Company Quick10K Filing
Baycom
Price22.00 EPS1
Shares12 P/E21
MCap265 P/FCF49
Net Debt-337 EBIT24
TEV-72 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-19
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-14
S-1 2018-04-11 Public Filing
10-Q 2018-03-31 Filed 2018-06-18
8-K 2020-06-16
8-K 2020-04-24
8-K 2020-03-11
8-K 2020-02-05
8-K 2020-01-28
8-K 2020-01-28
8-K 2019-11-19
8-K 2019-11-04
8-K 2019-11-04
8-K 2019-10-28
8-K 2019-10-23
8-K 2019-10-21
8-K 2019-07-26
8-K 2019-06-28
8-K 2019-06-18
8-K 2019-05-28
8-K 2019-05-24
8-K 2019-05-06
8-K 2019-04-29
8-K 2019-04-29
8-K 2019-01-29
8-K 2018-12-10
8-K 2018-12-07
8-K 2018-11-30
8-K 2018-10-24
8-K 2018-08-10
8-K 2018-07-24
8-K 2018-07-17
8-K 2018-05-24
8-K 2018-05-08
8-K 2018-05-03

BCML 10Q Quarterly Report

Part I &Mdash; Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Accounting Guidance Not Yet Effective and Adopted Accounting Guidance
Note 3 - Acquisitions
Note 4 - Investment Securities
Note 5 - Loans
Note 6 - Allowance for Loan Losses
Note 7 - Premises and Equipment
Note 8 - Goodwill and Intangible Assets
Note 9 - Interest Receivable and Other Assets
Note 10 - Deposits
Note 11 - Borrowings
Note 12 - Interest Payable and Other Liabilities
Note 13 - Other Expenses
Note 14 - Equity Incentive Plans
Note 15 - Fair Value Measurement
Note 16 - Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II &Mdash; Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults of Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tm2014551d1_ex31-1.htm
EX-31.2 tm2014551d1_ex31-2.htm
EX-32 tm2014551d1_ex32.htm

Baycom Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 tm2014551-1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2020

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 x   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 x   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 x
   
Non-accelerated filer ¨ Smaller reporting company x
   
  Emerging growth company x

 

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 x

 

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

 

As of April 24, 2020, there were 12,229,848 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

BAYCOM CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

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.

  

1

 

 

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

 

2

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(unaudited)

 

   March 31,   December 31, 
   2020   2019 
ASSETS          
Cash and due from banks  $40,230   $23,476 
Federal funds sold   234,079    271,906 
Cash and cash equivalents   274,309    295,382 
           
Interest bearing deposits in banks   16,544    1,739 
Investment securities available-for-sale   123,915    119,889 
Federal Home Loan Bank ("FHLB") stock, at par   7,174    7,174 
Federal Reserve Bank ("FRB") stock, at par   7,491    6,731 
Loans held for sale   198    2,226 
Loans, net of allowance for loan losses of $9,100 and $7,400 at March 31, 2020 and December 31, 2019, respectively   1,617,616    1,450,229 
Premises and equipment, net   14,779    10,529 
Other real estate owned ("OREO")   595    574 
Core deposit intangible   9,661    9,185 
Cash surrender value of bank owned life insurance ("BOLI") policies, net   20,406    20,244 
Right-of-use assets ("ROU")   14,531    15,291 
Goodwill   38,838    35,466 
Interest receivable and other assets   22,757    19,518 
Total Assets  $2,168,814   $1,994,177 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Noninterest and interest bearing deposits  $1,778,727   $1,701,183 
Lease liabilities   14,892    15,599 
Salary continuation plan   3,738    3,658 
Interest payable and other liabilities   9,634    11,275 
Other borrowings   100,000    - 
Junior subordinated deferrable interest debentures, net   8,262    8,242 
Total liabilities   1,915,253    1,739,957 
           
Commitments and contingencies (Note 16)          
           
Shareholders' equity          
Preferred stock - no par value; 10,000,000 shares authorized; no shares issued and outstanding at both March 31, 2020 and December 31, 2019   -    - 
Common stock - no par value; 100,000,000 shares authorized; 12,229,848 and 12,444,632 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   179,756    184,043 
Additional paid in capital   287    287 
Accumulated other comprehensive income, net of tax   2,061    1,251 
Retained earnings   71,457    68,639 
Total shareholders' equity   253,561    254,220 
Total Liabilities and Shareholders' Equity  $2,168,814   $1,994,177 

 

3

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share data)

(unaudited)

 

   Three months ended 
   March 31, 
   2020   2019 
Interest income:          
Loans, including fees  $20,620   $13,550 
Investment securities and interest bearing deposits in banks   1,635    2,654 
FHLB dividends   126    92 
FRB dividends   109    61 
Total interest and dividend income   22,490    16,357 
           
Interest expense:          
Deposits   2,328    1,346 
Subordinated debt   118    146 
Other borrowings   7    - 
Total interest expense   2,453    1,492 
Net interest income   20,037    14,865 
           
Provision for loan losses   1,713    277 
Net interest income after provision for loan losses   18,324    14,588 
           
Noninterest income:          
Gain on sale of loans   642    190 
Service charges and other fees   705    733 
Loan servicing and other loan fees   646    410 
Other income and fees   585    787 
Total noninterest income   2,578    2,120 
           
Noninterest expense:          
Salaries and employee benefits   8,708    5,963 
Occupancy and equipment   1,811    1,110 
Data processing   3,623    924 
Other expense   2,776    1,751 
Total noninterest expense   16,918    9,748 
Income before provision for income taxes   3,984    6,960 
           
Provision for income taxes   1,166    2,019 
Net income  $2,818   $4,941 
           
Earnings per common share:          
Basic earnings per common share  $0.23   $0.45 
Weighted average shares outstanding   12,343,565    10,891,564 
           
Diluted earnings per common share  $0.23   $0.45 
Weighted average shares outstanding   12,343,565    10,891,564 

 

4

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except for per share data)

(unaudited)

 

   Three months ended 
   March 31, 
   2020   2019 
Net income  $2,818    4,941 
Other comprehensive income:          
Change in unrealized gain on available-for-sale securities   1,127    833 
Deferred tax expense   (317)   (236)
Other comprehensive income, net of tax   810    597 
Total comprehensive income  $3,628   $5,538 

 

5

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands, except for per 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, 2018   10,869,275   $149,248   $287   $(103)  $51,321   $200,753 
Net income                       4,941    4,941 
Other comprehensive income, net                  597         597 
Restricted stock granted   22,289                        - 
Stock based compensation        120                   120 
Balance, March 31, 2019   10,891,564    149,368    287    494    56,262    206,411 
Net income                       12,377    12,377 
Other comprehensive income, net                  757         757 
Restricted stock granted   55,046                        - 
Stock based compensation        1,034                   1,034 
Issuance of shares   1,991,809    44,598                   44,598 
Repurchase of shares   (493,787)   (10,957)                  (10,957)
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 

 

6

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(unaudited)

 

   Three months ended 
   March 31, 
   2020   2019 
Cash flows from operating activities:          
Net income  $2,818   $4,941 
Adjustments to reconcile net income to net cash provided by operating activities:          
Increase in deferred tax asset   (260)   (236)
Accretion on acquired loans   (1,324)   (577)
Gain on sale of loans   (642)   (190)
Proceeds from sale of loans   8,409    2,846 
Loans originated for sale   (11,200)   (8,113)
Gain on sale of premises   -    (78)
Accretion on junior subordinated debentures   20    20 
Increase in cash surrender value of life insurance policies securities   (162)   (164)
Provision for loan losses   1,713    277 
Amortization/accretion of premium/discount on investment securities, net   187    135 
Depreciation and amortization   472    301 
Core deposit intangible amortization   473    389 
Stock based compensation expense   309    120 
Increase (decrease) in deferred loan origination fees, net   62    (8)
Increase in interest receivable and other assets   (937)   (6,035)
Increase in salary continuation plan, net   80    62 
(Decrease) increase in interest payable and other liabilities   (2,982)   5,852 
Net cash used in operating activities   (2,964)   (458)
           
Cash flows from investing activities:          
Proceeds from maturities of interest bearing deposits in banks   1,235   499 
Purchase of investment securities   (5,520)   (1,501)
Proceeds from the maturity and repayment of investment securities   6,808    4,694 
Redemption of Federal Home Loan Bank stock   165    66 
Purchase of Federal Reserve Bank stock   (760)   (85)
(Increase) decrease in loans, net   (63,988)   13,040 
Purchase of equipment and leasehold improvements   (843)   (163)
Net cash paid out for acquisition   (8,432)   - 
Net cash (used in) provided by investing activities   (71,335)   16,550 
           
Cash flows from financing activities:          
Decrease in noninterest and interest bearing deposits, net   (4,665)   (2,872)
Decrease in time deposits, net   (35,938)   (4,329)
Repurchase of common stock   (4,596)   - 
Repayment of junior subordinated debentures   (1,575)   - 
Increase in other borrowings   100,000    - 
Net cash provided by (used in) financing activities   53,226    (7,201)
(Decrease) increase in cash and cash equivalents   (21,073)   8,891 
Cash and cash equivalents at beginning of period   295,382    323,581 
Cash and cash equivalents at end of period  $274,309   $332,472 

 

7

 

 

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)

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

(unaudited)

 

   Three months ended 
   March 31, 
   2020   2019 
Supplemental disclosure of cash flow information:        
Cash paid during the year for:          
Interest expense  $2,998   $1,455 
Income tax, net of refunds   3,780    1,676 
           
Non-cash investing and financing activities:          
Change in unrealized gain on available-for-sale securities, net of tax  $810   $597 
Transfer of loans to other real estate owned   21    - 
Recognition of ROU assets   760    7,834 
Recognition of lease liability   707    8,150 
           
Acquisition:          
Assets acquired, net of cash received  $109,429   $- 
Liabilities assumed   120,409    - 
Cash consideration   13,886    - 
Goodwill   3,372    - 

 

8

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 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 16 years of operation, the Bank has grown to 35 full-service banking branches. The main headquarter office and a branch location are located in Walnut Creek, California and additional branch offices are located in Oakland, Castro Valley, Mountain View, Napa, Stockton (2), Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco, Buena Park, Los Angeles, and Garden Grove, California, and Seattle, Washington (2), New Mexico (6) and Colorado (11). 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 for the year ended December 31, 2019. 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 current year presentation. The reclassifications had no impact on consolidated net income or shareholders’ equity.

 

On April 5, 2012, the 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.

 

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

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

 

9

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited) 

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The amendments in this ASU are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The Company adopted this ASU on January 1, 2020, with no material impact on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies. Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other technical changes. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

 

In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842) - Codification Improvements. The changes in this amendment include: (1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (2) presentation on the statement of cash flows – sales types and direct financing leases; and (3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections. This ASU specifically provides an exception to the paragraph 250-10-50-3 that would otherwise have required interim disclosures in the period an accounting change including the effect of that change on income from continuing operations, net income, any other financial statement line item, and any affected per share amounts. For items 1 and 2, this ASU is effective for fiscal and interim periods beginning after December 15, 2019. Item 3 does not have an effective date because the amendments related to transition disclosures are included in Topic 842. The Company adopted ASU 2019-01 on January 1, 2020. The adoption of ASU 2019-01 did not have a material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued 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 amendments in ASU 2019-12 are effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect ASU 2019-12 to have a material impact on its consolidated financial statement.

 

10

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(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. This ASU is effective for all entities as of 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.

 

On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the novel coronavirus of 2019 (“COVID-19”) pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings.

 

NOTE 3 - ACQUISITIONS

 

On February 4, 2020, the Company completed its acquisition of Grand Mountain Bancshares, Inc. (“GMB”) in Colorado. 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 increased 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.

 

On October 21, 2019, the Company completed its acquisition of TIG Bancorp (“TIG”). As of the acquisition date, TIG merged into the Company and First State Bank of Colorado, TIG’s wholly owned bank subsidiary, merged into United Business Bank. The acquisition expanded the Company’s market area into the State of Colorado with the addition of seven branches throughout Colorado. The Company paid TIG shareholders an aggregate of 876,803 shares of its common stock and paid an aggregate cash consideration of $20.2 million. The total consideration transferred was $39.9 million.

 

On May 24, 2019, the Company completed its acquisition of Uniti Financial Corporation (“UFC”). As of the acquisition date, UFC merged into the Company and Uniti Bank, UFC’s wholly owned bank subsidiary, merged into United Business Bank. The acquisition increased the Company’s market share in California through the addition of three branch offices located in Southern California. The Company paid UFC shareholders an aggregate of 1,115,006 shares of its common stock and paid aggregate cash consideration of $37.8 million. The total consideration transferred was $62.7 million.

 

 

11

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)  

 

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

 

   GMB   TIG   Uniti 
   Acquisition   Acquisition   Acquisition 
   Date   Date   Date 
  

February 4,

2020

  

October 21,

2019

  

May 24,

2019

 
Fair value of assets:               
Cash and due from banks  $5,494   $6,146   $6,392 
Federal funds sold  -    55,955    22,080 
Total cash and cash equivalents   5,494    62,101    28,472 
                
Interest bearing deposits in banks   16,040    -    - 
Investment securities available-for-sale   4,369    26,382    5,096 
FHLB stock, at par   165    241    1,535 
FRB stock, at par   -    792    - 
Loans, net   98,410    137,183    276,719 
Premises and equipment, net   3,879    3,480    463 
OREO   -    42    76 
Core deposit intangible   949    3,038    566 
Deferred tax assets, net   728    308    234 
Servicing asset   -    -    1,824 
Interest receivable and other assets   929    2,079    3,033 
Total assets acquired   130,923    235,646    318,018 
                
Liabilities:               
Deposits               
Noninterest bearing   30,937    77,157    143,082 
Interest bearing   87,210    125,597    122,704 
Total Deposits   118,147    202,754    265,786 
                
Interest payable and other liabilities   687    2,014    1,386 
Junior subordinated debentures, net   1,575    -    - 
Total liabilities assumed   120,409    204,768    267,172 
                
Stock issued   -    19,711    24,887 
Cash consideration   13,886    20,184    37,814 
Goodwill  $3,372   $9,017   $11,855 

 

12

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited) 

 

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

 

   GMB   TIG   Uniti 
   Acquisition   Acquisition   Acquisition 
   Date   Date   Date 
   February 4,
2020
   October 21,
2019
   May 24,
2019
 
Book value of net assets acquired  $10,348   $29,164   $47,445 
Fair value adjustments:               
Investments available-for-sale   (10)   (627)   - 
Loans, net   484    382    4,617 
Premises and equipment, net   (1,000)   180    - 
Write-down on OREO   -    (18)   (32)
Core deposit intangible   949    3,038    566 
Tax assets   (139)   (774)   (695)
Time deposits   (25)   (308)   (250)
Write-down on servicing assets   -    -    (805)
Junior subordinated debentures, net   (98)   -    - 
Write-down other (assets) liabilities   5    (159)   - 
Total purchase accounting adjustments   166    1,714    3,401 
Fair value of net assets acquired   10,514    30,878    50,846 
                
Price paid:               
Common stock issued   -    19,711    24,887 
Cash paid   13,886    20,184    37,814 
Total price paid   13,886    39,895    62,701 
Goodwill  $3,372   $9,017   $11,855 

 

Pro Forma Results of Operations

 

The operating results of the Company for the three months ended March 31, 2020 in the condensed consolidated statements of income include the operating results of UFC, TIG and GMB, since their respective acquisition dates. The following table represents the net interest income, net income, basic and diluted earnings per share, as if the mergers with UFC, TIG and GMB were effective January 1, 2019. 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:

 

   Three months ended March 31, 
   2020   2019 
Net interest income  $20,439   $22,090 
Net income   2,021    6,526 
           
Basic earnings per share  $0.16   $0.51 
Diluted earnings per share   0.16    0.51 

 

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.

  

13

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited) 

 

Acquisition expenses

 

Third-party acquisition related expenses are recognized as incurred and continue until the acquired system is converted and operational functions become fully integrated. The Company incurred third-party acquisition related expenses in the consolidated statements of income for the periods indicated are as follows:

 

   Three months ended March 31, 
   2020   2019 
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 
March 31, 2020  cost   gains   losses   fair value 
U.S. Treasuries  $1,000   $2   $-   $1,002 
U.S. Government Agencies   8,034    107    (13)   8,128 
Municipal securities   18,800    404    (6)   19,198 
Mortgage-backed securities   40,896    1,746    (167)   42,475 
Collateralized mortgage obligations   33,472    943    (56)   34,359 
SBA securities   8,801    18    (44)   8,775 
Corporate bonds   10,028    82    (132)   9,978 
Total  $121,031   $3,302   $(418)  $123,915 

 

       Gross   Gross     
   Amortized   unrealized   unrealized   Estimated 
December 31, 2019  cost   gains   losses   fair value 
U.S. Treasuries  $999   $-   $-   $999 
U.S. Government Agencies   10,033    64    (7)   10,090 
Municipal securities   17,888    408    (5)   18,291 
Mortgage-backed securities   42,931    860    (48)   43,743 
Collateralized mortgage obligations   28,197    476    (68)   28,605 
SBA securities   9,550    2    (66)   9,486 
Corporate bonds   8,534    141    -    8,675 
Total  $118,132   $1,951   $(194)  $119,889 

 

During the three months ended March 31, 2020 and 2019, the Company did not sell any securities available-for-sale.

  

14

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(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 
March 31, 2020  fair value   loss   fair value   loss   fair value   loss 
U.S. Treasuries  $-   $-   $-   $-   $-   $- 
U.S. Government Agencies   -    -    1,505    (13)   1,505    (13)
Municipal securities   2,693    (4)   516    (2)   3,209    (6)
Mortgage-backed securities   9,874    (156)   267    (11)   10,141    (167)
Collateralized mortgage obligations   4,608    (29)   852    (27)   5,460    (56)
SBA securities   2,303    (2)   1,773    (42)   4,076    (44)
Corporate bonds   3,015    (132)   -    -    3,015    (132)
Total  $22,493   $(323)  $4,913   $(95)  $27,406   $(418)

 

   Less than 12 months   12 months or more   Total 
   Estimated   Unrealized   Estimated   Unrealized   Estimated   Unrealized 
December 31, 2019  fair value   loss   fair value   loss   fair value   loss 
U.S. Treasuries  $-   $-   $-   $-   $-   $- 
U.S. Government Agencies   1,497    (1)   1,514    (6)   3,011    (7)
Municipal securities   3,147    (5)   -    -    3,147    (5)
Mortgage-backed securities   7,772    (47)   81    (1)   7,853    (48)
Collateralized mortgage obligations   4,155    (56)   883    (12)   5,038    (68)
SBA securities   6,937    (24)   1,530    (42)   8,467    (66)
Corporate bonds   -    -    -    -    -    - 
Total  $23,508   $(133)  $4,008   $(61)  $27,516   $(194)

 

At March 31, 2020, the Company held 308 investment securities, of which 15 were in an unrealized loss position for more than twelve months and 84 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. Additional 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.

 

   March 31, 2020   December 31, 2019 
   Amortized   Estimated   Amortized   Estimated 
   cost   fair value   cost   fair value 
Available-for-sale                    
Due in one year or less  $10,482   $10,559   $10,737   $10,781 
Due after one through five years   24,753    25,401    24,078    24,560 
Due after five years through ten years   26,938    27,598    22,914    23,366 
Due after ten years   58,858    60,357    60,403    61,182 
Total  $121,031   $123,915   $118,132   $119,889 

 

15

 

 

BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

NOTE 5 - LOANS

 

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

 

   March 31,   December 31, 
   2020   2019 
Commercial and industrial  $185,679   $169,291 
Construction and land   43,659    36,321 
Commercial real estate   1,184,282    1,093,142 
Residential   206,540    156,764 
Consumer   7,069    2,562 
Total loans   1,627,229    1,458,080 
Net deferred loan fees   (513)   (451)
Allowance for loan losses   (9,100)   (7,400)
Net loans  $1,617,616   $1,450,229 

 

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
and industrial
   Construction and land   Commercial
real estate
   Residential   Consumer   Total 
March 31, 2020                              
Recorded investment in impaired loans:                              
With no specific allowance recorded  $312   $2,773   $3,698   $1,759   $-   $8,542 
With a specific allowance recorded   317    -    270    -    -    587 
Total recorded investment in impaired loans  $629   $2,773   $3,968   $1,759   $-   $9,129 
Specific allowance on impaired loans   218    -    64    -    -    282 
                               
December 31, 2019                              
Recorded investment in impaired loans:                              
With no specific allowance recorded  $436   $2,737   $2,505   $1,488   $1   $7,167 
With a specific allowance recorded   182    -    270    -    12    464 
Total recorded investment in impaired loans  $618   $2,737   $2,775   $1,488   $13   $7,631 
Specific allowance on impaired loans   95    -    64    -    12    171 
                               
Three months ended March 31, 2020                              
Average recorded investment in impaired loans  $1,454   $2,489   $2,361   $871   $3   $7,178 
Interest recognized   -    -    172    -    -    172 
                               
Three months ended March 31, 2019                              
Average recorded investment in impaired loans   2,372    -    1,344    650    -    4,366 
Interest recognized   33    -    20    1    -    54 

 

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 TDRs 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. At March 31, 2020, TDR loans totaled $4.3 million, compared to $4.4 million at December 31, 2019. At March 31, 2020 and at December 31, 2019, $787,000 and $789,000, respectively, of TDR loans were accruing and performing in accordance with their modified terms. There are no commitments to lend additional amounts to borrowers with outstanding loans that are classified as TDR loans at March 31, 2020. All TDR loans are also included in the loans individually evaluated for impairment as part of the calculation of the allowance for loan losses.

 

16 

 

 

BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

The following tables present loans by class, modified as TDR loans, for the periods indicated:

 

Three months ended March 31, 2020  Number of
loans
   Rate
modification
   Term
modification
   Interest only
modification
   Rate & term
modification
   Total 
Commercial and industrial   3   $         -   $322   $       -   $            -   $322 
Construction and land   1    -    2,737    -    -    2,737 
Commercial real estate   2    -    1,217    -    -    1,217 
Residential   -    -    -    -    -    - 
Consumer   -    -    -    -    -    - 
Total   6   $-   $4,276   $-   $-   $4,276 

 

Three months ended March 31, 2019 

Number of

loans

  

Rate

modification

  

Term

modification

  

Interest only

modification

   Rate & term modification   Total 
Commercial and industrial   2   $            -   $176   $-   $321   $497 
Construction and land   -    -    -                    -    -    - 
Commercial real estate   -    -    -    -                -         - 
Residential   -    -    -    -    -    - 
Consumer   -    -    -    -    -    - 
Total   2   $-   $176   $-   $321   $497 

 

For the three months ended March 31, 2020 and 2019, the Company recorded no charge-offs related to TDR loans. During the three months ended March 31, 2020, there were no TDR loans for which there was a payment default within the first 12 months of the modification.

 

The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), signed into law on March 27, 2020, provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency by the President or (B) December 31, 2020.

 

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.

 

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.

 

17 

 

 

BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited) 

 

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.

 

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:

 

March 31, 2020  Pass   Special
mention
   Substandard   Doubtful   Total 
Commercial and industrial  $182,938   $947   $1,794   $         -   $185,679 
Construction and land   40,114    177    3,368    -    43,659 
Commercial real estate   1,163,018    14,914    6,350    -    1,184,282 
Residential   203,495    857    2,188    -    206,540 
Consumer   7,062    -    7    -    7,069 
Total  $1,596,627   $16,895   $13,707   $-   $1,627,229 

 

December 31, 2019  Pass   Special
mention
   Substandard   Doubtful   Total 
Commercial and industrial  $166,613   $1,166   $1,512   $         -   $169,291 
Construction and land   32,879    93    3,349    -    36,321 
Commercial real estate   1,071,771    16,021    5,350    -    1,093,142 
Residential   153,484    1,215    2,065    -    156,764 
Consumer   2,541    -    21    -    2,562 
Total  $1,427,288   $18,495   $12,297   $-   $1,458,080 

 

18 

 

 

BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited) 

 

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 
March 31, 2020  past due   past due   past due   past due   Current   PCI loans   receivable   accruing 
Commercial and industrial  $977   $1,750   $659   $3,386   $181,828   $465   $185,679   $29 
Construction and land   457    35    3,054    3,546    39,884    229    43,659    317 
Commercial real estate   5,084    -    2,627    7,711    1,162,411    14,160    1,184,282    - 
Residential   2,446    41    1,096    3,583    199,746    3,211    206,540    - 
Consumer   12    -    1    13    7,054    2    7,069    1 
Total  $8,976   $1,826   $7,437   $18,239   $1,590,923   $18,067   $1,627,229   $347 

 

                               Recorded 
           90 Days                   investment > 
   30-59 Days   60-89 Days   or more   Total           Total loans   90 days and 
December 31, 2019  past due   past due   past due   past due   Current   PCI loans   receivable   accruing 
Commercial and industrial  $923   $1,480   $207   $2,610   $166,137   $544   $169,291   $26 
Construction and land   325    88    2,961    3,374    32,724    223    36,321    224 
Commercial real estate   4,668    4,698    1,460    10,826    1,068,211    14,105    1,093,142    - 
Residential   531    122    1,392    2,045    152,261    2,458    156,764    - 
Consumer   14    -    13    27    2,533    2    2,562    - 
Total  $6,461   $6,388   $6,033   $18,882   $1,421,866   $17,332   $1,458,080   $250 

 

At March 31, 2020 and December 31, 2019, there were $347,000 and $250,000, respectively, of loans greater than 90 days past due and still accruing interest. The balance of nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, was $1.2 million at both March 31, 2020 and December 31, 2019. Interest foregone on nonaccrual loans was approximately $101,500 and $42,000 for the three months ended March 31, 2020 and March 31, 2019, respectively. At March 31, 2020, there were no residential loans in the process of foreclosure.

 

Purchase Credit Impaired Loans

 

As part of acquisitions, the Company has purchased loans, some of which have shown evidence of credit deterioration since origination and it is probable at the acquisition that all contractually requirement payments would not be collected.

 

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

 

   March 31, 2020   December 31, 2019 
   Unpaid       Unpaid     
   principal   Carrying   principal   Carrying 
   balance   value   balance   value 
Commercial and industrial  $1,135   $465   $1,225   $544 
Construction and land   321    229    338    223 
Commercial real estate   16,054    14,160    15,930    14,105 
Residential   4,121    3,211    3,238    2,458 
Consumer   7    2    8    2 
Total  $21,638   $18,067   $20,739   $17,332 

 

19 

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

The following table summarized the accretable yield on the purchased credit impaired loans for the periods indicated:

 

   Three months ended 
   March 31, 
   2020   2019 
Balance at beginning of period  $554   $256 
Additions   308    - 
Removals   (127)   (2)
Accretion   (141)   (23)
Balance at end of period  $594   $231 

 

20

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

NOTE 6 – ALLOWANCE FOR LOAN LOSSES

 

The following tables provide additional information on the allowance for loan losses and loan balances individually and collectively evaluated for impairment at or for the periods indicated:

   Commercial   Construction   Commercial                 
   and industrial   and land   real estate   Residential   Consumer   Unallocated   Total 
Three months ended March 31, 2020                                   
Allowance for loan losses                                   
Beginning balance  $1,762   $164   $4,926   $421   $14   $113   $7,400 
Charge-offs   -    -    -    (1)   (16)   -    (17)
Recoveries   4    -    -    -    -    -    4 
Provision (reclassification) for loan losses   578    (57)   881    107    5    199    1,713 
Ending balance  $2,344   $107   $5,807   $527   $3   $312   $9,100 
                                    
March 31, 2020                                   
Allowance for loan losses related to:                                   
Loans individually evaluated for impairment  $218   $-   $64   $-   $-   $-   $282 
Loans collectively evaluated for impairment   2,126    107    5,743    527    3    312    8,818 
PCI loans   -    -    -    -    -    -    - 
                                    
Loans receivable                                   
Individually evaluated for impairment  $629   $2,773   $3,968   $1,759   $-   $-   $9,129 
Collectively evaluated for impairment   184,585    40,657    1,166,154    201,570    7,067    -    1,600,033 
PCI loans   465    229    14,160    3,211    2    -    18,067 
Total loans  $185,679   $43,659   $1,184,282   $206,540   $7,069   $-   $1,627,229 
                                    
Three months ended March 31, 2019                                   
Allowance for loan losses                                   
Beginning balance  $1,017   $327   $3,214   $215   $3   $364   $5,140 
Charge-offs   -    -    (17)   -    (4)   -    (21)
Recoveries   9    -    -    -    -    -    9 
Provision for loan losses   109    13    129    20    3    3    277 
Ending balance  $1,135   $340   $3,326   $235   $2   $367   $5,405 
                                    
March 31, 2019                                   
Allowance for loan losses related to:                                   
Loans individually evaluated for impairment  $10   $-   $-   $-   $-   $-   $10 
Loans collectively evaluated for impairment   1,125    340    3,326    235    2    367    5,395 
PCI loans   -    -    -    -    -    -    - 
                                    
Loans receivable                                   
Individually evaluated for impairment  $2,388   $-   $1,342   $645   $-   $-   $4,375 
Collectively evaluated for impairment   124,188    45,445    679,973    98,050    1,553    -    949,209 
PCI loans   4    224    9,740    1,772    -    -    11,740 
Total loans  $126,580   $45,669   $691,055   $100,467   $1,553   $-   $965,324 

 

21

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

NOTE 7 – PREMISES AND EQUIPMENT

 

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

 

   March 31,   December 31, 
   2020   2019 
Premises owned  $11,529   $7,906 
Leasehold improvements   2,975    2,362 
Furniture, fixtures and equipment   5,473    5,053 
Less accumulated depreciation and amortization   (5,198)   (4,792)
Total premises and equipment, net  $14,779   $10,529 

 

Depreciation and amortization included in occupancy and equipment expense totaled $472,000 and $301,000 for the three months ended March 31, 2020 and 2019, respectively.

 

On March 29, 2019, the Company sold a commercial building in Oakland, California with a carrying value of $4.6 million. In connection with the sale, the Company leased back 4,021 square feet, representing 11.1% of the total square footage. The sale resulted in a $78,000 gain, included in other income. The proceeds from the sale were in escrow at March 31, 2019 and included in interest receivable and other assets.

 

The Company leases its headquarters, 19 branches and administration offices 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, 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. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The Company adopted the requirements of Topic 842 effective January 1, 2019, which required the Company record a right of use lease asset and a lease liability for leases with an initial term of more than 12 months for leases that existed as of January 1, 2019. Future minimum lease payments at March 31, 2020 are for the periods indicated as follows:

 

        
  For the remainder of 2020  $3,415   
  2021   3,023   
  2022   2,520   
  2023   1,845   
  2024   1,391   
  Thereafter   4,056   
  Total lease payments   16,250   
  Less: interest   (1,358)  
  Present value of lease liabilities  $14,892   

 

22

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

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

 

   March 31, 2020 
Weighted-average remaining lease term   6.36 years 
Weighted-average discount rate   2.70%

 

Rental expense included in occupancy and equipment on the consolidated statements of income totaled $856,000 and $591,000 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

 

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. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit). Goodwill that arises from a business combination is evaluated for impairment at least annually, at the reporting unit level. 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.

 

As of March 31, 2020, and December 31, 2019, goodwill totaled $38.8 million and $35.5 million and core deposit intangible totaled $9.7 million and $9.2 million from business combinations, respectively. A significant decline in expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant decline in the price of our common stock could necessitate taking charges in the future related to the impairment of goodwill or core deposit intangibles. The core deposit intangible assets represent the value ascribed to the long-term deposit relationships acquired and is being amortized over an estimated average useful life of seven years. At March 31, 2020, the weighted average remaining useful life was 3.6 years.

 

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

 

   March 31,
2020
   December 31, 2019 
Balance at beginning of period  $35,466   $14,594 
Acquired goodwill   3,372    20,872 
Impairment   -    - 
Balance at end of period  $38,838   $35,466 

 

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. As of March 31, 2020, the Company had positive equity, however, a result of the COVID-19 pandemic, the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the Company exceeded its’ carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that its fair value exceeded its’ carrying value, resulting in no impairment. If adverse economic conditions or the recent decrease in our stock price and market capitalization as a result of the COVID-19 pandemic were to be deemed sustained rather than temporary, it may significantly affect the fair value of our goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on our results of operations and financial condition.

 

23

 

 

  

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

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

 

  

March 31,

2020

   December 31, 2019 
Balance at beginning of period  $9,185   $7,205 
Additions   949    3,604 
Less amortization   (473)   (1,624)
Balance at end of period  $9,661   $9,185 

 

Amortization expense in other noninterest expense on the consolidated statements of income totaled $473,000 and $1.6 million for the three months ended March 31, 2020 and year ended December 31, 2019, respectively.

 

The following table presents the estimated amortization expense with respect to core deposit intangibles as of March 31, 2020 for the periods indicated:

 

         
  For the remainder of 2020  $1,359   
  2021   1,813   
  2022   1,813   
  2023   1,034   
  2024   970   
  Thereafter   2,672   
    Total  $9,661   

 

24

 

  

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

NOTE 9 – INTEREST RECEIVABLE AND OTHER ASSETS

 

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

 

   March 31,   December 31, 
   2020   2019 
Tax assets, net  $7,913   $5,922 
Accrued interest receivable   5,677    5,495 
Investment in Small Business Investment          
Company (“SBIC”) Funds   2,616    2,272 
Prepaid assets   1,665    1,160 
Servicing assets   1,984    2,097 
Low income housing partnerships, net   1,059    1,171 
Investment in statutory trusts   477    475 
All other   1,366    926 
Total  $22,757   $19,518 

 

NOTE 10 – DEPOSITS

 

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

 

   March 31,   December 31, 
   2020   2019 
Demand deposits  $602,750   $572,341 
NOW accounts and savings   366,155    314,125 
Money market   509,878    489,206 
Time deposits under $250,000   176,570    189,063 
Time deposits over $250,000   123,374    136,448 
Total  $1,778,727   $1,701,183 

 

At March 31, 2020 and December 31, 2019, the weighted average stated rate on the Company’s interest bearing deposits were 0.64% and 0.86%, respectively.

 

NOTE 11 – BORROWINGS

 

The Company has an approved secured borrowing facility with 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. On March 24, 2020, the Company secured $100.0 million in FHLB advances. The average cost of these advances is 28.5 basis points with $50.0 million maturing April 24, 2020 and $50.0 million maturing May 24, 2020. There were no outstanding borrowings under this facility at December 31, 2019.

 

The Company has a Federal Funds line with four corresponding banks. Cumulative available commitments totaled $55.0 million and $40.5 at March 31, 2020 and December 31, 2019, respectively. There were no amounts outstanding under these facilities at March 31, 2020 and December 31, 2019.

 

NOTE 12 – INTEREST PAYABLE AND OTHER LIABILITIES

 

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

 

   March 31,   December 31, 
   2020   2019 
Accrued expenses  $5,769   $6,241 
CDARs deferred fees   266    320 
Accounts payable   1,529    2,175 
Reserve for unfunded commitments   415    415 
Accrued interest payable   1,219    1,607 
All other   436    517 
Total  $9,634   $11,275 

 

25

 

  

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

NOTE 13 – OTHER EXPENSES

 

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

 

   Three months ended 
   March 31, 
   2020   2019 
Professional fees  $895   $95 
Core deposit premium amortization   473    389 
Marketing and promotions   330    209 
Stationary and supplies   146    137 
Insurance (including FDIC premiums)   55    156 
Communication and postage   194    96 
Loan default related expense   125    63 
Director fees and stock compensation   78    121 
Bank service charges   34    11 
Courier expense   190    113 
Other   256    361 
Total  $2,776   $1,751 

 

NOTE 14 – 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-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 March 31, 2020, a total of 265,140 shares are 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. For the three months ended March 31, 2020 and 2019, total compensation expense for these plans was $309,000 and $120,000, respectively.

 

26

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

As of March 31, 2020, there was $2.9 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 two years.

 

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

 

   Three months ended March 31,
   2020  2019
       Weighted-average      Weighted-average
       grant date      grant date
   Shares   fair value  Shares   fair value
Non-vested at January 1,   142,103   $20.76   131,000   $19.18
Granted   15,173   22.60   22,289   22.38
Vested   (23,435)  19.62   (19,253)  19.51
Forfeited   (1,432)  18.93   -   -
Non-vested, at March 31   132,409   $22.10   134,036   $20.76

 

NOTE 15 – FAIR VALUE MEASUREMENT

 

The following tables have information about the Company’s assets and liabilities measured at fair value and the fair value techniques used to determine such fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2, and Level 3).

 

Level 1 - Inputs are unadjusted quoted prices in active markets (as defined) for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs are inputs other than quoted prices include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3 - Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

 

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 2020 or 2019.

  

27

 

 

BAYCOM CORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(unaudited)

 

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

 

March 31, 2020  Total   Level 1   Level 2   Level 3 
U.S. Treasuries  $1,002   $1,002   $-   $- 
U.S. Government Agencies   8,128    -    8,128    - 
Municipal securities   19,198    -    19,198    - 
Mortgage-backed securities   42,475    -    42,475    - 
Collateralized mortgage obligations   34,359    -    34,359    - 
SBA securities   8,775    -    8,775    - 
Corporate bonds   9,978    -    9,978    - 
Total  $123,915   $1,002   $122,913   $- 

 

December 31, 2019  Total   Level 1   Level 2   Level 3 
U.S. Treasuries  $999   $999   $-   $- 
U.S. Government Agencies