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BayCom Corp

BayCom CorpBCMLEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

BayCom Corp is a U.S.-headquartered bank holding company operating through its wholly owned subsidiary Bay Commercial Bank. It primarily serves small and medium-sized enterprises and retail customers across Northern California, offering commercial lending, deposit products, personal banking services, and localized wealth management solutions.

What changed in BayCom Corp's 10-K — 2022 vs 2023

Top changes in BayCom Corp's 2023 10-K

553 paragraphs added · 641 removed · 425 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

163 edited+20 added−26 removed209 unchanged
Our lending and investing activities are primarily funded by deposits. We offer a variety of deposit accounts with a wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting a wide variety of clients.
Our lending and investing activities are primarily funded by deposits, and we offer a variety of deposit accounts with a wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting a wide variety of clients.
The Bank’s relationship with depositors and borrowers also is regulated to a great extent by both federal and state law, especially in such matters as the ownership of deposit accounts and the form and content of mortgage and other loan documents.
The Bank’s relationship with depositors and borrowers is also regulated to a great extent by both federal and state law, especially in such matters as the ownership of deposit accounts and the form and content of mortgage and other loan documents.
Federally insured financial institutions, such as the Bank, are required to maintain a minimum level of regulatory capital. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks are generally apply to bank holding companies.
Federally insured financial institutions, such as the Bank, are required to maintain a minimum level of regulatory capital. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks generally apply to bank holding companies.
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. The Company also is required to file certain reports with, and otherwise comply with the rules and regulations of the SEC. The Bank Holding Company Act. Under the BHCA, we are supervised by the Federal Reserve.
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. The Company is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC. The Bank Holding Company Act. Under the BHCA, we are supervised by the Federal Reserve.
A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to commercial real estate concentration risk: ● Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital; or ● Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to commercial real estate concentration risk: ● Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital; or ● Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital, and the outstanding balance of the bank’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.
If during the ordinary course of business, management becomes aware that a borrower may not be able to meet the contractual payment obligations under a loan, then such policies require that the loan be supervised more closely with consideration given to, among other things, placing the loan on nonaccrual status, requiring additional allowance for loan losses, and (if appropriate) charging-off a part or all of the loan.
If during the ordinary course of business, management becomes aware that a borrower may not be able to meet the contractual payment obligations under a loan, then such policies require that the loan be supervised more closely with consideration given to, among other things, placing the loan on nonaccrual status, requiring additional allowance for credit losses, and (if appropriate) charging-off all or a part of the loan.
The policy dictates the criteria for classifying securities as either available for sale or held to maturity. The policy permits investment in various types of liquid assets permissible under applicable regulations, which include U.S. Treasury obligations, U.S. Government agency obligations, some certificates of deposit of insured banks, mortgage backed and mortgage related securities, corporate notes and municipal bonds.
The policy dictates the criteria for classifying securities as either available for sale or held to maturity. The policy permits investment in various types of liquid assets permissible under applicable regulations, which include U.S. Treasury obligations, U.S. Government agency obligations, some certificates of deposit of insured banks, mortgage backed and mortgage related securities, corporate notes, municipal bonds, and equity securities.
In addition to the minimum CET1, Tier 1, leverage ratio and total capital ratios, the capital regulations require 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.
In addition to the minimum CET1, Tier 1, leverage ratio and total capital ratios, the capital regulations require 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 to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.
The Dodd-Frank-Act imposed new restrictions and an expanded framework of regulatory oversight for depository institutions and their holding companies, and capital requirements that are discussed above under the section entitled “United Business Bank - Capital Requirements.” In addition, among other changes, the Dodd-Frank Act requires public companies to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years; (ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments; (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer; and (iv) disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees.
The Dodd-Frank-Act imposed new restrictions and an expanded framework of regulatory oversight for depository institutions and their holding companies, and capital requirements that are discussed above under the section entitled “United Business Bank - Capital Requirements.” In addition, among other changes, the Dodd-Frank Act requires public companies to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years; (ii) have a separate, 25 Table of Contents non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments; (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer; and (iv) disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees.
The severe economic recession beginning in 2008 and the ongoing consolidation in the banking industry created an opportunity for our management team and board to build an attractive commercial banking franchise and create long-term value for our shareholders by employing an acquisition strategy that focuses on opportunities that grow our product portfolio and expand the business geographically. 5 Table of Contents Since 2010, we have implemented our vision of becoming a strategic consolidator of community banks and a destination for seasoned bankers and businesspersons who share our entrepreneurial spirit.
The severe economic recession beginning in 2008 and the ongoing consolidation in the banking industry created an opportunity for our management team and board to build an attractive commercial banking franchise and create long-term value for our shareholders by employing an acquisition strategy that focuses on opportunities that grow our product portfolio and expand the business geographically. 5 Table of Contents Since 2010, we have implemented our vision of becoming a strategic consolidator of community banks, attracting seasoned bankers and businesspersons who share our entrepreneurial spirit.
As a California-chartered commercial bank with branches in the States of California, Colorado, New Mexico and Washington, the Bank is subject not only to the applicable provisions of California law and regulations, but is also subject to applicable Colorado, New Mexico and Washington law and regulations.
As a California-chartered commercial bank with branches in the States of California, Nevada, Colorado, New Mexico and Washington, the Bank is subject not only to the applicable provisions of California law and regulations, but is also subject to applicable Colorado, Nevada, New Mexico and Washington law and regulations.
An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (3) acquiring up to 10% of the voting stock of a company that solely provides or re-insures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured 21 Table of Contents depository institutions, and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.
An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (3) acquiring up to 10% of the voting stock of a company that solely provides or re-insures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions, and (4) acquiring or retaining the voting shares of a depository institution if certain requirements are met.
Results of loan reviews by consultants as well as examination of the loan portfolio by state and federal regulators are also considered by management and the board in determining the level of the allowance for loan losses.
Results of loan reviews by consultants as well as examination of the loan portfolio by state and federal regulators are also considered by management and the board in determining the level of the allowance for credit losses.
Commodity prices also present a risk, which may be managed by the use of set price contracts. As part of our underwriting, the borrower is required to obtain multi-peril crop insurance. Normally, in making agricultural real estate secured loans, our required beginning and projected operating margins provide for reasonable reserves to offset unexpected yield and price deficiencies.
Commodity prices also present a risk, which may be managed by using set price contracts. As part of our underwriting, the borrower is required to obtain multi-peril crop insurance. Normally, in making agricultural real estate secured loans, our required beginning and projected operating margins provide for reasonable reserves to offset unexpected yield and price deficiencies.
Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements. As of December 31, 2022, the Bank met the requirements to be “Well Capitalized.” and the capital conservation buffer requirement.
Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements. As of December 31, 2023, the Bank met the requirements to be “Well Capitalized.” and the capital conservation buffer requirement.
Guarini’s qualifications to serve as a member of our Board of Directors include more than 30 years of experience in the banking industry, holding key executive and senior level management positions with national and regional financial institutions. Janet L. King: Ms. King, age 60, is the Senior Executive Vice President and Chief Operating Officer of BayCom. Ms.
Guarini’s qualifications to serve as a member of our Board of Directors include more than 30 years of experience in the banking industry, holding key executive and senior level management positions with national and regional financial institutions. Janet L. King: Ms. King, age 61, is the Senior Executive Vice President and Chief Operating Officer of BayCom. Ms.
Both of these loans were performing according to their respective loan repayment terms as of December 31, 2022. Construction and Land Loans. We make loans to finance the construction of residential and non-residential properties. Construction loans include loans for owner-occupied one-to-four family homes and commercial projects (such as multifamily housing, industrial, office and retail centers).
Both of these loans were performing according to their respective loan repayment terms as of December 31, 2023. Construction and Land Loans. We make loans to finance the construction of residential and non-residential properties. Construction loans include loans for owner-occupied one-to-four family homes and commercial projects (such as multifamily housing, industrial, office and retail centers).
In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
Mr. Pak holds a B.A. degree from Bethany University, Scotts Valley and earned a graduate certificate from the Pacific Coast Banking School at University of Washington, Seattle. Izabella Zhu Mitchell: Ms. Mitchell, age 44, joined the Bank as Chief Risk Officer and a member of the executive management team in September 2013. Ms.
Mr. Pak holds a B.A. degree from Bethany University, Scotts Valley and earned a graduate certificate from the Pacific Coast Banking School at University of Washington, Seattle. Izabella Zhu Mitchell: Ms. Mitchell, age 45, joined the Bank as Chief Risk Officer and a member of the executive management team in September 2013. Ms.
We make commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, SBA loans, letters of credit and other loan products, primarily in our target markets, which are underwritten on the basis of the borrower’s ability to service the debt from operating income.
We make commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, SBA loans, letters of credit and other loan products, primarily in our target markets, which are underwritten based on the borrower’s ability to service the debt from operating income.
Typically, a SBA 504 project includes a loan secured from a private-sector lender, such as the Bank, with a senior lien, a loan secured from a CDC (funded by a 100% SBA-guaranteed debenture) with a junior lien covering up to 40% of the total cost, and a contribution of at least 10% equity from the borrower.
Typically, a SBA 504 project includes a loan secured from a private-sector lender, such as the Bank, with a senior lien, a loan secured from a CDC (funded by a 100% SBA-guaranteed debenture) with a 10 Table of Contents junior lien covering up to 40% of the total cost, and a contribution of at least 10% equity from the borrower.
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 noninterest income and noninterest expense. Our History and Growth.
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for credit losses. Our net income is also affected by other factors, including noninterest income and noninterest expense. Our History and Growth.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2022 and 2021 — Loans and “Note 4 – Loans” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Sources of Funds Deposits.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2023 and 2022 — Loans and “Note 4 – Loans” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Sources of Funds Deposits.
Colwell, age 63, is the Senior Executive Vice President, Chief Financial Officer and Corporate Secretary of BayCom. Ms. Colwell has served as the Chief Financial Officer and Corporate Secretary of United Business Bank (formerly known as Bay Commercial Bank) since inception in 2004 and is presently also the Bank’s Chief Administrative Officer. Ms.
Colwell, age 64, is the Senior Executive Vice President, Chief Financial Officer and Corporate Secretary of BayCom. Ms. Colwell has served as the Chief Financial Officer and Corporate Secretary of United Business Bank (formerly known as Bay Commercial Bank) since inception in 2004 and is presently also the Bank’s Chief Administrative Officer. Ms.
For additional information concerning our loan portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2022 and 2021 — Loans”, contained in this Form 10-K. Concentrations of Credit Risk.
For additional information concerning our loan portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2023 and 2022 — Loans”, contained in this Form 10-K. Concentrations of Credit Risk.
We typically originate agricultural operating loans on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business. As a result, the availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success of the business itself and the general economic environment.
We typically originate agricultural operating loans based on the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business. As a result, the availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success of the business itself and the general economic environment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2022 and 2021 — Deposits” and “Note 11 – Deposits” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Borrowings.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2023 and 2022 — Deposits” and “Note 11 – Deposits” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Borrowings.
We are a preferred lender under the SBA loan program. 7 Table of Contents We may periodically purchase whole loans and loan participation interests or participate in syndicates originating new loans, including shared national credits, primarily during periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities.
We are a preferred lender under the SBA loan program. We may periodically purchase whole loans and loan participation interests or participate in syndicates originating new loans, including shared national credits, primarily during periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities.
To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property. Federal Reserve System.
To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potentially hazardous waste contamination (such as petroleum 21 Table of Contents contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property. Federal Reserve System.
In addition, under federal law, a Federal Reserve member bank, such as the Bank, may not declare or pay a 22 Table of Contents dividend if the total of all dividends declared during the calendar year, including a proposed dividend, exceeds the sum of the Bank’s net income during the calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve.
In addition, under federal law, a Federal Reserve member bank, such as the Bank, may not declare or pay a dividend if the total of all dividends declared during the calendar year, including a proposed dividend, exceeds the sum of the Bank’s net income during the calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve.
King was employed by Circle Bank in Novato, California from 1999 – 2004 where she served as the Chief Branch Administrative Officer and was a member of the executive management team. She was responsible for all aspects of operations, including Branch Development, Human Resources, Information Technology 28 Table of Contents and Compliance. Prior to this, Ms.
King was employed by Circle Bank in Novato, California from 1999 – 2004 where she served as the Chief Branch Administrative Officer and was a member of the executive management team. She was responsible for all aspects of operations, including Branch Development, Human Resources, Information Technology and Compliance. Prior to this, Ms.
For additional information concerning our borrowings, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2022 and 2021 — Borrowings” and “Note 12 – Other Borrowings”, “Note 13.
For additional information concerning our borrowings, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Comparison of Financial Condition at December 31, 2023 and 2022 — Borrowings” and “Note 12 – Other Borrowings”, “Note 13.
Our preference is for owner-occupied real estate and commercial and industrial loans. We also offer consumer loans predominantly as an accommodation to our commercial clients, which include installment loans, unsecured and secured personal lines of credit, and overdraft protection. Lending activities originate from the relationships and efforts of our bankers.
Our preference is for owner-occupied real estate and commercial and industrial loans. We also offer consumer loans predominantly as an accommodation to our commercial clients, which include installment loans, unsecured and secured 7 Table of Contents personal lines of credit, and overdraft protection. Lending activities originate from the relationships and efforts of our bankers.
CET1 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 and noncumulative perpetual preferred stock.
CET1 generally consists of common stock, retained earnings, accumulated other comprehensive income (“AOCI”) 19 Table of Contents 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 and noncumulative perpetual preferred stock.
We do originate a limited amount of home equity loans and home equity lines of credit. Home equity loans and home equity lines of credit generally may have a loan-to-value of up 80% at the time origination when combined with the first mortgage. The majority of these loans are secured by a first or second mortgage on residential property.
We originate a limited amount of home equity loans and home equity lines of credit. Home equity loans and home equity lines of credit generally have a loan-to-value ratio of up 80% at the time origination when combined with the first mortgage. The majority of these loans are secured by a first or second mortgage on residential property.
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 believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California, Seattle, Washington, and Denver, Colorado, Las Vegas, Nevada and community markets including Albuquerque, New Mexico, and Custer, Delta, and Grand counties, Colorado, provides us access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth.
We offer debit cards with no ATM surcharges or foreign ATM fees for checking clients, plus night depository, direct deposit, cashier’s 15 Table of Contents and travelers checks and letters of credit, as well as treasury management services, wire transfer services and automated clearing house (“ACH”) services.
We offer debit cards with no ATM surcharges or foreign ATM fees for checking clients, plus night depository, direct deposit, cashier’s and travelers checks and letters of credit, as well as treasury management services, wire transfer services and automated clearing house (“ACH”) services.
In addition, deposits located in California comprised 61.8% of total deposits as of December 31, 2022. With a population of approximately 4.6 million, the San Francisco-Oakland-Hayward MSA represents the third most populous area in California and the thirteenth largest in the United States.
In addition, deposits located in California comprised 61.4% of total deposits as of December 31, 2023. With a population of approximately 4.6 million, the San Francisco-Oakland-Hayward MSA represents the third most populous area in California and the thirteenth largest in the United States.
The geographic concentration of our loans subjects our business to the general economic conditions within California, Colorado, New Mexico and Washington. The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses.
The geographic concentration of our loans subjects our business to the general economic conditions within California, Colorado, Nevada, New Mexico, and Washington. The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for credit losses.
In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act.
In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent 18 Table of Contents extraordinary circumstances, as required by the Federal Deposit Insurance Act.
We believe the market’s median household income of $82,503, large concentration of small and medium-sized businesses, and its highest population density in the nation position the area as an attractive market in which to expand operations. We serve the Seattle-Tacoma-Bellevue MSA, which includes King County (which includes the city of Seattle), through two branch offices.
We believe the market’s median household income of $87,743, large concentration of small and medium-sized businesses, and its highest population density in the nation position the area as an attractive market in which to expand operations. We serve the Seattle-Tacoma-Bellevue MSA, which includes King County (which includes the city of Seattle), through two branch offices.
In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures issued in connection with the sale of trust preferred securities by two statutory business trusts with stated maturity terms of 30 years. At December 31, 2022, we had outstanding junior subordinated deferrable interest debentures, net of mark-to-market adjustments, totaling $8.5 million.
In connection with its previous acquisitions, the Company acquired junior subordinated deferrable interest debentures issued in connection with the sale of trust preferred securities by two statutory business trusts with stated maturity terms of 30 years. At December 31, 2023, we had outstanding junior subordinated deferrable interest debentures, net of mark-to-market adjustments, totaling $8.6 million.
Tier 2 capital generally consists of other preferred stock and subordinated debt, which meet 19 Table of Contents 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.
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.
Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice and failure to meet the capital conservation buffer requirement will result in restrictions on dividends. Privacy Standards and Cybersecurity.
Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice and failure to meet the capital conservation buffer requirement will result in restrictions on dividends. 22 Table of Contents Privacy Standards and Cybersecurity.
In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, 18 Table of Contents the statutory deadline to restore the reserve ratio.
In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio.
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 New Mexico and 11 in Colorado.
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 35 full-service branches, with 16 locations in California, one in Nevada, two in Washington, five in New Mexico and 11 in Colorado.
General economic factors affecting a borrower’s ability to repay include interest, inflation and unemployment rates, as well as other factors affecting a borrower’s clients, suppliers and employees. The well-established financial institutions in our primary markets make proportionately more loans to medium-to-large-sized businesses than we 9 Table of Contents originate.
General economic factors affecting a borrower’s ability to repay include interest, inflation and unemployment rates, as well as other factors affecting a borrower’s clients, suppliers and employees. The well-established financial institutions in our primary markets make proportionately more loans to medium-to-large-sized businesses than we originate.
Our full suite of online banking solutions including access to account balances, online transfers, online bill payment and electronic delivery of client statements, mobile banking solutions for iPhone and Android phones, including remote check deposit with mobile bill pay.
Our full suite of online banking solutions including 15 Table of Contents access to account balances, online transfers, online bill payment and electronic delivery of client statements, mobile banking solutions for iPhone and Android phones, including remote check deposit with mobile bill pay.
As a California chartered bank, the Bank is subject to supervision, periodic examination, and regulation by the California Department of Financial Protection and Innovation (“DFPI”), previously known as the California Department of Business Oversight, and by the Federal Reserve 17 Table of Contents as its primary federal regulator.
As a California chartered bank, the Bank is subject to supervision, periodic examination, and regulation by the California Department of Financial Protection and Innovation (“DFPI”), previously known as the California Department of Business Oversight, and by the Federal Reserve as its primary federal regulator.
As of December 31, 2022, the Bank met the requirements to be “well capitalized” and met the fully phased-in capital conservation buffer requirement.
As of December 31, 2023, the Bank met the requirements to be “well capitalized” and met the fully phased-in capital conservation buffer requirement.
The Company, at its option, may redeem the Notes, in whole or in part, on any interest payment date on or after September 15, 2025, without a premium. At December 31, 2022, we had outstanding subordinate debt, net of costs to issue, totaling $63.7 million.
The Company, at its option, may redeem the Notes, in whole or in part, on any interest payment date on or after September 15, 2025, without a premium. At December 31, 2023, we had outstanding subordinate debt, net of costs to issue, totaling $63.9 million.
We believe this diverse geographic footprint provides us with access to low 6 Table of Contents cost, stable core deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets. We generally lend in markets where we have a physical presence through our branch offices.
We believe this diverse geographic footprint provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth in our metropolitan markets. We generally lend in markets where we have a physical presence through our branch offices.
The Bank has an approved secured borrowing facility with the FHLB for up to 25% of total assets for a term not to exceed five years under a blanket lien of certain types of loans.
The Bank has an approved secured borrowing facility with the FHLB for up to 25% of total assets for a term not to exceed five years, secured by a blanket lien on certain types of loans.
This acquisition increased our deposits by approximately $428.0 million. At the time of acquisition, United Business Bank, FSB had total assets of approximately $473.1 million, which significantly increased our total asset size and provided us with nine full-service banking offices in Long Beach, Oakland, Sacramento, San Francisco, San Jose and Glendale, California; and Seattle, Washington and Albuquerque, New Mexico.
At the time of acquisition, United Business Bank, FSB had total assets of approximately $473.1 million, which significantly increased our total asset size and provided us with nine full-service banking offices in Long Beach, Oakland, Sacramento, San Francisco, San Jose and Glendale, California; and Seattle, Washington and Albuquerque, New Mexico.
The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries).
The Federal Reserve also has extensive enforcement authority 24 Table of Contents over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries).
With some exceptions, the Company and its subsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by the Company or by its affiliates. 24 Table of Contents Acquisitions.
With some exceptions, the Company and its subsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by the Company or by its affiliates. Acquisitions.
The Company is continuously reviewing its 25 Table of Contents investment portfolio to determine if changes in its investment strategies are in compliance with the various provisions of the Volcker Rule regulations. Interstate Banking and Branching.
The Company is continuously reviewing its investment portfolio to determine if changes in its investment strategies are in compliance with the various provisions of the Volcker Rule regulations. Interstate Banking and Branching.
The FHLB provides credit for member financial institutions such as the Bank. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of that stock and certain of its mortgage loans and securities, provided that certain credit worthiness standards have been met.
As a FHLB member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of that stock and certain of its mortgage loans and securities, provided that certain credit worthiness standards have been met.
As a bank holding company registered with the Federal Reserve, we are subject to comprehensive regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.
As a bank holding company registered with the Federal 17 Table of Contents Reserve, we are subject to comprehensive regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.
In underwriting commercial real estate loans, we seek to minimize risks in a variety of ways, including giving careful consideration to the property’s age, condition, operating history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.
In underwriting commercial real estate loans, we seek to minimize risks in a variety of ways, including considering the property’s age, condition, operating history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.
The largest portion of our loan portfolio represents lending conducted with businesses and individuals in Northern California, including the San Francisco Bay Area and Southern California. Our loan portfolio consists primarily of commercial real estate loans (including multifamily) and construction loans, which totaled $1.7 billion and constituted 85.0% of total loans as of December 31, 2022.
The largest portion of our loan portfolio represents lending conducted with businesses and individuals in Northern California, including the San Francisco Bay Area and Southern California. Our loan portfolio consists primarily of commercial real estate loans (including multifamily) and construction loans, which totaled $1.7 billion and constituted 87.1% of total loans as of December 31, 2023.
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.
Potential problem loans are those loans that are currently accruing interest, 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.
Any significant increases in insurance assessments may have an adverse effect on the operating expenses and results of operations of the Company. The Bank paid $680,000 in FDIC assessments for the year ended December 31, 2022.
Any significant increases in insurance assessments may have an adverse effect on the operating expenses and results of operations of the Company. The Bank paid $1.1 million and $680,000 in FDIC assessments for the year ended December 31, 2023 and 2022, respectively.
Any such purchases or loan participations are made generally consistent with our underwriting standards; however, the loans may be located outside of our normal lending areas. During the years ended December 31, 2022 and 2021, we purchased $134.5 million and $152.0 million, respectively, of loans and loan participation interests, principally commercial and industrial loans and multifamily real estate loans.
Any such purchases or loan participations are made generally consistent with our underwriting standards; however, the loans may be located outside of our normal lending areas. During the years ended December 31, 2023 and 2022, we purchased $137.9 million and $134.5 million, respectively, of loans and loan participation interests, principally commercial and industrial loans and multifamily real estate loans.
At December 31, 2022, there were seven loans to an aggregate of seven individuals or entities or related interests that exceeded these internal limits. Loan Types. We provide a variety of loans to meet our clients’ needs.
At December 31, 2023, there were six loans to an aggregate of six individuals or entities or related interests that exceeded these internal limits. Loan Types. We provide a variety of loans to meet our clients’ needs.
Under the FDIC’s rules, the assessment base for a bank is equal to its total average consolidated assets less average tangible equity capital. Currently, the FDIC’s base assessment rates are 3 to 30 basis points and are subject to certain adjustments.
Under the FDIC’s rules, the assessment base for a bank is equal to its total average consolidated assets less average tangible equity capital. Currently, the FDIC’s base assessment rates are 5 to 32 basis points and are subject to certain adjustments.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of December 31, 2022, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 7.1% of total regulatory capital.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of December 31, 2023, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 3.2% of total regulatory capital.
As of December 31, 2022, we had agricultural operating loans of $17.2 million or 1.0% of total loans. As part of the PEB Merger, the Company acquired certain small business loans to borrowers qualified under the California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”).
As of December 31, 2023, we had agricultural operating loans of $3.4 million or 0.2% of total loans. As part of the PEB merger, the Company acquired certain small business loans to borrowers qualified under the California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”).
While not without risk, we believe there are certain advantages resulting from mergers and acquisitions.
While not without risk, we believe there are certain advantages arising from mergers and acquisitions.
Our commercial real estate loans include loans secured by office buildings, retail facilities, hotels, gas stations, convalescent facilities, industrial use buildings, restaurants, multifamily properties and agricultural real estate. At December 31, 2022, our commercial and multifamily real estate loan portfolio totaled $1.7 billion, or 84.3% of total loans. Our commercial real estate loans may be owner-occupied or non-owner occupied.
Our commercial real estate loans include loans secured by office buildings, retail facilities, hotels, gas stations, convalescent facilities, industrial use buildings, restaurants, multifamily properties and agricultural real estate. At December 31, 2023, our commercial real estate loan portfolio totaled $1.7 billion, or 86.6% of total loans. Our commercial real estate loans may be owner-occupied or non-owner occupied.
As of December 31, 2022, the one-to-family loan portfolio included one loan to a real estate investor, which had a net outstanding balance of $26.8 million, and was secured by a multi-unit residential property complex located in Atwater, California. This loan was performing in accordance to their loan repayment terms as of December 31, 2022.
As of December 31, 2023, the one-to-family loan portfolio included one loan to a real estate investor, which had a net outstanding balance of $25.7 million, and was secured by a multi-unit residential property complex located in Atwater, California. This loan was performing in accordance to their loan repayment terms as of December 31, 2023.
We believe that our competitive pricing, personalized service, and community involvement enable us to effectively compete in the communities in which we operate. Legal Proceedings We operate in a highly regulated environment. From time to time we are a party to various claims and litigation matters incidental to the conduct of our business.
Despite these challenges, we believe that our competitive pricing, emphasis on personalized service, and active community involvement enable us to effectively compete in the communities in which we operate. Legal Proceedings We operate in a highly regulated environment. From time to time, we are a party to various claims and litigation matters incidental to the conduct of our business.
The Bank bases its SBA 7(a) loan sales on the level of its SBA 7(a) loan originations, the premiums available in the secondary market for the sale of such loans, and general liquidity considerations of the Bank. During 2022, the Bank originated $17.8 million in commercial and industrial SBA 7(a) loans.
The Bank bases its SBA 7(a) loan sales on the level of its SBA 7(a) loan originations, the premiums available in the secondary market for the sale of such loans, and general liquidity considerations of the Bank. During 2023, the Bank originated $7.5 million in commercial and industrial SBA 7(a) loans.
The Federal Reserve expects a holding company’s subsidiary banks to be Well Capitalized under the prompt corrective action regulations, discussed below.
The Federal Reserve expects holding company subsidiary banks to be Well Capitalized under the prompt corrective action regulations, discussed below.
The loan-to-value ratio as established by an independent appraisal typically will not exceed 80% at loan origination and is lower in most cases. At December 31, 2022, the average loan size in our commercial real estate portfolio was approximately $1.1 million with an estimated weighted average loan-to-value ratio of 45.5%.
The loan-to-value ratio as established by an independent appraisal typically will not exceed 80% at loan origination and is lower in most cases. At December 31, 2023, the average loan size in our commercial real estate portfolio was approximately $1.2 million with an estimated weighted average loan-to-value ratio of 46.9%.
At the time of acquisition, GMB had approximately $130.9 million in total assets and $118.1 million in deposits. In February 2022, we acquired Pacific Enterprise Bancorp (“PEB”), the holding company for Pacific Enterprise Bank, which had one branch location located in Irvine, California.
At the time of acquisition, GMB had approximately $130.9 million in total assets and $118.1 million in deposits. In February 2022, we acquired PEB, the holding company for Pacific Enterprise Bank, which had one branch location located in Irvine, California. At the time of acquisition, PEB had approximately $446.1 million in total assets and $376.7 million in deposits.
We are able to sell participations in its larger loans to other financial institutions, which allows us to manage the risk involved in these loans and to meet the lending needs of its clients’ requiring extensions of credit in excess of these limits.
We can sell participations in larger loans to other financial institutions, which allows us to manage the risk involved in these loans and to meet the lending needs of our clients’ requiring extensions of credit in excess of these limits.
At December 31, 2022, our commercial real estate loan portfolio included $107.6 million of loans originated under the SBA’s 504 loan program. The Company also offers commercial real estate loans under the SBA 7(a) loan program, which is described further under “Commercial and Industrial Loans’ below.
At December 31, 2023, our commercial real estate loan portfolio included $114.5 million of loans originated under the SBA’s 504 loan program. The Company also offers commercial real estate loans under the SBA 7(a) loan program, which is described further under “Commercial and Industrial Loans’ below.
In addition, at December 31, 2022, the Bank’s commercial real estate loans as calculated in accordance with regulatory guidance were 297.8% of total regulatory capital. The Bank believes that the guidelines are applicable to it, as it has a relatively high concentration in commercial real estate loans.
In addition, at December 31, 2023, the Bank’s commercial real estate loans as calculated in accordance with regulatory guidance were 327.3% of total regulatory capital. The Bank believes that the guidelines are applicable to it, as it has a relatively high concentration in commercial real estate loans.
As of December 31, 2022, the largest commercial real estate loan had a net outstanding balance of $26.8 million and was secured by a church located in San Diego, California. The second largest commercial real estate loan had a net outstanding balance of $23.5 million and was secured by retail shopping center located in Sacramento, California.
As of December 31, 2023, our largest commercial real estate loan had a net outstanding balance of $26.8 million and was secured by a church located in San Diego, California. Our second largest commercial real estate loan had a net outstanding balance of $23.3 million and was secured by retail shopping center located in Sacramento, California.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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There can be no assurance that we will be able to continue originating these loans, that a secondary market will exist or that we will continue to realize premiums upon the sale of the guaranteed portion of these loans.
There can be no assurance that we will be able to continue originating these loans, that a secondary market will continue to exist or that we will continue to realize premiums upon the sale of the guaranteed portion of these loans.
If our third-party providers encounter difficulties including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our clients and otherwise conduct business operations could be adversely impacted.
If our third-party providers encounter difficulties including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks or security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our clients and otherwise conduct business operations could be adversely impacted.
Risks Related to Macroeconomic Conditions Our business may be adversely affected by downturns in the national economy and the regional economies in which we operate. We provide banking and financial services primarily to businesses and individuals in the states of California, Colorado, New Mexico and Washington.
Risks Related to Macroeconomic Conditions Our business may be adversely affected by downturns in the national economy and the regional economies in which we operate. We provide banking and financial services primarily to businesses and individuals in the states of California, Colorado, Nevada, New Mexico, and Washington.
There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets and lead to accounting charges that could have a material adverse effect on our business, financial condition and results of operations. For the year ended December 31, 2022, we did not incur any other-than-temporary impairments on our securities portfolio.
There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets and lead to accounting charges that could have a material adverse effect on our business, financial condition and results of operations. For the year ended December 31, 2023, we did not incur any other-than-temporary impairments on our securities portfolio.
We performed our test for goodwill impairment at December 31, 2022 and the test concluded that recorded goodwill was not impaired. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price.
We performed our test for goodwill impairment at December 31, 2023 and the test concluded that recorded goodwill was not impaired. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price.
All of our branches and most of our deposit clients are located in these four states. A return of recessionary conditions or adverse economic conditions in the markets we serve may reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our business, financial condition, and results of operations.
All our branches and most of our deposit clients are located in these five states. A return of recessionary conditions or adverse economic conditions in the markets we serve may reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our business, financial condition, and results of operations.
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
The determination of the appropriate level of the allowance for credit losses on loans inherently involves a high degree of subjectivity and requires us to make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
Inaccurate estimates or declines in economic conditions or real estate values in the markets where we purchase loans could significantly adversely affect the level of our nonperforming loans and our results of operations. Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.
Inaccurate estimates or declines in economic conditions or real estate values in the markets where we purchase loans could significantly adversely affect the level of our nonperforming loans and our results of operations. Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
Several of our large depositors are affiliated locals of labor unions or have business, family, or other relationships with each other, which creates a risk that any one client’s withdrawal of its deposit could lead to a loss of other deposits from clients within the relationship.
Several of our large depositors are locals of labor unions or have business, family, or other relationships with each other, which creates a risk that any one client’s withdrawal of its deposits could lead to a loss of other deposits from clients within the relationship.
A decline in residential real estate values resulting from a downturn in the housing market in our market areas may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers’ default on their loans.
A decline in residential real estate values resulting from a downturn in the housing market in our market areas may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers default on their loans.
We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers and relationship managers. We are led by an experienced management team with substantial experience in the markets that we serve and the financial products that we offer. Our operating strategy focuses on providing products and services through long-term relationship managers.
We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers and relationship managers. We are led by a management team with substantial experience in the markets we serve and the financial products that we offer. Our operating strategy focuses on providing products and services through long-term relationship managers.
We have established policies and procedures to prevent or limit the impact of system breaches, failures and interruptions. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. While we select third-party vendors carefully, we do not control their actions.
We have established policies and procedures to prevent or limit the impact of system breaches, failures and interruptions. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. While we select third-party 39 Table of Contents vendors carefully, we do not control their actions.
If we cannot raise additional capital or issue additional debt when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may result in the dilution of the interests of existing holders of our common stock.
If we cannot raise additional capital or issue additional debt when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may dilute the interests of existing holders of our common stock.
Nonperforming assets adversely affect our earnings in various ways. We do not record interest income on nonaccrual loans or foreclosed assets, thereby adversely affecting our income and increasing our loan administration costs. Upon foreclosure or similar proceedings, we record the repossessed asset at the estimated fair value, less costs to sell, which may result in a write down or loss.
Nonperforming assets adversely affect our earnings in various ways. We do not record interest income on nonaccrual loans or foreclosed assets, and nonaccrual loans and foreclosed assets increase our loan administration costs. Upon foreclosure or similar proceedings, we record the repossessed asset at the estimated fair value, less costs to sell, which may result in a write-down or loss.
Furthermore, it is possible that our unfamiliarity with new markets or lines of business might adversely affect the success of such actions. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also affect the ultimate implementation of a new line of business or offerings of new products, product enhancements or services.
Furthermore, our unfamiliarity with new markets or lines of business might adversely affect the success of such actions. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also affect the ultimate implementation of a new line of business or offerings of new products, product enhancements or services.
I ncreasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
I ncreasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. 44 Table of Contents Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
Further, as a result of a high concentration of our client base in the San Francisco Bay area, the deterioration of businesses in this market, or one or more businesses with a large employee base in this market, could have a material adverse effect on our business, financial condition and results of operations.
Further, because a high concentration of our client base is in the San Francisco Bay area, the deterioration of businesses in this market, or one or more businesses with a large employee base in this market, could have a material adverse effect on our business, financial condition and results of operations.
If we are forced to pay higher rates on these deposits to retain the funds, or if we are unable to retain the funds and are forced to turn to borrowing and other funding sources for our lending and investment activities, the interest expense associated with such borrowings may be higher than the rates we are paying on these deposits, which could adversely affect our net margin and net income.
If we are forced to pay higher rates on these 43 Table of Contents deposits to retain the funds, or if we are unable to retain the funds and are forced to turn to borrowings and other funding sources for our lending and investment activities, the interest expense associated with such borrowings or other funding sources may be higher than the rates we are paying on these deposits, which could adversely affect our net margin and net income.
Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.
Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, and particularly the Federal Reserve.
Such borrowings or additional capital, if sought, may not be available to us or, if available, may not be on favorable terms. 44 Table of Contents Accordingly, we cannot make assurances that we will be able to raise additional capital or issue additional debt if needed on terms that are acceptable to us, or at all.
Such borrowings or additional capital, if sought, may not be available to us or, if available, may not be on favorable terms. Accordingly, we cannot make assurances that we will be able to raise additional capital or issue additional debt if needed on terms that are acceptable to us, or at all.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Market Risk,” of this Form 10-K for a discussion of interest rate risk modeling and the inherent risks in modeling assumptions. We may incur losses on our securities portfolio as a result of changes in interest rates.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Market Risk,” of this Form 10-K for a discussion of interest rate risk modeling and the inherent risks in modeling assumptions. 36 Table of Contents We may incur losses on our securities portfolio as a result of increases in interest rates.
Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. 36 Table of Contents For further discussion of how changes in interest rates could impact us, see “Item 7.
Also, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. For further discussion of how changes in interest rates could impact us, see “Item 7.
These regulations may sometimes impose significant limitations on our operations. The significant federal and state banking regulations that affect us are described 41 Table of Contents in this Form 10-K under the heading “Item 1.
These regulations may sometimes impose significant limitations on our operations. The significant federal and state banking regulations that affect us are described in this Form 10-K under the heading “Item 1.
In determining the amount of the allowance for loan losses, we review loans and our historical loss and delinquency experience and evaluate economic conditions.
In determining the amount of the allowance for credit losses on loans, we review loans and our historical loss and delinquency experience and evaluate economic conditions.
Certain accounting policies are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates.
Certain accounting policies, most notably the allowance for credit losses, are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or nonpayment. Our commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans.
Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or nonpayment. Meanwhile, our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.
Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to 42 Table of Contents propose numerous initiatives to supplement the global effort to combat climate change.
Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.
Management also recognizes that significant new growth in loan portfolios, new loan products, and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions.
Management also recognizes that significant new growth in loan portfolios, new loan products, and the refinancing of existing loans can result in 35 Table of Contents portfolios comprised of unseasoned loans that may not perform consistent with a historical or projected manner and will increase the risk that our allowance for credit losses on loans may be insufficient to absorb credit losses without significant additional provisions.
Because payments on such loans are often dependent on the cash flow of the commercial venture and the successful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy in one of our markets or in occupancy rates where a property is located.
Because payments on such loans are often dependent on the cash flow of the commercial venture and the successful operation or development of the property/business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy.
In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired.
In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired and the Bank may be unable to collect all principal and interest contractually due.
Our success in increasing our loan portfolio through loan purchases will depend on our ability to price the loans properly and on general economic conditions in the geographic areas where the underlying properties or collateral for the loans acquired are located.
Our success in growing our loan portfolio through loan purchases depends on our ability to price the loans properly and relies on the economic conditions in the geographic areas where the underlying properties or collateral for the acquired loans are located.
Risks Related to our Merger and Acquisition Strategy Our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects. A substantial part of our historical growth has been a result of acquisitions of other financial institutions.
Risks Related to our Merger and Acquisition Strategy Our strategy of pursuing acquisitions exposes us to financial, execution, compliance and operational risks that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Deterioration in economic conditions, new information regarding existing loans, identification of additional problem loans or relationships, and other factors, both within and outside of our control, may increase our loan charge-offs and/or otherwise require an increase in our provision for loan losses.
Deterioration in economic conditions, new information regarding existing loans, identification of additional problem loans or relationships, and other factors, both within and outside of our control, may increase our loan charge-offs and/or otherwise require an increase in our provision for credit losses on loans. In addition, bank regulatory agencies periodically review our allowance for credit losses on loans.
We have concluded that we have a concentration in commercial real estate lending under the foregoing standards because our balance in commercial real estate loans at December 31, 2022 represents more than 300% of total capital. Owner-occupied commercial real estate totaled 151.8% of total capital, while non-owner occupied commercial real estate totals an additional 330.4% of total capital.
We have concluded that we have a concentration in commercial real estate lending under the foregoing standards because our balance in commercial real estate loans at December 31, 2023 represents more than 300% of total capital. Owner-occupied commercial real estate totaled 110.2% of total capital, while non-owner occupied commercial real estate totals an additional 253.3% of total capital.
As of December 31, 2022, our ten largest depositors, none of which include brokered deposits, accounted for $215.1 million in deposits, or approximately 11.0% of total deposits.
As of December 31, 2023, our ten largest depositors, none of which include brokered deposits, accounted for $246.0 million in deposits, or approximately 11.5% of total deposits.
When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose our ability to compete effectively with other SBA Preferred Lenders, and as a result we would experience a material adverse effect to our financial results.
When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may be unable to compete effectively with other SBA Preferred Lenders, which could have a material adverse effect on our financial results.
These loans involve additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
These loans involve additional risks because funds are advanced based on the project’s uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover actual losses, resulting in additional provisions for loan losses to replenish the allowance for loan losses.
If our assumptions are incorrect, our allowance for credit losses on loans may not be sufficient to cover actual losses, requiring additional provisions for credit losses on loans to replenish the allowance for credit losses on loans.
While we reduce problem assets through collection efforts, asset sales, workouts and restructurings, decreases in the value of the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond our control, could adversely affect our business, results of operations and financial condition.
While we attempt to reduce problem assets through collection efforts, asset sales and workouts and restructurings, decreases in the value of the underlying collateral, or in the borrower’s performance or financial condition, could adversely affect our business, results of operations and financial condition.
Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition.
Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition. 34 Table of Contents Historically, we have sold the guaranteed portion of our SBA 7(a) loans in the secondary market.
As with most financial institutions, we maintain an allowance for loan losses to reflect potential defaults and nonperformance, which represents management's best estimate of probable loans losses inherent in the loan portfolio.
As with most financial institutions, we maintain an allowance for credit losses on loans to reserve for estimated potential losses on loans from defaults, which represents management's best estimate of expected credit losses inherent in the loan portfolio.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate.
At December 31, 2022, we had $1.9 billion of commercial loans, consisting of $1.7 billion of commercial real estate and construction and land loans, representing 84.4% of total loans, and $188.5 million of commercial and industrial loans, representing 9.3% of total loans and for which real estate is not the primary source of collateral.
At December 31, 2023, we had $1.8 billion of commercial loans, consisting of $1.7 billion of commercial real estate and construction and land loans, representing 87.1% of total loans, and $162.9 million of commercial and industrial loans, representing 8.4% of total loans, where real estate is not the primary source of collateral.
If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. An increase in specific reserves and charge offs related to our commercial and industrial loan portfolio could have a material adverse effect on our business, financial condition, results of operations and future prospects.
An increase in specific reserves and charge offs related to our commercial and industrial loan portfolio could have a material adverse effect on our business, financial condition, results of operations and future prospects.
Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have the effect of diluting the value of your investment. Additionally, any future acquisition may not produce the revenue, earnings or synergies that we anticipated.
Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have the effect of diluting the value of your investment.
Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on our business, financial condition and results of operations. 32 Table of Contents Construction loans are based upon estimates of costs and values associated with the complete project.
Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which could have a material adverse effect on our business, financial condition and results of operations.
Higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and may be concentrated with a small number of builders.
Higher than anticipated building costs may cause actual results to vary significantly from those estimated. Further, this type of lending often involves larger loan principal amounts and might be concentrated among a limited number of builders.
The borrowers’ cash flow may prove to be unpredictable, and collateral securing these loans may fluctuate in value. Most often, this collateral consists of accounts receivable, inventory and equipment.
A borrower’s cash flow may prove to be unpredictable, and collateral securing these loans may fluctuate in value. Most often, this collateral includes accounts receivable, inventory, equipment or real estate.
Any of these occurrences could have a material adverse effect on our financial condition and results of operations. ​ The Board of Directors oversees the risk management process, including the risk of cybersecurity breaches, and engages with management on cybersecurity issues. 40 Table of Contents We are subject to certain risks in connection with our data management or aggregation.
Any of these occurrences could have a material adverse effect on our financial condition and results of operations. ​ We are subject to certain risks in connection with our data management or aggregation.
At December 31, 2022, we had $221.4 million in certificates of deposit that mature within one year and $1.8 billion in demand deposits, NOW accounts and savings, and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.
At December 31, 2023, our deposit composition included $372.4 million in certificates of deposit maturing within one year and $1.7 billion in noninterest-bearing, NOW checking, savings, and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.
General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect our profitability. Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade and it is not known how changes in tariffs being imposed on international trade may also affect these businesses.
General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect our profitability. Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade. Changes in agreements or relationships between the United States and other countries may further affect these businesses.
Further, when determining the purchase price, we are willing to pay to acquire loans, management will make certain assumptions about, among other things, how borrowers will prepay their loans, the real estate market and our ability to collect loans successfully and, if necessary, to dispose of any real estate that may be acquired through foreclosure.
Further, when determining the purchase price for these loans, management will make certain assumptions about, among other things, whether and when borrowers will prepay their loans, real estate market conditions, and our ability to successfully manage loan collections and, if necessary, dispose of acquired real estate through foreclosure.
To the extent that our underlying assumptions prove to be inaccurate or the basis for those assumptions change (such as an unanticipated decline in the real estate market), the purchase price paid may prove to have been excessive, resulting in a lower yield or a loss of some or all of the loan principal.
To the extent that our underlying assumptions prove inaccurate or undergo unexpected changes, such as an unanticipated decline in the real estate market, the purchase price paid these loans could exceed the actual value, resulting in a lower yield or a loss of some or all of the loan principal.
Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.
We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.
Our acquisition activities strategy involves a number of significant risks, including the following: • incurring time and expense associated with identifying, evaluating and negotiating potential acquisitions which could divert management’s attention from the operation of our existing business; • using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or the assets and liabilities that we seek to acquire; • exposure to potential asset quality and credit quality; • higher than expected deposit attrition; 37 Table of Contents • potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues; • inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits of the acquisition; • incurring time and expense required to integrate the operations and personnel of the combined businesses; • inconsistencies in standards, procedures, and policies that would adversely affect our ability to maintain relationships with clients and employees; • experiencing higher operating expenses relative to operating income from the new operations; • creating an adverse short-term effect on our results of operations; • significant problems relating to the conversion of the financial and client data of the entity; • integration of acquired clients into our financial and client product systems; • borrowing funds to finance acquisitions or pursuing other forms of financing, such as issuing voting and/or non-voting common stock or convertible preferred stock, which may have high dividend rights or may be highly dilutive to our existing shareholders, may increase our leverage and diminish our liquidity; and • risks of impairment to goodwill which would require a charge to earnings.
Our acquisition activities strategy involves a number of significant risks, including: • Diverting management attention and resources toward identifying, evaluating, and negotiating potential acquisitions, potentially detracting from our existing business operations. • Reliance on estimates and judgments, which could be inaccurate, in evaluating credit, operational, management, and market risks of the target company or the assets and liabilities we aim to acquire. • Exposure to potential asset quality and credit risks. • Higher than expected deposit attrition; • Potential exposure to unknown or contingent liabilities from acquired banks and businesses, including regulatory and compliance issues. • The risk of not realizing expected revenue increases, cost savings, geographic or product expansions, or other projected acquisition benefits. • Costs and time required to integrate operations and personnel from the combined businesses. • Inconsistencies in standards, procedures, and policies that may adversely affect client and employee relationships; • Potential increase in operating expenses relative to operating income from the new operations. • Short-term adverse effects on our financial results, such as increases in general and administrative expenses initially, which potentially adversely affects our efficiency ratio. • Challenges related to the conversion and integration of financial and client data. 37 Table of Contents • Borrowing funds or alternative financing methods, such as issuing common or convertible preferred stock, that may increase leverage, diminish liquidity, and result in dilution for existing shareholders. • Risks of impairment to goodwill, which would require a charge to earnings. ​ Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition. The economic impact of the COVID-19 pandemic could continue to affect our financial condition and results of operations.
Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition. Virtually all of our assets and liabilities are monetary in nature.
In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients. Inventory and equipment may depreciate over time, be difficult to appraise, be illiquid and fluctuate in value based on the success of the business.
In the case 32 Table of Contents of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients.
Compliance with the CCPA, the CPRA and other state statutes or regulations designed to protect consumer personal data could potentially require us to implement substantive technology infrastructure and process changes. Non-compliance with the CCPA, the CPRA or similar laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.
Compliance with the CCPA, the CPRA and other state statutes or regulations designed to protect consumer personal data could potentially require us to implement substantive technology infrastructure and process changes.
If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge against operations, which may materially adversely affect our results of operations. 38 Table of Contents Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition and could result in further losses in the future.
Our evaluation of the fair value of goodwill involves a substantial amount of judgment. If our judgment were incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill, resulting in a charge against operations, which may materially adversely affect our results of operations.
Significant increases to the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations and financial condition. 34 Table of Contents To meet our growth objectives, we may originate or purchase loans outside of our market area which could affect the level of our net interest margin and nonperforming loans.
To meet our growth objectives, we may originate or purchase loans outside of our market area which could affect the level of our net interest margin and nonperforming loans.
Historically, we have sold the guaranteed portion of our SBA 7(a) loans in the secondary market. These sales have resulted in gains or premiums on the sale of the loans and have created a stream of future servicing income.
These sales have resulted in gains or premiums on the sale of the loans and have created a stream of future servicing income. For the year ended December 31, 2023, we sold a total of $7.2 million in SBA loans (guaranteed portion) for a net gain of $508,000.
At December 31, 2022, $666.8 million, or 32.0%, of our total deposits were comprised of deposits from labor unions, representing 704 different local unions with an average deposit balance per local union of approximately $842,000. At December 31, 2022, nine labor unions had aggregate deposits of $10.0 million or more, totaling $132.5 million, or 6.8% of our total deposits.
At December 31, 2023, $658.3 million, or 30.9%, of our total deposits were comprised of deposits from labor unions, representing 714 different local unions with an average deposit balance per local union of approximately $814,000. At December 31, 2023, 22 labor unions had aggregate deposits of $10.0 million or more, totaling $399.7 million, or 18.7% of our total deposits.
Management has estimated losses inherent in the outstanding guaranteed portion of SBA loans and recorded a recourse reserve at a level determined to be appropriate.
Management has estimated losses inherent in the outstanding guaranteed portion of SBA loans and recorded a recourse reserve at a level determined to be appropriate. Significant increases to the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations and financial condition.
Commercial loans typically involve higher principal amounts than other types of loans, and some of our commercial borrowers have more than one loan outstanding with us.
The $1.7 billion of commercial real estate loans includes $249.5 million of multifamily loans and $9.6 million of commercial construction and land loans. Commercial loans typically involve higher principal amounts than other types of loans, with some of our commercial borrowers have more than one loan outstanding with us.
Any compromise of our security could deter clients from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data.
Any compromise of our security could deter clients from using our internet banking services that involve the transmission of confidential information.
Changes in agreements or relationships between the United States and other countries may also affect these businesses. In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our markets can adversely affect agricultural businesses in our markets.
In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our markets can adversely affect agricultural businesses in our markets.
We principally manage interest rate risk by managing volume and mix of our earning assets and funding liabilities.
Furthermore, fluctuations in interest rates could adversely affect the valuation of our assets and liabilities, ultimately affecting our earnings. We principally manage interest rate risk by managing the volume and mix of our earning assets and funding liabilities.
A downturn in the commercial real estate market could increase delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of the builders we deal with have more than one loan outstanding with us.
A downturn in the commercial real estate market could increase delinquencies, defaults, foreclosures, and significantly impair the value of our collateral, hindering our ability to sell the collateral upon foreclosure. Dealing with builders who have multiple loans with us exposes us to heightened risks where adverse developments in one credit relationship could substantially increase our risk exposure.
These potential negative events may cause us to incur losses and adversely affect our business, financial condition and results of operations. 33 Table of Contents Agricultural lending and volatility in government regulations may adversely affect our financial condition and results of operations.
These potential negative events may cause us to incur losses and adversely affect our business, financial condition and results of operations. Agricultural lending and volatility in government regulations may adversely affect our financial condition and results of operations. At December 31, 2023, agricultural loans, including agricultural real estate and operating loans, were $15.3 million, or 0.8% of total loans.
Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either us or the borrowers.
Agricultural lending involves a greater degree of risk and typically involves higher principal amounts than other types of loans. Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either us or the borrowers.
Small to medium-sized businesses may be impacted more during periods of high inflation, as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses.
Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business clients to repay their loans may deteriorate quickly, which would adversely impact our results of operations and financial condition.
These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects. Construction and land development loans totaled $13.2 million, or 0.7% of total loans as of December 31, 2022, of which $8.1 million were commercial real estate construction loans and $5.1 million were residential real estate construction loans.
Construction and land development loans totaled $9.6 million, or 0.5% of total loans as of December 31, 2023, of which $1.6 million were commercial real estate construction loans and $8.0 million were residential real estate construction loans.
Our security measures may not be sufficient to mitigate the risk of a cyber-attack. Communications and information systems are essential to the conduct of our business, as we use such systems to manage our client relationships, our general ledger, and virtually all other aspects of our business.
Communications and information systems are essential to the conduct of our business, as we use such systems to manage our client relationships, our general ledger, and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks.
The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations.
The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future. The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations.
Any increases in the provision for loan losses will result in a decrease in net income and may have a material adverse effect on our financial condition, results of operations, and capital. Risks Related to Market and Interest Rate Changes ​ Our profitability is vulnerable to interest rate fluctuations.
Based on their assessment, they and may require increased provisions or loan charge-offs. Any increase in the provision for credit losses on loans negatively affects net income and could materially impact our financial condition, results of operations, and capital. ​ Risks Related to Market and Interest Rate Changes ​ Our profitability is vulnerable to interest rate fluctuations.
Accordingly, a downturn in the real estate market or a challenging business and economic environment may increase our risk related to commercial loans. In addition, many of our commercial real estate loans are not fully amortizing and require large balloon payments upon maturity.
Repayments of loans secured by non-owner occupied properties rely heavily on tenant rent payments, and any downturn in the real estate market or economic conditions heightens our risk. In addition, many of our commercial real estate loans are not fully amortizing and require large balloon payments upon maturity.
Any of the foregoing could have an adverse effect on our business, financial condition, and results of operation. Any expansion into new markets or new lines of business might not be successful. As part of our ongoing strategic plan, we may consider expansion into new geographic markets.
Any expansion into new markets or new lines of business might not be successful. As part of our strategic plan, we may consider expansion into new geographic markets. Such expansion might take the form of de novo branches or the acquisition of existing banks or branches.
Our ability to compete will depend on our available financial resources to fund acquisitions, including the amount of cash and cash equivalents and the liquidity and market price of our common stock. In addition, increased competition may also drive up the price that we will be required to pay for acquisitions. Acquisition prices may fluctuate with market conditions.
However, the acquisition market is fiercely competitive, and we may encounter challenges in identifying suitable candidates that meet our acquisition standards and strategy. Our ability to compete relies on our financial resources, including cash reserves, liquidity, and the market price of our common stock. Increased competition may also drive up acquisition costs, which fluctuate with market conditions.
A deterioration in economic conditions in the market areas we serve, in particular the San Francisco Bay Area, Southern California Area, Denver, Colorado, Seattle, Washington, Central New Mexico and the agricultural region of the California Central Valley, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations: ● demand for our products and services may decline; ● loan delinquencies, problem assets and foreclosures may increase; 30 Table of Contents ● collateral for loans, especially real estate, may decline in value, in turn reducing clients’ borrowing power, reducing the value of assets and collateral associated with existing loans; ● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and ● the amount of our low-cost or noninterest bearing deposits may decrease.
A downturn in economic conditions in the market areas we serve, in particular the San Francisco Bay Area, Southern California, Denver, Colorado, Seattle, Washington, Central New Mexico and the agricultural region of the California Central Valley, whether due to inflation, recessionary trends, geopolitical conflicts, adverse weather, or other factors, could have a material adverse effect on our business, financial condition, and results of operations, including but not limited to: ​ ● Reduced demand for our products and services , potentially leading to a decline in our overall loans or assets. ● Elevated levels of loan delinquencies, problematic assets , and foreclosures . ● An increase in our allowance for credit losses on loans. ● Depreciation in collateral values linked to our loans, thereby diminishing borrowing capacities and asset values tied to existing loans . ● Reduced net worth and liquidity of loan guarantors , possibly impairing their ability to meet commitments to us . ● Reduction in our low-cost or noninterest -bearing deposits. ​ A decline in local or regional economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.
If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of clients seeking to open new financial accounts.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network.

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Item 2. Properties

Properties — owned and leased real estate

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At December 31, 2022, we owned 15 of our banking branches and leased the remaining 19 branches, which leases expire on various dates through 2030. At December 31, 2022, all of our leases have an option to renew with renewal periods between three and 12 years. Many of our branches are equipped with automated teller machines and drive through facilities.
At December 31, 2023, we owned 15 of our banking branches and leased the remaining 20 branches, which leases expire on various dates through 2030. At December 31, 2023, all our leases have an option to renew with renewal periods between three and 12 years. Many of our branches are equipped with automated teller machines and drive through facilities.
Including our principal executive offices, we operate a total of 34 full-service banking branches consisting of branch offices in Northern and Southern California; Denver, Colorado and Custer, Delta, and Grand counties, Colorado; Seattle, Washington and Central New Mexico at December 31, 2022.
Including our principal executive offices, we operate a total of 35 full-service banking branches consisting of branch offices in Northern and Southern California; Las Vegas, Nevada; Denver, Colorado and Custer, Delta, and Grand counties, Colorado; Seattle, Washington and Central New Mexico at December 31, 2023.
We believe all of our facilities are suitable for our operational needs. ​
We believe our existing facilities adequately meet our operational needs for the foreseeable future. ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The existing stock repurchase program will expire on October 24, 2023, unless sooner completed. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.
The existing stock repurchase program will expire on October 24, 2024, unless sooner completed. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.
The Company’s cash dividend payout policy is reviewed regularly by management and the Board of Directors. Any dividends declared and paid in the future would depend upon a number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.
The Company’s cash dividend payout policy is reviewed regularly by management and the Board of Directors. Any dividends declared and paid in the future would depend upon a 47 Table of Contents number of factors, including capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.
Our future payment of dividends may depend, in part, upon receipt of dividends from the Bank, which are restricted by federal regulations. 46 Table of Contents Stock Repurchases.
Our future payment of dividends may depend, in part, upon receipt of dividends from the Bank, which are restricted by federal regulations. Stock Repurchases.
During the year ended December 31, 2022, the Company purchased a total of 905,740 shares of the Company’s common stock at an average price of $19.83 per share, compared to 648,734 shares at an average price of $17.81 per share during the year ended December 31, 2021. Equity Compensation Plan Information.
During the year ended December 31, 2023, the Company purchased a total of 1,329,040 shares of the Company’s common stock at an average price of $18.14 per share, compared to 905,740 shares at an average price of $19.83 per share during the year ended December 31, 2022. Equity Compensation Plan Information.
The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares ​ Maximum number of ​ ​ ​ ​ ​ ​ ​ purchased as part of ​ shares that may yet be ​ ​ Total number of ​ Average price ​ publicly announced ​ purchased under the ​ shares purchased paid per share plans or programs plans or programs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 1, 2022 - October 31, 2022 89,663 $ 18.26 ​ 89,663 629,114 November 1, 2022 - November 30, 2022 24,641 ​ ​ 18.86 ​ 24,641 604,473 December 1, 2022 - December 31, 2022 122,681 ​ ​ 18.79 ​ 122,681 481,792 ​ 236,985 $ 18.60 236,985 ​ ​ On October 24, 2022, the Company announced that its Board of Directors approved a sixth stock repurchase program, which commenced in December 2022 following the expiration of the fifth stock repurchase program, pursuant to which the Company is authorized to repurchase up to five percent of the BayCom’s common stock, or approximately 645,000 shares .
The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total number of shares ​ Maximum number of ​ ​ ​ ​ ​ ​ ​ purchased as part of ​ shares that may yet be ​ ​ Total number of ​ Average price ​ publicly announced ​ purchased under the ​ shares purchased paid per share plans or programs plans or programs (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 1, 2023 - October 31, 2023 119,543 $ 19.91 ​ 119,543 362,768 November 1, 2023 - November 30, 2023 3,016 ​ ​ 20.01 ​ 3,016 359,752 December 1, 2023 - December 31, 2023 — ​ ​ — ​ — 359,752 ​ 122,559 $ 19.91 122,559 ​ (1) On August 2023, the Company announced that its Board of Directors approved its eighth stock repurchase program, which commenced in August 2023 following the expiration of the seventh stock repurchase program, authorizing the Company to repurchase up to five percent of the BayCom’s common stock, or approximately 588,000 shares.
The cash dividend will be payable on April 14, 2023 to shareholders of record as of the close of business on March 10, 2023. BayCom commenced paying dividends in 2022, during which time its Board of Directors declared four quarterly cash dividends of $0.05 per share.
On February 22, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $.10 per share on the Company's outstanding common stock . The cash dividend will be payable on April 12, 2024 to shareholders of record as of the close of business on March 8, 2024. BayCom commenced paying dividends in 2022.
At March 24, 2023, we had approximately 804 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms).
Our common stock is listed on the NASDAQ Global Select Market under the symbol “BCML.” At December 31, 2023, we had approximately 783 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities General. Our common stock, since May 4, 2018, is listed on the NASDAQ Global Select Market under the symbol “BCML”.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities General.
Removed
On February 23, 2023 the Company announced that its Board of Directors declared a quarterly cash dividend of $.10 per share on the Company's outstanding common stock, which represents an increase of 100% over the $0.05 per share quarterly dividend declared on November 16, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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At December 31, 2022, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company’s subsidiary banks to be Well Capitalized under the prompt corrective action regulations.
At December 31, 2023, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company’s subsidiary banks to be Well Capitalized under the prompt corrective action regulations.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of December 31, 2022. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of December 31, 2023. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Interest rate risk arises from timing differences in the repricing and maturities of interest earning assets and interest bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
Interest rate risk arises from timing differences in the repricing and maturities of interest earning assets and interest 73 Table of Contents bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations. Based on capital levels at December 31, 2022 and 2021, the Bank was considered to be Well Capitalized.
Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations. Based on capital levels at December 31, 2023 and 2022, the Bank was considered to be Well Capitalized.
The dividends, if any, we may pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I. Item 1. Business” of this Form 10-K. 73 Table of Contents From time to time, our Board of Directors has authorized stock repurchase plans.
The dividends, if any, we may pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I. Item 1. Business” of this Form 10-K. From time to time, our Board of Directors has authorized stock repurchase plans.
Loan originations in 2022 were concentrated in California markets, primarily Los Angeles, Irvine/Southern California, San Francisco Bay Area and Sacramento/Northern California with commercial and multifamily real estate secured loans accounting for the majority of the originations.
Loan originations in 2023 were concentrated in California markets, primarily Los Angeles, Irvine/Southern California, San Francisco Bay Area and Sacramento/Northern California with commercial and multifamily real estate secured loans accounting for the majority of the originations.
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.
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 credit losses for loans or that any increased allowance for credit losses for loans that may be required will not adversely impact our financial condition and results of operations.
Treasuries and LIBOR (basis risk). The Asset Liability Committee of our Board of Directors (“ALCO”) establishes broad policy limits with respect to interest rate risk. ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
Treasuries and SOFR (basis risk). The Asset Liability Committee of our Board of Directors (“ALCO”) establishes broad policy limits with respect to interest rate risk. ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
(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 earning assets. ​ 66 Table of Contents Rate/Volume Analysis.
(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 earning assets. ​ 68 Table of Contents Rate/Volume Analysis.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K for additional information relating to stock. Regulatory capital. The Bank, as a state-chartered, federally insured commercial bank, and member of the Federal Reserve is subject to the capital requirements established by the Federal Reserve.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K for additional information relating to stock. 72 Table of Contents Regulatory capital. The Bank, as a state-chartered, federally insured commercial bank, and member of the Federal Reserve is subject to the capital requirements established by the Federal Reserve.
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 the provision for loan losses.
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less the provision for credit losses.
We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches. ● Focus on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community Markets.
We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our 50 Table of Contents retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches. ● Focus on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community Markets.
For additional information, see “Item 1–Business – Sources of Funds”, contained in this Form 10-K. See also, “Note 14 — Subordinated Debt” in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. ​ We are required to provide collateral for certain local agency deposits.
For additional information, see “Item 1–Business – Sources of Funds ”, contained in this Form 10-K. See also, “Note 14 — Subordinated Debt” in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. ​ We are required to provide collateral for certain local agency deposits.
For information regarding our commitments, see “Note 16 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10 K. 72 Table of Contents Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.
For information regarding our commitments, see “Note 16 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10 K. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.
For additional information, see “Note 13 — Junior Subordinated Deferrable Interest Debentures” in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. ​ At December 31, 2022, the Company had outstanding subordinated debt, net of costs to issue, totaling $63.7 million compared to $63.5 million at December 31, 2021.
For additional information, see “Note 13 — Junior Subordinated Deferrable Interest Debentures” in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. At December 31, 2023, the Company had outstanding subordinated debt, net of costs to issue, totaling $63.9 million compared to $63.7 million at December 31, 2022.
A 56 Table of Contents 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.
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.
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. Right-of-use assets and lease liabilities.
In addition, the determination of the amount of our allowance for credit losses for loans is subject to review by bank regulators as part of the routine examination process, which may result in additions to our allowance for credit losses based upon their judgment of information available to them at the time of their examination Right-of-use assets and lease liabilities.
We believe our geographic footprint, which includes the San Francisco Bay Area and the metropolitan markets of Los Angeles, California, Seattle, Washington, Denver, and 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 believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California, Seattle, Washington, Denver, Colorado, and Las Vegas, Nevada, and community markets including Albuquerque, New Mexico, and Custer, Delta and Grand counties, Colorado, provides us access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth.
At that date, nearly 37.1% of our deposit base was comprised of noninterest bearing demand deposit accounts, significantly lowering our aggregate cost of funds. ● Our Team of Seasoned Bankers Represents an Important Driver of our Organic Growth by Expanding Banking Relationships with Current and Potential Clients.
At that date, nearly 30.3% of our deposit base was comprised of noninterest bearing demand deposit accounts, significantly lowering our aggregate cost of funds. ● Our Team of Seasoned Bankers Represents an Important Driver of our Organic Growth by Expanding Banking Relationships with Current and Potential Clients.
Business — Supervision and Regulation — United Business Bank — Capital Requirements” and Note 19, “Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8. Financial Statements and Supplementary Data”, within this Form 10-K. Quantitative and Qualitative Disclosures About Market and Interest Rate Risk Market Risk.
Business — Supervision and Regulation — United Business Bank — Capital Requirements” and Note 19, “Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8. Financial Statements and Supplementary Data”, within this Form 10-K. Item 7A Quantitative and Qualitative Disclosures About Market Risk Market Risk.
Assuming continued payment during 2023 at this rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.3 million based on the number of our current outstanding shares at December 31, 2022.
Assuming continued payment during 2024 at this rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.2 million based on the number of our current outstanding shares at December 31, 2023.
In the 18 years since our inception, which timeframe includes the recent recession in the U.S. and a global pandemic, we have cumulative net charge-offs of $10.3 million. We believe our success in managing asset quality is illustrated by our aggregate net charge-off history. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Over the 19 years since our inception, which timeframe includes a U.S. recession and a global pandemic, we have cumulative net charge-offs of $10.9 million. We believe our success in managing asset quality is illustrated by our aggregate net charge-off history. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 34 full-service branches at December 31, 2022, with 16 locations in California, two in Washington, five in New Mexico and 11 in Colorado.
The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 35 full-service branches at December 31, 2023, with 16 locations in California, one in Nevada, two in Washington, five in New Mexico and 11 in Colorado.
In addition, shareholder’s equity was adversely impacted by increased unrealized losses on available for sale securities reflecting the increase in market interest rates during the year, resulting in $17.0 million accumulated other comprehensive loss, net of tax for the year ended December 31, 2022.
In addition, shareholder’s equity was adversely impacted by increased unrealized losses on available for sale securities reflecting the increase in market interest rates during the year, resulting in a $3.0 million increase in accumulated other comprehensive loss, net of tax for the year ended December 31, 2023.
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 ten strategic acquisitions, which includes our most recent acquisition of PEB 47 Table of Contents which closed in February 2022.
Our principal objective is to enhance 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 ten strategic acquisitions, which includes our most recent acquisition of PEB which closed in February 2022.
Income tax expense increased $2.2 million, or 28.7%, to $10.0 million for the year ended December 31, 2022 from $7.8 million for the year ended December 31, 2021, reflecting an increase in pre-tax income for the period ended December 31, 2022. The Company’s effective tax rate was 27.1% for the year ended December 31, 2022 compared to 27.3% for 2021.
Income tax expense increased $2.0 million, or 23.3%, to $10.7 million for the year ended December 31, 2023 from $8.7 million for the year ended December 31, 2022, reflecting an increase in pre-tax income for the period ended December 31, 2023. The Company’s effective tax rate was 28.1% for the year ended December 31, 2023 compared to 26.8% for 2022.
The calculation of the allowance for loan losses at both December 31, 2022 and December 31, 2021 excludes the balance of PPP loans held in portfolio as of those dates as PPP loans are fully guaranteed by the SBA.
The calculation of the allowance for credit losses for loans at December 31, 2023 and the allowance for loan losses at December 31, 2022, excludes the balance of PPP loans held in portfolio as of those dates as PPP loans are fully guaranteed by the SBA.
We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets.
We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our 71 Table of Contents markets.
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. At December 31, 2022 and 2021, we had the ability to borrow from the FHLB up to $473.6 million and $483.1 million, respectively.
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. At December 31, 2023 and 2022, we had the ability to borrow from the FHLB up to $576.9 million and $473.6 million, respectively.
At both December 31, 2022 and 2021, there were no FHLB advances outstanding. In addition to the availability of liquidity from the FHLB, the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral. This line was closed during 2022, with no FRB borrowings outstanding at December 31, 2022.
At both December 31, 2023 and 2022, there were no FHLB advances outstanding. In addition, the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral. This line was closed during 2023, with no FRB borrowings outstanding at December 31, 2023.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Stock Repurchases” contained in this Form 10-K. Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 Earnings summary.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Stock Repurchases” contained in this Form 10-K. 65 Table of Contents Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 Earnings summary.
Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. Purchased credit impaired loans are reported at their contractual interest rate.
Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. PCD loans are reported at their contractual interest rate.
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.
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. Interest received on such loans is recognized as interest income when received.
If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2022, the Company would have exceeded all regulatory capital requirements. 74 Table of Contents For additional information see “Item 1.
If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2023, the Company would have exceeded all regulatory capital requirements. For additional information see “Item 1.
Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) FDIC and state assessments; (v) outside and professional services; (vi) amortization of intangibles; and (vii) other general and administrative expenses. Our noninterest expenses increased $10.8 million during the year ended December 31, 2022, as compared to 2021.
Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) FDIC and state assessments; (v) outside and professional services; (vi) amortization of intangibles; and (vii) other general and administrative expenses. Our noninterest expenses decreased $1.3 million during the year ended December 31, 2023, as compared to 2022.
The average yield earned on loans, including the accretion of the net discount and deferred PPP loan fees recognized for the year ended December 31, 2022 was 4.84%, compared to 4.69% for the year ended December 31, 2021.
The average yield earned on loans, including the accretion of the net discount and deferred PPP loan fees recognized for the year ended December 31, 2023 was 5.32%, compared to 4.84% for the year ended December 31, 2022.
In addition, at December 31, 2022, we had other future obligations and accrued expenses of $33.7 million. As of December 31, 2023, we project that our future commitments will include $17.2 million of operating lease payments.
In addition, at December 31, 2023, we had other future obligations and accrued expenses of $33.7 million. As of December 31, 2023, we project that our future commitments will include $14.8 million of operating lease payments.
We continue to centralize the back-office functions of our acquired banks, as well as realize cost savings through the use of third-party vendors and technology, in order to take advantage of economies of scale as we continue to grow.
We continue to centralize the back-office functions of our acquired banks as well as realize cost savings using third-party vendors and technology to take advantage of economies of scale as we continue to grow.
We believe our credit culture supports accountability amongst our bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company. As of December 31, 2022, our ratio of nonperforming assets to total assets was 0.61% and our ratio of nonperforming loans to total loans was 0.75%.
We believe our credit culture supports accountability amongst our bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company. At December 31, 2023, our ratio of nonperforming assets to total assets was 0.51% and our ratio of nonperforming loans to total loans was 0.67%.
(2) Includes loans located in Sacramento and Northern California counties totaling $507.7 million and loans located in Los Angeles and Orange counties totaling $189.6 million. (3) Includes loans located in the states of Colorado, New Mexico, Washington and other states.
(2) Includes loans located in Sacramento and Northern California counties totaling $95.6 million and loans located in Los Angeles and Orange counties totaling $506.6 million. (3) Includes loans located in the states of Colorado, New Mexico, Washington and other states.
There are $4.1 million of scheduled interest payments due on Notes and junior subordinate debentures in 2023 (excluding any other borrowings that may be made after December 31, 2022). In addition, at December 31, 2022, there were other future obligations and accrued expenses of $26.5 million.
There are $4.2 million of scheduled interest payments due on Notes and junior subordinate debentures in 2023 (excluding any other borrowings that may be made after December 31, 2023). In addition, at December 31, 2023, there were other future obligations and accrued expenses of $14.7 million.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity. At December 31, 2022, the Company, on an unconsolidated basis, had liquid assets of $3.8 million.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity. At December 31, 2023, the Company, on an unconsolidated basis, had liquid assets of $13.0 million.
We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency. We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities.
We believe our strategy of selectively acquiring and integrating community banks has yielded economies of scale and improved our overall franchise efficiency. Looking forward, we expect to continue pursuing strategic acquisitions, believing our targeted market areas present us with many and varied acquisition opportunities.
Interest income on loans for the year ended December 31, 2022 and 2021, included $1.3 million and $1.2 million respectively, in fees related to prepayment penalties.
Interest income on loans for the year ended December 31, 2023 and 2022, included $486,000 and $1.3 million respectively, in fees related to prepayment penalties.
The NII at Risk results reflect the analysis used quarterly by management. It models gradual parallel shifts in market interest rates based on the indicated interest rate environments implied by the forward yield curve over a two-year period.
The NII at Risk results reflect the analysis used quarterly by management. It models gradual parallel shifts in market interest rates based on the indicated interest rate environments implied by the forward yield curve over a two-year period. No rates in the model are allowed to go below zero.
In acquiring 49 Table of Contents United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community. As of December 31, 2022, our top ten depositors, which included nine labor unions accounted for roughly 6.8% of our total deposits.
In acquiring United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community. As of December 31, 2023, our top ten depositors, which included nine labor unions accounted for roughly 11.5% of our total deposits.
On February 23, 2023 the Company declared a quarterly cash dividend of $0.10 per share on the Company’s outstanding common stock payable on April 14, 2023 to shareholders of record as of the close of business on March 10, 2023.
On February 22, 2024, the Company declared a quarterly cash dividend of $0.10 per share on the Company’s outstanding common stock payable on April 12, 2024 to shareholders of record as of the close of business on March 8, 2024.
The net discount includes a credit discount based on estimated losses in the acquired loans partially offset a premium, if any, based market interest rates on the date of acquisition.
The net premium for acquired non-PCD loans includes both a credit discount based on estimated losses in the acquired loans partially offset by any premium, based on market interest rates on the date of acquisition.
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 $97.5 million and $104.1 million, including $5.3 million and $3.2 million of undisbursed construction and development loan commitments, at December 31, 2022 and 2021, respectively.
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 $77.4 million and $97.5 million, including $133,000 and $5.3 million of undisbursed construction and development loan commitments, at December 31, 2023 and 2022, respectively.
Accretion of acquisition accounting discounts on loans and the recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 11 basis points and 17 basis points for the years ended December 31, 2022 and 2021, respectively.
Accretion of acquisition accounting discounts on loans and the recognition of revenue from PCD loans in excess of discounts increased our net interest margin by three basis points and 11 basis points for the years ended December 31, 2023 and 2022, respectively.
At December 31, 2022, the $4.0 million of loans less than 30 days past due was comprised of 14 loans all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
At December 31, 2023, the $2.1 million of loans less than 30 days past due was comprised of 16 loans all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
We reported net income of $27.0 million for the year ended December 31, 2022, compared to $20.7 million for the year ended December 31, 2021, an increase of $6.3 million, or 30.4%.
We reported net income of $27.4 million for the year ended December 31, 2023, compared to $23.7 million for the year ended December 31, 2022, an increase of $3.7 million, or 15.6%.
Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above. At December 31, 2022 and December 31, 2021, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing. Allowance for loan losses.
PCD loans are considered performing and are not included in nonperforming assets in the table above. At December 31, 2023 and December 31, 2022, we had no PCD loans that were 90 days past due and still accruing. Allowance for credit losses.
The average yield on PPP loans was 4.88%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of eight basis for the year ended December 31, 2022, compared to an average yield of 4.52% and positive impact of 20 basis points for the year ended December 31, 2021.
The average yield on PPP loans for the year ended December 31, 2023 was 2.71%, including the recognition of deferred fees, resulting in a negative impact of one basis points to the net interest margin during the year ended December 31, 2023, compared to an average yield of 4.88%, including the recognition of deferred fees, resulting in a positive impact of eight basis points during the year ended December 31, 2022, respectively.
The decrease primarily was due to a $23.8 million fair value adjustment related to unrealized losses on investment securities available-for-sale and $11.0 million in routine amortization and repayment of investment principal balances and securities called and matured, partially offset by the purchase of $28.9 million of investment securities during the year ended December 31, 2022.
The increase primarily was due to purchase of $25.3 million of investment securities during the year ended December 31, 2023, partially offset by $11.6 million in routine amortization and repayment of investment principal balances and securities called and matured, and a $4.3 million fair value adjustment related to unrealized losses on investment securities available-for-sale.
Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable-rate loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from the assumptions used in the model.
Additionally, the methodology does not fully consider the impact of annual and lifetime restrictions on rate changes for specific assets, such as adjustable-rate loans. Actual loan prepayments and early withdrawals from certificates may significantly differ from the assumptions made in the model when interest rates change.
During the year ended December 31, 2022, the Company sold $34.0 million of SBA loans (the guaranteed portion), which generated a gain on sale of $2.7 million , compared to the sale of $45.8 million of SBA loans (the guaranteed portion) with a gain on sale of $4.8 million for the year ended December 31, 2021 .
During the year ended December 31, 2023, the Company sold $7.2 million of SBA loans (the guaranteed portion), which 69 Table of Contents generated a gain on sale of $508,000, compared to the sale of $34.0 million of SBA loans (the guaranteed portion) with a gain on sale of $2.7 million for the year ended December 31, 2022 .
During the year ended December 31, 2022, net cash provided by investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $53.7 million, compared to $60.4 million of cash used in investing activities for the year ended December 31, 2021.
During the year ended December 31, 2023 and December 31, 2022, net cash provided by investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $80.4 million and $53.9 million, respectively.
There are no amounts outstanding under these facilities at both December 31, 2022 and 2021. ​ At December 31, 2022 and 2021, the Company had outstanding junior subordinated debt, net of marked-to-market, related to junior subordinated deferrable interest debentures assumed in connection with its previous acquisitions totaling $8.5 million and $8.4 million, respectively.
At December 31, 2023 and 2022, the Company had outstanding junior subordinated debt, net of marked-to-market, related to junior subordinated deferrable interest debentures assumed in connection with its previous acquisitions totaling $8.6 million and $8.5 million, respectively.
No rates in the model are allowed to go below zero. 75 Table of Contents The following table sets forth the estimated changes in the Company’s annual net interest income that would result from the designated instantaneous parallel shift in interest rates noted, as of the dates indicated.
The following table sets forth the estimated changes in the Company’s annual net interest income that would result from the designated instantaneous parallel shift in interest rates noted, as of the dates indicated.
The Company recognizes operating leases on the Consolidated Balance Sheet as ROU assets and lease liabilities based on the value of the discounted future lease payments. ROU assets increased $4.4 million, or 36.6%, to $16.6 million at December 31, 2022 from $12.1 million at December 31, 2021.
The Company recognizes operating leases on the Consolidated Balance Sheet as ROU assets and lease liabilities based on the value of the discounted future lease payments. ROU assets decreased $2.6 million, or 15.9%, to $13.9 million at December 31, 2023 from $16.6 million at December 31, 2022.
Noninterest bearing deposits totaled $773.3 million, or 37.1% of total deposits, at December 31, 2022 compared to $710.1 million, or 35.8% of total deposits, at December 31, 2021.
Noninterest bearing deposits totaled $646.3 million, or 30.3% of total deposits, at December 31, 2023 compared to $773.3 million, or 37.1% of total deposits, at December 31, 2022.
The increase was primarily due to a 119 basis point increase in the yield on fed funds sold and interest-bearing balance in banks to 1.35% for the year ended December 31, 2022 from 0.16% for the year ended December 31, 2021, partially offset by a 64 Table of Contents $116.2 million decrease in the average balance of federal funds sold and interest-bearing balances in banks for the year ended December 31, 2022 compared to the same period in 2021.
The increase was due to a 385 basis point increase in the yield on fed funds sold and interest-bearing balance in banks to 5.20% for the year ended December 31, 2023 from 1.35% for the year ended December 31, 2022, partially offset by a $74.6 million decrease in the average balance of federal funds sold and interest-bearing balances in banks for the year ended December 31, 2023 compared to the same period in 2022.
During the year ended December 31, 2022, the Company repurchased a total of 905,740 shares of its common stock at a total cost of $19.83 per share. At December 31, 2022, 481,792 shares remain available for future purchases under the current stock repurchase plan. For additional information related to our stock repurchases, see “Item 5.
During the year ended December 31, 2023, the Company repurchased a total of 1,329,040 shares of its common stock at a total cost of $18.14 per share. At December 31, 2023, 359,752 shares remain available for future purchases under the current stock repurchase plan. For additional information related to our stock repurchases, see “Item 5.
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 61.40% for the year ended December 31, 2022, compared to 65.57% for the year ended December 31, 2021.
Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income, was 61.69% for the year ended December 31, 2023, compared to 64.13% for the year ended December 31, 2022.
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity Immediate Changes in Rates (1) ​ ​ -200 -100 +100 +200 +300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (24,298) ​ $ (32,425) ​ $ (1,395) ​ $ (2,544) ​ $ (4,176) Percent change ​ (11) % (14) % (1) % (1) % (2) % December 31, 2021 ​ ​ ​ ​ ​ Dollar change ​ $ (3,654) ​ $ (3,375) ​ $ 7,451 ​ $ 15,939 ​ $ 24,226 Percent change ​ (3) % (2) % 5 % 10 % 15 % (1) This data does not reflect any actions that we may undertake in response to changes in interest rates such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on net interest income, if any.
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity Immediate Changes in Rates (1) ​ ​ -300 ​ -200 -100 +100 +200 +300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (24,515) ​ $ (13,747) ​ $ (4,176) ​ $ (2,007) ​ $ (2,449) ​ $ (3,424) Percent change ​ (12) % (6) % (2) % (1) % (1) % (2) % December 31, 2022 ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (36,258) ​ $ (24,298) ​ $ (32,425) ​ $ (1,395) ​ $ (2,544) ​ $ (4,176) Percent change ​ (16) % (11) % (14) % (1) % (1) % ​ (2) % (1) This data does not reflect any actions that we may undertake in response to changes in interest rates such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on net interest income, if any. 74 Table of Contents As with any method used to assess interest rate risk, there are inherent limitations in the methodology described above.
Diluted earnings per share were $2.06 for the year ended December 31, 2022, an increase of $0.15 from diluted earnings per share of $1.90 for the year ended December 31, 2021.
Diluted earnings per share were $2.27 for the year ended December 31, 2023, an increase of $0.46 from diluted earnings per share of $1.81 for the year ended December 31, 2022.
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. As of December 31, 2022, the Company declared $2.7 million of cash dividends on its common stock, of with $644,000 remained to be paid on January 13, 2023.
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. During 2023, the Company declared $4.8 million of cash dividends on its common stock, of with $1.2 million remained to be paid on January 12, 2024.
At December 31, 2022, the Company, on a consolidated basis, had assets of $2.5 billion, deposits of $2.1 billion and shareholders’ equity of $317.1 million. We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth. At December 31, 2022, we had $2.0 billion in total loans.
At December 31, 2023, the Company, on a consolidated basis, had assets of $2.6 billion, loans receivable, net of $1.9 billion, deposits of $2.1 billion and shareholders’ equity of $312.9 million. We continue to focus on growing our commercial loan portfolios through both acquisitions and organic growth.
Net cash provided by operating activities was $39.9 million and $10.4 million for the years ended December 31, 2022 and 2021, respectively.
Net cash provided by operating activities was $30.8 million and $39.6 million for the years ended December 31, 2023 and 2022, respectively.
Net interest income and net interest margin. Net interest income increased $23.9 million, or 32.8%, to $96.7 million for the year ended December 31, 2022 compared to $72.8 million for the year ended December 31, 2021.
Net interest income and net interest margin. Net interest income increased $1.2 million, or 1.2%, to $97.9 million for the year ended December 31, 2023 compared to $96.7 million for the year ended December 31, 2022.
The average balance of borrowings outstanding decreased $1.5 million to $72.1 million for the year ended December 31, 202 2, compared to $73.6 million for the year ended December 31, 2021. The average cost of borrowings increased 32 basis points to 5.66% for the year ended December 31, 2022, from 5.34% for the year ended December 31, 2021.
The average balance of borrowings outstanding increased $451,000 to $72.5 million for the year ended December 31, 202 3, compared to $72.1 million for the year ended December 31, 2022. The average cost of borrowings increased 45 basis points to 6.10% for the year ended December 31, 2023, from 5.66% for the year ended December 31, 2022.
Net cash used in financing activities, comprised primarily of net change in deposits, was $296.4 million for the year ended December 31, 2022, compared to $130.3 million of cash provided by financing activities for the year ended December 31, 2021.
Financing activities, comprised primarily of net change in deposit, provided net cash of $19.5 million during the year ended December 31, 2023, compared to $296.4 million of net cash used in financing activities for the year ended December 31, 2022.
The Bank also had Federal Funds lines with available commitments totaling $65.0 million with four correspondent banks. There were no amounts outstanding under these facilities at both December 31, 2022 and December 31, 2021.
As of December 31, 2023, the Bank had an available borrowing capacity of $576.9 million with the FHLB of San Francisco, with no borrowings outstanding at that date. The Bank also had Federal Funds lines with available commitments totaling $65.0 million with four correspondent banks. There were no amounts outstanding under these facilities at both December 31, 2023 and 2022.
The provision for loan losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions.
Conversely, a decline in interest rates would likely negatively impact our net interest income. The provision for credit losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions.
During the years ended December 31, 2022, 2021 and 2020, the Bank received $469.6 million, $490.3 million and $284.4 million in principal repayments, respectively. 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.
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. During the years ended December 31, 2023 and 2022, deposits increased by $47.3 million and $100.2 million, respectively.
The average rate paid on interest bearing deposits increased to 0.44% for the year ended December 31, 2022, from 0.39% for the year ended December 31, 2021, with the average rate paid on money market deposits increasing nine basis points to 0.49% during 2022 compared to 0.40% during 2021.
The average rate paid on interest bearing deposits increased to 1.66% for the year ended December 31, 2023, from 0.44% for the year ended December 31, 2022, with the average rate paid on money market deposits increasing 115 basis points to 1.64% during 2023 compared to 0.49% during 2022, and the average rate paid on time deposits increasing 231 basis points to 3.22% during 2023 compared to 0.91% during 2022.
We seek to achieve these results by focusing on the following: ● Strategic Consolidation of Community Banks. We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency.
We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency.
Interest income included $2.0 million in fees earned related to PPP loans during the year ended December 31, 2022, compared to $5.4 million in same period a year ago. As of December 31, 2022, total unrecognized fees on PPP loans were $94,000.
Interest income included $92,000 in fees earned related to PPP loans during the year ended December 31, 2023, compared to $2.0 million in same period a year ago. As of December 31, 2023, there was a minimal amount of unrecognized PPP deferred fees and costs.
The total average balance of interest-bearing liabilities increased by $170.2 million, or 13.0%, to $1.4 billion for the year ended December 31, 2022, from $1.3 billion for the year ended December 31, 2021, primarily due to an increase in total interest bearing deposits.
The total average balance of interest-bearing liabilities increased $37.9 million, or 2.55%, to 66 Table of Contents $1.5 billion for the year ended December 31, 2023, from the year ended December 31, 2022, primarily due to an increase in interest-bearing time deposits.

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