# BayCom Corp: Form 10-Q for the period ended Jun 30, 2021

- Company: [BayCom Corp](/companies/bcml.md) (CIK 1730984)
- Form: 10-Q
- Filed: 2021-08-16
- Accepted by EDGAR: Aug 16, 2021, 15:18 ET
- Period: 2021-06-30
- Accession: 0001730984-21-000031
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1730984/000173098421000031/bcml-20210630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1730984/000173098421000031/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $2.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $4.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $3.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | $5.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | $9.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | $0.49 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | $0.89 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | $0.49 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | $0.89 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 10,893,371 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 11,079,741 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $8.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 6 months, 2021-01-01 to 2021-06-30 | $11.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2021-06-30 | $2.33bn | us-gaap:Assets |
| Total liabilities | at 2021-06-30 | $2.08bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-06-30 | $252.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 107,299 characters.

### 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;
- 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”).

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.

### Executive Overview

***General.*** BayCom is a bank holding company headquartered in Walnut Creek, California. BayCom’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services to businesses and business owners as well as individuals through its network of 34 full-service branches, with 16 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 June 30, 2021, the Company had approximately $2.3 billion in total assets, $1.6 billion in total loans, net, $2.0 billion in total deposits and $252.5 million in shareholders’ equity.

We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth. At June 30, 2021, our $1.6 billion total loan portfolio included $479.9 million, or 30.0%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.1 billion, or 70.0%, 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.

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 SBA’s 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 U.S. Small Business Administration (“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 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.

***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 second 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 June 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 June 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.

### BayCom’s Response to COVID-19

Due to the current global situation surrounding the COVID-19 pandemic, the Company is offering a variety of relief options designed to support our clients and the communities we serve.

***Paycheck Protection Program ("PPP") Participation***. During the second quarter of 2021, the Bank continued its participation in the initial SBA PPP by processing applications for PPP loan forgiveness. As of June 30, 2021, the Bank has received SBA forgiveness for 901 PPP loans totaling $106.5 million out of the $140.2 million in PPP loans funded during the first PPP program. During the first and second quarter of 2021, the Bank began accepting and processing loan applications under the second PPP program enacted in December 2020. As of June 30, 2021, the Bank has funded 771 PPP loans totaling $98.2 million under the second PPP program. As of June 30, 2021, the Bank had 1,229 PPP loans outstanding totaling $150.4 million, with unrecognized fees of $4.5 million.

***Allowance for Loan Losses and Loan Modifications.*** At June 30, 2021, the Company’s allowance for loan losses was $17.0 million, or 1.06% 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 June 30, 2021, the Company recorded a $507,000 reversal of provision for loan losses for the second quarter of 2021, compared to no provision in the preceding quarter and a $4.4 million provision for loan losses in the second quarter a year ago. The reversal of the provision for loan losses was recorded this quarter primarily because of improvements since March 31, 2021 in the economic forecast and corresponding decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at June 30, 2021. Recently, however, 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 market areas. 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. 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.

The Bank continues to offer payment and financial relief programs for borrowers impacted by COVID-19 under the CARES Act and related regulatory guidance. As of June 30, 2021, one multifamily loan for $3.9 million was still subject to a payment agreement compared to 43 loans totaling $66.7 million at December 31, 2020. In accordance with regulatory guidelines related to COVID-19, since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered troubled debt restructurings through the earlier of January 1, 2022, or 60 days after the national emergency terminates.

Loan modifications made in accordance with the CARES Act and related banking agency guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.

***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 June 30, 2021, all of the Bank’s branch lobbies were open. The Company is aware of the recent surge in COVID-19 infections arising out of the so-called Delta variant and is prepared to restore other protocols, as may prove to be necessary.

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

***Total assets.*** Total assets increased $138.8 million, or 6.3%, to $2.3 billion at June 30, 2021, from $2.2 billion at December 31, 2020. The increase was primarily the result of cash and cash equivalents increasing $169.4 million or 56.6%, partially offset by a $50.2 million or 3.1% decrease in total loans receivable, net, due to loan repayments and PPP loan forgiveness.

***Cash and cash equivalents.*** Cash and cash equivalents increased $169.4 million, or 56.6%, to $468.7 million, at June 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 $21.9 million, or 18.9%, to $137.5 million at June 30, 2021 from $115.6 million at December 31, 2020. The increase was primarily due to the purchase of $39.9 million of investment securities during the six months ended June 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 $50.2 million, or 3.1%, to $1.6 billion at June 30, 2021 from December 31, 2020. The decrease was primarily due to loan repayments totaling $401.8 million, including $83.5 million in PPP loan forgiveness, partially offset by loan originations totaling $242.6 million, including $97.9 million of new PPP loans. 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ June 30, 2021 | ​ ​ ​ | ​ ​ December 31, 2020 | ​ ​ ​ ​ | ​ ​ % Change ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Commercial and industrial (1) |  | $327,078 |  | $309,339 |  | 5.7% |
| Real estate: | ​ |  | ​ |  | ​ | ​ ​ |
| Residential | ​ | 130,001 | ​ | 162,203 |  | (19.9) ​ |
| Multifamily residential | ​ | 220,275 | ​ | 238,179 |  | (7.5) ​ |
| Owner occupied CRE | ​ | 364,517 | ​ | 404,213 |  | (9.8) ​ |
| Non-owner occupied CRE | ​ | 524,336 | ​ | 489,752 |  | 7.1 ​ |
| Construction and land | ​ | 13,629 | ​ | 22,645 |  | (39.8) ​ |
| Total real estate | ​ | 1,252,758 | ​ | 1,316,992 | ​ | (4.9) ​ |
| Consumer | ​ | 4,164 | ​ | 5,218 | ​ | (20.2) ​ |
| PCI loans | ​ | 13,242 | ​ | 15,610 | ​ | (15.2) ​ |
| Total Loans | ​ | 1,597,242 | ​ | 1,647,159 | ​ | (3.0) ​ |
| Net deferred loan fees | ​ | (4,621) | ​ | (3,847) | ​ | 20.1 ​ |
| Allowance for loan losses | ​ | (17,000) | ​ | (17,500) | ​ | (2.9) ​ |
| Loans, net | ​ | $1,575,621 | ​ | $1,625,812 | ​ | (3.1)% |

(1) Includes $150.4 million and $135.6 million of PPP loans as of June 30, 2021 and December 31, 2020, respectively.

The following table shows as of June 30, 2021, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ June 30, 2021 | ​ ​ ​ ​ ​ ​ | ​ ​ San Francisco Bay Area (1) ​ ​ ​ ​ Amount ​ | ​ ​ ​ ​ | ​ % of Total in Category ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Other California ​ ​ ​ ​ Amount ​ | ​ ​ ​ ​ ​ | ​ ​ % of Total in Category ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ Total in State of California ​ ​ ​ ​ Amount ​ | ​ ​ ​ ​ | ​ ​ ​ ​ % of ​ Total in ​ Category ​ | ​ ​ ​ ​ ​ All Other States (2) ​ ​ ​ ​ Amount ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ % of ​ Total in ​ Category ​ | ​ ​ ​ ​ Total ​ ​ ​ ​ Amount ​ | ​ ​ ​ ​ ​ | ​ ​ ​ % of Total in Category ​ ​ |
| --- | --- | ---: | --- | --- | ---: | ---: | --- | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Commercial and industrial | ​ | $114,821 |  | ​ | 22.2% | $100,066 |  | ​ | 17.5% | $214,887 |  | 19.7% | $112,769 |  | 22.1% | $327,656 |  | 20.5% |
| Real estate: | ​ | ​ |  | ​ | ​ | ​ |  | ​ | ​ |  |  | ​ | ​ |  | ​ |  |  | ​ |
| Residential | ​ | 27,371 |  | ​ | 5.3% | 44,207 |  | ​ | 7.7% | 71,578 |  | 6.6% | 60,448 |  | 11.9% | 132,026 |  | 8.3% |
| Multifamily residential | ​ | 58,828 |  | ​ | 11.4 ​ | 100,948 |  | ​ | 17.7 ​ | 159,776 |  | 14.7 ​ | 60,499 |  | 11.9 ​ | 220,275 |  | 13.8 ​ |
| Owner occupied CRE | ​ | 157,210 |  | ​ | 30.4 ​ | 147,151 |  | ​ | 25.8 ​ | 304,361 |  | 28.0 ​ | 68,609 |  | 13.5 ​ | 372,970 |  | 23.4 ​ |
| Non-owner occupied CRE | ​ | 157,204 |  | ​ | 30.4 ​ | 175,497 |  | ​ | 30.7 ​ | 332,701 |  | 30.6 ​ | 193,778 |  | 38.1 ​ | 526,479 |  | 33.0 ​ |
| Construction and land | ​ | 1,601 |  | ​ | 0.3 ​ | 1,333 |  | ​ | 0.2 ​ | 2,934 |  | 0.3 ​ | 10,738 |  | 2.1 ​ | 13,672 |  | 0.9 ​ |
| Total real estate | ​ | 402,214 |  | ​ | ​ ​ | 469,136 |  | ​ | ​ ​ | 871,350 |  | ​ ​ | 394,072 |  | ​ ​ | 1,265,422 |  | ​ ​ |
| Consumer | ​ | 11 |  | ​ | 0.0% | 1,772 |  | ​ | 0.3% | 1,783 |  | 0.2% | 2,381 |  | 0.5% | 4,164 |  | 0.3% |
| Total loans | ​ | $517,046 | ​ | ​ | ​ ​ | $570,974 | ​ | ​ | ​ ​ | $1,088,020 |  | ​ | $509,222 |  | ​ | $1,597,242 |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ ​ | ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| 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 June 30, 2021, loans in Colorado, New Mexico and Washington totaled $143.0 million, $73.8 million and $96.1 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 $154,000, or 1.7%, to $8.9 million at June 30, 2021 from $9.1 million at December 31, 2020, primarily due to a $476,000 decrease in OREO and accruing loans 90 days and more past due, partially offset by the addition of one new nonaccrual residential loan. The Company had nonaccrual loans totaling $8.7 million or 0.55% of total loans, of which $920,000 were guaranteed by governmental agencies at June 30, 2021, compared to $8.4 million or 0.53% of total loans, of which $850,000 were SBA guaranteed at December 31, 2020. Included in nonaccrual loans at June 30, 2021 and December 31, 2020, were $1.7 million and $567,000, respectively, of TDR loans. At June 30, 2021 and December 31, 2020, nonaccrual loans included $637,000 and $620,000 of loans 30-89 days past due and $5.3 million and $4.1 million of loans less than 30 days past due, respectively. At June 30, 2021, nonaccrual loans 30-89 days past due of $637,000 primarily was comprised of two loans and the $5.3 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 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 June 30, 2021 totaled $2.5 million, of which $776,000 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 $129,000 and $35,000 at June 30, 2021 and December 31, 2020, respectively. As discussed above, the Company elected to apply the temporary relief under the CARES Act and related bank regulatory guidance to certain eligible short-term modifications and past due loans. Qualifying loan modifications were not classified as TDR loans for accounting or disclosure purposes until 180 days following a loan's initial modification under the CARES Act and related bank regulatory guidance.

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

*(Dollars in thousands)*

| ​ ​ ​ ​ Loans accounted for on a nonaccrual basis: | ​ ​ ​ ​ | ​ ​ ​ June 30, ​ 2021 ​ ​ ​ | ​ ​ ​ December 31, ​ 2020 ​ ​ ​ ​ |
| --- | --- | --- | --- |
| Commercial and industrial | ​ | $673 ​ | $848 ​ |
| Real estate: | ​ | ​ ​ ​ | ​ ​ ​ |
| Residential | ​ | ​ 3,039 ​ | ​ 2,195 ​ |
| Multifamily residential | ​ | ​ 228 ​ | ​ 254 ​ |
| Owner occupied CRE | ​ | ​ 4,344 ​ | ​ 4,651 ​ |
| Non-owner occupied CRE | ​ | ​ 423 ​ | ​ 437 ​ |
| Construction and land | ​ | ​ 36 ​ | ​ 36 ​ |
| Total real estate | ​ | ​ 8,070 ​ | ​ 7,573 ​ |
| Consumer | ​ | ​ — ​ | ​ — ​ |
| Total nonaccrual loans | ​ | ​ 8,743 ​ | ​ 8,421 ​ |
| Accruing loans 90 days or more past due | ​ | ​ — ​ | ​ 233 ​ |
| Total nonperforming loans | ​ | ​ 8,743 ​ | ​ 8,654 ​ |
| Real estate owned | ​ | ​ 186 ​ | ​ 429 ​ |
| Total nonperforming assets (1) | ​ | $8,929 ​ | $9,083 ​ |
| Troubled debt restructurings – performing | ​ | ​ 776 ​ | ​ 798 ​ |
| PCI loans | ​ | $13,242 ​ | $15,610 ​ |
| Nonperforming assets to total assets (1) | ​ | ​ 0.38% | ​ 0.41% |
| Nonperforming loans to total loans (1) | ​ | ​ 0.55% | ​ 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 June 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 $69,000 and $157,300 for the three and six months ended June 30, 2021 compared to $119,500 and $221,000 for the three and six months ended June 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 June 30, 2021, there are $16.1 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 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 June 30, 2021, acquired loans, net of their discounts, totaled $59.3 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 $2.3 million and $3.3 million at June 30, 2021 and December 31, 2020, respectively. The $150.4 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at June 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.

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

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ June 30, ​ 2021 | ​ ​ ​ December 31, 2020 ​ |
| --- | ---: | ---: |
| Balance at beginning of period | $17,500 ​ | $7,400 ​ |
| Provisions for loan losses | (507) ​ | 10,320 ​ |
| Recoveries | ​ | ​ |
| Commercial and industrial | 6 ​ | 13 ​ |
| Residential | — ​ | — ​ |
| Owner occupied CRE | 3 ​ | — ​ |
| Non-owner occupied CRE | — ​ | 4 ​ |
| Construction | — ​ | — ​ |
| Consumer | — ​ | — ​ |
| Total recoveries | 9 ​ | ​ 17 ​ |
| Charge-offs | ​ | ​ |
| Commercial and industrial | (2) ​ | (199) ​ |
| Residential | — ​ | (1) ​ |
| Owner occupied CRE | — ​ | — ​ |
| Non-owner occupied CRE | — ​ | — ​ |
| Construction | ​ — ​ | (20) ​ |
| Consumer | — ​ | (17) ​ |
| Total charge-offs | (2) ​ | (237) ​ |
| Net charge-offs | 7 ​ | (220) ​ |
| Balance at end of period | $17,000 ​ | $17,500 ​ |
| ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan losses as a percentage of total loans | ​ 1.07% | ​ 1.06% |
| Allowance for loan losses to total loans excluding PCI loans (1) | ​ 1.07 ​ | ​ 1.07 ​ |
| Allowance for loan losses excluding acquired loans (loans not covered by the allowance) (1) | ​ 1.11 ​ | ​ 1.18 ​ |
| Allowance for loan losses excluding acquired loans and PPP loans (loans not covered by the allowance) (1) | ​ 1.23 ​ | ​ 1.30 ​ |
| Allowance for loan losses as a percentage of total nonperforming loans | ​ 194.44 ​ | ​ 202.22 ​ |
| Net recoveries/(charge-offs) as a percentage of average loans outstanding for the period | ​ 0.13% | ​ (0.01)% |

(1) See non-GAAP financial measures herein.

The allowance for loan losses decreased to $17.0 million at June 30, 2021 from $17.5 million at December 31, 2020. A $507,000 reversal of the provision for loan losses was recorded this quarter primarily because of improvements in the economic forecast since March 31, 2021 and a decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at June 30, 2021, as compared to prior quarters. 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.

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.

As of June 30, 2021, the Company identified $9.7 million in impaired loans, inclusive of $8.7 million of nonperforming loans and $776,000 of accruing TDR loans. Of these impaired loans, only $1.1 million had a specific allowance of $767,000 as of June 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 June 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 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. 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 $139.8 million, or 7.6%, to $2.0 billion at June 30, 2021 from $1.9 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 June 30, 2021, noninterest bearing demand deposits totaled $727.7 million or 36.8% 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ June 30, 2021 | ​ ​ ​ | ​ ​ December 31, 2020 | ​ ​ ​ ​ ​ ​ % Change ​ ​ |
| --- | --- | ---: | --- | ---: | ---: |
| Noninterest bearing demand deposits |  | $727,663 |  | $678,365 | 7.3% |
| NOW accounts and savings | ​ | 445,232 | ​ | 399,772 | 11.4 ​ |
| Money market | ​ | 579,355 | ​ | 516,560 | 12.2 ​ |
| Time deposits | ​ | 225,988 | ​ | 243,700 | (7.3) ​ |
| Total | ​ | $1,978,238 | ​ | $1,838,397 | 7.6% |

***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 June 30, 2021, the two tranches were repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco. At June 30, 2021 and December 31, 2020, we had the ability to borrow up to $389.9 million and $421.2 million, respectively, from the FHLB of San Francisco.

At June 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 June 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 June 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 June 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 decreased $42,000, to $252.5 million at June 30, 2021 from $252.6 million at December 31, 2020. The decrease in shareholders’ equity was primarily due to the repurchase of $11.0 million of our common stock, partially offset by net income of $9.8 million and a $386,000 increase in other comprehensive income representing an increase in the unrealized gains on investments securities, net of tax. During the six months ended June 30, 2021, the Company repurchased a total of 132,123 shares of its common stock at a total cost of $11.0 million, or $16.66 per share, leaving 24,123 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”.

### Comparison of Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020

***Earnings summary.*** Net income was $5.3 million for the three months ended June 30, 2021, compared to $3.1 million for the three months ended June 30, 2020, an increase of $2.2 million or 70.2%. The increase was the result of a $4.9 million decrease in provision for loan losses to a $507,000 reversal, a $1.2 million increase in noninterest income and a $127,000 decrease in noninterest expenses, partially offset by a $3.2 million decrease in net interest income, and an $826,000 increase in the provision for income taxes. Diluted earnings per share were $0.49 for the three months ended June 30, 2021, an increase of $0.23 from diluted earnings per share of $0.26 for the three months ended June 30, 2020.

Net income was $9.8 million for the six months ended June 30, 2021, compared to $5.9 million for the six months ended June 30, 2020, an increase of $3.9 million or 65.1%. The increase was the result of decrease in $6.6 million decrease in the provision for loan losses to a $507,000 reversal, an $810,000 increase in noninterest income and a $2.9 million decrease in noninterest expense, partially offset by a $5.0 million decrease in net interest income and a $1.4 million increase in provision for income taxes. There were no acquisition-related expenses during the six months ended June 30, 2021, compared to $3.0 million during the six months ended June 30, 2020. Diluted earnings per share were $0.89 for the six months ended June 30, 2021, an increase of $0.40 from diluted earnings per share of $0.49 for the six months ended June 30, 2020.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 66.27% and 66.79% for the three and six months ended June 30, 2021, compared to 60.83% and 67.88% for the three and six months ended June 30, 2020, respectively. The weakening in the efficiency ratio during the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to a decline in revenues during the current quarter compared to the comparable quarter in 2020. The improvement in the efficiency ratio during the six months ended June 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 June 30, 2021 was $20.0 million, compared to $22.8 million for the three months ended June 30, 2020, a decrease of $2.8 million or 12.4%. The decrease in interest income, due to the low interest rate environment and a decrease in average loans outstanding, more than offset the $147.9 million, or 7.3%, increase in average interest earning assets resulting from higher average balance of interest bearing deposits in banks.

Interest income for the three months ended June 30, 2021 included $1.5 million in fees earned related to PPP loans compared to $488,000 during the same period in 2020. As of June 30, 2021, total unrecognized fees on PPP loans were $4.5 million. For the three months ended June 30, 2021, average PPP loans were $138.8 million and the average yield was 4.74%. 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 two-year 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 loans, including fees, decreased $3.1 million, or 14.0%, to $18.7 million during the three months ended June 30, 2021, compared to $21.8 million for the three months ended June 30, 2020 primarily due to a $106.1 million decrease in average loan balance and a 42 basis point decline in the average loan yield. The average yield on loans for the three months ended June 30, 2021 was 4.71%, compared to 5.13% for the same period in 2020. Interest income on loans for the quarters ended June 30, 2021 and 2020 included $675,000 and $2.0 million, respectively, in accretion of purchase accounting fair value adjustments on acquired loans. The remaining net discount on these acquired loans was $2.3 million and $2.7 million at June 30, 2021 and 2020, respectively.

Interest income on interest bearing deposits increased $18,000 as a result of a $256.3 million increase in the average balance of interest bearing deposits in banks, partially offset by a 25 basis point decrease in the yield on interest bearing deposits to 0.15% for the three months ended June 30, 2020 compared to 0.40% for the three months ended June 30, 2020.

Interest income on investment securities available-for-sale increased by $147,000 as a result of a 58 basis point increase in the average yield on investment securities to 3.03% for the three months ended June 30, 2021 compared to 2.45% for the three months ended June 30, 2020, partially offset by a $3.7 million decrease in the average balance of investment securities available-for-sale.

Interest income for the six months ended June 30, 2021 was $40.3 million, compared to $45.3 million for the six months ended June 30, 2020, a decrease $5.0 million or 11.1%. The decrease in interest income primarily was due to both an 83 basis point decline in the average yield on interest earning assets partially offset by interest earning assets increasing $173.4 million or 8.83%.

Interest income on loans, including fees, decreased $4.5 million, or 10.57%, primarily as a result of a $15.0 million decrease in the average loan balance and, to a lesser extent, a 92 basis point decrease in the average loan yield to 4.75% for the six months ended June 30, 2021 compared to 5.23% for the six months ended June 30, 2020. The average yield on loans for the accretion of the net discount on acquired loans increased the average yield on loans by 10 basis points during the six months ended June 30, 2021 and 2020. During the six months ended June 30, 2021 compared to this same period in 2020, the accretion of the net discount on acquired loans increased the yield on loans by 13 basis points and 44 basis points, respectively. Interest income on loans for the six months ended June 30, 2021 included $1.1 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $3.6 million for the six months ended June 30, 2020. The remaining net discount on these purchased loans was $2.3 million and $4.9 million at June 30, 2021 and 2020, respectively.

Interest income on interest bearing deposits in banks decreased $725,000 as a result a 95 basis point decrease in the average yield on interest earning deposits to 0.14% for the six months ended June 30, 2021 compared to 0.99% for the six months ended June 30, 2020, partially offset by a $192.8 million increase in the average balance of interest bearing deposits in banks.

Interest income on investment securities increased $118,000 as a result of a 33 basis point increase in the average yield on investment securities to 2.83% for the six months ended June 30, 2021 compared to 2.50% for the six months ended June 30, 2020, partially offset by a $5.3 million decrease in the average balance of investment securities available-for-sale.

***Interest expense.*** Interest expense increased $350,000, or 18.7%, to $2.2 million for the three months ended June 30, 2021 compared to $1.9 million for the three months ended June 30, 2020. The increase was due to the interest expense on the subordinated debt issued in the third quarter of 2020 and higher cost of funds. Total average interest bearing liabilities increased $71.0 million, or 5.7%, to $1.3 billion for the three months ended June 30, 2021 compared to the $1.2 billion for the three months ended June 30, 2020. The average rate paid on interest bearing liabilities increased by eight basis points to 0.68% for the three months ended June 30, 2021, from 0.60% for the three months ended June 30, 2020.

Interest expense on deposits decreased $446,000, or 26.7%, to $1.2 million for three months ended June 30, 2021 compared to $1.7 million for the three months ended June 30, 2020, primarily due to decreases in the targeted federal funds rate, earlier in 2020, and despite a $56.8 million increase in the average balance of deposits. The average rate paid on interest bearing deposits decreased by 17 basis points to 0.40% for the three months ended June 30, 2021, from 0.57% for the three months ended June 30, 2020. The overall average cost of deposits for the three months ended June 30, 2021 declined to 0.25%, compared to 0.53% for the three months ended June 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 $49.5 million, or 7.10%, to $746.3 million for the three months ended June 30, 2021 compared to $696.8 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 $796,000 or 425.6%, to $983,000 for the three months ended June 30, 2021, from $187,000 for the three months ended June 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 $14.2 million to $73.8 million during the three months ended June 30, 2021, compared to $59.6 million during the three months ended June 30, 2020. The average cost of borrowing increased to 5.34% for the three months ended June 30, 2021, compared to 1.26% for the three months ended June 30, 2020.

Interest expense increased by $84,000, or 1.9%, to $4.4 million for the six months ended June 30, 2021 compared to $4.3 million for the six months ended June 30, 2020. The average cost of interest bearing liabilities decreased 6 basis points to 0.66% for the six months ended June 30, 2021 compared to 0.72% for the six months ended June 30, 2020. Total average interest bearing liabilities increased $132.7 million, or 10.99%, to $1.3 million for the six months ended June 30, 2021 from $1.2 million for the six months ended June 30, 2020.

Interest expense on deposits decreased $1.6 million, or 39.2%, to $2.4 million during the six months ended June 30, 2021 from $4.0 million the same period in 2020 primarily due to a decrease in the average rate paid on interest bearing deposits. The average rate paid on interest bearing deposits decreased by 30 basis points to 0.39% for the six months ended June 30, 2021 compared to 0.69% for the six months ended June 30, 2020.

The overall average cost of deposits for the six months ended June 30, 2021 declined to 0.25%, compared to 0.45% for the six months ended June 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 $17.4 million, or 2.64%, to $679.5 million for the six months ended June 30, 2021 compared to $662.1 million for the six months ended June 30, 2020.

Interest expense on borrowings increased to $2.0 million for the six months ended June 30, 2021, from $313,000 for the six months ended June 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 $30.4 million to $75.2 million during the six months ended June 30, 2021, compared to $38.6 million during the six months ended June 30, 2020. The average cost of borrowing increased to 5.27% for the six months ended June 30, 2021, compared to 1.36% for the six months ended June 30, 2020.

***Net interest income.*** Net interest income decreased $3.2 million, or 15.1%, to $17.8 million for the three months ended June 30, 2021, compared to $21.0 million for the three months ended June 30, 2020, and decreased $5.1 million, or 12.5%, to $35.9 million for the six months ended June 30, 2021, compared to $41.0 million for the six months ended June 30, 2020. During the three and six months ended June 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. 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 4.74% and 4.59%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of eight basis points and six basis points during the three and six months ended June 30, 2021, compared to a negative impact of six basis points and three basis points during the comparable periods in 2020, respectively. Accretion of acquisition accounting discounts on loans and the recognition of revenue from acquired loans in excess of discounts increased our net interest margin by ten and 17 basis points during the three and six months ended June 30, 2021 and 47 and 44 basis points during the three and six months ended June 30 2020, respectively.

The average yield on interest earning assets for the three months ended June 30, 2021 was 3.69%, a 83 basis point decrease from 4.52% for the three months ended June 30, 2020, due primarily to lower market interest rates, while the average cost of interest bearing liabilities for the three months ended June 30, 2021 increased to 0.68%, or eight basis points from 0.60% for the six months ended June 30, 2020, primarily due to the issuance of the subordinated debt mentioned above. The average yield on interest earning assets for the six months ended June 30, 2021 was 3.80%, a 83 basis point decrease from 4.63% for the six months ended June 30, 2020, while the average cost of interest bearing liabilities for the six months ended June 30, 2021 decreased to 0.66%, or six basis points from 0.72% for the six months ended June 30, 2020, due primarily to lower market interest rates, partially offset by the issuance of the aforementioned subordinated debt.

***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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest earning assets | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2021 ​ ​ Average Balance(1) ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Annualized ​ Average ​ Yield ​ ​ | ​ ​ 2020 ​ ​ Average Balance(1) ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Annualized ​ Average ​ Yield ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | ---: | ---: | --- | --- | --- | ---: |
| Interest bearing deposits in banks | ​ | $443,306 | ​ | $163 |  | 0.15% | $186,966 | ​ | $145 |  | 0.31% |
| Investments available-for-sale | ​ | ​ 117,926 | ​ | 888 |  | 3.02 ​ | 121,635 | ​ | 743 |  | 2.45 ​ |
| FHLB Stock | ​ | ​ 8,165 | ​ | 122 |  | 5.98 ​ | 7,620 | ​ | 54 |  | 2.84 ​ |
| FRB Stock | ​ | ​ 8,290 | ​ | 117 |  | 5.67 ​ | 7,491 | ​ | 114 |  | 6.10 ​ |
| Total loans | ​ | ​ 1,593,499 | ​ | 18,703 |  | 4.71 ​ | 1,699,607 | ​ | 21,756 |  | 5.13 ​ |
| Total interest earning assets | ​ | ​ 2,171,186 | ​ | 19,993 |  | 3.69% | 2,023,319 | ​ | 22,812 |  | 4.52% |
| Noninterest earning assets | ​ | ​ 138,917 | ​ | ​ |  | ​ ​ | 168,126 | ​ | ​ |  | ​ ​ |
| Total average assets | ​ | $2,310,103 | ​ | ​ |  | ​ ​ | $2,191,445 | ​ | ​ |  | ​ ​ |
| Interest bearing liabilities | ​ | ​ ​ | ​ | ​ |  | ​ ​ | ​ | ​ | ​ |  | ​ ​ |
| Savings | ​ | $123,570 | ​ | $40 | ​ | 0.13% | $107,487 | ​ | $40 |  | 0.15% |
| NOW accounts | ​ | ​ 313,168 | ​ | 70 |  | 0.09 ​ | 269,812 | ​ | 63 |  | 0.09 ​ |
| Money market | ​ | ​ 566,781 | ​ | 544 |  | 0.38 ​ | 519,595 | ​ | 547 |  | 0.42 ​ |
| Time deposits | ​ | ​ 233,134 | ​ | 574 |  | 0.99 ​ | 282,930 | ​ | 1,025 |  | 1.45 ​ |
| Total deposit accounts | ​ | ​ 1,236,653 | ​ | 1,228 |  | 0.40 ​ | 1,179,824 | ​ | 1,675 |  | 0.57 ​ |
| Subordinated debt, net | ​ | ​ 63,431 | ​ | ​ 896 | ​ | 5.66 ​ | ​ — | ​ | ​ — | ​ | — ​ |
| Junior subordinated debentures, net | ​ | ​ 8,351 | ​ | ​ 87 | ​ | 4.19 ​ | ​ 8,270 | ​ | ​ 100 | ​ | 4.85 ​ |
| Other borrowings | ​ | ​ 1,978 | ​ | — |  | — ​ | 51,286 | ​ | ​ 87 |  | 0.68 ​ |
| Total interest bearing liabilities | ​ | ​ 1,310,413 | ​ | 2,211 |  | 0.68% | 1,239,380 | ​ | 1,862 |  | 0.60% |
| Noninterest bearing liabilities | ​ | ​ 746,251 | ​ | ​ |  | ​ ​ | 696,775 | ​ | ​ |  | ​ ​ |
| Total average liabilities | ​ | ​ 2,056,664 | ​ | ​ |  | ​ ​ | 1,936,155 | ​ | ​ |  | ​ ​ |
| Average equity | ​ | ​ 253,439 | ​ | ​ |  | ​ ​ | 255,290 | ​ | ​ |  | ​ ​ |
| Total average liabilities and equity | ​ | $2,310,103 | ​ | ​ |  | ​ ​ | $2,191,445 | ​ | ​ |  | ​ ​ |
| Net interest income | ​ | ​ | ​ | $17,782 |  | ​ ​ | ​ | ​ | $20,950 |  | ​ ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest rate spread (2) | ​ | ​ | ​ | ​ |  | 3.01% | ​ | ​ | ​ |  | 3.92% |
| Net interest margin (3) | ​ | ​ | ​ | ​ |  | 3.29% | ​ | ​ | ​ |  | 4.15% |
| Ratio of average interest earning assets to average interest bearing liabilities | ​ | ​ | ​ | ​ |  | 165.69% | ​ | ​ | ​ |  | 163.25% |

(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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest earning assets | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2021 ​ ​ Average Balance (1) ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Annualized ​ Average ​ Yield ​ ​ | ​ ​ 2020 ​ ​ Average Balance(1) ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Annualized ​ Average ​ Yield ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | ---: | ---: | --- | --- | --- | ---: |
| Interest bearing deposits in banks | ​ | $396,750 | ​ | $281 |  | 0.14% | $203,959 | ​ | $1,006 |  | 0.99% |
| Investments available-for-sale | ​ | ​ 116,488 | ​ | 1,638 |  | 2.83 ​ | 121,775 | ​ | 1,520 |  | 2.50 ​ |
| FHLB Stock | ​ | ​ 8,009 | ​ | 221 |  | 5.56 ​ | 7,420 | ​ | 179 |  | 4.84 ​ |
| FRB Stock | ​ | ​ 7,619 | ​ | 229 |  | 6.05 ​ | 7,345 | ​ | 222 |  | 6.06 ​ |
| Total loans | ​ | ​ 1,608,609 | ​ | 37,896 |  | 4.75 ​ | 1,623,602 | ​ | 42,375 |  | 5.23 ​ |
| Total interest earning assets | ​ | ​ 2,137,475 | ​ | 40,265 |  | 3.80% | 1,964,101 | ​ | 45,302 |  | 4.63% |
| Noninterest earning assets | ​ | ​ 136,637 | ​ | ​ |  | ​ ​ | 160,639 | ​ | ​ |  | ​ ​ |
| Total average assets | ​ | $2,274,112 | ​ | ​ |  | ​ ​ | $2,124,740 | ​ | ​ |  | ​ ​ |
| Interest bearing liabilities | ​ | ​ ​ | ​ | ​ |  | ​ ​ | ​ | ​ | ​ |  | ​ ​ |
| Savings | ​ | $116,495 | ​ | $81 | ​ | 0.14% | $102,851 | ​ | $85 |  | 0.17% |
| NOW accounts | ​ | ​ 305,772 | ​ | 136 |  | 0.09 ​ | 258,691 | ​ | 120 |  | 0.90 ​ |
| Money market | ​ | ​ 547,031 | ​ | 1,058 |  | 0.39 ​ | 509,908 | ​ | 1,464 |  | 0.58 ​ |
| Time deposits | ​ | ​ 235,992 | ​ | 1,159 |  | 0.99 ​ | 297,471 | ​ | 2,333 |  | 1.57 ​ |
| Total deposit accounts | ​ | ​ 1,205,290 | ​ | 2,434 |  | 0.39 ​ | 1,168,921 | ​ | 4,002 |  | 0.69 ​ |
| Subordinated debt, net | ​ | ​ 63,410 | ​ | ​ 1,791 | ​ | 5.70 ​ | ​ — | ​ | ​ — | ​ | — ​ |
| Junior subordinated debentures, net | ​ | ​ 8,341 | ​ | ​ 174 | ​ | 4.20 ​ | ​ 8,259 | ​ | ​ 219 | ​ | 5.32 ​ |
| Other borrowings | ​ | ​ 3,481 | ​ | — |  | — ​ | 30,327 | ​ | ​ 94 |  | 0.29 ​ |
| Total interest bearing liabilities | ​ | ​ 1,280,522 | ​ | 4,399 |  | 0.69% | 2,964,723 | ​ | 4,315 |  | 0.72% |
| Noninterest bearing liabilities | ​ | ​ 739,234 | ​ | ​ |  | ​ ​ | 662,063 | ​ | ​ |  | ​ ​ |
| Total average liabilities | ​ | ​ 2,019,756 | ​ | ​ |  | ​ ​ | 3,626,786 | ​ | ​ |  | ​ ​ |
| Average equity | ​ | ​ 254,356 | ​ | ​ |  | ​ ​ | 255,170 | ​ | ​ |  | ​ ​ |
| Total average liabilities and equity | ​ | $2,274,112 | ​ | ​ |  | ​ ​ | $3,881,956 | ​ | ​ |  | ​ ​ |
| Net interest income | ​ | ​ | ​ | $35,866 |  | ​ ​ | ​ | ​ | $40,987 |  | ​ ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest rate spread (2) | ​ | ​ | ​ | ​ |  | 3.11% | ​ | ​ | ​ |  | 3.91% |
| Net interest margin (3) | ​ | ​ | ​ | ​ |  | 3.38% | ​ | ​ | ​ |  | 4.19% |
| Ratio of average interest earning assets to average interest bearing liabilities | ​ | ​ | ​ | ​ |  | 166.92% | ​ | ​ | ​ |  | 162.66% |

(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.

***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.

*(Dollars in thousands)*

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest earning assets | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2021 compared to 2020 Increase/(Decrease) Attributable to Rate ​ ​ | ​ ​ | ​ ​ Volume ​ ​ | ​ ​ | ​ ​ Total ​ ​ | ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2021 compared to 2020 Increase/(Decrease) Attributable to Rate ​ ​ | ​ ​ | ​ ​ Volume ​ ​ | ​ ​ | ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | ---: |
| Interest bearing deposits in banks | ​ | $(181) | ​ | $199 | ​ | $18 | ​ | ​ | $(1,676) | ​ | $951 | ​ | $(725) |
| Investments available-for-sale | ​ | 169 | ​ | (23) | ​ | 147 | ​ | ​ | 184 | ​ | (66) | ​ | 118 |
| FHLB stock and FRB stock | ​ | 55 | ​ | 15 | ​ | 70 | ​ | ​ | 26 | ​ | 23 | ​ | 49 |
| Total loans | ​ | (1,677) | ​ | (1,375) | ​ | (3,053) | ​ | ​ | (3,823) | ​ | (656) | ​ | (4,479) |
| Total interest income | ​ | (1,634) | ​ | (1,184) | ​ | (2,818) | ​ | ​ | (5,290) | ​ | 253 | ​ | (5,037) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest bearing liabilities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Savings | ​ | (5) | ​ | 6 | ​ | 1 | ​ | ​ | (15) | ​ | 11 | ​ | (4) |
| NOW accounts | ​ | (3) | ​ | 10 | ​ | 7 | ​ | ​ | (6) | ​ | 22 | ​ | 16 |
| Money market accounts | ​ | (53) | ​ | 50 | ​ | (3) | ​ | ​ | (513) | ​ | 107 | ​ | (406) |
| Time deposits | ​ | (271) | ​ | (180) | ​ | (451) | ​ | ​ | (1,160) | ​ | (14) | ​ | (1,174) |
| Total deposit accounts | ​ | (331) | ​ | (115) | ​ | (446) | ​ | ​ | (1,694) | ​ | 126 | ​ | (1,568) |
| Subordinated debt, net | ​ | — | ​ | 896 | ​ | 896 | ​ | ​ | — | ​ | 1,791 | ​ | 1,791 |
| Junior subordinated debentures, net | ​ | (14) | ​ | 1 | ​ | (13) | ​ | ​ | (47) | ​ | 2 | ​ | (45) |
| Other borrowings | ​ | (0) | ​ | (87) | ​ | (87) | ​ | ​ | — | ​ | (94) | ​ | (94) |
| Total interest expense | ​ | (346) | ​ | 695 | ​ | 350 | ​ | ​ | (1,741) | ​ | 1,825 | ​ | 84 |
| Net interest income | ​ | $(1,288) | ​ | $(1,880) | ​ | $(3,168) | ​ | ​ | $(3,549) | ​ | $(1,572) | ​ | $(5,121) |

***Provision for loan losses.*** We recorded $507,000 reversal of the provision for loan losses for the three and six months ended June 30, 2021, compared to a provision for loan losses of $4.4 million and $1.7 million for the three and six months ended June 30, 2020 respectively. The provision for loan losses and related allowance for loan losses recorded in the quarter ended June 30, 2020 primarily reflected probable loan losses due to economic conditions driven by the impact of COVID-19 on the U.S. and global economies and to a lesser extent, the migration of acquired loans out of the discounted acquired loan portfolio. We had net recoveries on loans of $7,000 for the three and six months ended June 30, 2021, compared to net recoveries of $2,000 and charge-offs on loans of $11,000 for the three and six months ended June 30, 2020, respectively. The allowance for loan losses to total loans was 1.07% at June 30, 2021 compared to 1.06% at December 31, 2020.

***Noninterest income.*** Noninterest income for the three months ended June 30, 2021 increased $1.2 million, or 88.4%, to $2.5 million compared to $1.3 million for the three months ended June 30, 2020, primarily due to a $741,000 increase in the gain on sale of loans and a $541,000 increase in income from our investment in a Small Business Investment Company (“SBIC”) fund. During the three months ended June 30, 2021, the Company sold $9.0 million of SBA loans (guaranteed portion), which generated a gain on sale of $953,000, compared to the sale of $3.3 million of SBA loans and a gain of $212,000 during the three months ended June 30, 2020.

Noninterest income increased $810,000, or 79.1%, to $4.7 million for the six months ended June 30, 2021 compared to $3.9 million for the six months ended June 30, 2020 primarily due to a $460,000 increase in income in our investment in the SBIC fund and a $675,000 increase in gain on sale of loans. During the six months ended June 30, 2021, the Company sold $15.8 million of SBA loans (guaranteed portion), which generated a gain on sale of $1.5 million, compared to the sale of $11.7 million of SBA loans and a gain of $854,000 during the six months ended June 30, 2020. These decreases were partially offset by a decrease in loan servicing and other loan fees of $276,000, or 22.2%, to $965,000 for the six months ended June 30, 2021, compared to $1.2 million for the six months ended June 30, 2020, as a result of lower transaction volume.

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

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended June 30, 2021 | ​ | ​ ​ 2020 | ​ ​ | ​ ​ ​ $ Change | ​ ​ ​ | ​ ​ ​ % Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Gain on sale of loans | ​ | $953 | ​ | $212 | ​ | $741 | ​ | 349.5% |
| Service charges and other fees | ​ | 604 | ​ | 610 | ​ | (6) |  | (1.0) ​ |
| Loan servicing and other loan fees | ​ | 436 | ​ | 595 | ​ | (159) |  | (26.7) ​ |
| (Loss) income on investment in SBIC fund | ​ | 232 | ​ | (309) | ​ | 541 |  | 175.1 ​ |
| Gain on sale of OREO | ​ | — | ​ | 28 | ​ | (28) |  | (100.0) ​ |
| Other income and fees | ​ | 228 | ​ | 166 | ​ | 62 |  | 37.3 ​ |
| Total noninterest income | ​ | $2,453 | ​ | $1,302 | ​ | $1,151 |  | 88.4% |

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Six months ended June 30, 2021 | ​ | ​ ​ 2020 | ​ ​ | ​ ​ ​ $ Change | ​ ​ ​ | ​ ​ ​ % Change ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Gain on sale of loans | ​ | $1,529 | ​ | $854 | ​ | $675 | ​ | 79.0% | ​ |
| Service charges and other fees | ​ | 1,208 | ​ | 1,315 | ​ | (107) |  | (8.1) ​ | ​ |
| Loan servicing and other loan fees | ​ | 965 | ​ | 1,241 | ​ | (276) |  | (22.2) ​ | ​ |
| Gain on sale of premises | ​ | ​ 12 | ​ | ​ — | ​ | ​ 12 | ​ | 100.0 ​ | ​ |
| Income on investment in SBIC fund | ​ | 495 | ​ | 35 | ​ | 460 |  | 1,314.3 ​ | ​ |
| Gain on sale of OREO | ​ | 36 | ​ | 28 | ​ | 8 |  | 28.6 ​ | ​ |
| Other income and fees | ​ | 445 | ​ | 407 | ​ | 38 |  | 9.3 ​ | ​ |
| Total noninterest income | ​ | $4,690 | ​ | $3,880 | ​ | $810 |  | 20.9% | ​ |

***Noninterest expense.*** Noninterest expense decreased $127,000, or 0.9%, to $13.4 million for the three months ended June 30, 2021 compared to $13.5 million for the three months ended June 30, 2020. The decrease was comprised of lower salaries and employee benefits of $143,000, primarily due to a decrease in staffing levels and lower data processing expenses of $181,000 due to decreased customer transactions during the onset of the pandemic, partially offset by increases in occupancy and equipment expenses of $76,000 and other expense of $121,000.

Noninterest expense for the six months ended June 30, 2021 decreased $3.0 million, or 9.7%, to $27.5 million from $30.5 million in the same period in 2020, primarily due to a decrease in data processing of $2.3 million, or 45.7%, to $2.8 million for the six months ended June 30, 2021, compared to $5.1 million for the same period in 2020. The higher data processing expenses during the six months ended June 30, 2020, were related to our acquisition of Grand Mountain Bancshares in February 2020, compared to no acquisition-related expenses incurred during the six months ended June 30, 2021. In addition, other expenses decreased $753,000, or 15.6%, to $4.1 million for the six months ended June 30, 2021 compared to $4.8 million for the six months ended June 30, 2020, due to acquisition related expenses and miscellaneous expense of $123,000 incurred in 2020.

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

​ ​ Three months ended June 30, ​ ​ ​ ​

​ 2021 2020 $ Change % Change

​ ​ (Dollars in thousands) ​ ​

Salaries and related benefits ​ $ 8,109 ​ $ 8,252 ​ $ (143) ​ (1.7) %

Occupancy and equipment ​ 1,850 ​ 1,774 ​ 76 4.3 ​

Data processing ​ 1,269 ​ 1,450 ​ (181) (12.5) ​

Other ​ 2,181 ​ 2,060 ​ 121 5.9 ​

Total noninterest expense ​ $ 13,409 ​ $ 13,536 ​ $ (127) (0.9) %

​ ​ ​ ​ ​ ​ Six months ended June 30, ​ ​ ​ ​ ​

​ 2021 2020 $ Change % Change ​

​ ​ (Dollars in thousands) ​ ​ ​

Salaries and related benefits ​ $ 16,994 ​ $ 16,960 ​ $ 34 ​ 0.2 % ​

Occupancy and equipment ​ 3,665 ​ 3,585 ​ 80 2.2 ​ ​

Data processing ​ 2,753 ​ 5,074 ​ (2,321) (45.7) ​ ​

Other ​ 4,082 ​ 4,835 ​ (753) (15.6) ​ ​

Total noninterest expense ​ $ 27,494 ​ $ 30,454 ​ $ (2,960) (9.7) % ​

***Income taxes.*** Income tax expense increased $826,000, or 68.9%, to $2.0 million for the three months ended June 30, 2021 compared to $1.2 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, income tax expense increased $1.4 million, or 57.7%, to $3.7 million, compared to $2.4 million for the six months ended June 30, 2020. The Company’s effective tax rate was 27.6% and 27.5% for three and six months ended June 30, 2021 compared to 27.8% and 28.5% for the six months ended June 30, 2020. The increases in the income tax expense 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 securities available-for-sale. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. At June 30, 2021, the Bank had an available borrowing capacity of $389.9 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 June 30, 2021 and December 31, 2020. Additionally, the Company classifies its 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.

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 were $105.9 million and $110.7 million at June 30, 2021 and December 31, 2020, respectively, and certificates of deposits scheduled to mature in one year or less at June 30, 2021, totaled $168.0 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 six months ended June 30, 2021 was $8.4 million, compared to $893,000 for the six months ended June 30, 2020. During the six months ended June 30, 2021, net cash provided by investing activities was $37.1 million, which consisted primarily of net change in loans receivable, compared to $164.5 million of cash used in investing activities for the six months ended June 30, 2020. Net cash provided by financing activities for the six months ended June 30, 2021 was $123.8 million, which was comprised primarily of net change in deposits, compared to $72.0 million during the six months ended June 30, 2020.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. At June 30, 2021, the Company, on an unconsolidated basis, had liquid assets of $45.3 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 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 June 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.

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:

*(Dollars in thousands)*

| ​ ​ ​ ​ Leverage Ratio | ​ ​ ​ ​ | ​ ​ At June 30, 2021 Amount ​ | ​ ​ | ​ ​ ​ Ratio ​ | ​ ​ At December 31, 2020 Amount ​ | ​ ​ | ​ ​ Ratio ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| BayCom Corp | ​ | $201,920 |  | 9.35% | $201,519 |  | 9.58% |
| Minimum requirement for "Well Capitalized" | ​ | 107,941 |  | 5.00% | 105,225 |  | 5.00% |
| Minimum regulatory requirement | ​ | 86,353 |  | 4.00% | 84,180 |  | 4.00% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| United Business Bank | ​ | 237,001 |  | 10.53% | 224,169 |  | 10.18% |
| Minimum requirement for "Well Capitalized" | ​ | 112,487 |  | 5.00% | 110,136 |  | 5.00% |
| Minimum regulatory requirement | ​ | 89,990 |  | 4.00% | 88,109 |  | 4.00% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Common Equity Tier 1 Ratio | ​ |  |  | ​ |  |  | ​ |
| BayCom Corp | ​ | 201,920 |  | 12.77% | 201,519 |  | 12.78% |
| Minimum requirement for "Well Capitalized" | ​ | 102,777 |  | 6.50% | 102,472 |  | 6.50% |
| Minimum regulatory requirement | ​ | 71,154 |  | 4.50% | 70,942 |  | 4.50% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| United Business Bank | ​ | 237,001 | ​ | 15.15% | 224,169 | ​ | 14.22% |
| Minimum requirement for "Well Capitalized" | ​ | 101,660 |  | 6.50% | 102,440 |  | 6.50% |
| Minimum regulatory requirement | ​ | 70,380 |  | 4.50% | 70,920 |  | 4.50% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Tier 1 Risk-Based Capital Ratio | ​ |  |  | ​ |  |  | ​ |
| BayCom Corp | ​ | 211,405 |  | 13.37% | 211,004 |  | 13.38% |
| Minimum requirement for "Well Capitalized" | ​ | 126,495 |  | 8.00% | 126,120 |  | 8.00% |
| Minimum regulatory requirement | ​ | 94,871 |  | 6.00% | 94,590 |  | 6.00% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| United Business Bank | ​ | 237,001 |  | 15.15% | 224,169 |  | 14.22% |
| Minimum requirement for "Well Capitalized" | ​ | 125,120 |  | 8.00% | 126,080 |  | 8.00% |
| Minimum regulatory requirement | ​ | 93,840 |  | 6.00% | 94,560 |  | 6.00% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| Total Risk-Based Capital Ratio | ​ |  |  | ​ |  |  | ​ |
| BayCom Corp | ​ | 293,820 |  | 18.58% | 293,919 |  | 18.64% |
| Minimum requirement for "Well Capitalized" | ​ | 158,119 |  | 10.00% | 157,650 |  | 10.00% |
| Minimum regulatory requirement | ​ | 126,495 |  | 8.00% | 126,120 |  | 8.00% |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ ​ |
| United Business Bank | ​ | 254,416 |  | 16.27% | 242,084 |  | 15.36% |
| Minimum requirement for "Well Capitalized" | ​ | 156,400 |  | 10.00% | 157,600 |  | 10.00% |
| Minimum regulatory requirement | ​ | 125,120 |  | 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 June 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 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:

*(Dollars in thousands)*

| ​ ​ Allowance for loan losses excluding acquired loans and PPP loans ​ | ​ ​ ​ | ​ ​ ​ June 30, ​ 2021 ​ | ​ ​ ​ December 31, ​ 2020 ​ |
| --- | --- | ---: | ---: |
| Allowance for loan losses (GAAP) | ​ | $(17,000) ​ | $(17,500) ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total loans (GAAP) | ​ | ​ 1,597,242 ​ | ​ 1,647,159 ​ |
| Exclude PCI loans | ​ | 13,242 ​ | 15,610 ​ |
| Adjusted total loans excluding PCI loans (non-GAAP) | ​ | $1,584,000 ​ | $1,631,549 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total loans (GAAP) | ​ | $1,597,242 ​ | $1,647,159 ​ |
| Exclude acquired loans | ​ | 59,293 ​ | 164,029 ​ |
| Adjusted total loans excluding acquired loans (non-GAAP) | ​ | $1,537,949 ​ | $1,483,130 ​ |
| Exclude PPP loans | ​ | 150,401 ​ | 135,635 ​ |
| Adjusted total loans excluding acquired loans and PPP loans (non-GAAP) | ​ | $1,387,548 ​ | $1,347,495 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan losses as a percentage of total loans (GAAP) | ​ | ​ 1.07% | ​ 1.06% |
| Allowance for loan losses to total loans excluding PCI loans (non-GAAP) | ​ | 1.07 ​ | 1.07 ​ |
| Allowance for loan losses excluding acquired loans (loans not covered by the allowance) (non-GAAP) | ​ | 1.11 ​ | 1.18 ​ |
| Allowance for loan losses excluding acquired loans and PPP loans (loans not covered by the allowance) (non-GAAP) | ​ | ​ 1.23% | ​ 1.30% |

## Market risk

As filed, 863 characters.

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.

## Controls and procedures

As filed, 3,522 characters.

(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 June 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 June 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 June 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.

Filed Aug 16, 2021.
Source: SEC EDGAR, the filing index for accession 0001730984-21-000031. Last ingested by Listed: Nov 10, 2026, 00:50 ET. No prices; not investment advice.