Company's deposits were derived from its top ten depositors.

Local Agency Deposits and Other Advances

In the normal course of business, the Company accepts deposits from local agencies. The Company is required to provide collateral for certain local agency deposits in the states of California, Colorado, New Mexico and Washington. As of September 30, 2021 and December 31, 2020, the FHLB issued letters of credit on behalf of the Company totaling $41.5 million and $30.1 million, respectively, as collateral for local agency deposits.

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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:

●

the effect of the novel coronavirus disease 2019 (“COVID-19”) pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and economic activity, employment levels and market liquidity global economies, and consumer and corporate clients;

●

the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses;

●

changes in economic conditions in general and in California, Colorado, New Mexico and Washington;

●

changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates;

●

uncertainly regarding transition away from London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks;

●

our net interest margin and funding sources;

●

fluctuations in the demand for loans and the number of 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 loan and lease 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;

●

future goodwill impairment due to changes in our business, market conditions, or other factors;

●

legislative or regulatory changes that adversely affect our business including changes in banking, securities and tax law, and regulatory policies and principles, or the interpretation of regulatory capital or other rules, including those required by BASEL III;

●

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the implementing regulations;

●

our ability to attract and retain deposits;

●

our ability to control operating costs and expenses;

●

the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation;

●

difficulties in reducing risk associated with the loans and securities on our balance sheet;

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●

staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

●

the effectiveness of our risk management framework;

●

disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions, which could expose us to litigation or reputational harm;

●

an inability to keep pace with the rate of technological advances;

●

our ability to retain key 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 and manage our growth;

●

liquidity issues, including our ability to borrow funds or raise additional capital, if necessary;

●

the loss of our large loan and deposit relationships;

●

increased competitive pressures among financial services companies;

●

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;

●

adverse changes in the securities markets;

●

inability of key third-party providers to perform their obligations to us;

●

statements with respect to our intentions regarding disclosure and other changes resulting from the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”);

●

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, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods, including as a result of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") and the Consolidated Appropriations Act, 2021 (“CAA 2021”);

●

other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including as a result of the CARES Act, CAA 2021, recent COVID-19 vaccination efforts and economic stimulus efforts, and other risks described elsewhere in this Form 10-Q and other filings with the Securities and Exchange Commission (“SEC”).

Further, statements about the potential effects of the proposed acquisition of Pacific Enterprise Bancorp (“PEB”) on our business, financial results, and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in the forward-looking statements due to factors and future developments which are uncertain, unpredictable and in many cases beyond our control, including, but not limited to:

●

the possibility that expected revenues, cost savings, synergies and other benefits from the proposed merger might not be realized within the expected time frames or at all including but not limited to customer and employee retention, and costs or difficulties relating to integration matters, might be greater than expected including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which we and PEB operate;

●

the possibility that the proposed merger does not close when expected or at all because required regulatory, shareholder or other approvals, financial tests or other conditions to closing are not received or satisfied on a timely basis or at all;

●

the risk that the benefits from the proposed merger may not be fully realized or may take longer to realize than expected or be more costly to achieve;

●

the failure to attract new customers and retain existing customers in the manner anticipated;

●

reputational risks and the potential adverse reactions or changes to business, customer or employee relationships, including those resulting from the announcement or completion of the proposed merger;

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●

Our or PEB’s businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities;

●

deposit attrition, operating costs, customer loss and business disruption following the transaction, including difficulties in maintaining relationships with employees, may be greater than expected;

●

the diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise;

●

changes in our or PEB’s stock price before closing, including as a result of its financial performance prior to closing or transaction-related uncertainty, or more generally due to broader stock market movements, and the performance of financial companies and peer group companies;

●

the occurrence of any event, change or other circumstance that could give risk to the right of one or both of the parties to terminate the merger agreement;

●

the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

●

changes in interest rates which may affect our and PEB’s expected revenues, credit quality deterioration, reductions in real estate values, or reductions in our and PEB’s net income, cash flows or the market value of assets, including its investment securities;

●

each of our and PEB’s potential exposure to unknown or contingent liabilities of the other party;

●

dilution caused by our issuance of additional shares of BayCom Corp common stock in connection with the proposed merger;

●

the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events;

●

future acquisitions by us of other depository institutions or lines of business; and

●

that the COVID-19 pandemic, including uncertainty and volatility in financial, commodities and other markets, and disruptions to banking and other financial activity, could harm our or PEB’s business, financial position and results of operations, and could adversely affect the timing and anticipated benefits of the proposed merger.

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 2021 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 consolidated results of operations as well as our stock price performance.

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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 33 full-service branches, with 15 locations in California, two in Washington, five in Central New Mexico and 11 in Colorado. The Company’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 consolidated financial statements and related data, relate primarily to the Bank.

Our principal objective is to continue to increase shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth. Since 2010, we have expanded our geographic footprint through nine strategic acquisitions. We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency. Looking forward, we expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities. We are also focused on continuing to grow organically and believe the metropolitan and community markets in which we operate currently provide meaningful opportunities to expand our commercial client base and increase both interest-earning assets and market share. We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California, Seattle, Washington, and Denver, Colorado, and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand counties, Colorado, provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth. We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank. At September 30, 2021, the Company had approximately $2.4 billion in total assets, $1.6 billion in total loans, $2.0 billion in total deposits and $257.3 million in shareholders’ equity.

We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth. At September 30, 2021, our $1.6 billion total loan portfolio included $449.3 million, or 27.3%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.2 billion, or 72.7%, consisted of loans we originated.

The profitability of our operations depends primarily on our net interest income after provision for loan losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for loan 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 the 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 includes the benefit of these noninterest bearing sources.

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Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. The significant 150 basis point reduction in the targeted federal funds rate during the quarter ended March 31, 2020, resulted in a larger impact to our interest-earning assets than to our interest bearing liabilities, reducing our net interest margin. In addition, our net interest margin is adversely impacted by the low loan yields from loans originated pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the 150 basis point reductions in the targeted federal funds rate in 2020, until the pandemic subsides, the Company expects its net interest income and net interest margin will be adversely affected in 2021 and possibly longer.

Noninterest income. Noninterest income consists of, among other things: (i) service charges on loans and deposits; (ii) gain on sale of loans; and (iii) other noninterest income. Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of SBA loans, capitalized loan servicing rights and other related income.

Provision for loan losses. We established an allowance for loan losses by charging amounts to loan provision at a level required to reflect estimated credit losses in the loan portfolio. Management considers many factors including historical experience, types and amounts of the portfolio and adverse situations that may affect borrowers’ ability to repay, among other factors. See “Critical Accounting Policies and Estimates - Allowance for loan loss” for a description of the manner in which the provision for loan losses is established.

Noninterest expense. Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) Federal Deposit Insurance Corporation (“FDIC”) and state assessments; (v) outside and professional services; (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 expense includes depreciation expense on our owned properties, lease expense on our leased properties and other occupancy-related expenses. Data processing expense includes data 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. Noninterest expenses generally increase as we grow our business. Noninterest expenses have increased significantly over the past few years as we have grown through acquisitions and organically, and as we have built out our operational infrastructure.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the condensed consolidated financial statements included in this Form 10-Q report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. The following represent our critical accounting policies:

Allowance for loan losses. The allowance for loan losses is evaluated on a regular basis by management. Periodically, we charge current earnings with provisions for estimated probable losses of loans receivable. The provision or adjustment takes into consideration the adequacy of the total allowance for loan losses giving due consideration to specifically identified problem loans, the financial condition of the borrowers, fair value of the underlying collateral, recourse provisions, prevailing economic conditions, and other factors. Additional consideration is given to our historical loan loss experience relative to our loan portfolio concentrations related to industry, collateral and geography. Additional analysis was also completed on the allowance for loan losses based on the significance of loan modifications in accordance

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with the CARES Act and regulatory guidance, loan risk rating downgrades as well as additional risk factors related to COVID-19. Our evaluation of the allowance for loan losses is inherently subjective and requires estimates that are susceptible to significant change as additional or new information becomes available. In addition, regulatory examiners may require additional allowances based on their judgments of the information regarding problem loans and credit risk available to them at the time of their examinations.

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

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. We measure any loss on the TDR in accordance with the guidance concerning impaired loans set forth above. Additionally, TDRs are generally placed on nonaccrual status at the time of restructuring and included in impaired loans. These loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured debt.

Estimated expected cash flows related to purchased credit impaired loans. Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. In situations where such PCI loans have similar risk characteristics, loans may be aggregated into pools to estimate cash flows. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation.

The cash flows expected over the life of the PCI loan or pool are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to default rates, loss severity and prepayment speeds are utilized to calculate the expected cash flows.

Expected cash flows at the acquisition date in excess of the fair value of loans are considered to be accretable yield, which is recognized as interest income over the life of the loan or pool using a level yield method if the timing and amounts of the future cash flows of the pool are reasonably estimable. Subsequent to the acquisition date, any increase in cash flow over those expected at purchase date in excess of fair value is recorded as interest income prospectively. Any subsequent decreases in cash flow over those expected at purchase date are recognized by recording an allowance for loan losses. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the removal of the loan from the loan pool at the carrying amount.

Business combinations. We apply the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition related costs are expensed as incurred unless they are directly attributable to the issuance of the Company’s common stock in a business combination.

Loan sales and servicing of financial assets. Periodically, we sell loans and retain the servicing rights. The gain or loss on sale of loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. All servicing assets and liabilities are initially measured at fair value. In addition, we amortize servicing rights in proportion to and over the period of the estimated net servicing income or loss and assess the rights for impairment.

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Income taxes. Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.

We recognize that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

Goodwill. Goodwill, which has resulted from a number of our acquisitions, is reviewed for impairment annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit being below its carrying amount. We make a qualitative assessment whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less than its carrying amount. Such indicators may include, among others: a significant adverse change in legal factors or in the general business climate; significant decline in the Company’s stock price and market capitalization; unanticipated competition; and an adverse action or assessment by a regulator. Any adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and results of operations.

Due to the adverse and unknown economic impacts resulting from the COVID-19 pandemic, the Company performed a goodwill impairment qualitative assessment during the third quarter of 2021 to determine if it is not more likely than not that the fair value of the Company’s reporting unit exceeded its carrying value, including goodwill. As of September 30, 2021, the Company’s qualitative assessment, which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized as of September 30, 2021, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

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BayCom’s Response to COVID-19

Paycheck Protection Program ("PPP") Participation. During the third quarter of 2021, the Bank continued its participation in the SBA PPP which ended August 8, 2020, by processing applications for PPP loan forgiveness. As of September 30, 2021, the Bank had 764 PPP loans outstanding totaling $113.2 million, with unrecognized fees of $4.0 million. As of September 30, 2021, the Bank has received SBA forgiveness for 1,291 PPP loans totaling $121.5 million out of the $140.2 million in PPP loans funded during the first PPP. As of September 30, 2021, the Bank has received SBA forgiveness for 75 PPP loans totaling $22.2 million out of the 771 PPP loans totaling $116.7 million funded during the second PPP, which concluded on May 31, 2021.

Allowance for Loan Losses and Loan Modifications. At September 30, 2021, the Company’s allowance for loan losses was $17.3 million, or 1.05% of total loans, compared to $17.5 million, or 1.06% of total loans, at December 31, 2020.

Based on our review of the appropriateness of the allowance for loan losses at September 30, 2021, the Company recorded a provision (recovery) for loan losses of $477,000 and ($30,000) for the three and nine months ended September 30, 2021, compared to a $2.3 million and $8.4 million provision for loan losses for the three and nine months ended September 30, 2020, respectively. The provision for loan losses recorded in the third quarter of 2021 related primarily to new loan production and net change in qualitative factor adjustments. The reversal of the provision for loan for the nine months ended September 20, 2021 reflects improvements since December 31, 2020 in the economic forecast and corresponding decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at September 30, 2021. The prior periods provision for loan losses was due primarily to probable loan losses reflecting the uncertain adverse impact of the COVID-19 pandemic on the economy last year.

The Company provided payment and financial relief programs for borrowers impacted by COVID-19. All loans modified due to COVID-19 were separately monitored and any request for continuation of relief beyond the initial modification was reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating was appropriate. As of September 30, 2021, no loan was subject to a COVID-19 related payment adjustment agreement compared to 43 loans totaling $66.7 million at December 31, 2020. We believe the steps we have taken over the course of the last year are necessary to effectively manage our portfolio and assist our clients through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.

Branch Operations and Additional Client Support. The Company remains focused on keeping its employees safe and the Bank running effectively to serve its clients. The Bank is managing branch access and occupancy levels in relation to cases and close contact scenarios, following governmental restrictions and public health authority guidelines, and encouraging remote work and supporting employees with paid time off. As of September 30, 2021, all of the Bank’s branch lobbies were open. The Company is aware of COVID-19 infections arising out of the Delta variant and is prepared to restore other protocols, as may prove to be necessary.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total assets. Total assets increased $168.2 million, or 7.7%, to $2.4 billion at September 30, 2021, from $2.2 billion at December 31, 2020. The increase was primarily the result of cash and cash equivalents increasing $145.1 million or 48.5%, and securities available for sale increasing $26.7 million or 23.1%. These increases in total assets were primarily funded by deposit growth.

Cash and cash equivalents. Cash and cash equivalents increased $145.1 million, or 48.5%, to $444.5 million, at September 30, 2021, from $299.3 million at December 31, 2020. The increase was primarily a result of loan repayments and an increase in total deposits, which exceeded the funds required for loan originations and used for purchases of investment securities.

Securities. Investment securities, all of which are classified as available-for-sale, increased $26.7 million, or 23.1%, to $142.3 million at September 30, 2021 from $115.6 million at December 31, 2020. The increase was primarily

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due to the purchase of $48.4 million of investment securities during the nine months ended September 30, 2021, partially offset by the routine amortization and repayment of investment principal balances and securities called and matured.

Loans receivable, net. We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans. Loans receivable, net of allowance for loan losses, decreased $2.3 million, or 0.1%, to $1.6 billion at September 30, 2021 from December 31, 2020. The decrease was primarily due to loan repayments totaling $453.2 million, including $120.7 million in PPP loan forgiveness, partially offset by loan originations totaling $399.7 million, including $116.7 million of new PPP loans, with the remaining change due to normal loan amortization and payoffs. The decrease in loan originations for the current period compared to the comparable period in 2020 reflected overall lower loan production due to the COVID-19 pandemic, despite the PPP loan activity.

The following table provides information about our loan portfolio by type of loan, with PCI loans presented as a separate balance, at the dates presented.


	September 30,		December 31,		% Change
	2021		2020

	(Dollars in thousands)
Commercial and industrial (1)	$	283,327	$	309,339	(8.4)	%
Real estate:
Residential		123,175		162,203	(24.1)
Multifamily residential		215,308		238,179	(9.6)
Owner occupied CRE		384,035		404,213	(5.0)
Non-owner occupied CRE		605,939		489,752	23.7
Construction and land		16,384		22,645	(27.6)
Total real estate		1,344,841		1,316,992	2.1
Consumer		4,060		5,218	(22.2)
PCI loans		12,573		15,610	(19.5)
Total Loans		1,644,801		1,647,159	(0.1)
Net deferred loan fees		(3,965)		(3,847)	3.1
Allowance for loan losses		(17,300)		(17,500)	(1.1)
Loans, net	$	1,623,536	$	1,625,812	(0.1)	%

(1)	Includes $113.2 million and $135.6 million of PPP loans as of September 30, 2021 and December 31, 2020, respectively.

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The following table shows as of September 30, 2021, 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					California					All Other States (2)			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)
September 30, 2021
Commercial and industrial	$	102,105		19.6	%	$	82,244		14.1	%	$	184,349	16.6	%	$	99,282	18.4	%	$	283,631	17.2	%
Real estate:
Residential		24,846		4.8	%		41,408		7.1	%		66,254	6.0	%		58,821	10.9	%		125,075	7.6	%
Multifamily residential		58,947		11.3			97,868		16.7			156,815	14.2			61,611	11.4			218,426	13.3
Owner occupied CRE		171,058		32.8			149,727		25.6			320,785	29.0			68,436	12.7			389,221	23.7
Non-owner occupied CRE		163,270		31.3			210,397		36.0			373,667	33.8			234,297	43.5			607,964	37.0
Construction and land		1,673		0.3			1,322		0.2			2,995	0.3			13,429	2.5			16,424	1.0
Total real estate		419,794					500,722					920,516				436,594				1,357,110
Consumer		11		0.0	%		1,711		0.3	%		1,722	0.2	%		2,338	0.4	%		4,060	0.2	%
Total loans	$	521,910				$	584,677				$	1,106,587			$	538,214			$	1,644,801

December 31, 2020
Commercial and industrial	$	110,940		20.8	%	$	89,184		15.0	%	$	200,124	17.7	%	$	109,837	21.1	%	$	309,961	18.8	%
Real estate:
Residential	$	39,174		7.4	%	$	47,381		8.0	%	$	86,555	7.7	%	$	78,169	15.0	%	$	164,724	10.0	%
Multifamily residential		62,325		11.7			118,627		20.0			180,952	16.1			60,483	11.6			241,435	14.7
Owner occupied CRE		154,953		29.1			167,840		28.3			322,793	28.7			87,017	16.7			409,810	24.9
Non-owner occupied CRE		163,986		30.8			167,102		28.2			331,088	29.4			162,227	31.1			493,315	29.9
Construction and land		1,142		0.2			3,170		0.5			4,312	0.4			18,384	3.5			22,696	1.4
Total real estate	$	421,580				$	504,120				$	925,700			$	406,280			$	1,331,980
Consumer		13		0.0	%		4		0.0	%		17	0.0	%		5,201	1.0	%		5,218	0.3	%
Total loans	$	532,533				$	593,308				$	1,125,841			$	521,318			$	1,647,159

(1)	Includes Alameda, Contra Costa, Solano, Napa, Sonoma, Marin, San Francisco, San Joaquin, San Mateo and Santa Clara counties.

(2)

Includes loans located primarily in the states of Colorado, New Mexico and Washington. At September 30, 2021, loans in Colorado, New Mexico and Washington totaled $135.7 million, $77.1 million and $97.2 million, respectively. At December 31, 2020, loans in Colorado, New Mexico and Washington totaled $200.0 million, $78.2 million and $116.7 million, respectively.

Nonperforming assets and nonaccrual loans. Nonperforming assets consists of nonaccrual loans, accruing loans that are 90 days or more past due and other real estate owned (“OREO”). Nonperforming assets decreased $770,000, or 8.5%, to $8.3 million at September 30, 2021 from $9.1 million at December 31, 2020, primarily due to a $408,000 decrease in OREO and a $1.1 million decrease in nonaccrual loans, partially offset by a $767,000 increase in accruing loans 90 days and more past due. The Company had nonperforming loans, consisting of nonaccrual loans and accruing loans that are 90 days or more past due, totaling $8.3 million or 0.50% of total loans, of which $841,000 were guaranteed by governmental agencies at September 30, 2021, compared to $8.7 million or 0.53% of total loans, of which $850,000 were SBA guaranteed at December 31, 2020. Included in nonperforming loans at September 30, 2021 and December 31, 2020, were $1.6 million and $567,000, respectively, of TDR loans. At September 30, 2021 and December 31, 2020, nonaccrual loans included $2.5 million and $620,000 of loans 30-89 days past due and $2.5 million and $4.1 million of loans less than 30 days past due, respectively. At September 30, 2021, the $2.5 million in nonaccrual loans 30-89 days past due primarily was comprised of two loans and the $2.5 million of loans less than 30 days past due was comprised of 13 small balance loans. At December 31, 2021, nonaccrual loans 30-89 days past due of $620,000 primarily was comprised of four loans and the $4.1 million of loans less than 30 days past due was comprised of 12 small balance loans. All of these loans were placed on nonaccrual due to concerns over the client’s financial condition.

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. Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the

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borrowers continue to repay the loans as scheduled. Such loans are categorized as performing nonaccrual loans and are reflected in nonperforming assets. 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 paid 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.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date, without a carryover of the related allowance for loan and lease losses. These acquired loans are segregated into three types: pass rated loans with no discount attributable to credit quality, non-impaired loans with a discount attributable at least in part to credit quality, and impaired loans with evidence of significant credit deterioration.

●

Pass rated loans (typically performing loans) are accounted for in accordance with ASC Topic 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of credit deterioration since origination.

●

Non-impaired loans (typically performing substandard loans) are accounted for in accordance with ASC Topic 310-30 if they display at least some level of credit deterioration since origination.

●

Impaired loans (typically substandard loans on nonaccrual status) are accounted for in accordance with ASC Topic 310-30 as they display significant credit deterioration since origination.

For pass rated loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans and the principal outstanding is accreted over the remaining life of the loans.

In accordance with ASC Topic 310-30, for both purchased non-impaired loans (performing substandard loans) and purchased credit-impaired loans, the loans are pooled by loan type and the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan pools when there is a reasonable expectation about the amount and timing of such cash flows.

Troubled debt restructured loans. Troubled debt restructured loans, or TDR loans, which are accounted for under ASC Topic 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity. TDR loans as of September 30, 2021 totaled $1.6 million, of which $765,000 were accruing and performing according to their restructuring terms. TDR loans as of December 31, 2020 totaled $1.4 million, of which $798,000 were accruing and performing according to their restructuring terms. The accruing TDR loans are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to the restructured status. There were related allowance for loan losses on the TDR loans of $130,000 and $35,000 at September 30, 2021 and December 31, 2020, respectively.

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The following table sets forth the nonperforming loans, nonperforming assets and troubled debt restructured loans as of the dates indicated:


	September 30,			December 31,
	2021			2020

	(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial and industrial	$	693		$	848
Real estate:
Residential		1,688			2,195
Multifamily residential		217			254
Owner occupied CRE		4,236			4,651
Non-owner occupied CRE		422			437
Construction and land		36			36
Total real estate		6,599			7,573
Consumer		—			—
Total nonaccrual loans		7,292			8,421
Accruing loans 90 days or more past due		1,000			233
Total nonperforming loans		8,292			8,654
Real estate owned		21			429
Total nonperforming assets (1)	$	8,313		$	9,083
Troubled debt restructurings – performing		765			798
PCI loans	$	12,573		$	15,610
Nonperforming assets to total assets (1)		0.35	%		0.41	%
Nonperforming loans to total loans (1)		0.50	%		0.53	%

(1) PCI and performing TDR loans are neither included in nonperforming loans above nor are they included in the numerators used to calculate this ratio.

Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above. At September 30, 2021 and December 31, 2020, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.

Interest foregone on nonaccrual loans was approximately $61,000 and $157,500 for the three and nine months ended September 30, 2021 compared to $117,500 and $338,500 for the three and nine months ended September 30, 2020, respectively, none of which was included in interest income.

Potential problem loans. Potential problem loans are those loans that are currently accruing interest and are not considered impaired, but which we are monitoring because the financial information of the borrower causes us concern as to their ability to comply with their loan repayment terms. We define potential problem loans as loans classified as “Substandard”, “Doubtful” or “Loss” that are not included in the amounts of nonaccrual or restructured loans. During the ordinary course of business, management may become aware of borrowers that may not be able to meet the contractual requirements of their loan agreements. Such loans are placed under closer supervision with consideration given to placing the loan on nonaccrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or full charge-off. At September 30, 2021, there are $13.7 million of potential problem loans, compared to $12.7 million at December 31, 2020. Also, see Note 5 — Loans in the Notes to the Condensed Consolidated Financial Statements included in “Item 1 - Financial Statements” within this report.

Allowance for loan losses. The allowance for loan losses is maintained to cover losses that are estimated in accordance with GAAP. It is our estimate of loan losses inherent in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists of general and specific components. For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses in the loan portfolio. We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types to establish general component loss allocations. Qualitative loss factors are based on management’s judgment of company, market, industry or business

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specific data and external economic indicators, which may not yet be reflected in the historical loss ratios, and that could impact our specific loan portfolios. Management and the Board of Directors sets and adjusts qualitative loss factors by regularly reviewing changes in underlying loan composition and the seasonality of specific portfolios. Management and the Board of Directors also considers credit quality and trends relating to delinquency, nonperforming and classified loans within our loan portfolio when evaluating qualitative loss factors. Additionally, management and the Board of Directors adjusts qualitative factors to account for the potential impact of external economic factors, including the unemployment rate, vacancy, capitalization rates, commodity prices and other pertinent economic data specific to our primary market area and lending portfolios.

For the specific component, the allowance for loan losses is established for impaired loans. Management evaluates current information and events regarding a borrower’s ability to repay its obligations and considers a loan to be impaired when the ultimate collectability of amounts due, according to the contractual terms of the loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses through a charge to the provision for credit losses. Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.

In accordance with acquisition accounting, loans acquired in our acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts, of which a portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded for acquired loans at the acquisition date. Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisition. As of September 30, 2021, acquired loans, net of their discounts, totaled $55.2 million compared to $164.0 million at December 31, 2020, with the decrease due to the migration of acquired loans out of the discounted acquired loan portfolio. The remaining net discount on these acquired loans was $2.2 million and $3.3 million at September 30, 2021 and December 31, 2020, respectively. The $113.2 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at September 30, 2021 as these loans are fully guaranteed by the SBA and management expects that the great majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reimburse the Bank for the amount forgiven.

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The following table presents an analysis of changes in the allowance for loan losses as of the dates indicated:


	September 30,			December 31,
	2021			2020

	(Dollars in thousands)
Balance at beginning of period	$	17,500		$	7,400
Provisions for (reversal of) loan losses		(30)			10,320
Recoveries
Commercial and industrial		9			13
Residential		—			—
Owner occupied CRE		—			—
Non-owner occupied CRE		—			4
Construction		4			—
Consumer		—			—
Total recoveries		13			17
Charge-offs
Commercial and industrial		(182)			(199)
Residential		—			(1)
Owner occupied CRE		(1)			—
Non-owner occupied CRE		—			—
Construction		—			(20)
Consumer		—			(17)
Total charge-offs		(183)			(237)
Net charge-offs		(170)			(220)
Balance at end of period	$	17,300		$	17,500

Allowance for loan losses as a percentage of total loans		1.05	%		1.06	%
Allowance for loan losses to total loans excluding PCI loans (1)		1.06			1.07
Allowance for loan losses excluding acquired loans (loans not covered by the allowance) (1)		1.09			1.18
Allowance for loan losses excluding acquired loans and PPP loans (loans not covered by the allowance) (1)		1.17			1.30
Allowance for loan losses as a percentage of total nonperforming loans		237.25			202.22
Net recoveries/(charge-offs) as a percentage of average loans outstanding for the period		(4.01)	%		(0.01)	%

(1)	See non-GAAP financial measures herein.

The allowance for loan losses decreased to $17.3 million at September 30, 2021 from $17.5 million at December 31, 2020. The decrease in the allowance for loan losses at September 30, 2021 was primarily due to the continued improvement since December 31, 2020 in the national and local economy associated with the recovery from the COVID-19 pandemic, which reduced the loss rates utilized to calculate the allowance for loan losses at September 30, 2021 as compared to the uncertain economic outlook and loss rates utilized at December 31, 2020, partially offset by net charge offs of $170,000. Our PPP loans were omitted from the calculation of the required allowance for loan losses at September 30, 2021 and December 31, 2020 as these loans are fully guaranteed by the SBA and management expects that a majority of SBA PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA, which in turn, the SBA will reimburse the Bank for the amount forgiven. Included in the carrying value of loans are net discounts on acquired loans which may reduce the need for an allowance for loan losses on these loans because they are carried at their estimated fair value on the date on which they were acquired.

As of September 30, 2021, the Company identified $8.1 million in impaired loans, inclusive of $7.3 million of nonperforming loans and $805,000 of accruing TDR loans. Of these impaired loans, only $1.0 million had a specific allowance of $701,000 as of September 30, 2021. As of December 31, 2020, the Company identified $9.2 million in impaired loans, inclusive of $8.4 million of nonperforming loans and $798,000 of accruing TDR loans. Of these impaired loans, only $1.3 million had a specific allowance of $521,000 as of December 31, 2020.

Management considers the allowance for loan losses at September 30, 2021 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of

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operations. Uncertainties relating to our allowance for loan losses are heightened as a result of the risks surrounding the COVID-19 pandemic, including whether government programs will provide adequate relief to borrowers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. A further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations. Recently we have seen most of our market areas reporting a fairly significant increase in COVID transmissions, which we understand from our public health authorities is largely attributed to lagging vaccination rates and an increase in cases related to the Delta variant. To date, we are not seeing renewed business activity restrictions in our primary markets. To the extent business activity restrictions are renewed, due to COVID-19 or otherwise, this will likely affect our business operations which may, in turn, require us to increase our allowance through our provision for loan losses which would adversely affect our financial performance. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.

Deposits. Deposits are our primary source of funding and 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, savings, money market, 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 in keeping 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 $169.4 million, or 9.2%, to $2.0 billion at September 30, 2021 from $1.8 billion at December 31, 2020. The increase in deposits was primarily driven by organic growth in client relationships, proceeds from PPP loans and government stimulus checks deposited directly into customer accounts, and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. At September 30, 2021, noninterest bearing demand deposits totaled $733.1 million or 36.5% of total deposits, compared to $678.4 million or 36.9% of total deposits at December 31, 2020.

The following table sets forth the dollar amount of deposits in the various types of deposit programs offer at the dates indicated.


	September 30,		December 31,
	2021		2020		% Change

	(Dollars in thousands)
Noninterest bearing demand deposits	$	733,101	$	678,365	8.1	%
NOW accounts and savings		448,717		399,772	12.2
Money market		604,970		516,560	17.1
Time deposits		220,963		243,700	(9.3)
Total	$	2,007,751	$	1,838,397	9.2	%

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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. In May 2020, the Bank secured a $10.0 million advance from the FHLB of San Francisco, comprised of two $5.0 million tranches, at no cost, maturing in November 2020 and May 2021. As of September 30, 2021, the two tranches were repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco. At September 30, 2021 and December 31, 2020, we had the ability to borrow up to $434.9 million and $421.2 million, respectively, from the FHLB of San Francisco.

At September 30, 2021, the Company had outstanding junior subordinated deferrable interest debentures, net mark-to-market adjustments, totaling $8.4 million which were assumed in connection with our previous acquisitions. The Company issued $65.0 million of subordinated debt during the third quarter of 2020. At September 30, 2021, the Company had outstanding subordinated debt, net of cost to issue, totaling $63.5 million.

If needed, we may also utilize Fed Funds purchased from correspondent banks as a source of short-term funding. At September 30, 2021 and December 31, 2020, we had a total of $75.0 million in federal funds line available from third-party financial institutions and no balances outstanding at these dates.

We are required to provide collateral for certain local agency deposits. As of September 30, 2021 and December 31, 2020, the FHLB of San Francisco had issued a letters of credit on behalf of the Bank totaling $41.5 million and $30.1 million, respectively as collateral for local agency deposits.

Shareholders’ equity. Shareholders’ equity increased $4.7 million, to $257.3 million at September 30, 2021 from $252.6 million at December 31, 2020. The increase in shareholders’ equity was primarily due to net income of $15.3 million partially offset by the repurchase of $11.5 million of our common stock. During the nine months ended September 30, 2021, the Company repurchased a total of 643,609 shares of its common stock at a total cost of $11.5 million, or $17.80 per share, leaving 657 shares available for future purchases under the current stock repurchase plan. For additional information see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds”.

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Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

Earnings summary. Net income was $5.4 million for the three months ended September 30, 2021, compared to $3.2 million for the three months ended September 30, 2020, an increase of $2.2 million or 66.6%. The increase was the result of a $1.8 million decrease in provision for loan losses, a $2.2 million increase in noninterest income and a $276,000 decrease in noninterest expenses, partially offset by a $1.3 million decrease in net interest income, and an $845,000 increase in the provision for income taxes. Diluted earnings per share were $0.51 for the three months ended September 30, 2021, an increase of $0.24 from diluted earnings per share of $0.27 for the three months ended September 30, 2020.

Net income was $15.3 million for the nine months ended September 30, 2021, compared to $9.2 million for the nine months ended September 30, 2020, an increase of $6.1 million or 66.0%. The increase was the result of $8.4 million decrease in the provision for loan losses, a $3.0 million increase in noninterest income and a $3.2 million decrease in noninterest expense, partially offset by a $6.4 million decrease in net interest income and a $2.2 million increase in provision for income taxes. There were no acquisition-related expenses during the nine months ended September 30, 2021, compared to $3.0 million during the nine months ended September 30, 2020. Diluted earnings per share were $1.39 for the nine months ended September 30, 2021, an increase of $0.63 from diluted earnings per share of $0.76 for the nine months ended September 30, 2020.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses and noninterest income, was 63.82% and 66.40% for the three and nine months ended September 30, 2021, compared to 67.95% and 67.90% for the three and nine months ended September 30, 2020. The improvement in the efficiency ratio during the three months ended September 30, 2021 compared to the same period in 2020 was due to higher revenues coupled with lower noninterest expense during the current quarter compared to the comparable quarter in 2020. The improvement in the efficiency ratio during the nine months ended September 30, 2021 was primarily due higher revenues and reduced noninterest expense due to the absence of acquisition-related expenses.

Interest income. Interest income for the three months ended September 30, 2021 was $20.0 million, compared to $21.2 million for the three months ended September 30, 2020, a decrease of $1.2 million or 5.94%. The decrease in interest income was due to the low interest rate environment and a decrease in average loans outstanding, which more than offset the $122.6 million, or 5.85%, increase in average interest earning assets resulting from higher average balance of lower yielding cash and cash equivalents.

Interest income on loans, including fees, decreased $1.7 million, or 8.37%, to $18.5 million during the three months ended September 30, 2021, compared to $20.1 million for the three months ended September 30, 2020 primarily due to a $93.7 million decrease in average loan balance and a 14 basis point decline in the average loan yield. The average yield on loans for the three months ended September 30, 2021 was 4.50%, compared to 4.64% for the same period in 2020. Interest income on loans for the quarters ended September 30, 2021 and 2020 included $338,000 and $824,000, respectively, in accretion of purchase accounting fair value adjustments on acquired loans. The remaining net discount on these acquired loans was $2.2 million and $4.1 million at September 30, 2021 and 2020, respectively. Interest income for the three months ended September 30, 2021 included $1.1 million in fees earned related to PPP loans compared to $594,000 during the same period in 2020. As of September 30, 2021, total unrecognized fees on PPP loans were $4.0 million. For the three months ended September 30, 2021, average PPP loans were $127.5 million and the average yield, including fees, was 4.52%. The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, but will cease completely after the maturity of the loans. Approximately two-thirds of the PPP loans are set to mature by the end of 2022, while the remaining loans have a five-year maturity date.

Interest income on interest bearing deposits in banks increased $44,000 as a result of a $193.6 million increase in the average balance of interest bearing deposits in banks, partially offset by a seven basis point decrease in the average yield on interest bearing deposits to 0.18% for the three months ended September 30, 2021 compared to 0.25% for the three months ended September 30, 2020.

Interest income on investment securities available-for-sale increased by $356,000 as a result of a 63 basis point increase in the average yield to 3.15% for the three months ended September 30, 2021 compared to 2.52% for the three

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months ended September 30, 2020, and a $22.1 million increase in the average balance of investment securities available-for-sale.

Interest income for the nine months ended September 30, 2021 was $60.2 million, compared to $66.5 million for the nine months ended September 30, 2020, a decrease $6.3 million or 9.5%. The decrease in interest income primarily was due to a 68 basis point decline in the average yield on interest earning assets and a $41.6 million or 2.5% decline in the average loan balance.

Interest income on loans, including fees, decreased $6.2 million, or 9.86%, primarily as a result of a 36 basis point decrease in the average loan yield to 4.67% for the nine months ended September 30,2021 compared to 5.03% for the nine months ended September 30, 2020 and, to a lesser extent, the $41.6 million decrease in the average loan balance. The average yield on loans for the accretion of the net discount on acquired loans decreased the average yield on loans by 19 basis points during the nine months ended September 30, 2021 and 2020. During the nine months ended September 30, 2021 compared to this same period in 2020, the accretion of the net discount on acquired loans increased the yield on loans by eight basis points and 36 basis points, respectively. Interest income on loans for the nine months ended September 30, 2021 included $1.4 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $4.4 million for the nine months ended September 30, 2020. The remaining net discount on these purchased loans was $2.2 million and $4.1 million at September 30, 2021 and 2020, respectively. Interest income for the nine months ended September 30, 2021 also included $3.4 million in fees earned related to PPP loans compared to $1.1 million during the same period in 2020. For the nine months ended September 30, 2021, average PPP loans were $117.8 million and the average yield, including fees, was 4.90%.

Interest income on interest bearing deposits in banks decreased $679,000 as a result a 52 basis point decrease in the average yield to 0.16% for the nine months ended September 30, 2021 compared to 0.68% for the nine months ended September 30, 2020, partially offset by a $184.1 million increase in the average balance of interest bearing deposits in banks.

Interest income on investment securities available for sale increased $472,000 as a result of a 46 basis point increase in the average yield on investment securities to 3.01% for the nine months ended September 30, 2021 compared to 2.55% for the nine months ended September 30, 2020, and a $3.6 million increase in the average balance of investment securities available-for-sale.

Interest expense. Interest expense remained relatively unchanged at $2.2 million for both the three months ended September 30, 2021 and 2020, as a decrease in interest expense on deposits was offset by an increase in interest expense on subordinated debt. Total average interest bearing liabilities increased $89.4 million, or 7.1%, to $1.3 billion for the three months ended September 30, 2021, compared to $1.3 billion for the three months ended September 30, 2020. The average rate paid on interest bearing liabilities decreased by four basis points to 0.66% for the three months ended September 30, 2021, from 0.70% for the three months ended September 30, 2020.

Interest expense on deposits decreased $322,000, or 20.61%, to $1.2 million for the three months ended September 30, 2021 compared to $1.6 million for the three months ended September 30, 2020, primarily due to decreases in the targeted federal funds rate, earlier in 2020, partially offset by a $71.1 million increase in the average balance of deposits. The average rate paid on interest bearing deposits decreased by 13 basis points to 0.39% for the three months ended September 30, 2021, from 0.52% for the three months ended September 30, 2020. The overall average cost of deposits for the three months ended September 30, 2021 declined to 0.25%, compared to 0.32% for the three months ended September 30, 2020, due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year. The average balance of noninterest bearing deposits increased $25.0 million, or 3.39%, to $763.1 million for the three months ended September 30, 2021 compared to $738.1 million for the same period in 2020. The market’s response to lowering deposit pricing to reflect the targeted federal funds rate decreases over the past year typically lags declines in the yield on interest earning assets.

Interest expense on borrowings increased $325,000 or 49.7%, to $981,000 for the three months ended September 30, 2021, from $656,000 for the three months ended September 30, 2020, as a result of the issuance of subordinated debt in August 2020, which currently has a 5.25% interest rate. The average balance of borrowings outstanding increased $18.3 million to $71.8 million during the three months ended September 30, 2021, compared to

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$53.5 million during the three months ended September 30, 2020. The average cost of borrowing increased to 5.42% for the three months ended September 30, 2021, compared to 4.86% for the three months ended September 30, 2020.

Interest expense increased by $89,000, or 1.4%, to $6.6 million for the nine months ended September 30, 2021 compared to $6.5 million for the nine months ended September 30, 2020 as a result of the costs from the issuance of subordinated debt in August 2020 exceeding decreased deposit costs from the decline in the average rate paid on interest bearing deposits. The average cost of interest bearing liabilities decreased four basis points to 0.68% for the nine months ended September 30, 2021 compared to 0.72% for the nine months ended September 30, 2020. Total average interest bearing liabilities increased $98.2 million, or 8.16%, to $1.3 million for the nine months ended September 30, 2021 from $1.2 million for the nine months ended September 30, 2020.

Interest expense on deposits decreased $1.9 million, or 34.0%, to $3.7 million during the nine months ended September 30, 2021 from $5.6 million the same period in 2020, primarily as a result of a decline in the average rate paid on interest bearing deposits and a $51.9 decrease in the average balance of higher interest bearing time deposits. The average rate paid on interest bearing deposits decreased by 23 basis points to 0.40% for the nine months ended September 30, 2021 compared to 0.63% for the nine months ended September 30, 2020.

The overall average cost of deposits for the nine months ended September 30, 2021 declined to 0.25%, compared to 0.32% for the nine months ended September 30, 2020 due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year. The average balance of noninterest bearing deposits increased $59.9 million, or 9.1%, to $721.0 million for the nine months ended September 30, 2021 compared to $661.1 million for the nine months ended September 30, 2020.

Interest expense on borrowings increased $2.0 million, or 198.8%, to $2.9 million for the nine months ended September 30, 2021, from $968,000 for the nine months ended September 30, 2020, as a result of a higher average balance of borrowings outstanding due to the issuance of the subordinated debt in August 2020. The average balance of borrowing outstanding increased $49.1 million to $74.1 million during the nine months ended September 30, 2021, compared to $25.0 million during the nine months ended September 30, 2020. The average cost of borrowing increased to 5.32% for the nine months ended September 30, 2021, compared to 5.17% for the nine months ended September 30, 2020.

Net interest income and net interest margin. Net interest income decreased $1.3 million, or 6.7%, to $17.7 million for the three months ended September 30, 2021, compared to $19.0 million for the three months ended September 30, 2020, and decreased $6.4 million to $53.6 million for the nine months ended September 30, 2021, compared to $60.0 million for the nine months ended September 30, 2020. The decrease in net interest income during the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to the decline in the average loan balance between periods, while the decrease during the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to the decline in the average yield on interest earning assets.

The average yield on interest earning assets for the three months ended September 30, 2021 was 3.57%, a 44 basis point decrease from 4.01% for the three months ended September 30, 2020, due primarily to lower market interest rates, while the average cost of interest bearing liabilities for the three months ended September 30, 2021 decreased to 0.66%, or four basis points from 0.70% for the three months ended September 30, 2020. The average yield on interest earning assets for the nine months ended September 30, 2021 was 3.72%, a 68 basis point decrease from 4.40% for the nine months ended September 30, 2020, while the average cost of interest bearing liabilities for the nine months ended September 30, 2021 decreased to 0.68%, or four basis points from 0.72% for the nine months ended September 30, 2020, due primarily to lower market interest rates, partially offset by the cost of the subordinated debt.

The net interest margin for the three and nine months ended September 30, 2021 was 3.17% and 3.51%, respectively, compared to 3.59% and 3.96% for the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2021, the interest margin was impacted by lower yielding loans, including PPP loans and resetting adjustable rate instruments as well as reduced interest rates on new fixed-rate real estate loan and adjustable-rate commercial loan originations and the increase in low yielding overnight cash balances causing a decrease in the average yield on interest-earning assets that outweighed the contribution to net interest margin from the decrease in the average cost of interest-bearing liabilities. The decrease in net interest margin was offset partially by an increase in deferred SBA PPP loan fees recognized due to the volume of forgiven SBA PPP loans during the three and nine months

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ended September 30, 2021, which benefited net interest margin compared to a reduction in net interest margin from the Company’s origination of low yielding PPP loans during the same periods in 2020. PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA. The average yield on PPP loans was 4.52% and 4.90%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of 20 basis points and 21 basis points during the three and nine months ended September 30, 2021, compared to a positive impact of 11 basis points and eight basis points during the comparable periods in 2020, respectively. The impact of PPP loans on net interest margin will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are net, but will cease completely after the maturity of the loans. Accretion of acquisition accounting discounts on loans and the recognition of revenue from acquired loans in excess of discounts decreased our net interest margin by 12 and 19 basis points during the three and nine months ended September 30, 2021 and 19 and 51 basis points during the three and nine months ended September 30 2020, respectively.

Average Balances, Interest and Average Yields/Cost. The following table presents, 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 yields; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis. The 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 September 30,
	2021						2020
					Annualized						Annualized
	Average				Average		Average				Average
	Balance(1)		Interest		Yield		Balance(1)		Interest		Yield

	(Dollars in thousands)
Interest earning assets
Interest bearing deposits in banks	$	441,440	$	198	0.18	%	$	247,861	$	154	0.25	%
Investments securities available-for-sale		135,721		1,077	3.15			113,657		721	2.52
FHLB Stock		8,385		125	5.93			7,612		95	4.94
FRB Stock		7,634		112	5.84			7,741		117	6.00
Total loans		1,626,946		18,451	4.50			1,720,631		20,136	4.64
Total interest earning assets		2,220,126		19,963	3.57	%		2,097,502		21,223	4.01	%
Noninterest earning assets		142,666						150,820
Total average assets	$	2,362,792					$	2,248,322
Interest bearing liabilities
Savings	$	121,928	$	41	0.13	%	$	114,461	$	41	0.14	%
NOW accounts		329,518		75	0.09			278,587		66	0.09
Money market		592,229		601	0.40			546,475		637	0.46
Time deposits		227,731		523	0.91			260,785		818	1.24
Total deposit accounts		1,271,406		1,240	0.39			1,200,308		1,562	0.52
Subordinated debt, net		63,473		895	5.59			35,865		416	4.60
Junior subordinated debentures, net		8,371		86	4.06			8,290		184	8.82
Other borrowings		—		—	—			9,348		56	2.37
Total interest bearing liabilities		1,343,250		2,221	0.66	%		1,253,811		2,218	0.70	%
Noninterest bearing liabilities		763,140						738,143
Total average liabilities		2,106,390						1,991,954
Average equity		256,402						256,368
Total average liabilities and equity	$	2,362,792					$	2,248,322
Net interest income			$	17,742					$	19,005

Interest rate spread (2)					2.91	%					3.31	%
Net interest margin (3)					3.17	%					3.59	%
Ratio of average interest earning assets to average interest bearing liabilities					165.28	%					167.29	%

(1)	Average balances are computed using average daily balances.

(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.

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	Nine months ended September 30,
	2021						2020
					Annualized						Annualized
	Average				Average		Average				Average
	Balance (1)		Interest		Yield		Balance(1)		Interest		Yield

	(Dollars in thousands)
Interest earning assets
Interest bearing deposits in banks	$	411,811	$	479	0.16	%	$	227,706	$	1,158	0.68	%
Investments securities available-for-sale		120,734		2,714	3.01			117,090		2,242	2.55
FHLB Stock		8,136		346	5.69			7,395		274	4.94
FRB Stock		7,624		341	5.98			7,526		339	6.00
Total loans		1,614,608		56,348	4.67			1,656,232		62,511	5.03
Total interest earning assets		2,162,913		60,228	3.72	%		2,015,949		66,524	4.40	%
Noninterest earning assets		141,084						150,380
Total average assets	$	2,303,997					$	2,166,329
Interest bearing liabilities
Savings	$	118,326	$	123	0.14	%	$	105,575	$	126	0.16	%
NOW accounts		313,775		211	0.09			265,372		186	0.09
Money market		562,263		1,660	0.39			522,390		2,101	0.54
Time deposits		233,208		1,680	0.96			285,153		3,151	1.47
Total deposit accounts		1,227,572		3,674	0.40			1,178,490		5,564	0.63
Subordinated debt, net		63,431		2,686	5.66			12,042		510	5.64
Junior subordinated debentures, net		8,351		261	4.17			8,270		308	4.97
Other borrowings		2,308		—	—			4,652		150	4.29
Total interest bearing liabilities		1,301,662		6,621	0.68	%		1,203,454		6,532	0.72	%
Noninterest bearing liabilities		747,289						707,293
Total average liabilities		2,048,951						1,910,747
Average equity		255,046						255,582
Total average liabilities and equity	$	2,303,997					$	2,166,329
Net interest income			$	53,607					$	59,992

Interest rate spread (2)					3.04	%					3.68	%
Net interest margin (3)					3.31	%					3.96	%
Ratio of average interest earning assets to average interest bearing liabilities					166.17	%					167.51	%

(1)	Average balances are computed using average daily balances.

(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.

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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. Yields have been calculated on a pre-tax basis.


	Three months ended September 30,						Nine months ended September 30,
	2021 compared to 2020						2021 compared to 2020
	Increase/(Decrease)						Increase/(Decrease)
	Attributable to						Attributable to
	Rate		Volume		Total		Rate		Volume		Total

	(Dollars in thousands)						(Dollars in thousands)
Interest earning assets
Interest bearing deposits in banks	$	(76)	$	120	$	44	$	(1,766)	$	1,087	$	(679)
Investments available-for-sale		216		140		356		115		357		472
FHLB stock and FRB stock		16		9		25		29		45		74
Total loans		(370)		(1,315)		(1,685)		(4,636)		(1,527)		(6,163)
Total interest income		(214)		(1,046)		(1,260)		(6,258)		(38)		(6,296)

Interest bearing liabilities
Savings		(3)		3		—		(23)		20		(3)
NOW accounts		(3)		12		9		(20)		45		25
Money market accounts		(89)		53		(36)		(722)		281		(441)
Time deposits		(191)		(104)		(295)		(836)		(635)		(1,471)
Total deposit accounts		(286)		(36)		(322)		(1,601)		(289)		(1,890)
Subordinated debt, net		—		479		479		—		2,176		2,176
Junior subordinated debentures, net		(100)		2		(98)		(51)		4		(47)
Other borrowings		—		(56)		(56)		—		(150)		(150)
Total interest expense		(386)		389		3		(1,652)		1,741		89
Net interest income	$	172	$	(1,435)	$	(1,263)	$	(4,606)	$	(1,779)	$	(6,385)

Provision for loan losses. We recorded $477,000 provision for loan losses and $30,000 reversal of the provision for loan losses for the three and nine months ended September 30, 2021, compared to a provision for loan losses of $2.3 million and $8.4 million for the three and nine months ended September 30, 2020 respectively. The provision for loan losses recorded in the third quarter of 2021 related primarily to new loan production. The reversal of the provision for loan losses for the nine months ended September 30, 2021 was primarily due to an adjustment to the qualitative factors utilized to calculate the allowance for loan losses resulting from improvements in the economic forecast since December 31, 2020. We had net charge-offs on loans of $177,000 and $170,000 for the three and nine months ended September 30, 2021, compared to $7,000 of net charge-offs and recoveries on loans of $4,000 for the three and nine months ended September 30, 2020, respectively. The allowance for loan losses to total loans was 1.05% at September 30, 2021, compared to 0.93% at September 30, 2020.

Noninterest income. Noninterest income for the three months ended September 30, 2021 increased $2.2 million, or 119.2%, to $4.0 million compared to $1.8 million for the three months ended September 30, 2020. The increase in noninterest income for the current quarter compared to the same period in 2020 was primarily due to a $2.0 million increase in gain on sale of loans and a $338,000 increase in income from our investment in the SBIC fund, partially offset by a $150,000 decrease in loan servicing fees and other fees. During the three months ended September 30, 2021, the Company sold $20.3 million of SBA loans (guaranteed portion), resulting in a gain on sale of $2.2 million, compared to the sale of $3.3 million of SBA loans (guaranteed portion) resulting in a gain on sale of $176,000 during the three months ended September 30, 2020.

Noninterest income increased $3.0 million, or 52.4%, to $8.7 million for the nine months ended September 30, 2021 compared to $5.7 million for the nine months ended September 30, 2020 primarily due to a $2.7 million increase in gain on sale of loans and a $798,000 increase in income in our investment in the SBIC fund. During the nine months ended September 30, 2021, the Company sold $36.0 million of SBA loans (guaranteed portion), resulting

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in a gain on sale of $3.8 million, compared to the sale of $15.0 million of SBA loans (guaranteed portion) resulting in a gain of $1.0 million during the nine months ended September 30, 2020. These increase were partially offset by a decrease in loan servicing and other loan fees of $426,000, or 23.0%, to $1.4 million for the nine months ended September 30, 2021, compared to $1.8 million for the nine months ended September 30, 2020, as a result of lower transaction volume.

The following table presents the key components of noninterest income for the periods indicated:


	Three months ended September 30,
	2021		2020		$ Change		% Change

	(Dollars in thousands)
Gain on sale of loans	$	2,176	$	176	$	2,000	1,136.4	%
Service charges and other fees		611		648		(37)	(5.7)
Loan servicing and other loan fees		458		608		(150)	(24.7)
Income on investment in SBIC fund		526		188		338	(179.8)
Gain (loss) on sale of premises		—		(25)		25	100.0
Gain (loss) on sale of OREO		(21)		—		(21)	(100.0)
Other income and fees		257		233		24	10.3
Total noninterest income	$	4,007	$	1,828	$	2,179	119.2	%


	Nine months ended September 30,
	2021		2020		$ Change		% Change

	(Dollars in thousands)
Gain on sale of loans	$	3,705	$	1,030	$	2,675	259.7	%
Service charges and other fees		1,819		1,963		(144)	(7.3)
Loan servicing and other loan fees		1,423		1,849		(426)	(23.0)
Gain (loss) on sale of premises		12		(25)		37	148.0
Income on investment in SBIC fund		1,021		223		798	357.8
Gain on sale of OREO		15		28		(13)	(46.4)
Other income and fees		704		640		64	10.0
Total noninterest income	$	8,699	$	5,708	$	2,991	52.4	%

Noninterest expense. Noninterest expense decreased $276,000, or 1.9%, to $13.9 million for the three months ended September 30, 2021 compared to $14.2 million for the three months ended September 30, 2020. The decrease was primarily due to a $319,000, or 3.8% decrease in salaries and employee benefits expense as a result of overall lower staff combined with a $160,000 or 9.7% decrease in data processing expense due to decreased customer transactions , partially offset by a $196,000, or 11.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.

Noninterest expense for the nine months ended September 30, 2021 decreased $3.2 million, or 7.3%, to $41.4 million from $44.6 million in the same period in 2020. This decrease primarily was due to decreases in data processing expenses of $2.5 million and other expenses of $747,000 for the nine months ended September 30, 2021, compared to the same period in 2020. The higher data processing and other expenses during the nine months ended September 30, 2020, were primarily related to our acquisition of Grand Mountain Bancshares in February 2020, compared to no acquisition-related expenses incurred during the nine months ended September 30, 2021. Salaries and benefits decreased $284,000, or 11.0% during the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a decrease in staffing levels. Partially offsetting these decreases was a $276,000 or 11.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.

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The following table details the components of noninterest expense for the periods indicated:


	Three months ended September 30,
	2021		2020		$ Change		% Change

	(Dollars in thousands)
Salaries and related benefits	$	8,163	$	8,482	$	(319)	(3.8)	%
Occupancy and equipment		1,945		1,749		196	11.2
Data processing		1,482		1,642		(160)	(9.7)
Other		2,290		2,283		7	0.3
Total noninterest expense	$	13,880	$	14,156	$	(276)	(1.9)	%


	Nine months ended September 30,
	2021		2020		$ Change		% Change

	(Dollars in thousands)
Salaries and related benefits	$	25,158	$	25,442	$	(284)	(1.1)	%
Occupancy and equipment		5,610		5,334		276	5.2
Data processing		4,235		6,716		(2,481)	(36.9)
Other		6,371		7,118		(747)	(10.5)
Total noninterest expense	$	41,374	$	44,610	$	(3,236)	(7.3)	%

Income taxes. The provision for income taxes increased $845,000, or 74.4%, to $2.0 million for the three months ended September 30, 2021 compared to $1.1 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the provision for income taxes increased $2.2 million, or 63.1%, to $5.7 million, compared to $3.5 million for the nine months ended September 30, 2020. The Company’s effective tax rate was 26.8% and 27.2% for three and nine months ended September 30, 2021 compared to 25.9% and 27.6% for the three and nine months ended September 30, 2020. The increases in the provision for income taxes for the periods primarily was due to increased taxable income.

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 a number of different sources in order to meet our potential liquidity demands. Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sale of loans. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash, short-term investments, including interest bearing demand deposits and investment securities available-for-sale. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. At September 30, 2021, the Company had $448.5 million in cash and cash equivalents, and interest bearing deposits in banks, and $142.3 million in investment securities. The Company classifies its investment securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. At September 30, 2021, the Bank had an available borrowing capacity of $434.9 million with the FHLB of San Francisco, and Federal Funds lines with available commitments totaling $75.0 million with four correspondent banks. There were no amounts outstanding under these facilities at September 30, 2021 and December 31, 2020.

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We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. Loan commitments and letters of credit totaled $96.3 million at September 30, 2021, and certificates of deposits scheduled to mature in one year or less at September 30, 2021, totaled $181.0 million. It is management's policy to manage 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.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities for the nine months ended September 30, 2021 was $5.4, compared to $6.2 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, net cash used in investing activities was $13.2 million, which consisted primarily of net change in loans receivable, compared to $132.0 million of cash used in investing activities for the nine months ended September 30, 2020. Net cash provided by financing activities for the nine months ended September 30, 2021 was $152.9 million, which was comprised primarily of net change in deposits, compared to $150.3 million during the nine months ended September 30, 2020.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. At September 30, 2021, the Company, on an unconsolidated basis, had liquid assets of $35.2 million. In addition to its operating expenses, the Company is responsible for paying any dividends declared, if any, to its shareholders, funds paid for Company stock repurchases, and payments on trust-preferred securities and subordinated notes held at the Company level. The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends.

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit. For additional information about our loan commitments, unused lines of credit and standby letters of credit, see Note 18 - Commitment and Contingencies in the Notes to the Condensed Consolidated Financial Statements included in “Item 1 - Financial Statements” within this report. We have not engaged in any other off-balance sheet transactions in the normal course of our lending activities.

Regulatory Capital

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

Under the capital regulations, the minimum capital ratios are: (1) a common equity Tier 1 capital ratio (“CET1 capital”) of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets (“Tier 1 capital”); (3) a total risk-based capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital to average total consolidated assets) of 4.0%. CET1 capital generally consists of common stock, retained earnings, accumulated other comprehensive income (“AOCI”) unless an institution elects to exclude AOCI from regulatory capital, and certain minority interests (all of which are subject to applicable regulatory adjustments and deductions). Tier 1 capital generally consists of CET1 capital and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt which meet certain conditions, plus an amount of the allowance for loan and lease losses up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2 capital.

The Bank is subject to various regulatory capital requirements administered by the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also

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subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital to total average assets (as defined), and minimum ratios of Tier 1 capital (as defined) and CET1 capital to risk-weighted assets (as defined).

Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. As of September 30, 2021, the most recent regulatory notifications from the Federal Reserve categorized the Bank as “Well Capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes would have changed the category.

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


	At September 30, 2021				At December 31, 2020
	Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
Leverage Ratio
BayCom Corp	$	207,678	9.39	%	$	201,519	9.58	%
Minimum requirement for "Well Capitalized"		110,577	5.00	%		105,225	5.00	%
Minimum regulatory requirement		88,461	4.00	%		84,180	4.00	%

United Business Bank		243,806	10.63	%		224,169	10.18	%
Minimum requirement for "Well Capitalized"		114,732	5.00	%		110,136	5.00	%
Minimum regulatory requirement		91,785	4.00	%		88,109	4.00	%

Common Equity Tier 1 Ratio
BayCom Corp		207,678	12.51	%		201,519	12.78	%
Minimum requirement for "Well Capitalized"		107,901	6.50	%		102,472	6.50	%
Minimum regulatory requirement		74,701	4.50	%		70,942	4.50	%

United Business Bank		243,806	14.83	%		224,169	14.22	%
Minimum requirement for "Well Capitalized"		106,856	6.50	%		102,440	6.50	%
Minimum regulatory requirement		73,977	4.50	%		70,920	4.50	%

Tier 1 Risk-Based Capital Ratio
BayCom Corp		217,163	13.08	%		211,004	13.38	%
Minimum requirement for "Well Capitalized"		132,801	8.00	%		126,120	8.00	%
Minimum regulatory requirement		99,601	6.00	%		94,590	6.00	%

United Business Bank		243,806	14.83	%		224,169	14.22	%
Minimum requirement for "Well Capitalized"		131,515	8.00	%		126,080	8.00	%
Minimum regulatory requirement		98,636	6.00	%		94,560	6.00	%

Total Risk-Based Capital Ratio
BayCom Corp		299,878	18.06	%		293,919	18.64	%
Minimum requirement for "Well Capitalized"		166,002	10.00	%		157,650	10.00	%
Minimum regulatory requirement		132,801	8.00	%		126,120	8.00	%

United Business Bank		261,521	15.91	%		242,084	15.36	%
Minimum requirement for "Well Capitalized"		164,394	10.00	%		157,600	10.00	%
Minimum regulatory requirement		131,515	8.00	%		126,080	8.00	%

In addition to the minimum CET1 capital, Tier 1 capital, leverage ratio and total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2021, the Bank’s CET1 capital exceeded the required capital conservation buffer.

Non-GAAP financial measures

This report contains certain financial information by methods other than GAAP. These measures include allowance for loan losses as a percentage of total loans, excluding PCI loans, acquired loans and PPP loans. Management uses these non-GAAP financial measures, together with the related GAAP measures, in its analysis of the Company’s

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performance and in making business decisions. Management believes that presenting allowance for loan losses as a percentage of total loans excluding PCI, acquired loans and PPP loans is useful in assessing the credit quality of the Company’s core portfolio. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Further, these non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable financial measures determined in accordance with GAAP and may not be comparable to a similarly titled measure reported by other companies.

Reconciliation of the GAAP and non-GAAP financial measures are presented as of the dates indicated:


	September 30,			December 31,
Allowance for loan losses excluding acquired loans and PPP loans	2021			2020

	(Dollars in thousands)
Allowance for loan losses (GAAP)	$	(17,300)		$	(17,500)

Total loans (GAAP)		1,644,801			1,647,159
Exclude PCI loans		12,573			15,610
Adjusted total loans excluding PCI loans (non-GAAP)	$	1,632,228		$	1,631,549

Total loans (GAAP)	$	1,644,801		$	1,647,159
Exclude acquired loans		55,357			164,029
Adjusted total loans excluding acquired loans (non-GAAP)	$	1,589,444		$	1,483,130
Exclude PPP loans		113,223			135,635
Adjusted total loans excluding acquired loans and PPP loans (non-GAAP)	$	1,476,221		$	1,347,495

Allowance for loan losses as a percentage of total loans (GAAP)		1.05	%		1.06	%
Allowance for loan losses to total loans excluding PCI loans (non-GAAP)		1.06			1.07
Allowance for loan losses excluding acquired loans (loans not covered by the allowance) (non-GAAP)		1.09			1.18
Allowance for loan losses excluding acquired loans and PPP loans (loans not covered by the allowance) (non-GAAP)		1.17			1.30

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to interest rate risk through our lending and deposit gathering activities. Our results of operations are highly dependent upon our ability to manage interest rate risk. We consider interest rate risk to be a significant market risk that could have a material effect on our financial condition and results of operations. Interest rate risk is measured and assessed on a quarterly basis. For information regarding the Company’s market risk, see “Management Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market and Interest Rate Risk,” in the Company’s Annual Report for the year ended December 31, 2020 (“2020 Annual Report”). In our opinion, there has not been a material change in our interest rate risk exposure since the information disclosed in our 2020 Annual Report.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

An evaluation of the disclosure controls and procedures as defined in Rule 13a 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) was carried out as of September 30, 2021 under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and several other members of the Company’s senior management. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s CEO and CFO concluded that based on their evaluation at September 30, 2021, the Company’s disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to BayCom Corp’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.

(b) Changes in Internal Controls

There were no significant changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2021, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Company’s business. The Company is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Company.

Item 1A. Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the 2020 Annual Report, except for the following:

The success of our pending acquisition of Pacific Enterprise Bancorp is dependent on uncertain factors.

The success of the Company’s pending acquisition of Pacific Enterprise Bancorp, or PEB, whereby PEB would be merged with BayCom, and PEB’s subsidiary bank, Pacific Enterprise Bank, would be merged with United Business Bank, BayCom’s subsidiary bank, is subject to a number of uncertain factors, including, but not limited to:

•

obtaining the requisite regulatory approvals in order to consummate the transactions. The Company and PEB must obtain approvals from the Federal Reserve Board, the Federal Deposit Insurance Corporation and the California Department of Financial Protection and Innovation. Other approvals, waivers or consents from regulators may also be required. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the transactions. It is a condition to each company’s obligation to complete the merger that the requisite regulatory approvals be obtained without the imposition of any non-standard condition or requirement, which individually or in the aggregate, is reasonably deemed unduly burdensome by the Board of Directors of BayCom including any condition that would increase the minimum regulatory capital requirements of BayCom or United Business Bank;

•

obtaining the requisite stockholder approvals from the Company’s and PEB’s shareholders;

•

our ability to realize expected revenues, cost savings, synergies and other benefits from the acquisition within the expected time frames or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; and

•

the credit quality of loans and other assets acquired from PEB.

BayCom and PEB have operated and, until the completion of the acquisition, will continue to operate, independently. The success of the acquisition, including anticipated benefits and cost savings, will depend, in part, on BayCom’s ability to successfully combine the businesses of BayCom and PEB. To realize these anticipated benefits and cost savings, after the completion of the acquisition, BayCom expects to integrate PEB’s business into its own. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect BayCom’s ability to successfully conduct its business in the market in which PEB now operates, which could have an adverse effect on BayCom’s financial results and the value of its common stock. If BayCom experiences difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause BayCom and/or PEB to lose customers or cause customers to close their accounts with BayCom and/or PEB and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Not applicable.

(b)

Not applicable.

(c)Stock Repurchases. On February 22, 2021, the Company’s board of directors approved its fourth stock repurchase program for the repurchase of up to 560,000 shares of its common stock, or approximately 5% of its outstanding shares, over a one-year period through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended September 30, 2021:


				Total number of
	Total		Average	shares purchased	Maximum number of
	number of		price	as part of	shares that September yet be
	shares		paid	publicly announced	purchased under the
	purchased		per share	plans or programs	plans or programs
July 1, 2021 - July 31, 2021	15,552	$	18.18	15,552	8,571
August 1, 2021 - August 31, 2021	—		—	—	8,571
September 1, 2021 - September 30, 2021	7,914		18.12	7,914	657
	23,466	$	18.16	23,466	657

Item 3. Defaults of Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


2.1 3.1	Agreement and Plan of Merger by and between BayCom Corp and Pacific Enterprise Bancorp dated September 7, 2021⁽¹⁾ Articles of Incorporation of BayCom Corp⁽²⁾
3.2	Amended and Restated Bylaws of BayCom Corp⁽³⁾
31.1 31.2	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Balance Sheets; (2) Condensed Consolidated Statements of Income; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Changes in Stockholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Notes to Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

(1)	Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on September 8, 2021 (File No. 001-38483)

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(2)	Incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on April 11, 2018 (File No. 333-224236).

(3)	Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on June 17, 2020 (File No. 001-38483).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		BAYCOM CORP
		Registrant


Date: November 12, 2021	By:	/s/ George Guarini
		George Guarini
		Chief Executive Officer
		(Principal Executive Officer)


Date: November 12, 2021	By:	/s/ Keary Colwell
		Keary Colwell
		Senior Executive Vice President and Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)