UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER 001-38483
| BayCom Corp |
| (Exact Name of Registrant as Specified in its Charter) |
| California | 37-1849111 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 500 Ygnacio Valley Road, Walnut Creek, California | 94596 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (925) 476-1800
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by checkmark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer x | Smaller reporting company ¨ |
| Emerging growth company x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
As of November 1, 2018 there were 10,869,275 shares of the registrant’s common stock outstanding.
BAYCOM CORP AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: expected revenues, cost savings, synergies and other benefits from the proposed merger of the Company and Bethlehem Financial Corporation (“BFC”) might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; the requisite regulatory approvals for the proposed merger of the Company and BFC may be delayed or may not be obtained (or may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed merger); the requisite approval of BFC shareholders may be delayed or may not be obtained, the other closing conditions to the merger may be delayed or may not be obtained, or the merger agreement may be terminated; business disruption may occur following or in connection with the proposed merger of the Company and BFC; the Company's or BFC's businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events; and the diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets, and may result in our allowance for loan losses not being adequate to cover actual losses and require us to materially increase our reserves; changes in economic conditions in general and in California, Washington, and New Mexico; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates; our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses, write-down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; risks related to our acquisition strategy, including our ability to identify future suitable acquisition candidates, exposure to potential asset and credit quality risks and unknown or contingent liabilities, the need for capital to finance such transactions, our ability to obtain required regulatory approvals and possible failures in realizing the anticipated benefits from acquisitions; challenges arising from attempts to expand into new geographic markets, products, or services; future goodwill impairment due to changes in our business, changes in market conditions, or other factors; legislative or regulatory changes that adversely affect our business including changes in banking, securities and tax law, and regulatory policies and principles, or the interpretation of regulatory capital or other rules, including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation; difficulties in reducing risk associated with the loans and securities on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; the failure or security breach of computer systems on which we depend, or the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; the effectiveness of our risk management framework; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions, which could expose us to litigation or reputational harm; an inability to keep pace with the rate of technological advances; our ability to retain key members of our senior management team and our ability to attract, motivate and retain qualified personnel; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies and manage our growth; future goodwill impairment due to changes in our business, changes in market conditions, or other factors; our ability to manage loan delinquency rates; liquidity issues, including our ability to raise additional capital, if necessary; the loss of our largest loan and depositor relationships; the occurrence of adverse weather or manmade events, which could negatively affect our core markets or disrupt our operations; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common stock, and interest or principal payments on our junior subordinated debentures; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; statements with respect to our intentions regarding disclosure and other changes resulting from the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"); changes in accounting principles, policies or guidelines and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and the other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), including our prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act on May 4, 2018, and in this quarterly report.
3
In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2018 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect our consolidated financial condition and consolidated results of operations as well as our stock price performance.
As used throughout this report, the terms “we,” “our,” “us,” “BayCom,” or the “Company” refer to BayCom Corp and its consolidated subsidiary, United Business Bank (formerly known as Bay Commercial Bank), which we sometimes refer to as “the Bank,” unless the context otherwise requires.
4
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share data)
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | 116,079 | $ | 14,754 | ||||
| Federal funds sold | 197,138 | 235,099 | ||||||
| Cash and cash equivalents | 313,217 | 249,853 | ||||||
| Interest earning deposits in financial institutions | 1,000 | 1,743 | ||||||
| Investment securities available-for-sale | 69,682 | 40,505 | ||||||
| Federal Home Loan Bank stock, at par | 5,097 | 4,772 | ||||||
| Federal Reserve Bank stock, at par | 3,357 | 2,987 | ||||||
| Loans held for sale | 585 | 3,245 | ||||||
| Loans | 902,250 | 891,548 | ||||||
| Deferred fees, net | (381 | ) | (469 | ) | ||||
| Allowance for loan losses | (5,500 | ) | (4,215 | ) | ||||
| Loans, net | 896,369 | 886,864 | ||||||
| Premises and equipment, net | 7,744 | 8,399 | ||||||
| Core deposit intangible | 3,904 | 4,772 | ||||||
| Cash surrender value of Bank owned life insurance policies, net | 16,586 | 17,132 | ||||||
| Goodwill | 10,365 | 10,365 | ||||||
| Other real estate owned | 362 | - | ||||||
| Interest recievable and other assets | 15,929 | 15,157 | ||||||
| Total Assets | $ | 1,344,197 | $ | 1,245,794 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Deposits | ||||||||
| Non-interest bearing deposits | $ | 349,346 | $ | 327,309 | ||||
| Interest bearing deposits | 781,375 | 776,996 | ||||||
| Total deposits | 1,130,721 | 1,104,305 | ||||||
| Other borrowings | - | 6,000 | ||||||
| Salary continuation plan | 3,256 | 4,046 | ||||||
| Interest payable and other liabilities | 7,482 | 7,421 | ||||||
| Junior subordinated deferrable interest debentures, net | 5,428 | 5,387 | ||||||
| Total liabilities | 1,146,887 | 1,127,159 | ||||||
| Shareholders' equity | ||||||||
| Preferred stock - no par value; 10,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock, - no par value; authorized 100,000,000 shares 10,869,275 and 7,496,995 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 148,886 | 81,307 | ||||||
| Additional paid in capital | 287 | 287 | ||||||
| Accumulated other comprehensive (loss) income, net of tax | (566 | ) | 213 | |||||
| Retained earnings | 48,703 | 36,828 | ||||||
| Total shareholders' equity | 197,310 | 118,635 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 1,344,197 | $ | 1,245,794 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for per share data)
(UNAUDITED)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Interest and dividend income: | ||||||||||||||||
| Loans, including fees | $ | 12,044 | $ | 12,115 | $ | 36,398 | $ | 29,219 | ||||||||
| Investment securities and interest earning deposits in banks | 2,107 | 923 | 4,757 | 1,701 | ||||||||||||
| FHLB dividends | 86 | 71 | 266 | 263 | ||||||||||||
| FRB dividends | 50 | 22 | 169 | 67 | ||||||||||||
| Total interest and dividend income | 14,287 | 13,131 | 41,590 | 31,250 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 1,179 | 988 | 3,183 | 2,878 | ||||||||||||
| Other borrowings | 93 | 151 | 378 | 252 | ||||||||||||
| Total interest expense | 1,272 | 1,139 | 3,561 | 3,130 | ||||||||||||
| Net interest income | 13,015 | 11,992 | 38,029 | 28,120 | ||||||||||||
| Provision for loan losses | 1,081 | 58 | 1,578 | 345 | ||||||||||||
| Net interest income after provision for loan losses | 11,934 | 11,934 | 36,451 | 27,775 | ||||||||||||
| Noninterest income: | ||||||||||||||||
| Gain on sale of loans | 424 | 437 | 1,623 | 1,712 | ||||||||||||
| Service charges and other fees | 509 | 379 | 1,424 | 821 | ||||||||||||
| Loan servicing fees and other income | 312 | 150 | 831 | 460 | ||||||||||||
| Other income | 393 | 117 | 1,569 | 455 | ||||||||||||
| Total noninterest income | 1,638 | 1,083 | 5,447 | 3,448 | ||||||||||||
| Noninterest expense: | ||||||||||||||||
| Salaries and employee benefits | 5,506 | 4,686 | 14,967 | 11,715 | ||||||||||||
| Occupancy and equipment | 976 | 932 | 3,219 | 2,291 | ||||||||||||
| Data processing | 526 | 813 | 1,849 | 3,247 | ||||||||||||
| Other | 1,409 | 1,335 | 5,161 | 3,538 | ||||||||||||
| Total noninterest expense | 8,417 | 7,766 | 25,196 | 20,791 | ||||||||||||
| Income before provision for income taxes | 5,155 | 5,251 | 16,702 | 10,432 | ||||||||||||
| Provision for income taxes | 1,637 | 2,070 | 4,827 | 4,333 | ||||||||||||
| Net income | $ | 3,518 | $ | 3,181 | $ | 11,875 | $ | 6,099 | ||||||||
| Earnings per common share : | ||||||||||||||||
| Basic: Earnings per common share | $ | 0.31 | $ | 0.46 | $ | 1.30 | $ | 0.97 | ||||||||
| Weighted average shares outstanding: | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | ||||||||||||
| Diluted: Earnings per common share | $ | 0.31 | $ | 0.46 | $ | 1.30 | $ | 0.97 | ||||||||
| Weighted average shares outstanding: | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(UNAUDITED)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income | $ | 3,518 | $ | 3,181 | $ | 11,875 | $ | 6,099 | ||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Change in unrealized (loss) gain on available-for-sale securities | (301 | ) | 109 | (1,106 | ) | 125 | ||||||||||
| Deferred tax benefit (expense) | 89 | (44 | ) | 327 | (46 | ) | ||||||||||
| Other comprehensive (loss) income, net of tax | (212 | ) | 65 | (779 | ) | 79 | ||||||||||
| Total comprehensive income | $ | 3,306 | $ | 3,246 | $ | 11,096 | $ | 6,178 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||
| Common | Additional | Other | Total | |||||||||||||||||||||
| Number of | Stock | Paid in | Retained | Comprehensive | Shareholders' | |||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income/(loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2016 | 5,472,426 | $ | 46,084 | $ | 287 | $ | 31,604 | $ | 88 | $ | 78,063 | |||||||||||||
| Net income | 6,099 | 6,099 | ||||||||||||||||||||||
| Other comprehensive loss, net | 79 | 79 | ||||||||||||||||||||||
| Issuance of shares | 1,371,579 | 23,146 | 23,146 | |||||||||||||||||||||
| Restricted stock granted | 28,500 | - | ||||||||||||||||||||||
| Stock based compensation | 318 | 318 | ||||||||||||||||||||||
| Repurchase of shares | (1,891 | ) | (24 | ) | (24 | ) | ||||||||||||||||||
| Balance, September 30, 2017 | 6,870,614 | 69,524 | 287 | 37,703 | 167 | 107,681 | ||||||||||||||||||
| Net (loss) | (839 | ) | (839 | ) | ||||||||||||||||||||
| Other comprehensive income, net | 10 | 10 | ||||||||||||||||||||||
| Reclassification of stranded tax effects from change in tax rate | (36 | ) | 36 | - | ||||||||||||||||||||
| Restricted stock granted | - | - | ||||||||||||||||||||||
| Stock based compensation | 236 | 236 | ||||||||||||||||||||||
| Issuance of shares | 626,381 | 11,547 | 11,547 | |||||||||||||||||||||
| Balance, December 31, 2017 | 7,496,995 | 81,307 | 287 | 36,828 | 213 | 118,635 | ||||||||||||||||||
| Net income | 11,875 | 11,875 | ||||||||||||||||||||||
| Initial public offering, net | 3,278,900 | 66,761 | 66,761 | |||||||||||||||||||||
| Other comprehensive loss, net | (779 | ) | (779 | ) | ||||||||||||||||||||
| Restricted stock granted | 93,380 | - | ||||||||||||||||||||||
| Stock based compensation | 818 | 818 | ||||||||||||||||||||||
| Balance, September 30, 2018 | 10,869,275 | $ | 148,886 | $ | 287 | $ | 48,703 | $ | (566 | ) | $ | 197,310 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income | $ | 11,875 | $ | 6,099 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) by operating activities: | ||||||||
| (Increase) decrease in deferred tax asset | (583 | ) | 3,518 | |||||
| Accretion on acquired loans | (2,377 | ) | (2,563 | ) | ||||
| Gain on sale of loans | (1,623 | ) | (1,712 | ) | ||||
| Proceeds from sale of loans | 23,409 | 17,933 | ||||||
| Loans originated for sale | (31,524 | ) | (24,014 | ) | ||||
| Loss on impairment of building held for sale | 600 | - | ||||||
| Accretion on Trust Preferred | 41 | 25 | ||||||
| Life insurance death benefit gain | (602 | ) | - | |||||
| Increase in cash surrender value of life insurance policies | (231 | ) | (213 | ) | ||||
| Provision for loan losses | 1,578 | 345 | ||||||
| Amortization/accretion of premium discount on investment securities | 345 | 249 | ||||||
| Depreciation and amortization | 693 | 532 | ||||||
| Core deposit intangible amortization | 868 | 573 | ||||||
| Stock-based compensation expense | 818 | 318 | ||||||
| (Decrease) increase in deferred loan origination fees, net | (88 | ) | 23 | |||||
| Decrease in accrued interest receivable and other assets | 1,488 | 258 | ||||||
| (Decrease) increase in salary continuation liability, net | (789 | ) | 22 | |||||
| Increase in accrued expenses and other liabilities | (1,535 | ) | 1,045 | |||||
| Net cash provided by operating activities | 2,363 | 2,438 | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from interest bearing deposits in financial institutions | 743 | 745 | ||||||
| Proceeds from the sale, maturity and repayment of securities | 8,627 | 4,236 | ||||||
| Purchase of investment securities | (39,255 | ) | - | |||||
| Purchase of Federal Home Loan Bank stock | (325 | ) | (174 | ) | ||||
| Purchase of Federal Reserve Bank stock | (370 | ) | (1,576 | ) | ||||
| Proceed from death benefit on BOLI investment | 777 | - | ||||||
| Net decrease (increase) in loans | 2,674 | (11,612 | ) | |||||
| Funds due SBA participants | 1,591 | 3,151 | ||||||
| Proceeds from sale of OREO | - | 750 | ||||||
| Purchase of bank premises, equipment, leasehold improvements | (638 | ) | (368 | ) | ||||
| Purchase of Bank owned life insurance | - | (4,003 | ) | |||||
| Net cash received from acquisition | - | 83,992 | ||||||
| Net cash (used in) provided by investing activities | (26,176 | ) | 75,141 | |||||
| Cash flows from financing activities: | ||||||||
| Net increase in demand, interest bearing and savings deposits | 51,893 | 8,422 | ||||||
| Net (decrease) increase in time deposits | (25,477 | ) | 27,285 | |||||
| Repurchase of common stock | - | (24 | ) | |||||
| (Decrease) increase in short-term borrowings | (6,000 | ) | 6,000 | |||||
| Decrease in other borrowings | - | (5,428 | ) | |||||
| Proceeds from initial public offering, net | 66,761 | - | ||||||
| Net cash provided by financing activities | 87,177 | 36,255 | ||||||
| Increase in cash and cash equivalents | 63,364 | 113,834 | ||||||
| Cash and cash equivalents at beginning of period | 249,853 | 128,684 | ||||||
| Cash and cash equivalents at end of period | $ | 313,217 | $ | 242,518 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
9
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(UNAUDITED)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Additional cash flow information: | ||||||||
| Interest paid | $ | 3,608 | $ | 3,031 | ||||
| Income taxes paid | 4,572 | 830 | ||||||
| Non-cash investing and financing activities: | ||||||||
| Change in unrealized (loss) gain in available for-sale securities, net of tax | $ | (779 | ) | $ | 79 | |||
| Transfer of loans to other real estate owned | 362 | 275 | ||||||
| Acquisition: | ||||||||
| Assets acquired, net of cash received | $ | - | $ | 370,110 | ||||
| Liabilities assumed | - | 440,368 | ||||||
| Common stock issued | - | 22,860 | ||||||
| Goodwill | - | 9,126 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 1 – BASIS OF PRESENTATION
BayCom Corp (the “Company”) is a bank holding company headquartered in Walnut Creek, California. United Business Bank (the “Bank”), the wholly owned banking subsidiary, is a California state-chartered bank which provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals. In the 14 years of operation, the Bank has grown to 17 full service banking branches. The main office is located in Walnut Creek, California and branch offices are located in Oakland, Castro Valley, Mountain View, Napa, Stockton (2), Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco and Glendale, California, and Seattle, Washington (2) and Albuquerque, New Mexico. In addition, the Bank has one loan production office in Los Angeles, California. The condensed consolidated financial statements include the accounts of the Company and the Bank.
All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2017. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year information has been reclassified to conform to current year presentation. The reclassifications had no impact on consolidated net income or shareholders’ equity.
On August 13, 2018, the Company announced the signing of a definitive merger agreement whereby the Company will acquire Bethlehem Financial Corporation, (“BFC”), in a cash transaction valued at approximately $23.5 million. For more information, see Note 3 of the Notes to Consolidated Financial Statements contained in this Form 10-Q.
Revenue Recognition
In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations; and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
11
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
All of the Company’s revenue from contracts with customers in scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. For the nine months ended September 30, 2018, the Company recognized $238,000 in deposit fees, and $131,000 in debit card interchange fees considered in scope of ASC 606. There was a total of $5.1 million of noninterest income considered not in scope of ASC 606.
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.
NOTE 2 - ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. This ASU was effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU No. 2014-09 on January 1, 2018. The Company has analyzed its revenue sources of noninterest income to determine when the satisfaction of the performance obligation occurs and the appropriate recognition of revenue. The adoption of ASU No. 2014-09 did not have a material impact on the Company’s condensed consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). Changes made to the current measurement model primarily affect the accounting for equity securities and readily determinable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The ASU also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has used the exit price notion in the fair value disclosure of financial instruments in Note 17 of the Selected Notes to the Consolidated Financial Statements in this Form 10-Q. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements.
12
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018 for public business entities and one year later for all other entities. Early application of the amendments in the ASU is permitted. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-10 contains clarifications to ASU 2016-02 by providing a new transition method in addition to the existing transition method contained in ASU No. 2016-02 to allow entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This amendment has the same effective date as ASU 2016-02. The effect of the adoption of these ASUs will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on currents lease the adoption of these ASUs is not expected to have a material impact on the Company’s consolidated financial statements.
In September 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019 for SEC filers, one year later for non SEC filing public business entities and annual reporting periods beginning after December 15, 2020 for nonpublic business entities and interim periods within the reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is reviewing the requirements of ASU 2016-13 and expects to begin developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. Upon adoption, the Company expects changes in the processes and procedures used to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses which will also reflect the new requirement to include the nonaccretable principal differences on purchased credit-impaired loans; however, the Company is still in the process of determining the magnitude of the change and its impact on the Company's consolidated financial statements.
13
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The amendments in this ASU are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2021 for public business entities who are not SEC filers and one year later for all other entities. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's consolidated financial statements.
In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU was issued to allow a reclassification from accumulated other comprehensive income to retained earnings from stranded tax effects resulting from the revaluation of the net deferred tax asset ("DTA") to the new corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. The Company elected to early adopt this ASU and to reclassify $36,000 of stranded tax effects from accumulated other comprehensive income to retained earnings in the fourth quarter of 2017.
In March 2018, FASB issued ASU No. 2018-05, Income Taxes (Topic 740). This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Tax Act for which the accounting under Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the consolidated financial statements as of December 31, 2017. As of September 30, 2018, the Company did not incur any adjustments to the provisional recognition.
In June 2018, the FASB issued ASU NO. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This new guidance simplifies the accounting for share-based payment transactions for acquiring goods and services from nonemployees, applying some of the same requirements as employee share-based payment transactions. This ASU will not affect the accounting for share-based payment awards to nonemployee directors, which will continue to be treated as employee share-based transactions under the current standards. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim period within those fiscal years. Early adoption is permitted. As of September 30, 2018, the Company does not expect this ASU to have a material impact on the Company’s consolidated financial statement, as it is not the Company’s practice to issue stock-based awards to pay for goods and services from nonemployees, other than nonemployee directors.
14
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
August, 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies. Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other technical changes. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3 – ACQUISITION
On April 28, 2017, to increase its market area, reduce net funding costs, and improve operating efficiency, the Company acquired all the assets and assumed all the liabilities of First ULB Corp. (“FULB”) and its subsidiary, United Business Bank, FSB. The Company added eight locations including seven full service branches and one loan production office. The branch offices are located in Oakland, San Jose, Sacramento, San Francisco, Glendale, California and Albuquerque, New Mexico and Tukwila, Washington. The loan production office is located in Los Angeles, California. The Company paid a total of $41.9 million comprised of cash of $19.0 million and 1,371,579 shares of its common stock at a price of $16.66 per share in exchange for all of the common shares outstanding of FULB. Each share of FULB common stock was converted into .9733 share of the Company’s common stock. As of the merger date, the fair value of FULB’s consolidated assets totaled approximately $473.1 million and deposits totaled approximately $428.0 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $32.8 million at the date of merger. The Company also assumed the Floating Rate Junior Subordinated Deferrable Interest Debentures issued by FULB (the “Subordinated Debentures”) which are held by the First ULB Statutory Trust 1 (the “Trust”) and the lease obligation related to each facility.
On November 3, 2017, to enhance its market share in the state of Washington, the Company acquired Plaza Bank (“Plaza Bank”) adding one branch office located in Seattle, Washington. The Company issued 626,381 shares of its common stock at a price of $19.10 per share in exchange for the all of the common shares outstanding of Plaza Bank. Each share of Plaza Bank’s common stock outstanding was converted into .084795 share of the Company’s common stock. As of the merger date, the fair value of Plaza Bank’s assets totaled approximately $75.8 million and deposits totaled approximately $54.2 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $10.8 million at the date of merger. The Company assumed the lease obligation related to the branch facility.
The acquisitions resulted in $10.4 million in goodwill which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of the acquisitions which we evaluate for impairment annually.
15
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Pro Forma Results of Operations
The operating results of the Company for the nine months ended September 30, 2018 and 2017 include the operating results of FULB and Plaza Bank since their respective acquisition dates. The following table represents the net interest and net income, basic earnings per share and diluted earning per share as if the acquisition with FULB and Plaza Bank were effective as of January 1, 2018 and 2017 for the respective year in which each acquisition was closed. The unaudited pro forma information in the following table is intended for informational purposes only and is not necessarily indicative of our future operating results that would have occurred had the mergers been completed at the beginning of each respective period. No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions.
The contributions of the FULB and Plaza Bank are fully accounted for in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018. The contribution of the acquired operations from FULB and Plaza Bank to our proforma results of operations for the nine months ended September 30, 2018 and 2017 is as follows:
| Actual | Proforma | |||||||
| Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Net interest income | $ | 38,029 | $ | 33,851 | ||||
| Net income | 11,875 | 7,689 | ||||||
| Basic earnings per share | $ | 1.30 | $ | 1.23 | ||||
| Diluted earnings per share | $ | 1.30 | $ | 1.23 | ||||
The core deposit intangible represents the estimated future benefits of acquired deposits and is recorded separately from the related deposits. The transactions resulted in a core deposit intangible asset of $4.8 million from the acquisitions. The amortized core deposit intangible expense during the first nine months of 2018 and 2017 totaled $868,000 and $573,000, respectively. The core deposit intangible is amortized on an accelerated basis over an estimated ten-year life. The amortization is higher in the early years and then declines in the later years. The asset is evaluated periodically for impairment. No impairment loss was recognized as of September 30, 2018.
16
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Acquisition-related expenses are recognized as incurred and continue until all systems have been converted and operational functions become fully integrated. We incurred acquisition-related expenses in the consolidated statements of income in 2017 as follows:
| Period Recognized | ||||||||||||
| September 30, 2017 | December 31, 2017 | |||||||||||
| FULB | Plaza | Total | ||||||||||
| Acquisition related expenses in 2017 | ||||||||||||
| Professional fees | $ | 349 | $ | 225 | $ | 574 | ||||||
| Data processing | 1,586 | 855 | 2,441 | |||||||||
| Salaries and employee benefits | 212 | 75 | 287 | |||||||||
| Other | 120 | 54 | 174 | |||||||||
| Total year-to-date | $ | 2,267 | $ | 1,209 | $ | 3,476 | ||||||
Pending Acquisition
On August 10, 2018, the Company entered into a definitive agreement (the "Agreement") with Bethlehem Financial Corporation, headquartered in Belin, New Mexico, pursuant to which BFC will be merged with and into BayCom Corp, and immediately thereafter BFC’s bank subsidiary, MyBank, will be merged with and into United Business Bank. MyBank serves central New Mexico through five branches operating in Belen, Rio Communities, Los Lunas, Albuquerque, and Mountainair, New Mexico. Under the terms of the Agreement, BFC shareholders will receive $62.00 in cash for each share of BFC common stock or approximately $23.5 million in aggregate.
In the event the Agreement is terminated under certain specified circumstances in connection with a competing transaction, BFC will be required to pay the Company a termination fee of $1.5 million in cash. The proposed transaction has been approved by regulatory authorities and by the shareholders of BFC. It is expected to be completed on November 30, 2018, subject to the remaining customary closing conditions.
At September 30, 2018, BFC reported total assets of $157.2 million, total loans of $77.2 million and total deposits of $136.3 million.
The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement, attached as Exhibit 2.1 to BayCom Corp’s Current Report on Form 8-K which was filed with the SEC on August 13, 2018.
17
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 4 – INVESTMENTS AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses and estimated fair values of securities at the dates indicated are summarized as follows:
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| cost | gains | losses | fair value | |||||||||||||
| September 30, 2018 | ||||||||||||||||
| Municipal securities | $ | 16,235 | $ | 23 | $ | (310 | ) | $ | 15,948 | |||||||
| Mortgage-backed securities | 31,649 | 25 | (394 | ) | 31,280 | |||||||||||
| Collateralized mortgage obligations | 928 | - | (20 | ) | 908 | |||||||||||
| Corporate bonds | 7,014 | - | (21 | ) | 6,993 | |||||||||||
| U.S. Government Agencies | 10,070 | - | (36 | ) | 10,034 | |||||||||||
| SBA securities | 4,589 | - | (70 | ) | 4,519 | |||||||||||
| Total | $ | 70,485 | $ | 48 | $ | (851 | ) | $ | 69,682 | |||||||
| Gross | Gross | |||||||||||||||
| Amortized | unrealized | unrealized | Estimated | |||||||||||||
| cost | gains | losses | fair value | |||||||||||||
| December 31, 2017 | ||||||||||||||||
| Municipal securities | $ | 15,910 | $ | 182 | $ | (45 | ) | $ | 16,047 | |||||||
| Mortgage-backed securities | 9,621 | 143 | (24 | ) | 9,740 | |||||||||||
| Collateralized mortgage obligations | 1,758 | 1 | (9 | ) | 1,750 | |||||||||||
| Corporate bonds | - | - | - | - | ||||||||||||
| U.S. Government Agencies | 6,984 | - | (13 | ) | 6,971 | |||||||||||
| SBA securities | 5,929 | 78 | (10 | ) | 5,997 | |||||||||||
| Total | $ | 40,202 | $ | 404 | $ | (101 | ) | $ | 40,505 | |||||||
The gross unrealized losses and the estimated fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at September 30, 2018 follows:
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
| Municipal securities | $ | 10,857 | $ | (231 | ) | $ | 2,855 | $ | (79 | ) | $ | 13,712 | $ | (310 | ) | |||||||||
| Mortgage-backed securities | 29,290 | (375 | ) | 988 | (19 | ) | 30,278 | (394 | ) | |||||||||||||||
| Collateralized mortgage obligations | 405 | (6 | ) | 503 | (14 | ) | 908 | (20 | ) | |||||||||||||||
| Corporate Bonds | 6,993 | (21 | ) | - | - | 6,993 | (21 | ) | ||||||||||||||||
| U.S. Government Agencies | 9,289 | (30 | ) | 745 | (6 | ) | 10,034 | (36 | ) | |||||||||||||||
| SBA securities | 3,694 | (67 | ) | 825 | (3 | )# | 4,519 | (70 | ) | |||||||||||||||
| Total | $ | 60,528 | $ | (730 | ) | $ | 5,916 | $ | (121 | ) | $ | 66,444 | $ | (851 | ) | |||||||||
18
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The gross unrealized losses and the fair value for securities available-for-sale and held-to-maturity aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at December 31, 2017 follows:
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
| Municipal securities | $ | 4,011 | $ | (39 | ) | $ | 267 | $ | (6 | ) | $ | 4,278 | $ | (45 | ) | |||||||||
| Mortgage-backed securities | 4,075 | (24 | ) | - | - | 4,075 | (24 | ) | ||||||||||||||||
| Collateralized mortgage obligations | 1,201 | (9 | ) | - | - | 1,201 | (9 | ) | ||||||||||||||||
| Corporate Bonds | - | - | - | - | - | - | ||||||||||||||||||
| U.S. Government Agencies | 6,981 | (13 | ) | - | - | 6,981 | (13 | ) | ||||||||||||||||
| SBA securities | 1,245 | (10 | ) | - | - | 1,245 | (10 | ) | ||||||||||||||||
| Total | $ | 17,513 | $ | (95 | ) | $ | 267 | $ | (6 | ) | $ | 17,780 | $ | (101 | ) | |||||||||
At September 30, 2018, there were 20 securities in an unrealized loss position for greater than twelve consecutive months. At the same time, there were 87 securities in an unrealized loss position for less than twelve consecutive months. At December 31, 2017, there was one security in an unrealized loss position for greater than twelve consecutive months, and there were 45 securities in an unrealized loss position for less than twelve consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to interest rate changes and the Company does not intend to sell nor expects it will be required to sell investment securities identified with unrealized losses prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at September 30, 2018 and December 31, 2017.
The amortized cost and estimated fair value of available-for-sale securities at the dates indicated by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| September 30, 2018 | December 31, 2017 | |||||||||||||||
| Amortized | Estimated | Amortized | Estimated | |||||||||||||
| Cost | Fair Value | Cost | Fair Value | |||||||||||||
| Available-for-sale: | ||||||||||||||||
| Due in one year or less | $ | 8,172 | $ | 8,146 | $ | 5,248 | $ | 5,243 | ||||||||
| Due after one through five years | 12,510 | 12,416 | 4,987 | 4,959 | ||||||||||||
| Due after five years through ten years | 19,561 | 19,278 | 14,619 | 14,737 | ||||||||||||
| Due after ten years | 30,242 | 29,842 | 15,348 | 15,566 | ||||||||||||
| Total | $ | 70,485 | $ | 69,682 | $ | 40,202 | $ | 40,505 | ||||||||
For the nine months ended September 30, 2018, pretax recognized gains of $3,000 were recorded and no losses were recorded. No realized gains or losses were recorded for the nine months ended September 30, 2017.
19
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 5 - LOANS
Loans are summarized as follows at the dates indicated:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Commercial and industrial | $ | 113,229 | $ | 113,801 | ||||
| Construction and land | 33,038 | 22,720 | ||||||
| Commercial real estate | 671,515 | 669,150 | ||||||
| Residential | 83,838 | 84,781 | ||||||
| Consumer | 630 | 1,096 | ||||||
| Total loans | 902,250 | 891,548 | ||||||
| Net deferred loan fees | (381 | ) | (469 | ) | ||||
| Allowance for loan losses | (5,500 | ) | (4,215 | ) | ||||
| Net loans | $ | 896,369 | $ | 886,864 | ||||
20
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
As of and for the periods noted, the Company’s total impaired loans including non-accrual loans, accruing TDR loans and accreting purchased credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are as follows:
| Commercial
and industrial | Construction
and land | Commercial
real estate | Residential | Consumer | Total | |||||||||||||||||||
| September 30, 2018 | ||||||||||||||||||||||||
| Recorded investment in impaired loans: | ||||||||||||||||||||||||
| With no specific allowance recorded | $ | 506 | $ | - | $ | 2,008 | $ | 127 | $ | - | $ | 2,641 | ||||||||||||
| With a specific allowance recorded | 2,565 | - | 773 | - | - | 3,338 | ||||||||||||||||||
| Total recorded investment in impaired loans | $ | 3,071 | $ | - | $ | 2,781 | $ | 127 | $ | - | $ | 5,979 | ||||||||||||
| Specific allowance on impaired loans | 685 | - | - | - | - | 685 | ||||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||
| Recorded investment in impaired loans: | ||||||||||||||||||||||||
| With no specific allowance recorded | $ | - | $ | - | $ | 1,120 | $ | - | $ | - | $ | 1,120 | ||||||||||||
| With a specific allowance recorded | 13 | - | - | - | - | 13 | ||||||||||||||||||
| Total recorded investment in impaired loans | $ | 13 | $ | - | $ | 1,120 | $ | - | $ | - | $ | 1,133 | ||||||||||||
| Specific allowance on impaired loans | 13 | - | - | - | - | 13 | ||||||||||||||||||
| Quarter ending September 30, 2018 | ||||||||||||||||||||||||
| Average recorded investment in impaired loans | 1,387 | - | 1,829 | 192 | - | 3,408 | ||||||||||||||||||
| Interest recognized | 5 | - | 41 | - | - | 46 | ||||||||||||||||||
| Nine months ending September 30, 2018 | ||||||||||||||||||||||||
| Average recorded investment in impaired loans | 1,261 | - | 1,508 | 300 | - | 3,069 | ||||||||||||||||||
| Interest recognized | 5 | - | 47 | - | - | 52 | ||||||||||||||||||
| Quarter ending September 30, 2017 | ||||||||||||||||||||||||
| Average recorded investment in impaired loans | 121 | - | 1,033 | - | - | 1,154 | ||||||||||||||||||
| Interest recognized | - | - | - | - | - | - | ||||||||||||||||||
| Nine months ending September 30, 2017 | ||||||||||||||||||||||||
| Average recorded investment in impaired loans | 305 | - | 793 | - | - | 1,098 | ||||||||||||||||||
| Interest recognized | - | - | 58 | - | - | 58 | ||||||||||||||||||
Impaired loans on accrual are loans that have been restructured and are performing under modified loan agreements, and principal and interest is determined to be collectible. Nonaccrual loans are loans where principal and interest have been determined to not be fully collectible.
The following table presents nonaccrual loans at the dates indicated:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Commercial and industrial | $ | 3,071 | $ | 13 | ||||
| Construction and land | - | - | ||||||
| Commercial real estate | 2,008 | 166 | ||||||
| Residential | 127 | - | ||||||
| Consumer | - | - | ||||||
| Total nonaccrual loans | $ | 5,206 | $ | 179 | ||||
The government guaranteed portion of nonaccrual loans was $2.3 million as of September 30, 2018. There was no government guaranteed portion of nonaccrual loans as of December 31, 2017.
21
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following table presents loans by class modified as troubled debt restructuring (“TDR”) including any subsequent defaults at the dates indicated:
| September 30, 2018 | Number of Loans | Rate Modification | Term Modification | Interest Only Modification | Rate & Term Modification | Total | ||||||||||||||||||
| Troubled Debt Restructurings | ||||||||||||||||||||||||
| Commercial and industrial | 1 | $ | - | $ | - | $ | - | $ | 10 | $ | 10 | |||||||||||||
| Construction and land | - | - | - | - | - | - | ||||||||||||||||||
| Commercial real estate | 1 | - | - | - | 773 | 773 | ||||||||||||||||||
| Residential | 1 | - | 127 | - | - | 127 | ||||||||||||||||||
| Consumer | - | - | - | - | - | - | ||||||||||||||||||
| Total | 3 | $ | - | $ | 127 | $ | - | $ | 783 | $ | 910 | |||||||||||||
| December 31, 2017 | Number of Loans | Rate Modification | Term Modification | Interest Only Modification | Rate & Term Modification | Total | ||||||||||||||||||
| Troubled Debt Restructurings | ||||||||||||||||||||||||
| Commercial and industrial | 1 | $ | - | $ | - | $ | - | $ | 13 | $ | 13 | |||||||||||||
| Construction and land | - | - | - | - | - | - | ||||||||||||||||||
| Commercial real estate | 3 | - | 238 | - | 794 | 1,032 | ||||||||||||||||||
| Residential | - | - | - | - | - | - | ||||||||||||||||||
| Consumer | - | - | - | - | - | - | ||||||||||||||||||
| Total | 4 | $ | - | $ | 238 | $ | - | $ | 807 | $ | 1,045 | |||||||||||||
There were no commitments for additional funding of TDR loans at September 30, 2018. There was one loan that was modified as a TDR during the nine months ended September 30, 2018. There were no loans modified within the previous twelve months for which there was a payment default.
22
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Risk rating system
Each loan is assigned a risk grade based on its characteristics. Loans with low to average credit risk are assigned a lower risk grade than those with higher credit risk as determined by the individual loan characteristics.
The Company’s “Pass” loans includes loans with acceptable business or individual credit risk where the borrower’s operations, cash flow or financial condition provides evidence of low to average levels of risk.
A “Special Mention” asset has potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. A Special Mention rating should be a temporary rating, pending the occurrence of an event that would cause the risk rating to either improve or to be downgraded.
A “Substandard” asset is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Assets are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. The potential loss does not have to be recognizable in an individual credit for that credit to be risk rated substandard.
Any asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and value, highly questionable and improbable. Doubtful assets have a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of the asset.
Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure. Recoveries on loans receivable previously charged off are credited to the allowance for loan losses.
23
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following tables represent the internally assigned grade by class of loans at the dates indicated:
| Special | ||||||||||||||||||||
| September 30, 2018 | Pass | Mention | Substandard | Doubtful | Total | |||||||||||||||
| Commercial and industrial | $ | 109,316 | $ | 244 | $ | 3,669 | $ | - | $ | 113,229 | ||||||||||
| Construction and land | 30,106 | 120 | 2,812 | - | 33,038 | |||||||||||||||
| Commercial real estate | 661,390 | 4,502 | 5,623 | - | 671,515 | |||||||||||||||
| Residential | 83,563 | 148 | 127 | - | 83,838 | |||||||||||||||
| Consumer | 630 | - | - | - | 630 | |||||||||||||||
| Totals | $ | 885,005 | $ | 5,014 | $ | 12,231 | $ | - | $ | 902,250 | ||||||||||
| Special | ||||||||||||||||||||
| December 31, 2017 | Pass | Mention | Substandard | Doubtful | Total | |||||||||||||||
| Commercial and industrial | $ | 112,078 | $ | 807 | $ | 916 | $ | - | $ | 113,801 | ||||||||||
| Construction and land | 19,833 | - | 2,887 | - | 22,720 | |||||||||||||||
| Commercial real estate | 661,878 | 4,058 | 3,214 | - | 669,150 | |||||||||||||||
| Residential | 84,781 | - | - | - | 84,781 | |||||||||||||||
| Consumer | 1,096 | - | - | - | 1,096 | |||||||||||||||
| Total | $ | 879,666 | $ | 4,865 | $ | 7,017 | $ | - | $ | 891,548 | ||||||||||
The following tables provide an aging of the Company's loan receivable at the dates indicated:
| Recorded | ||||||||||||||||||||||||||||||||
| 90 Days | Investment > | |||||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | or More | Total Past | Total Loans | 90 Days and | |||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Due | Current | PCI Loans | Receivable | Accruing | |||||||||||||||||||||||||
| September 30, 2018 | ||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 195 | $ | - | $ | - | $ | 195 | $ | 113,032 | $ | 2 | $ | 113,229 | $ | - | ||||||||||||||||
| Construction and land | - | - | - | - | 33,038 | - | 33,038 | - | ||||||||||||||||||||||||
| Commercial real estate | 316 | 645 | 1,424 | 2,385 | 658,578 | 10,552 | 671,515 | 1,424 | ||||||||||||||||||||||||
| Residential | 296 | - | - | 296 | 82,163 | 1,379 | 83,838 | - | ||||||||||||||||||||||||
| Consumer | - | - | - | - | 630 | - | 630 | - | ||||||||||||||||||||||||
| Total | $ | 807 | $ | 645 | $ | 1,424 | $ | 2,876 | $ | 887,441 | $ | 11,933 | $ | 902,250 | $ | - | ||||||||||||||||
| Recorded | ||||||||||||||||||||||||||||||||
| 90 Days | Investment > | |||||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | or More | Total Past | Total Loans | 90 Days and | |||||||||||||||||||||||||||
| Past Due | Past Due | Past Due | Due | Current | PCI Loans | Receivable | Accruing | |||||||||||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 96 | $ | - | $ | - | $ | 96 | $ | 113,702 | $ | 3 | $ | 113,801 | $ | - | ||||||||||||||||
| Construction and land | - | - | - | - | 22,720 | - | 22,720 | - | ||||||||||||||||||||||||
| Commercial real estate | 1,446 | - | - | 1,446 | 654,687 | 13,017 | 669,150 | - | ||||||||||||||||||||||||
| Residential | 349 | - | - | 349 | 83,137 | 1,295 | 84,781 | - | ||||||||||||||||||||||||
| Consumer | 3 | - | - | 3 | 1,093 | - | 1,096 | - | ||||||||||||||||||||||||
| Total | $ | 1,894 | $ | - | $ | - | $ | 1,894 | $ | 875,339 | $ | 14,315 | $ | 891,548 | $ | - | ||||||||||||||||
24
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Purchase Credit Impaired Loans (“PCI”)
As part of acquisitions, the Company has purchased loans, some of which have shown evidence of credit deterioration since origination and it is probable at the acquisition that all contractually requirement payments would not be collected.
The carrying amount and unpaid balance of PCI loans at the dates indicated:
| September 30, 2018 | December 31, 2017 | |||||||||||||||
| Unpaid | Unpaid | |||||||||||||||
| Principal | Carrying | Principal | Carrying | |||||||||||||
| Balance | Value | Balance | Value | |||||||||||||
| Commercial and industrial | $ | 107 | $ | 2 | $ | 149 | $ | 2 | ||||||||
| Construction and land | - | - | - | |||||||||||||
| Commercial real estate | 12,279 | 10,552 | 15,536 | 13,018 | ||||||||||||
| Residential | 1,774 | 1,379 | 1,732 | 1,295 | ||||||||||||
| Consumer | - | - | - | - | ||||||||||||
| Total purchased credit impaired loans | $ | 14,160 | $ | 11,933 | $ | 17,417 | $ | 14,315 | ||||||||
| 25 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 6 – ALLOWANCE FOR LOAN LOSSES
The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
| Commercial | Construction | Commercial | ||||||||||||||||||||||||||
| Three Months Ending September 30, 2018 | and Industrial | and Land | Real Estate | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses | ||||||||||||||||||||||||||||
| Beginning balance | $ | 1,005 | $ | 251 | $ | 2,782 | $ | 160 | $ | - | $ | 402 | $ | 4,600 | ||||||||||||||
| Charge-offs | (186 | ) | - | - | - | - | - | (186 | ) | |||||||||||||||||||
| Recoveries | 5 | - | - | - | - | - | 5 | |||||||||||||||||||||
| Provision (reclassification) for loan losses | 672 | 25 | 245 | 41 | 2 | 96 | 1,081 | |||||||||||||||||||||
| Ending balance | $ | 1,496 | $ | 276 | $ | 3,027 | $ | 201 | $ | 2 | $ | 498 | $ | 5,500 | ||||||||||||||
| Allowance for loan losses related to: | ||||||||||||||||||||||||||||
| Loans individually evaluated for impairment | $ | 685 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 685 | ||||||||||||||
| Loans collectively evaluated for impairment | 811 | 276 | 3,027 | 201 | 2 | 498 | 4,815 | |||||||||||||||||||||
| PCI loans | - | - | - | - | - | - | - | |||||||||||||||||||||
| Commercial | Construction | Commercial | ||||||||||||||||||||||||||
| Nine Months Ending September 30, 2018 | and Industrial | and Land | Real Estate | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses | ||||||||||||||||||||||||||||
| Beginning balance | $ | 841 | $ | 199 | $ | 2,695 | $ | 150 | $ | 3 | $ | 327 | $ | 4,215 | ||||||||||||||
| Charge-offs | (437 | ) | - | - | - | - | - | (437 | ) | |||||||||||||||||||
| Recoveries | 144 | - | - | - | - | - | 144 | |||||||||||||||||||||
| Provision (reclassification) for loan losses | 948 | 77 | 332 | 51 | (1 | ) | 171 | 1,578 | ||||||||||||||||||||
| Ending balance | $ | 1,496 | $ | 276 | $ | 3,027 | $ | 201 | $ | 2 | $ | 498 | $ | 5,500 | ||||||||||||||
| Allowance for loan losses related to: | ||||||||||||||||||||||||||||
| Loans individually evaluated for impairment | $ | 685 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 685 | ||||||||||||||
| Loans collectively evaluated for impairment | 811 | 276 | 3,027 | 201 | 2 | 498 | 4,815 | |||||||||||||||||||||
| PCI loans | - | - | - | - | - | - | - | |||||||||||||||||||||
26
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
| Commercial | Construction | Commercial | ||||||||||||||||||||||||||
| Three Months Ending September 30, 2017 | and Industrial | and Land | Real Estate | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses | ||||||||||||||||||||||||||||
| Beginning balance | $ | 1,045 | $ | 285 | $ | 2,553 | $ | 152 | $ | 2 | $ | 38 | $ | 4,075 | ||||||||||||||
| Charge-offs | (63 | ) | - | - | - | (1 | ) | - | (64 | ) | ||||||||||||||||||
| Recoveries | 6 | - | - | - | - | - | 6 | |||||||||||||||||||||
| Provision (reclassification) for loan losses | (68 | ) | (110 | ) | 50 | (18 | ) | 2 | 202 | 58 | ||||||||||||||||||
| Ending balance | $ | 920 | $ | 175 | $ | 2,603 | $ | 134 | $ | 3 | $ | 240 | $ | 4,075 | ||||||||||||||
| Allowance for loan losses related to: | ||||||||||||||||||||||||||||
| Loans individually evaluated for impairment | $ | 13 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 13 | ||||||||||||||
| Loans collectively evaluated for impairment | 907 | 175 | 2,603 | 134 | 3 | 240 | 4,062 | |||||||||||||||||||||
| PCI loans | - | - | - | - | - | - | - | |||||||||||||||||||||
| Commercial | Construction | Commercial | ||||||||||||||||||||||||||
| Nine Months Ending September 30, 2017 | and Industrial | and Land | Real Estate | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses | ||||||||||||||||||||||||||||
| Beginning balance | $ | 1,011 | $ | 287 | $ | 2,105 | $ | 151 | $ | 4 | $ | 217 | $ | 3,775 | ||||||||||||||
| Charge-offs | (63 | ) | - | (3 | ) | - | (1 | ) | - | (67 | ) | |||||||||||||||||
| Recoveries | 22 | - | - | - | - | - | 22 | |||||||||||||||||||||
| Provision (reclassification) for loan losses | (50 | ) | (112 | ) | 501 | (17 | ) | - | 23 | 345 | ||||||||||||||||||
| Ending balance | $ | 920 | $ | 175 | $ | 2,603 | $ | 134 | $ | 3 | $ | 240 | $ | 4,075 | ||||||||||||||
| Allowance for loan losses related to: | ||||||||||||||||||||||||||||
| Loans individually evaluated for impairment | $ | 13 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 13 | ||||||||||||||
| Loans collectively evaluated for impairment | 907 | 175 | 2,603 | 134 | 3 | 240 | 4,062 | |||||||||||||||||||||
| PCI loans | - | - | - | - | - | - | - | |||||||||||||||||||||
At September 30, 2018 a loan totaling $1.4 million was 90 days or more past due and accruing interest. This loan is well secured and in the process of being renewed. At December 31, 2017 there were no loans that were 90 days or more past due where interest was still accruing.
| 27 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 7 – PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at the dates indicated:
| September 30, 2018 | December 31, 2017 | |||||||
| Premises owned | $ | 7,286 | $ | 7,276 | ||||
| Write-down on premises owned | (600 | ) | - | |||||
| Net premises owned | 6,686 | 7,276 | ||||||
| Leasehold improvements | 1,600 | 1,271 | ||||||
| Furniture, fixtures and equipment | 3,212 | 2,939 | ||||||
| Less accumulated depreciation and amortization | (3,754 | ) | (3,087 | ) | ||||
| Total premises and equipment, net | $ | 7,744 | $ | 8,399 | ||||
Depreciation and amortization included in occupancy and equipment expense for the three and nine months ended September 30, 2018 was $227,000 and $693,000 compared to $225,000 and $532,000 for the three and nine months ended September 30, 2017, respectively.
The Company leases its branches and administrative offices under noncanceable operating leases. The leases expire on various dates through 2025. All leases have an option to renew with renewal periods between three to twelve years. Future minimum lease payments as of September 30, 2018 are as follows:
| Year ending December 31, | ||||
| 2018 | $ | 557 | ||
| 2019 | 2,177 | |||
| 2020 | 1,898 | |||
| 2021 | 1,575 | |||
| 2022 | 1,442 | |||
| Thereafter | 1,424 | |||
| Total | $ | 9,073 | ||
| 28 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 8 - CASH SURRENDER VALUE OF LIFE INSURANCE
Activity on the Bank owned life insurance policies is as follows for the periods indicated:
| September 30, 2018 | December 31, 2017 | |||||||
| Beginning balance | $ | 17,132 | $ | 6,470 | ||||
| Increase in cash value of life insurance | 231 | 232 | ||||||
| Additional policies purchased | - | 10,430 | ||||||
| Death benefit carrying value payout | (777 | ) | - | |||||
| Ending balance | $ | 16,586 | $ | 17,132 | ||||
| End of period death benefit | $ | 37,105 | $ | 38,581 | ||||
| Number of policies owned | 42 | 44 | ||||||
| Insurance companies used | 5 | 5 | ||||||
| Current and former directors and officers covered | 25 | 26 | ||||||
The Bank owned life insurance policies are recorded on the Company’s financial statements at their reported cash (surrender) values. As a result of current tax law and the nature of these policies, the Company records any increase, less any applicable surrender charges, in cash value of these policies as nontaxable noninterest income. If the Company decided to surrender any of the policies prior the death of the insured, such surrender may result in a tax expense related to the life-to-date cumulative increase in the cash surrender value of the policy. If the Company retains such policies until the death of the insured, the Company would receive nontaxable proceeds from the insurance company equal to the death benefit of the policies.
NOTE 9 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
The goodwill at September 30, 2018 and December 31, 2017 was $10.4 million.
Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. As of September 30, 2018 and September 30, 2017, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the Company exceeded its carrying value, including goodwill. The quantitative assessment indicated it was more than likely than not that its fair value exceeded its carrying value, resulting in no impairment.
| 29 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Core Deposit Intangible
Acquired intangible assets at the dates indicated were as follows:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Beginning core deposit intangible | $ | 4,772 | $ | 802 | ||||
| Additions | - | 4,820 | ||||||
| Less accumulated amortization | (868 | ) | (850 | ) | ||||
| Ending net core deposit intangible | $ | 3,904 | $ | 4,772 | ||||
The Company recorded total amortization expense of $868,000 for the nine months ended September 30, 2018, $850,000 for the year ended December 31, 2017 and $573,000 for the nine months ended September 30, 2017. Estimated annual amortization is as follows as of September 30, 2018:
| Year ending December 31, | ||||
| 2018 | $ | 289 | ||
| 2019 | 1,145 | |||
| 2020 | 991 | |||
| 2021 | 977 | |||
| 2022 | 325 | |||
| Thereafter | 177 | |||
| Total | $ | 3,904 | ||
NOTE 10 – OTHER ASSETS
At the dates indicated, the Company’s other assets consisted of the following:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Deferred tax assets, net | $ | 7,429 | $ | 6,519 | ||||
| Accrued interest receivable | 3,337 | 3,002 | ||||||
| Investment in SBIC Fund | 1,532 | 799 | ||||||
| Prepaid assets | 1,238 | 2,391 | ||||||
| Servicing asset | 967 | 1,270 | ||||||
| Investment in statuatory trust | 301 | 296 | ||||||
| All other | 1,125 | 880 | ||||||
| Total | $ | 15,929 | $ | 15,157 | ||||
| 30 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 11 – DEPOSITS
Deposits consisted of the following at the dates indicated:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Demand deposits | $ | 349,346 | $ | 327,309 | ||||
| NOW accounts and Savings | 211,629 | 191,550 | ||||||
| Money market | 366,417 | 356,640 | ||||||
| Time under $250,000 | 104,367 | 126,271 | ||||||
| Time $250,000 and over | 98,962 | 102,535 | ||||||
| Total deposits | $ | 1,130,721 | $ | 1,104,305 | ||||
NOTE 12 - BORROWINGS
At September 30, 2018 the Company had no borrowings. At December 31, 2017 the Company had a secured term borrowing totaling $6.0 million and a line totaling $9.0 million with a correspondent bank secured by the Bank’s common stock.
The Company has an approved secured borrowing facility with the FHLB for up to 25% of total assets for a term not to exceed five years under a blanket lien of certain types of loans. There were no outstanding borrowings under this facility at September 30, 2018 and December 31, 2017.
As of September 30, 2018, the FHLB had issued a letter of credit on behalf of the Bank totaling $7.5 million as collateral for local agency deposits. No amounts have been drawn under this letter of credit.
The Company has four Federal Funds lines with available commitments totaling $55.0 million with four correspondent banks. There were no amounts outstanding under these facilities at September 30, 2018 and December 31, 2017.
NOTE 13– JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
The Company has an investment in the First ULB Statutory Trust I that is accounted for under the equity method. The Company acquired the Trust in the acquisition of FULB. The Trust is a Delaware business formed with capital of $192,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. The Trust issued 6,200 Floating Rate Capital Trust Pass-Through Securities (“Trust Preferred Securities”), with a liquidation value of $1,000 per security, for gross proceeds of $6.2 million. The entire proceeds of the issuance were invested by the Trust in $6.4 million of Subordinated Debentures issued by FULB and assumed by the Company in the FULB acquisition, with identical maturities, repricing and payment terms as the Trust Preferred Securities. The Subordinated Debentures mature on September 15, 2034, bear a current interest rate of 4.90% (based on 3-months Libor plus 2.5%), with quarterly repricing. The Subordinated Debentures are redeemable by the Company subject to prior approval from the Federal Reserve Board of Governors (“Federal Reserve”), on any March 15, September 15, September 15, or December 15. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the debenture. The Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on September 15, 2034. As of September 30, 2018 and December 31, 2017, the Trust Preferred Securities had an outstanding net book value of $5.4 million.
| 31 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security for each successive period beginning on March 15, June 15, September 15, and December 15, of each year. The Company also has the right to defer the payment of interest on each of the Subordinated Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity date. During such deferral period, distributions on the corresponding Trust Preferred Securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Trust Preferred Securities.
NOTE 14 – OTHER LIABILITIES
Other liabilities were comprised of the following at the dates indicated:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Accrued expenses | $ | 3,001 | $ | 3,716 | ||||
| Participant’s portion payable | 1,591 | - | ||||||
| Deferred rents | 546 | 287 | ||||||
| CDARS deferred fees | 501 | 487 | ||||||
| Contingent liability | 435 | 878 | ||||||
| Accounts payable | 311 | 240 | ||||||
| Reserve for unfunded commitments | 310 | 310 | ||||||
| Accrued interest | 175 | 141 | ||||||
| Miscellaneous other liabilities | 612 | 1,362 | ||||||
| Total | $ | 7,482 | $ | 7,421 | ||||
NOTE 15 – EQUITY INCENTIVE PLANS
2017 Omnibus Equity Incentive Plan
The shareholders approved the Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017. The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-employee directors. An equity incentive award may be an option, stock appreciation rights, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan. Factors considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period. Generally, awards are restricted and have a vesting period of no longer than ten years. Subject to adjustment as provided in the 2017 Plan, the maximum number of shares of common stock that may be delivered pursuant to awards granted under the 2017 Plan is 450,000. The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors. The annual stock grant limit per person for officers and employees is the lessor of 50,000 shares or a value of $2.0 million, and per person for directors the maximum is 25,000 shares. All unvested restricted shares outstanding vest in the event of a change in control of the Company. There were no equity incentive awards granted during the three months ended September 30, 2018. During the nine months ended September 30, 2018, 93,380 shares of restricted stock were awarded and no other equity incentive awards were granted. During the three months ended September 30, 2017, 28,500 shares of restricted stock were awarded and no other equity incentive awards were granted. Awarded shares of restricted stock vest over (i) a one-year period following the date of grant, in the case of the non-employee directors, and (ii) a three-year or five-year period following the date of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers.
| 32 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
2014 Omnibus Equity Incentive Plan
In 2014, the shareholders approved the Omnibus Equity Incentive Plan (the “2014 Plan”). A total of 148,962 equity incentive awards have been granted under the 2014 Plan. The awards are shares of restricted stock and have a vesting period of one to five years. No future equity awards will be made from the 2014 Plan.
The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date. For the nine months ended September 30, 2018 and 2017, total compensation expense for these plans was $818,000 and $318,000, respectively.
As of September 30, 2018, there was $2.5 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately two years.
The following table provides a summary of changes in non-vested restricted stock awards for the nine months ended September 30, 2018 and 2017:
| 2018 | 2017 | |||||||||||||||
| Weighted-Average | Weighted-Average | |||||||||||||||
| Grant Date | Grant Date | |||||||||||||||
| Shares | Fair Value | Shares | Fair Value | |||||||||||||
| Non-vested at January 1, | 67,481 | $ | 13.51 | 68,605 | $ | 11.51 | ||||||||||
| Granted | 15,232 | 19.45 | 14,133 | 14.86 | ||||||||||||
| Vested | (8,706 | ) | 13.40 | (5,333 | ) | 12.47 | ||||||||||
| Non-vested at March 31, | 74,007 | 14.75 | 77,405 | 12.06 | ||||||||||||
| Granted | 78,148 | 22.00 | - | - | ||||||||||||
| Vested | - | - | - | - | ||||||||||||
| Non-vested at June 30, | 152,155 | 18.47 | 77,405 | 12.06 | ||||||||||||
| Granted | - | - | 14,367 | 17.00 | ||||||||||||
| Vested | (21,155 | ) | 14.08 | (24,291 | ) | 10.96 | ||||||||||
| Non-vested at September 30, | 131,000 | 19.18 | 67,481 | 13.51 | ||||||||||||
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BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 16 – EARNINGS PER SHARE CALCULATION
Earnings per common share (“EPS”) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. Dilutive income per share includes the effect of stock options and other potentially dilutive securities using the treasury stock method. Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share. All of the Company's nonvested restricted stock awards qualify as participating securities. There were no dilutive shares at September 30, 2018 or 2017.
Earnings per share have been computed as follows for the periods shown:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income | $ | 3,518 | $ | 3,181 | $ | 11,875 | $ | 6,099 | ||||||||
| Weighted Average number of shares outstanding | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | ||||||||||||
| Average number of shares outstanding used to calculate diluted earngs per share | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | ||||||||||||
| Basic and diluted earnings per share | $ | 0.31 | $ | 0.46 | $ | 1.30 | $ | 0.97 | ||||||||
NOTE 17 – FAIR VALUE MEASUREMENT
On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825 10), Recognition and Measurement of Financial Assets and Financial Liabilities, which requires the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at September 30, 2018 were determined based on these requirements.
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BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following definitions describe the levels of inputs that may be used to measure fair value:
Level 1 - Inputs are unadjusted quoted prices in active markets (as defined) for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs are inputs other than quoted prices include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process.
There were no transfers between levels during 2018 or 2017.
The following financial instruments are measured at fair value on a recurring basis at the dates indicated:
| September 30, 2018 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Municipal securities | $ | 15,948 | $ | - | $ | 15,948 | $ | - | ||||||||
| Mortgage-backed securities | 31,280 | - | 31,280 | - | ||||||||||||
| Corporate Bonds | 908 | - | 908 | - | ||||||||||||
| Collateralized mortgage obligations | 6,993 | - | 6,993 | - | ||||||||||||
| U.S. Government Agencies | 10,034 | - | 10,034 | - | ||||||||||||
| SBA securities | 4,519 | - | 4,519 | - | ||||||||||||
| Total assets measured at fair value | $ | 69,682 | $ | - | $ | 69,682 | $ | - | ||||||||
| December 31, 2017 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Municipal securities | $ | 16,047 | $ | - | $ | 16,047 | $ | - | ||||||||
| Mortgage-backed securities | 9,740 | - | 9,740 | - | ||||||||||||
| Collateralized mortgage obligations | 1,750 | - | 1,750 | - | ||||||||||||
| Corporate Bonds | - | - | - | - | ||||||||||||
| U.S. Government Agencies | 6,971 | - | 6,971 | - | ||||||||||||
| SBA securities | 5,997 | - | 5,997 | - | ||||||||||||
| Total assets measured at fair value | $ | 40,505 | $ | - | $ | 40,505 | $ | - | ||||||||
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
| 35 |
BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following tables present the recorded amounts of impaired loans measured at fair value on a non-recurring basis at the dates indicated:
| September 30, 2018 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| Commercial and industrial | $ | 2,386 | $ | - | $ | - | $ | 2,386 | ||||||||
| Construction and land | - | - | - | - | ||||||||||||
| Commercial real estate | 2,781 | - | - | 2,781 | ||||||||||||
| Residential | 127 | - | - | 127 | ||||||||||||
| Consumer | - | - | - | - | ||||||||||||
| Total impaired assets measured at fair value | $ | 5,294 | $ | - | $ | - | $ | 5,294 | ||||||||
| December 31, 2017 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| Commercial and industrial | $ | - | $ | - | $ | - | $ | - | ||||||||
| Construction and land | - | - | - | - | ||||||||||||
| Commercial real estate | 1,120 | - | - | 1,120 | ||||||||||||
| Residential | - | - | - | - | ||||||||||||
| Consumer | - | - | - | - | ||||||||||||
| Total impaired assets measured at fair value | $ | 1,120 | $ | - | $ | - | $ | 1,120 | ||||||||
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral equals or exceeds the recorded investments in such loans.
Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.
Fair Values of Financial Instruments.
There have been no significant changes in valuation techniques during the periods reported. The following methods and assumptions were used to estimate the fair value disclosure for financial instruments:
Cash and cash equivalents - Cash and cash equivalents include cash and due from banks and Fed funds sold, and are valued at their carrying amounts because of the short-term nature of these instruments.
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BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Interest bearing deposits in financial institutions - Interest bearing deposits in financial institutions are valued based on quoted interest rates for comparable instruments with similar remaining maturities.
Investment Securities - The fair value of available of sale securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.
Other equity securities - The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par.
Loans – Loans with variable interest rates are valued at their exit price value, because these loans are regularly adjusted to market rates. The fair value of fixed rate loans with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk.
Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what the secondary markets are currently offering for loans with similar characteristics. As such, the Bank classifies those loans subjected to nonrecurring fair value adjustments as Level 2.
Accrued interest receivable and payable - The accrued interest receivable and payable balance approximates its fair value.
Deposits - The fair value of non-interest bearing deposits, interest bearing transaction accounts and savings accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities.
Other borrowings - The fair value is estimated by discounting the future cash flows using current rates offered for similar borrowings. The discount rate is equal to the market rate of currently offered similar products. This is an adjustable rate borrowing and adjusts to market on a quarterly basis.
Junior Subordinated Deferrable Interest Debentures - The fair value of the Subordinated Debentures is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 3 classification. The Subordinated Debentures are carried at their current carrying value, because the Subordinated Debentures regularly adjust to market rates
Undisbursed loan commitments and standby letters of credit - The fair value of the off-balance sheet items is based on discounted cash flows of expected fundings.
Non-financial assets and liabilities defined by the FASB ASC 820, Fair Value measurements, such as Bank premises and equipment, deferred taxes, and other liabilities are excluded from the table. In addition, we have not disclosed the fair value of financial instruments specifically.
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BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
The following table provides summary information on the estimated fair value of financial instruments at September 30, 2018:
| Carrying | Fair | Fair value measurements | ||||||||||||||||||
| amount | value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 313,217 | $ | 313,217 | $ | 313,217 | $ | - | $ | - | ||||||||||
| Interest bearing deposits with financial institutions | 1,000 | 1,000 | 1,000 | - | - | |||||||||||||||
| Securities available for sale | 69,682 | 69,682 | - | 69,682 | - | |||||||||||||||
| Other equity securities | 7,364 | - | - | 7,364 | - | |||||||||||||||
| Loans, net | 896,369 | 893,727 | - | - | 893,727 | |||||||||||||||
| Loans held for sale | 585 | - | - | 585 | - | |||||||||||||||
| Accrued interest receivable | 3,337 | 3,337 | - | 3,337 | - | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | 1,130,721 | 1,132,097 | 927,392 | 204,705 | ||||||||||||||||
| Subordinated Debentures | 5,428 | 5,447 | - | - | 5,447 | |||||||||||||||
| Accrued interest payable | 163 | 163 | - | 163 | - | |||||||||||||||
| Off-balance sheet liabilities: | ||||||||||||||||||||
| Undisbursed loan commitments, lines of credit, standby letters of credit | 310 | 310 | - | - | 310 | |||||||||||||||
The carrying amount of loans includes $5.2 million of nonaccrual loans (loans that are not accruing interest) as of September 30, 2018. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
The following table provides summary information on the estimated fair value of financial instruments at December 31, 2017:
| Carrying | Fair | Fair value measurements | ||||||||||||||||||
| amount | value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 249,853 | $ | 249,853 | $ | 249,853 | $ | - | $ | - | ||||||||||
| Interest bearing deposits with financial institutions | 1,743 | 1,743 | 1,743 | - | - | |||||||||||||||
| Securities available for sale | 40,505 | 40,505 | - | 40,505 | - | |||||||||||||||
| Other equity securities | 7,759 | 7,759 | - | 7,759 | - | |||||||||||||||
| Loans, net | 886,864 | 883,361 | - | - | 883,361 | |||||||||||||||
| Loans held for sale | 3,245 | 3,245 | - | 3,245 | - | |||||||||||||||
| Accrued interest receivable | 3,002 | 3,002 | - | 3,002 | - | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Deposits | 1,104,305 | 1,104,665 | 875,506 | 229,159 | - | |||||||||||||||
| Subordinated Debentures | 5,387 | 5,387 | - | - | 5,387 | |||||||||||||||
| Other borrowings | 6,000 | 6,000 | - | - | 6,000 | |||||||||||||||
| Accrued interest payable | 141 | 141 | - | 141 | - | |||||||||||||||
| Off-balance sheet liabilities: | ||||||||||||||||||||
| Undisbursed loan commitments, lines of credit, standby letters of credit | 310 | 310 | - | - | 310 | |||||||||||||||
The carrying amounts of loans include $179,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2017. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
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BAYCOM CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Lending and Letter of Credit Commitments
In the normal course of business, the Company enters into various commitments to extend credit which are not reflected in the financial statements. These commitments consist of the undisbursed balance on personal and commercial lines of credit and of undisbursed funds on construction and development loans. At September 30, 2018 and December 31, 2017, undisbursed commitments total $73.4 million and $98.7 million, respectively. In addition, at September 30, 2018 and December 31, 2017, the Company has issued standby letter of credit commitments, primarily issued for the third party performance obligations of Company clients totaling $402,000 and $213,000, respectively, of which none was outstanding at both September 30, 2018 and December 31, 2017.
The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon. The Company’s outstanding loan commitments are made using the same underwriting standards as comparable outstanding loans. As of September 30, 2018 and December 31, 2017, the reserve associated with these commitments was $310,000.
Local Agency Deposits
In the normal course of business, the Company accepts deposits from local agencies. The Company is required to provide collateral for certain local agency deposits in the states of California and Washington. As of September 30, 2018 and December 31, 2017 the FHLB issued a letter of credit on behalf of the Company totaling $7.5 million and $9.9 million, respectively, as collateral for local agency deposits.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
BayCom is a bank holding company headquartered in Walnut Creek, California. BayCom’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services to businesses and business owners as well as individuals through our network of 17 full service branches located in Northern and Central California, Seattle, Washington and Albuquerque, New Mexico.
Since 2010, we have completed a series of five acquisitions with aggregate total assets of approximately $892.2 million and total deposits of approximately $768.6 million. We have sought to integrate the banks we acquire into our existing operational platform and enhance shareholder value through the creation of efficiencies within the combined operations. In April 2017, we completed our largest acquisition to date when we acquired United Business Bank, FSB headquartered in Oakland, California, which increased our deposits by approximately $428.0 million, consisting primarily of lower cost stable core deposits from a strong network of relationships with labor unions. 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 Albuquerque, New Mexico; Long Beach, Oakland, Sacramento, San Francisco, San Jose and Glendale, California; and Seattle, Washington. We integrated the United Business Bank, FSB’s branches and recognized the opportunity to consolidate two branches, one of which was completed in January 2017 and the other was completed in April 2018. In addition, in November 2017 we acquired Plaza Bank, with one branch located in Seattle, Washington. At the time of the acquisition, Plaza Bank had total assets of approximately $75.8 million and deposits of $54.2 million.
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. 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 are also focused on continuing to grow organically and believe the markets in which we operate currently provide meaningful opportunities to expand our commercial client base and increase our current market share. We believe our geographic footprint, which includes the San Francisco Bay area and the metropolitan markets of Los Angeles and Seattle and other community markets including Albuquerque, New Mexico, provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth. We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank. We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth.
At September 30, 2018, the Company has total assets of $1.3 billion and total loans of $902.3 million as compared to total assets of $1.2 billion and total loans of $891.5 million at December 31, 2017. The increase in total assets and total loans during the nine months ended September 30, 2018, was primarily related to organic growth.
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. 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. Our net income is also affected by noninterest income and noninterest expenses. Noninterest income and noninterest expenses are impacted by the growth of our banking operations and growth in the number of loan and deposit accounts both organically and through strategic acquisitions.
| 40 |
We had net income of $3.5 million and $11.9 million for the three and nine months ended September 30, 2018 with fully diluted earnings per common share of $0.31 and $1.30, respectively, during these time periods. Our results of operations during these periods were positively impacted by increases in net interest income resulting primarily from the growth in our interest-earning assets and lower corporate income tax rates. Noninterest income increased compared to the same periods last year due to increases in service charges and fees reflecting growth in deposit accounts and in loan servicing income reflecting our growing servicing portfolio from the sale of the guaranteed portion of U.S. Small Business Administration (“SBA”) loans. In addition, we received $777,000 of death benefits during the nine months ended September 30, 2018. Our provision for loan losses increased for the three and nine months ended September 30, 2018 primarily due to higher specific reserves related to the migration of certain loans to nonaccrual status during the third quarter of 2018. Our noninterest expense increased during the three and nine months ended September 30, 2018 compared to the same periods last year primarily due to expenses related to our 2017 acquisitions.
Set forth below is a discussion of the primary factors we use to evaluate and manage our results of operations:
Net interest income. Net interest income represents interest income less interest expense. We generate interest income from interest and fees received on interest-earning assets, including loans and investment securities and dividends on Federal Home Loan Bank of San Francisco (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) stock we own. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest margin; and (iv) the regulatory risk weighting associated with the assets. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.
Noninterest income. Noninterest income consists of, among other things: (i) loan servicing and other fees; (ii) gain on sale of loans; and (iii) other noninterest income. Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of U.S. Small Business Administration (“SBA”) loans, capitalized loan servicing rights and other related income.
Provision for loan losses. We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect estimated credit losses in the loan portfolio. Management considers many factors including historical loss experience, types and amounts of loans in the portfolio, and adverse that may affect borrowers’ ability to repay, among other factors. See “Critical Accounting Policies and Estimates – Allowance for loan loss” for a description of the manner in which the provision for loan losses is established.
| 41 |
Noninterest expense. Noninterest expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) Federal Deposit Insurance Corporation (“FDIC”) and state assessments; (v) outside and professional services; (vi) amortization of intangibles; and (vii) other general and administrative expenses. Salaries and related benefits include compensation, employee benefits and employment tax expenses for our personnel. Occupancy expense includes depreciation expense on our owned properties, lease expense on our leased properties and other occupancy-related expenses. Data processing expense includes data fees paid to our third-party data processing system provider and other data service providers. FDIC and state assessments expense represents the assessments that we pay to the FDIC for deposit insurance and other regulatory costs to various states. Outside and professional fees include legal, accounting, consulting and other outsourcing arrangements. Amortization of intangibles represents the amortization of our core deposit intangible from various acquisitions. Other general and administrative expenses include expenses associated with travel, meals, training, supplies and postage. Noninterest expenses generally increase as we grow our business. Noninterest expenses have increased significantly over the past few years as we have grown through acquisitions and organically, and as we have built out our operational infrastructure.
Critical Accounting Policies and Estimates
Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex, or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.
The following represent our critical accounting policies:
Allowance for loan losses. The allowance for loan losses is evaluated on a regular basis by management. Periodically, we charge current earnings with provisions for estimated probable losses of loans receivable. The provision or adjustment takes into consideration the adequacy of the total allowance for loan losses giving due consideration to specifically identified problem loans, the financial condition of the borrowers, fair value of the underlying collateral, recourse provisions, prevailing economic conditions, and other factors. Additional consideration is given to our historical loan loss experience relative to our loan portfolio concentrations related to industry, collateral and geography. This evaluation is inherently subjective and requires estimates that are susceptible to significant change as additional or new information becomes available. In addition, regulatory examiners may require additional allowances based on their judgments of the information regarding problem loans and credit risk available to them at the time of their examinations.
Generally, the allowance for loan loss consists of various components including a component for specifically identified weaknesses as a result of individual loans being impaired, a component for general non-specific weakness related to historical experience, economic conditions and other factors that indicate probable loss in the loan portfolio, and an unallocated component that relates to the inherent imprecision in the use of estimates. Loans determined to be impaired are individually evaluated by management for specific risk of loss.
In situations where, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. We measure any loss on the TDR in accordance with the guidance concerning impaired loans set forth above. Additionally, TDRs are generally placed on non-accrual status at the time of restructuring and included in impaired loans. These loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured debt.
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Estimated expected cash flows related to purchased credit impaired loans. Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. In situations where such PCI loans have similar risk characteristics, loans may be aggregated into pools to estimate cash flows. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation.
The cash flows expected over the life of the PCI loan or pool are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to default rates, loss severity and prepayment speeds are utilized to calculate the expected cash flows.
Expected cash flows at the acquisition date in excess of the fair value of loans are considered to be accretable yield, which is recognized as interest income over the life of the loan or pool using a level yield method if the timing and amounts of the future cash flows of the pool are reasonably estimable. Subsequent to the acquisition date, any increases in cash flow over those expected at purchase date in excess of fair value are recorded as interest income prospectively. Any subsequent decreases in cash flow over those expected at purchase date are recognized by recording an allowance for loan losses. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the removal of the loan from the loan pool at the carrying amount.
Business combinations. We apply the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred unless they are directly attributable to the issuance of the Company’s common stock in a business combination.
Loan sales and servicing of financial assets. Periodically, we sell loans and retain the servicing rights. The gain or loss on sale of loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. All servicing assets and liabilities are initially measured at fair value. In addition, we amortize servicing rights in proportion to and over the period of the estimated net servicing income or loss and assess the rights for impairment. The servicing rights are initially measured at fair value and amortized in proportion to and over the period of the estimated net servicing income assuming prepayments.
Income taxes. Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.
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We recognize that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.
Goodwill. Our goodwill resulted from our acquisitions of United Business Bank, FSB and Plaza Bank. Goodwill is reviewed for impairment annually and more often if an event occurs or circumstances change that might indicate the recorded value of the goodwill is more than its implied value. Such indicators may include, among others: a significant adverse change in legal factors or in the general business climate; significant decline in the Company’s stock price and market capitalization; unanticipated competition; and an adverse action or assessment by a regulator. Any adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and results of operations.
The testing for impairment may begin with an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that the fair value of goodwill is less than carrying value. The qualitative assessment includes adverse events or circumstances identified that could negatively affect the reporting unit’s fair value as well as positive and mitigating events. When required, the goodwill impairment test involves a two-step process. The first test for goodwill impairment is done by comparing the reporting unit’s aggregate fair value to its carrying value. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit). Absent other indicators of impairment, if the aggregate fair value exceeds the carrying value, goodwill is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit were to exceed the aggregate fair value, a second test would be performed to measure the amount of impairment loss, if any. To measure any impairment loss the implied fair value would be determined in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill is less than the recorded goodwill an impairment charge would be recorded for the difference. As of September 30, 2018, the Company completed its qualitative assessment of goodwill and concluded that it is more likely than not that the fair value of the Bank, the reporting unit, exceeds the carrying value. Changes in the economic environment, operations of the reporting unit or other adverse events could result in future impairment charges which could have a material impact on the Company’s operating results.
Even though the Company determined that there was no goodwill impairment, a decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge.
It is possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management's judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital. For more information, see Note 9 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Comparison of Financial Condition at September 30, 2018 and December 31, 2017
Total assets. Total assets increased to $1.34 billion at September 30, 2018 compared to $1.25 billion at December 31, 2017. The increase was the result of the Plaza Bank merger in 2017 and organic growth.
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Cash and cash equivalents. Cash and cash equivalents increased $63.4 million, or 25.4%, to $313.2 million at September 30, 2018 from $249.9 million at December 31, 2017. The increase was primarily due to cash received from the Company’s initial public offering, (“IPO”) in May 2018. We intend to invest our excess cash in marketable securities and interest earning cash positions until such funds are needed to support loan growth or other operating or strategic initiatives.
Securities available-for-sale. Investment securities available-for-sale increased $29.2 million, or 72.0%, to $69.7 million at September 30, 2018 from $40.5 million at December 31, 2017. The increase was primarily due to the purchases of new securities as we started to deploy excess cash earning a short term cash yield into higher yielding investment securities. At September 30, 2018, all of our investment securities were classified as available-for-sale.
Loans receivable, net. We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans. Loans receivable, net of allowance for loan losses and deferred fees, increased $9.5 million, or 1.1%, to $896.4 million at September 30, 2018 from $886.9 million at December 31, 2017. We sold $21.8 million of the guaranteed portion of SBA loans during the nine months ended September 30, 2018. The increase in loan receivable, net, was primarily due to organic growth.
The following table provides information about our loan portfolio by type of loan at the dates presented.
| Percentage Change | ||||||||||||
| September 30, | December, 31 | Prior Year | ||||||||||
| 2018 | 2017 | End | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Commercial and industrial | $ | 113,227 | $ | 113,799 | -0.50 | % | ||||||
| Real estate: | ||||||||||||
| Residential | 82,459 | 83,486 | -1.23 | % | ||||||||
| Multifamily residential | 115,243 | 113,759 | 1.30 | % | ||||||||
| Owner occupied CRE | 245,732 | 250,436 | -1.88 | % | ||||||||
| Non-owner occupied CRE | 299,988 | 291,937 | 2.76 | % | ||||||||
| Construction and land | 33,038 | 22,720 | 45.41 | % | ||||||||
| Total real estate | 776,460 | 762,338 | 1.85 | % | ||||||||
| Consumer | 630 | 1,096 | -42.52 | % | ||||||||
| PCI loans | 11,933 | 14,315 | -16.64 | % | ||||||||
| Total loans | 902,250 | 891,548 | 1.20 | % | ||||||||
| Deferred loan fees and costs, net | (381 | ) | (469 | ) | -18.76 | % | ||||||
| Allowance for loan losses | (5,500 | ) | (4,215 | ) | 30.49 | % | ||||||
| Loans receivable, net | $ | 896,369 | $ | 886,864 | 1.07 | % | ||||||
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The following table shows at September 30, 2018, the geographic distribution of our loan portfolio in dollar amounts and percentages.
| San Francisco Bay | Total in State of | |||||||||||||||||||||||||||||||||||||||
| Region(1) | Other California | California | All Other States(2) | Total | ||||||||||||||||||||||||||||||||||||
| Amount | %
of Total in Category | Amount | %
of Total in Category | Amount | %
of Total in Category | Amount | %
of Total in Category | Amount | % of Total
in | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 110,410 | 97.5 | % | $ | 1,914 | 1.7 | % | $ | 112,324 | 99.2 | % | $ | 905 | 0.8 | % | $ | 113,229 | 12.5 | % | ||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||
| Residential | $ | 62,012 | 74.0 | % | $ | 8,022 | 9.6 | % | $ | 70,034 | 83.5 | % | $ | 13,804 | 16.5 | % | $ | 83,838 | 9.3 | % | ||||||||||||||||||||
| Multifamily residential | 79,093 | 66.2 | % | 18,984 | 15.9 | % | 98,077 | 82.1 | % | 21,438 | 17.9 | % | 119,515 | 13.2 | % | |||||||||||||||||||||||||
| Owner occupied CRE | 146,907 | 59.0 | % | 68,001 | 27.3 | % | 214,908 | 86.4 | % | 33,964 | 13.6 | % | 248,872 | 27.6 | % | |||||||||||||||||||||||||
| Non-owner occupied | 157,679 | 52.0 | % | 80,834 | 26.7 | % | 238,513 | 78.7 | % | 64,615 | 21.3 | % | 303,128 | 33.6 | % | |||||||||||||||||||||||||
| Construction and land | 16,284 | 49.3 | % | 12,801 | 38.7 | % | 29,085 | 88.0 | % | 3,953 | 12.0 | % | 33,038 | 3.7 | % | |||||||||||||||||||||||||
| Total real estate | $ | 461,975 | 58.6 | % | $ | 188,642 | 23.9 | % | $ | 650,618 | 82.5 | % | $ | 137,774 | 17.5 | % | $ | 788,391 | 87.4 | % | ||||||||||||||||||||
| Consumer | 612 | 97.1 | % | - | 0.0 | % | 612 | 97.1 | % | 18 | 2.9 | % | 630 | 0.1 | % | |||||||||||||||||||||||||
| Total loans | $ | 572,997 | $ | 190,556 | $ | 763,554 | $ | 138,697 | $ | 902,250 | ||||||||||||||||||||||||||||||
| (1) | Includes Alameda, Contra Costa, Solano, Napa, Sonoma, Marin, San Francisco, San Joaquin, San Mateo and Santa Clara counties. |
| (2) | Includes loans located in the states of New Mexico, Washington and other states. At September 30, 2018, loans in New Mexico, Washington and other states totaled $138.7 million. |
Nonperforming assets and nonaccrual loans. Nonperforming assets comprised entirely of nonaccrual loans and other real estate owned at September 30, 2018, increased $5.4 million to $5.6 million at September 30, 2018. The Company had nonaccrual loans totaling $5.2 million, or 0.58% of total loans, of which $2.3 million are guaranteed by governmental agencies at September 30, 2018. The increase in nonaccrual loans primarily related to the migration of two loans totaling $4.4 million to nonaccrual status. These loans were related to two long-standing borrowers of the Bank. At September 30, 2018, accruing loans past due 30 to 89 days totaled $1.4 million, compared to $1.9 million at December 31, 2017. At September 30, 2018, accruing loans past due more than 90 days were $1.4 million compared to none at December 31, 2017. Other real estate owned totaled $362,000 at September 30, 2018.
In general, loans are placed on non-accrual status after being contractually delinquent for more than 90 days, or earlier if management believes full collection of future principal and interest on a timely basis is unlikely. When a loan is placed on non-accrual status, all interest accrued but not received is charged against interest income. When the ability to fully collect non-accrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed on non-accrual status even though the borrowers continue to repay the loans as scheduled. Such loans are categorized as performing non-accrual loans and are reflected in non-performing assets. Interest received on such loans is recognized as interest income when received. A non-accrual 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 remain on accrual status.
Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan and lease losses. These acquired loans are segregated into three types: pass rated loans with no discount attributable to credit quality, non-impaired loans with a discount attributable at least in part to credit quality and impaired loans with evidence of significant credit deterioration.
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| · | Pass rated loans (typically performing loans) are accounted for in accordance with ASC Topic 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of credit deterioration since origination. |
| · | Non-impaired loans (typically performing substandard loans) are accounted for in accordance with ASC Topic 310-30 if they display at least some level of credit deterioration since origination. |
| · | Impaired loans (typically substandard loans on non-accrual status) are accounted for in accordance with ASC Topic 310-30 as they display significant credit deterioration since origination. |
For pass rated loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans and the principal outstanding is accreted over the remaining life of the loans.
In accordance with ASC Topic 310-30, for both purchased non-impaired loans (performing substandard loans) and purchased credit-impaired loans, the loans are pooled by loan type and the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan pools when there is a reasonable expectation about the amount and timing of such cash flows.
Troubled debt restructured loans. Troubled debt restructurings, also referred to as “TDRs” herein, which are accounted for under ASC Topic 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity. At December 31, 2017, we had four TDR loans totaling $1.0 million, three of which totaling $967,000 and were performing according to their restructured terms. The performing TDR loans are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to the restructured status. TDR loans as of September 30, 2018 totaled $910,000, of which $137,000 was non-performing. PCI loans included in TDR loans totaled $773,000 and $794,000 as of September 30, 2018 and December 31, 2017, respectively. There was $10,000 related allowance for loan losses on the TDR loans at September 30, 2018 and $13,000 December 31, 2017.
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The following table sets forth the non-performing loans, non-performing assets and troubled debt restructured loans at the dates indicated:
| September 30 | December 31, | |||||||
| 2018 | 2017 | |||||||
| (Dollars in thousands) | ||||||||
| Loans accounted for on a non-accrual basis: | ||||||||
| Commercial and industrial | $ | 3,071 | $ | 13 | ||||
| Real estate: | ||||||||
| Residential | 127 | - | ||||||
| Multifamily residential | - | - | ||||||
| Owner occupied CRE | 17 | 78 | ||||||
| Non-owner occupied CRE | 1,991 | 88 | ||||||
| Construction and land | - | - | ||||||
| Total real estate | 2,135 | 166 | ||||||
| Consumer | - | - | ||||||
| Total nonaccrual loans | 5,206 | 179 | ||||||
| Real estate owned | 362 | - | ||||||
| Total nonperforming assets(1) | $ | 5,568 | $ | 179 | ||||
| More than 90 days past due and still accruing | 1,424 | - | ||||||
| Troubled debt restructurings – performing | 773 | 1,032 | ||||||
| PCI loans | 11,933 | 14,315 | ||||||
| Nonperforming assets to total assets(1) | 0.41 | % | 0.01 | % | ||||
| Nonperforming loans to total loans(1) | 0.62 | % | 0.02 | % | ||||
| (1) | Performing TDRs are not included in nonperforming loans above, nor are they included in the numerators used to calculate this ratio. |
Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above. At September 30, 2018 and December 31, 2017, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.
Potential problem loans. Potential problem assets are those assets that are currently accruing interest and are not considered impaired, but which we are monitoring because the financial information of the borrower causes us concerns as to their ability to comply with their loan repayment terms. There is one loan which is past due 90 days or more and still accruing interest at September 30, 2018. Management does not consider this a problem loan as it well secured and in the process of renewal. Potential problem loans, not included in the non-performing loans, totaled $5.6 million at September 30, 2018 compared to $6.8 million at December 31, 2017.
Allowance for loan losses. We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect estimated credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers, among other factors, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk factors specifically related to each loan type. See “— Critical Accounting Policies and Estimates Allowance for loan loss” for a description of the manner in which the provision for loan losses is established.
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In accordance with acquisition accounting, loans acquired from the United Business Bank, FSB, and Plaza Bank mergers were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts, of which a portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded for acquired loans at the acquisition date. Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisitions of United Business Bank, FSB, and Plaza Bank. The remaining net discount of all acquired loans was $6.3 million and $8.7 million at September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, acquired loans net of their discounts totaled $343.9 million compared to $363.6 million at September 30, 2017.
Based on the Company’s established comprehensive methodology discussed above, the allowance for loan losses was $5.5 million at September 30, 2018, 0.61% of total loans and 78.7% of nonperforming loans. This compares to an allowance for loan losses at December 31, 2017 of $4.2 million, or 0.47 % of total loans and 2,352.78% of nonperforming loans.
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The following table presents an analysis of changes in the allowance for loan losses for the nine months ended September 30, 2018 and the year ended December 31, 2017:
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (Dollars in thousands) | ||||||||
| Allowance at beginning of period | $ | 4,215 | $ | 3,775 | ||||
| Provisions for loan losses | 1,578 | 462 | ||||||
| Recoveries: | ||||||||
| Commercial and industrial | 144 | 45 | ||||||
| Residential | - | - | ||||||
| Owner occupied CRE | - | - | ||||||
| Non-owner occupied CRE | - | - | ||||||
| Consumer | - | - | ||||||
| Total recoveries | 144 | 45 | ||||||
| Charge-offs: | ||||||||
| Commercial and industrial | (437 | ) | (63 | ) | ||||
| Residential | - | - | ||||||
| Owner occupied CRE | - | - | ||||||
| Non-owner occupied CRE | - | (3 | ) | |||||
| Consumer | - | (1 | ) | |||||
| Total charge-offs | (437 | ) | (67 | ) | ||||
| Net (charge-offs) recoveries | (293 | ) | (22 | ) | ||||
| Balance at end of period | $ | 5,500 | $ | 4,215 | ||||
| Ratios: | ||||||||
| Allowance for loan losses as a percentage of total loans | 0.61 | % | 0.47 | % | ||||
| Allowance for loan losses to total loans excluding PCI loans | 0.62 | % | 0.48 | % | ||||
| Allowance for loan losses excluding acquired loans (loans not covered by the allowance) | 0.98 | % | 0.85 | % | ||||
| Allowance for loan losses as a percentage of total nonperforming loans | 98.78 | % | 2352.78 | % | ||||
| Net (charge-offs) recoveries as a percentage of average loans outstanding for the period | (0.03 |
)% | (0.00 | )% | ||||
| Total loans | $ | 902,250 | $ | 891,548 | ||||
| PCI Loans | 11,933 | 14,315 | ||||||
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As of September 30, 2018, we identified $6.0 million in impaired loans, inclusive of $5.2 million of nonperforming loans and $773,000 of performing TDR loans. Of these impaired loans, $685,000 had allowances for loan losses as their estimated collateral value or discounted expected cash flow is equal to or exceeds their carrying costs. As of December 31, 2017, we identified $1.1 million in impaired loans, inclusive of $179,000 of nonperforming loans and $1.1 million of performing TDR loans. Of these impaired loans, only $13,000 had allowances for loan losses as their estimated collateral value or discounted expected cash flow is equal to or exceeds their carrying costs.
Management considers the allowance for loan losses at September 30, 2018 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.
Deposits. Deposits are our primary source of funding and consist of core deposits from the communities served by our branch and office locations. We offer a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include interest-bearing and non-interest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. These accounts earn interest at rates established by management based on competitive market factors, management’s desire to increase certain product types or maturities, and in keeping with our asset/liability, liquidity and profitability objectives. Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits. Total deposits increased $26.4 million, or 2.4%, to $1.13 billion at September 30, 2018 from $1.10 billion at December 31, 2017, primarily due to normal fluctuations within our deposit portfolio. Non-interest bearing deposits represented 30.8% of total deposits at September 30, 2018 compared to 29.6% at December 31, 2017.
The following table sets forth the dollar amount of deposits in the various types of deposit programs offer at the dates indicated.
| Percentage Change | ||||||||||||
| September 30, | December 31, | Prior Year | ||||||||||
| 2018 | 2017 | End | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Noninterest bearing | $ | 349,346 | $ | 327,309 | 6.7 | % | ||||||
| Interest bearing checking | 167,339 | 155,011 | 8.0 | % | ||||||||
| Regular savings accounts | 44,290 | 36,539 | 21.2 | % | ||||||||
| Money Market accounts | 366,417 | 356,640 | 2.7 | % | ||||||||
| Interest bearing transactions | 578,046 | 548,190 | 5.4 | % | ||||||||
| Interest bearing certificates | 203,329 | 228,806 | -11.1 | % | ||||||||
| Total deposits | $ | 1,130,721 | $ | 1,104,305 | 2.4 | % | ||||||
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Borrowings. At September 30, 2018, borrowings totaled $5.4 million compared to $11.4 million at December 31, 2017. During the second quarter 2018 we repaid $6.0 million in long-term secured borrowings out of the net proceeds from our initial public offering. The $5.4 million of borrowings, net carrying value, at September 30, 2018, are related to junior subordinated debentures assumed in connection our acquisition of First ULB Corp. in April 2017. At September 30, 2018, we had no FHLB advances outstanding and the ability to borrow up to $336.0 million.
In addition to FHLB advances, we may also utilize Fed Funds purchased from correspondent banks as a source of short-term funding. At September 30, 2018 and December 31, 2017, we had a total of $55.0 million federal funds line available from four third-party financial institutions.
We are required to provide collateral for certain local agency deposits. As of September 30, 2018, the FHLB had issued a letter of credit on behalf of the Bank totaling $7.5 million as collateral for local agency deposits.
Shareholders’ Equity
Total shareholders’ equity increased to $197.3 million at September 30, 2018 from $118.6 million at December 31, 2017. The increase in shareholders’ equity was primarily due to the issuance of common stock in our initial public offering for approximately $66.8 million, net of expenses and underwriting commissions and to a lesser extent, our net income during the nine months ended September 30, 2018. The Company does not pay a regular cash dividend.
Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2018 and 2017
Earnings summary. Net income was $3.5 million for the three months ended September 30, 2018, compared to $3.2 million for the three months ended September 30, 2017, an increase of $337,000, or 10.6%. Net income for the nine months ended September 30, 2018 was $11.9 million compared to net income of $6.1 million for the nine months ended September 30, 2017, an increase of $5.8 million or 94.7%. The increase in net income primarily was the result of increases in net interest income and noninterest income and lower corporate income tax rates partially offset by an increase in noninterest expense reflecting our two whole-bank acquisitions in 2017 and organic growth.
Diluted earnings per share were $0.31 for the three months ended September 30, 2018, a decrease of $0.15 from diluted earnings per share of $0.46 for the three months ended September 30, 2017. Diluted earnings per share were $1.30 for the nine months ended September 30, 2018, an increase of $0.33 from diluted earnings per share of $0.97 for the nine months ended September 30, 2017.
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, improved to 57.4% and 58.0% for the three and nine months ended September 30, 2018, respectively, compared to 59.4% and 65.9% for the three and nine months ended September 30, 2017. The change in the efficiency ratio for the three and nine months ended September 30, 2017 was attributable primarily to greater increases in net interest income and noninterest income compared to smaller increases in noninterest expense.
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Interest income. Interest income for the three and nine months ended September 30, 2018 was $14.3 million and $41.6 million, compared to $13.1 million for the three and $31.2 million for nine months ended September 30, 2017, an increase of $1.2 million and $10.3 million or 8.8% and 33.1%, respectively. These increases in net interest income were primarily due to an increase in average interest earning assets largely related to our two bank acquisitions in 2017, partially offset by a decrease in the accretion of purchase accounting adjustments on acquired loans. Average interest earning assets increased $159.6 million and $321.8 million or 14.4% and 35.5% for the three and nine months ended September 30, 2018, respectively, compared to the same period in 2017, largely due to the Plaza Bank acquisition in November 2017. Our average loan yield for the third quarter of 2018 was 5.24% compared to 5.67% for the same quarter last year. The average loan yield for the nine months ended September 30, 2018 was 5.40%, compared to 5.48% for the nine months ended September 30, 2017. Interest income on loans for the quarters ended September 30, 2018 and September 30, 2017 included $746,000 and $1.5 million, respectively, in accretion of purchase accounting fair value adjustments on acquired loans including the recognition of revenue from purchase credit impaired loans in excess of discounts. Interest income on loans for the nine months ended September 30, 2018 included $2.5 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $2.6 million for the nine months ended September 30, 2017. The remaining net discount on these purchased loans was $6.3 million and $7.9 million at September 30, 2018, and 2017, respectively.
Interest income on interest-earning deposits increased $1.1 million as a result of a $65.8 million increase in the average balance of interest earning deposits and a 1.26% increase in the yield on interest-earning deposits to 2.43% for the three months ended September 30, 2018 from 1.17 % for the three months ended September 30, 2017. Interest income on interest earning deposits increased $2.7 million as a result of a $108.7 million increase in the average balance of interest earning deposits and a 92 basis point increase in the yield on interest earning deposits to 2.0% for the nine months ended September 30, 2018 from 1.08% for the nine months ended September 30, 2017.
Interest income on investment securities increased $81,000 as a result of a $27.4 million increase in the average balance of investment securities partially offset by a 72 basis point decline in the average yield for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Interest income on investment securities increased $317,000 primarily as a result of a $21.5 million increase in the average balance of investment securities for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.
Interest expense. Interest expense for the three months ended September 30, 2018 and 2017, increased by $133,000 or 11.7%, to $1.3 million at September 30, 2018 compared to the same period last year. The average cost of interest bearing liabilities increased four basis points to 0.64% for the three months ended September 30, 2018 from 0.60% for the three months ended September 30, 2017. Total average interest bearing liabilities increased by $33.2 million, or 4.3%, to $788.0 million for the three months ended September 30, 2018 from $754.8 million for the three months ended September 30, 2017. Interest expense increased by $431,000, or 13.8%, to $3.6 million for the nine months ended September 30, 2018 from $3.1million for the nine months ended September 30, 2017. The average cost of interest bearing liabilities decreased seven basis points to 0.60% for the nine months ended September 30, 2018 from 0.67% for the nine months ended September 30, 2017. Total average interest-bearing liabilities increased by $164.4 million, or 26.3%, to $789.0 million for the nine months ended September 30, 2018 from $624.6 million for the nine months ended September 30, 2017.
Interest expense on deposits increased $191,000, or 19.3%, to $1.2 million during the three months ended September 30, 2018 from $988,000 the same period in 2017 primarily due to higher market interest rates over the last year reflecting increases in the targeted federal funds rate. The average rate paid on interest bearing deposits increased to 0.60% for the three months ended September 30, 2018 from 0.53% for the three months ended September 30, 2017. Interest expense on deposits increased $305,000, or 10.6%, to $3.2 million during the nine months ended September 30, 2018 from $2.9 million the same period in 2017, primarily due to the deposits acquired in the FULB acquisition. The average rate paid on interest bearing deposits decreased to 0.55% for the nine months ended September 30, 2018 from 0.62% for the nine months ended September 30, 2017. Interest expense on borrowings was $378,000 for the nine months ended September 30, 2018 compared to $252,000 for the same period in 2017, as a result of the Subordinated Debentures assumed and the $6.0 million term loan obtained in connection with our United Business Bank, FSB acquisition, which was repaid in the second quarter of 2018.
| 53 |
Net interest income. Net interest income increased $1.0 million, or 8.5%, to $13.0 million for the three months ended September 30, 2018 compared to $12.0 million for the three months ended September 30, 2017. The Company’s net interest margin was 4.09% for the three months ended September 30, 2018 compared to 4.28% for the same quarter a year ago. The decrease in net interest margin during the third quarter of 2018 compared to the same quarter a year earlier is the result of a lower yield on total loans and an increase in lower yielding cash and investments and to a lesser extent a higher cost of funds. Net interest margin is enhanced by the amortization of acquisition accounting discounts on loans acquired in the acquisitions. 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 thirty-three basis points and sixty-eight basis points during the three months ended September 30, 2018 and 2017, respectively. The average yield on interest earning assets for the three months ended September 30, 2018 was 4.46%, a twenty-three basis point decrease from the three months ended September 30, 2017, due to the lower accretion on acquired loans. The average cost of interest-bearing liabilities for the three months ended September 30, 2018 was 0.64%, up four basis points from the 0.60% cost of funds during the nine months ended September 30, 2017, due primarily to an increase in market interest rates.
Net interest income increased $9.9 million, or 35.2%, to $38.0 million for the nine months ended September 30, 2018 compared to $28.1million for the nine months ended September 30, 2017. Net interest margin for the nine months ended September 30, 2018 decreased slightly by one basis point to 4.14% from 4.15% for the same period in 2017. 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 thirty-eight basis points and forty-eight basis points during the nine months ended September 30, 2018 and 2017, respectively. The average yield on interest earning assets for the nine months ended September 30, 2018 was 4.53%, an eight basis point decrease from the nine months ended September 30, 2017, due to lower accretion on acquired loans. While the average cost of interest-bearing liabilities for the nine months ended September 30, 2018 was 0.60%, down seven basis points from the 0.67% cost of funds during the nine months ended September 30, 2017, due primarily to the pay-off of borrowed funds.
| 54 |
Average Balances, Interest and Average Yields/Cost. The following tables presents, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average yields; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have not been calculated on a taxable equivalent basis.
| Three months ended | ||||||||||||||||||||||||
| September 30, | ||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Annualized | Annualized | |||||||||||||||||||||||
| Average | Average | Average | Average | |||||||||||||||||||||
| Balance (1) | Interest | Yield | Balance | Interest | Yield | |||||||||||||||||||
| Interest earning assets | ||||||||||||||||||||||||
| Interest bearing deposits | $ | 285,475 | $ | 1,749 | 2.43 | % | $ | 219,523 | $ | 646 | 1.17 | % | ||||||||||||
| Investments available-for-sale | 65,372 | 358 | 2.17 | % | 37,962 | 277 | 2.89 | % | ||||||||||||||||
| FHLB Stock | 5,097 | 86 | 6.69 | % | 4,772 | 71 | 5.90 | % | ||||||||||||||||
| FRB Stock | 3,357 | 50 | 5.91 | % | 1,613 | 22 | 5.41 | % | ||||||||||||||||
| Total loans (1) | 911,924 | 12,044 | 5.24 | % | 847,564 | 12,115 | 5.67 | % | ||||||||||||||||
| Total interest earning assets | 1,271,225 | 14,287 | 4.46 | % | 1,111,434 | 13,131 | 4.69 | % | ||||||||||||||||
| Noninterest earning assets | 73,834 | 63,984 | ||||||||||||||||||||||
| Total average assets | $ | 1,345,059 | $ | 1,175,418 | ||||||||||||||||||||
| 159,791 | ||||||||||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||||||
| Savings accounts | $ | 43,939 | 9 | 0.08 | % | $ | 39,940 | 9 | 0.09 | % | ||||||||||||||
| Interest bearing checking | 165,171 | 33 | 0.08 | % | 156,531 | 36 | 0.09 | % | ||||||||||||||||
| Money market accounts | 363,900 | 504 | 0.55 | % | 345,723 | 412 | 0.47 | % | ||||||||||||||||
| Certificates of deposit | 209,560 | 633 | 1.20 | % | 201,213 | 531 | 1.05 | % | ||||||||||||||||
| Total deposit accounts | 782,570 | 1,179 | 0.60 | % | 743,407 | 988 | 0.53 | % | ||||||||||||||||
| Borrowed funds | 5,423 | 93 | 6.80 | % | 11,364 | 151 | 5.27 | % | ||||||||||||||||
| Total interest bearing liabilities | 787,993 | 1,272 | 0.64 | % | 754,771 | 1,139 | 0.60 | % | ||||||||||||||||
| Noninterest bearing liabilties | 360,320 | 314,201 | ||||||||||||||||||||||
| Total average liabilities | 1,148,313 | 1,068,972 | ||||||||||||||||||||||
| Average equity | 196,576 | 106,446 | ||||||||||||||||||||||
| Total average liabilities and equity | $ | 1,344,889 | $ | 1,175,418 | ||||||||||||||||||||
| Net interest income | $ | 13,015 | $ | 11,992 | ||||||||||||||||||||
| Interest rate spread (2) | 3.82 | % | 4.09 | % | ||||||||||||||||||||
| Net interest margin (3) | 4.06 | % | 4.28 | % | ||||||||||||||||||||
| Ratio of average interest earning assets to average interest bearing liabilities | 161.32 | % | 147.25 | % | ||||||||||||||||||||
| (1) | Average balances are average daily balances. The amortized portion of net loan origination fees is included in net interest income on loans, representing an adjustment to yield. |
| (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. |
| 55 |
| Nine months ended | ||||||||||||||||||||||||
| September 30, | ||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Annualized | Annualized | |||||||||||||||||||||||
| Average | Average | Average | Average | |||||||||||||||||||||
| Balance (1) | Interest | Yield | Balance | Interest | Yield | |||||||||||||||||||
| Interest earning assets | ||||||||||||||||||||||||
| Interest earning deposits | $ | 269,590 | $ | 4,032 | 2.00 | % | $ | 160,802 | $ | 1,294 | 1.08 | % | ||||||||||||
| Investments available-for-sale | 48,814 | 725 | 1.99 | % | 27,333 | 408 | 2.00 | % | ||||||||||||||||
| FHLB Stock | 4,967 | 266 | 7.16 | % | 3,790 | 263 | 9.28 | % | ||||||||||||||||
| FRB Stock | 3,240 | 169 | 6.97 | % | 1,485 | 67 | 6.03 | % | ||||||||||||||||
| Total loans (1) | 901,094 | 36,398 | 5.40 | % | 712,505 | 29,218 | 5.48 | % | ||||||||||||||||
| Total interest earning assets | 1,227,705 | 41,590 | 4.53 | % | 905,915 | 31,250 | 4.61 | % | ||||||||||||||||
| Non-interest earning assets | 67,833 | 49,095 | ||||||||||||||||||||||
| Total average assets | $ | 1,295,538 | $ | 955,010 | ||||||||||||||||||||
| Interest bearing liabilities | ||||||||||||||||||||||||
| Savings accounts | $ | 39,706 | 25 | 0.08 | % | $ | 28,063 | 21 | 0.10 | % | ||||||||||||||
| Interest bearing checking | 163,618 | 101 | 0.08 | % | 104,043 | 85 | 0.11 | % | ||||||||||||||||
| Money market accounts | 359,003 | 1,362 | 0.51 | % | 305,512 | 1,269 | 0.56 | % | ||||||||||||||||
| Certificates of deposit | 218,404 | 1,695 | 1.04 | % | 180,474 | 1,503 | 1.11 | % | ||||||||||||||||
| Total deposit accounts | 780,731 | 3,183 | 0.55 | % | 618,092 | 2,878 | 0.62 | % | ||||||||||||||||
| Borrowed funds | 8,222 | 378 | 6.15 | % | 6,473 | 252 | 5.21 | % | ||||||||||||||||
| Total interest bearing liabilities | 788,953 | 3,561 | 0.60 | % | 624,565 | 3,130 | 0.67 | % | ||||||||||||||||
| Non-interest bearing liabilities | 345,338 | 236,453 | ||||||||||||||||||||||
| Total average liabilities | 1,134,291 | 861,018 | ||||||||||||||||||||||
| Average equity | 161,247 | 93,992 | ||||||||||||||||||||||
| Total average liabilities and equity | $ | 1,295,538 | $ | 955,010 | ||||||||||||||||||||
| Net interest income | $ | 38,029 | $ | 28,120 | ||||||||||||||||||||
| Interest rate spread (2) | 3.93 | % | 3.94 | % | ||||||||||||||||||||
| Net interest margin (3) | 4.14 | % | 4.15 | % | ||||||||||||||||||||
| Ratio of average interest earning assets to average interest bearing liabilities | 155.61 | % | 145.05 | % | ||||||||||||||||||||
| (1) | Average balances are average daily balances. The amortized portion of net loan origination fees is included in net interest income on loans, representing an adjustment to yield. |
| (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 |
Rate/Volume Analysis. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume. Yields have not been calculated on a pre-tax basis and taxable equivalent adjustments on tax advantaged instruments have not been included.
| 56 |
The following table compares the three months and nine months ended September 30, 2018 and 2017:
| Three months ended September 30, | Nine months ended September30, | |||||||||||||||||||||||
| 2018 compared to 2017 | 2018 compared to 2017 | |||||||||||||||||||||||
| Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
| Attributable to | Attributable to | |||||||||||||||||||||||
| Rate | Volume | Total | Rate | Volume | Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||
| Interest bearing deposits | $ | 597 | $ | 506 | $ | 1,103 | $ | 1,681 | $ | 1,057 | $ | 2,738 | ||||||||||||
| Investments available-for-sale | (196 | ) | 277 | 81 | (5 | ) | 322 | 317 | ||||||||||||||||
| Other equity securities | 6 | 37 | 43 | (72 | ) | 177 | 105 | |||||||||||||||||
| Total loans | (1,548 | ) | 1,477 | (71 | ) | (680 | ) | 7,860 | 7,180 | |||||||||||||||
| Total interest income | (1,141 | ) | 2,297 | 1,156 | 924 | 9,416 | 10,340 | |||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||
| Savings accounts | (1 | ) | 1 | - | (4 | ) | 8 | 4 | ||||||||||||||||
| Interest bearing checking | (7 | ) | 4 | (3 | ) | (38 | ) | 54 | 16 | |||||||||||||||
| Money market accounts | 37 | 55 | 92 | (130 | ) | 223 | 93 | |||||||||||||||||
| Certificates of deposit | 49 | 53 | 102 | (148 | ) | 340 | 192 | |||||||||||||||||
| Total deposits | 78 | 113 | 191 | (320 | ) | 625 | 305 | |||||||||||||||||
| Borrowed funds | 36 | (94 | ) | (58 | ) | 49 | 77 | 126 | ||||||||||||||||
| Total interest expense | 114 | 19 | 133 | (271 | ) | 702 | 431 | |||||||||||||||||
| Net interest income | $ | (1,255 | ) | $ | 2,278 | $ | 1,023 | $ | 1,195 | $ | 8,714 | $ | 9,909 | |||||||||||
Provision for loan losses. The provision for loan losses was $1.1 million and $1.6 million for the three and nine months ended September 30, 2018, compared to a provision for loan losses of $58,000 and $1.6 million for the same periods last year. The provision for loan losses increased primarily as a result of an increase in specific reserves on certain on nonaccrual loans. During the three months ended September 30, 2018, our allowance for loan losses specific reserves increased from $13,000 to $685,000. We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit-impaired loans as accounted for in accordance with ASC Topic 310-20 for both the three and nine months ended September 30, 2018 and 2017. In addition, no additional provisions were recorded on the purchase credit-impaired loans accounted for in accordance with ASC Topic 310-30 during both these periods. We had net charge-offs of $182,000 for the three months ended September 30, 2018 compared to net charge-offs of $58,000 during the three months ended September 30, 2017. For the nine months ended September 30, 2018 we had net charge offs of $293,000 compared to $45,000 for the nine months ended September 30, 2017. The ratio of net loan charge-offs to average total loans outstanding was (0.03%) for the nine months ended September 30, 2018 and 0% for the nine months ended September 30, 2017. The allowance for loan losses to total loans was 0.61% at September 30, 2018 compared to 0.47% at September 30, 2017. See Comparison of Financial Condition - Allowance for loan losses for additional details.
Noninterest income. Noninterest income for the third quarter of 2018 increased $555,000, or 51.3%, to $1.6 million from $1.1 million in the same quarter in 2017. The increase in noninterest income compared to the same quarter last year was primarily due to a $162,000, or 108.0%, increase in loan servicing and other loan fees due primarily to growth in our SBA loan servicing portfolio. Service charges and other fees increased $130,000, or 34.3%, due to higher deposit balances and an increase in the number of deposit accounts. Other noninterest income also increased by $276,000, or 235.9%, primarily due to income received on the investment in a Small Business Investment Company fund.
Noninterest income for the nine months ended September 30, 2018 increased $2.0 million, or 58.1%, to $5.5 million from $3.4 million in the same period in 2017. Servicing charges and other fees increased $603,000, or 74.3%, due to an increase in deposit accounts and balances. Loan servicing and other loan fees increased $371,000, or 80.7%, to $831,000 for the nine months ended September 30, 2018, compared to $460,000 for the nine months ended September 30, 2017 due to an increase in loans serviced for others and the related servicing fee income. All other components of noninterest income increased $1.1million due primarily to the $777,000 of death benefit payments received on two Bank owned life insurance policies.
| 57 |
The following tables detail the components of non interest income during the periods shown:
| Three months | ||||||||||||||||
| ended September 30, | Variance | |||||||||||||||
| 2018 | 2017 | Amount | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Gain on sale of loans | $ | 424 | $ | 437 | $ | (13 | ) | -3.0 | % | |||||||
| Service charges and other fees | 509 | 379 | 130 | 34.3 | % | |||||||||||
| Loan servicing and other loan fees | 312 | 150 | 162 | 108.0 | % | |||||||||||
| Other income and fees | 393 | 117 | 276 | 235.9 | % | |||||||||||
| Total non interest income | $ | 1,638 | $ | 1,083 | $ | 555 | 51.2 | % | ||||||||
| Nine months | ||||||||||||||||
| ended September 30, | Variance | |||||||||||||||
| 2018 | 2017 | Amount | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Gain on sale of loans | $ | 1,623 | $ | 1,712 | $ | (89 | ) | -5.2 | % | |||||||
| Service charges and other fees | 1,424 | 821 | 603 | 73.4 | % | |||||||||||
| Loan servicing and other loan fees | 831 | 460 | 371 | 80.7 | % | |||||||||||
| Other income and fees | 1,569 | 455 | 1,114 | 244.8 | % | |||||||||||
| Total non interest income | $ | 5,447 | $ | 3,448 | $ | 1,999 | 58.0 | % | ||||||||
Noninterest expense. Noninterest expense for the third quarter of 2018 totaled $8.4 million, an increase of $651,000, or 8.4%, compared to $7.8 million for the third quarter of 2017, primarily due to an $820,000, or 17.5%, increase in salary and benefits primarily due to an increase in the number of employees from our two bank acquisitions in 2017. Professional expenses increased $220,000, or 141.9%, during the three months ended September 30, 2018 compared to the same period in 2017 due primarily to expenses related to our pending BFC acquisition and an increase in audit and accounting fees. Data processing expenses decreased for the third quarter of 2018 primarily because the prior year’s quarters included certain on-time expenses related to one of our acquisitions.
| 58 |
Noninterest expense for the nine months ended September 30, 2018 increased $4.4 million, or 21.3%, to $25.2 million from $20.8 million in the same period in 2017. The increase was primarily due to a $3.3 million, or 27.8%, increase in salary and benefits from an increase in the number of employees from our two bank acquisitions in 2017 and a $631,000 increase in stock-based compensation. Occupancy and equipment expense increased $928,000, or 40.5%, primarily due additional branch offices from our 2017 acquisitions. Professional fees increased $528,000, or 70.9%, due primarily to acquisition related expenses related to our pending BFC acquisition, one-time consulting services related to the implementation of enhanced regulatory compliance and risk management processes and an increase in audit and accounting fees. In addition, the nine months ended September 30, 2018, includes a $600,000 write-down of acquired office facilities held-for-sale which is reflected in other miscellaneous noninterest expense. Data processing expense decreased for the nine months ended September 30, 2018 compared to the same period last year primarily because the prior year’s period included certain one-time expense related to one of our acquisitions.
The following table details the components of non interest expense during the periods shown:
| Three months | ||||||||||||||||
| ended September 30, | Variance | |||||||||||||||
| 2018 | 2017 | Amount | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Salaries and related benefits | $ | 5,506 | $ | 4,686 | $ | 820 | 17.5 | % | ||||||||
| Occupancy and equipment | 976 | 932 | 44 | 4.7 | % | |||||||||||
| Data processing expense | 526 | 813 | (287 | ) | -35.3 | % | ||||||||||
| Professional fees | 375 | 155 | 220 | 141.9 | % | |||||||||||
| Other expense | 1,034 | 1,180 | (146 | ) | -12.4 | % | ||||||||||
| Total non interest expense | $ | 8,417 | $ | 7,766 | $ | 651 | 8.4 | % | ||||||||
| Nine months | ||||||||||||||||
| ended September 30, | Variance | |||||||||||||||
| 2018 | 2017 | Amount | Percent | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Salaries and related benefits | $ | 14,967 | $ | 11,715 | $ | 3,252 | 27.8 | % | ||||||||
| Occupancy and equipment | 3,219 | 2,291 | 928 | 40.5 | % | |||||||||||
| Data processing expense | 1,849 | 3,247 | (1,398 | ) | -43.1 | % | ||||||||||
| Professional fees | 1,273 | 745 | 528 | 70.9 | % | |||||||||||
| Write-down on building held for sale | 600 | - | 600 | 0.0 | % | |||||||||||
| Other expense | 3,288 | 2,793 | 495 | 17.7 | % | |||||||||||
| Total non interest expense | $ | 25,196 | $ | 20,791 | $ | 4,405 | 21.2 | % | ||||||||
| 59 |
Income taxes. The provision for income taxes was $1.6 million and $4.8 million for the three and nine months ended September 30, 2018, respectively, compared to $2.1 million and $4.3 million for the three and nine months ended September 30, 2017, respectively. The effective tax rate was 29.4% for both the three and nine months ended September 30, 2018, compared to 39.4% and 41.5% for the three and nine months ended September 30, 2017, respectively. The decrease in the Company’s effective tax rate during 2018 compared to 2017 was primarily the result of the Tax Act which reduced the statutory federal corporate income tax rate from 35.0% to 21.0%.
Liquidity and Capital Resources
Planning for our normal business liquidity needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term basis it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management software model projections.
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of funds are deposits, escrow and custodial deposits, principal and interest payments on loans and proceeds from sale of loans. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash, short-term investments, including interest-bearing demand deposits and securities available-for-sale. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of September 30, 2018, the Bank had an available borrowing capacity of $336.0 million with the FHLB of San Francisco, and Federal Funds lines with available commitments totaling $55.0 million with four correspondent banks. There are no amounts outstanding under these facilities at September 30, 2018 and December 31, 2017. Additionally, the Company classifies its securities portfolio as available for sale, providing an additional source of liquidity. Management believes that our security portfolio is of high quality and the securities would therefore be marketable.
We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. Loan commitments and letters of credit were $73.8 million and $98.7 million at September 30, 2018 and December 31, 2017, certificates of deposit scheduled to mature in one year or less at September 30, 2018, totaled $55.4 million. It is management's policy to manage deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that most of our maturing certificates of deposit will remain with us.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $4.0 million and $5.6 million for the nine months ended September 30, 2018 and 2017, respectively. During the nine months ended September 30, 2018, net cash used in investing activities was $27.8 million, which consisted primarily of purchases of $39.3 million of investment securities. During the nine months ended September 30, 2017, net cash provided by investing activities was $72.0 million due primarily to cash received from acquisitions. Net cash provided by financing activities totaling $87.2 million for the nine months ended September 30, 2018 was comprised primarily of $66.8 million in net proceeds from our initial public offering, and a net increase in deposits of $26.4 million. Net cash provided by financing activities totaling $36.3 million for the nine months ended September 30, 2017 was comprised primarily of a net increase in deposits.
| 60 |
As a separate legal entity from the Bank, BayCom must provide for its own liquidity. Sources of capital and liquidity for BayCom include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. At September 30, 2018, BayCom had liquid assets of $61.2 million on an unconsolidated basis.
Capital Requirements
BayCom is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank, as a state-chartered, federally insured commercial bank, is subject to the capital requirements established by the FDIC.
The capital adequacy requirements are quantitative measures established by regulation that require BayCom and the Bank to maintain minimum amounts and ratios of capital. The Federal Reserve requires BayCom to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum ratios of Total Capital, Tier 1 Capital, and Common Equity Tier 1 Capital to risk-weighted assets as well as Tier 1 Leverage Capital to average assets. In addition to the minimum capital ratios, the Bank now has to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement began to be phased in starting in January 2016 at an amount more than 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount more than 2.5% of risk-weighted assets in January 2019. At September 30, 2018, the required capital conservation buffer was an amount more than 1.875%. At September 30, 2018, BayCom and the Bank each exceeded all regulatory capital requirements.
| 61 |
The actual regulatory capital ratios calculated for BayCom Corp and the Bank at the dates indicated, along with the minimum capital amounts and ratios were as follows:
| At September 30, 2018 | At December 31, 2017 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Dollars | Ratio | Dollars | Ratio | |||||||||||||
| Leverage Ratio | ||||||||||||||||
| BayCom Corp | $ | 181,709 | 13.68 | % | $ | 107,153 | 8.73 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 66,436 | 5.00 | % | 61,396 | 5.00 | % | ||||||||||
| Minimum regulatory requirement | 53,149 | 4.00 | % | 49,117 | 4.00 | % | ||||||||||
| United Business Bank | $ | 125,406 | 9.44 | % | $ | 111,143 | 8.92 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 66,438 | 5.00 | % | 62,279 | 5.00 | % | ||||||||||
| Minimum regulatory requirement | 53,150 | 4.00 | % | 49,823 | 4.00 | % | ||||||||||
| Common Equity Tier 1 Ratio | ||||||||||||||||
| BayCom Corp | $ | 181,709 | 19.62 | % | $ | 100,761 | 11.43 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 60,184 | 6.50 | % | 57,285 | 6.50 | % | ||||||||||
| Minimum regulatory requirement | 41,666 | 4.50 | % | 39,659 | 4.50 | % | ||||||||||
| United Business Bank | $ | 125,406 | 13.55 | % | $ | 111,143 | 12.43 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 60,149 | 6.50 | % | 58,109 | 6.50 | % | ||||||||||
| Minimum regulatory requirement | 41,642 | 4.50 | % | 40,229 | 4.50 | % | ||||||||||
| Tier 1 Risk-Based Capital Ratio | ||||||||||||||||
| BayCom Corp | $ | 188,101 | 20.32 | % | $ | 107,153 | 12.16 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 74,073 | 8.00 | % | 70,504 | 8.00 | % | ||||||||||
| Minimum regulatory requirement | 55,555 | 6.00 | % | 52,878 | 6.00 | % | ||||||||||
| United Business Bank | $ | 125,406 | 13.55 | % | $ | 111,143 | 12.43 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 74,030 | 8.00 | % | 71,519 | 8.00 | % | ||||||||||
| Minimum regulatory requirement | 55,523 | 6.00 | % | 53,639 | 6.00 | % | ||||||||||
| Total Risk-Based Capital Ratio | ||||||||||||||||
| BayCom Corp | $ | 193,911 | 20.94 | % | $ | 111,678 | 12.67 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 92,592 | 10.00 | % | 88,133 | 10.00 | % | ||||||||||
| Minimum regulatory requirement | 74,073 | 8.00 | % | 70,504 | 8.00 | % | ||||||||||
| United Business Bank | $ | 131,216 | 14.51 | % | $ | 115,668 | 12.94 | % | ||||||||
| Minimum requirement for "Well-Capitalized" | 92,538 | 10.00 | % | 89,399 | 10.00 | % | ||||||||||
| Minimum regulatory requirement | 74,030 | 8.00 | % | 71,519 | 8.00 | % | ||||||||||
| 62 |
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit.
As of September 30, 2018, and December 31, 2017, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $73.8 million and $98.7 million at September 30, 2018 and December 31, 2017, respectively. These off-balance sheet items represent 7.9% and 11.0% of net loans, respectively. The Company does not expect all commitments to be funded.
In the normal course of business, the Company accepts deposits from local agencies. The Company is required to provide collateral for certain local agency deposits in the states of California and Washington. As of September 30, 2018, and December 31, 2017, the FHLB had issued a letter of credit on behalf of the Company totaling $7.5 million and $9.9 million, respectively, as collateral for local agency deposits.
We have not engaged in any other off-balance-sheet transactions in the normal course of our lending activities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
For information regarding the Company’s market risk, see “Management Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Market Risk,” in the Company’s prospectus dated May 4, 2018, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) on May 4, 2018. As of September 30, 2018, the market risk of the Company has not changed materially from those disclosed in the prospectus.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
An evaluation of the disclosure controls and procedures as defined in Rule 13a 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) was carried out as of September 30, 2018 under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and several other members of the Company’s senior management. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
| 63 |
The Company’s CEO and CFO concluded that based on their evaluation at September 30, 2018, the Company’s disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to BayCom Corp’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.
(b) Changes in Internal Controls
There were no significant changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2018, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s prospectus dated May 4, 2018, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) on May 4, 2018. As of September 30, 2018, the risk factors of the Company have not changed materially from those disclosed in the prospectus.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | Not applicable. |
| (b) | Not applicable. |
| (c) | Not applicable. |
Item 3. Defaults of Senior Securities
Not applicable.
| 64 |
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
| 65 |
| 66 |
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Balance Sheets; (2) Condensed Consolidated Statements of Income; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Changes in Shareholders’ Equity; (5) Condensed Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements. |
| (1) | Incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on August 13, 2018 (File No. 001-38483). |
| (2) | Incorporated herein by reference to the Registration Statement on Form S-1 filed on April 11, 2018 (File No. 333-224236). |
| (3) | Incorporated herein by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the ended June 30, 2018, filed on August 14, 2018 (File No. 001-38433). |
| 67 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BAYCOM CORP | ||
| Registrant | ||
| Date: November 9, 2018 | By: | /s/ George Guarini |
| George Guarini | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 9, 2018 | By: | /s/ Keary Colwell |
| Keary Colwell | ||
| Senior Executive Vice President | ||
| Chief Financial Officer and Chief Administrative Officer | ||
| (Principal Financial and Accounting Officer) |
| 68 |
| Exhibit Index | ||
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements. |
| 69 |
Exhibit 31.1
Rule 13a-14(a) Certification
I, George Guarini, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BayCom Corp.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 9, 2018 | /s/ George Guarini | |
|
George Guarini Chief Executive Officer |
Exhibit 31.2
Rule 13a-14(a)Certification
I, Keary Colwell, certify that:
1 I have reviewed this quarterly report on Form 10-Q of BayCom Corp.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial instruments for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 9, 2018 | /s/ Keary Colwell | |
|
Keary Colwell Senior Executive Vice President, Chief Financial Officer and Chief Administrative Officer |
Exhibit 32
Section 1350 Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 each of the undersigned hereby certifies in his or her capacity as an officer of BayCom Corp (“the Company”) that the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2018, fully complies with the requirements of Section 13(a) of the Securities and Exchange Act of 1934, as amended, and that the information contained in such report fairly represents, in all material respects, the financial statements included in such report.
| Date: November 9, 2018 | /s/ George Guarini | |
| George Guarini | ||
| Chief Executive Officer | ||
| Date: November 9, 2018 | /s/ Keary Colwell | |
| Keary Colwell | ||
| Senior Executive Vice President | ||
| Chief Financial Officer and Chief Administrative Officer |
Document And Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 01, 2018 |
|
| Document Information [Line Items] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Sep. 30, 2018 | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 | |
| Entity Registrant Name | BayCom Corp | |
| Entity Central Index Key | 0001730984 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Trading Symbol | BCML | |
| Entity Common Stock, Shares Outstanding | 10,869,275 | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | false | |
| Entity Small Business | false |
CONDENSED CONSOLIDATED BALANCE SHEETS - (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Preferred Stock, No Par Value | $ 0 | $ 0 |
| Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
| Preferred Stock, Shares Issued | 0 | 0 |
| Preferred Stock, Shares Outstanding | 0 | 0 |
| Common Stock, No Par Value | $ 0 | $ 0 |
| Common Stock, Shares Authorized | 100,000,000 | 100,000,000 |
| Common Stock, Shares, Issued | 10,869,275 | 7,496,995 |
| Common Stock, Shares, Outstanding | 10,869,275 | 7,496,995 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Interest and dividend income: | ||||
| Loans, including fees | $ 12,044 | $ 12,115 | $ 36,398 | $ 29,219 |
| Investment securities and interest earning deposits in banks | 2,107 | 923 | 4,757 | 1,701 |
| FHLB dividends | 86 | 71 | 266 | 263 |
| FRB dividends | 50 | 22 | 169 | 67 |
| Total interest and dividend income | 14,287 | 13,131 | 41,590 | 31,250 |
| Interest expense: | ||||
| Deposits | 1,179 | 988 | 3,183 | 2,878 |
| Other borrowings | 93 | 151 | 378 | 252 |
| Total interest expense | 1,272 | 1,139 | 3,561 | 3,130 |
| Net interest income | 13,015 | 11,992 | 38,029 | 28,120 |
| Provision for loan losses | 1,081 | 58 | 1,578 | 345 |
| Net interest income after provision for loan losses | 11,934 | 11,934 | 36,451 | 27,775 |
| Noninterest income: | ||||
| Gain on sale of loans | 424 | 437 | 1,623 | 1,712 |
| Service charges and other fees | 509 | 379 | 1,424 | 821 |
| Loan servicing fees and other income | 312 | 150 | 831 | 460 |
| Other income | 393 | 117 | 1,569 | 455 |
| Total noninterest income | 1,638 | 1,083 | 5,447 | 3,448 |
| Noninterest expense: | ||||
| Salaries and employee benefits | 5,506 | 4,686 | 14,967 | 11,715 |
| Occupancy and equipment | 976 | 932 | 3,219 | 2,291 |
| Data processing | 526 | 813 | 1,849 | 3,247 |
| Other | 1,409 | 1,335 | 5,161 | 3,538 |
| Total noninterest expense | 8,417 | 7,766 | 25,196 | 20,791 |
| Income before provision for income taxes | 5,155 | 5,251 | 16,702 | 10,432 |
| Provision for income taxes | 1,637 | 2,070 | 4,827 | 4,333 |
| Net income | $ 3,518 | $ 3,181 | $ 11,875 | $ 6,099 |
| Earnings per common share : | ||||
| Basic: Earnings per common share | $ 0.31 | $ 0.46 | $ 1.30 | $ 0.97 |
| Weighted average shares outstanding: | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 |
| Diluted: Earnings per common share | $ 0.31 | $ 0.46 | $ 1.30 | $ 0.97 |
| Weighted average shares outstanding: | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Net income | $ 3,518 | $ 3,181 | $ 11,875 | $ 6,099 |
| Other comprehensive (loss) income: | ||||
| Change in unrealized (loss) gain on available-for-sale securities | (301) | 109 | (1,106) | 125 |
| Deferred tax benefit (expense) | 89 | (44) | 327 | (46) |
| Other comprehensive (loss) income, net of tax | (212) | 65 | (779) | 79 |
| Total comprehensive income | $ 3,306 | $ 3,246 | $ 11,096 | $ 6,178 |
BASIS OF PRESENTATION |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 | ||
| Accounting Policies [Abstract] | ||
| BASIS OF PRESENTATION | NOTE 1 – BASIS OF PRESENTATION BayCom Corp (the “Company”) is a bank holding company headquartered in Walnut Creek, California. United Business Bank (the “Bank”), the wholly owned banking subsidiary, is a California state-chartered bank which provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals. In the 14 years of operation, the Bank has grown to 17 full service banking branches. The main office is located in Walnut Creek, California and branch offices are located in Oakland, Castro Valley, Mountain View, Napa, Stockton (2), Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco and Glendale, California, and Seattle, Washington (2) and Albuquerque, New Mexico. In addition, the Bank has one loan production office in Los Angeles, California. The condensed consolidated financial statements include the accounts of the Company and the Bank. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2017. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year information has been reclassified to conform to current year presentation. The reclassifications had no impact on consolidated net income or shareholders’ equity. On August 13, 2018, the Company announced the signing of a definitive merger agreement whereby the Company will acquire Bethlehem Financial Corporation, (“BFC”), in a cash transaction valued at approximately $23.5 million. For more information, see Note 3 of the Notes to Consolidated Financial Statements contained in this Form 10-Q. Revenue Recognition In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations; and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. All of the Company’s revenue from contracts with customers in scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. For the nine months ended September 30, 2018, the Company recognized $238,000 in deposit fees, and $131,000 in debit card interchange fees considered in scope of ASC 606. There was a total of $5.1 million of noninterest income considered not in scope of ASC 606. On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards. |
ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 | ||
| New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | ||
| ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED | NOTE 2 - ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. This ASU was effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU No. 2014-09 on January 1, 2018. The Company has analyzed its revenue sources of noninterest income to determine when the satisfaction of the performance obligation occurs and the appropriate recognition of revenue. The adoption of ASU No. 2014-09 did not have a material impact on the Company’s condensed consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10) . Changes made to the current measurement model primarily affect the accounting for equity securities and readily determinable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The ASU also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has used the exit price notion in the fair value disclosure of financial instruments in Note 17 of the Selected Notes to the Consolidated Financial Statements in this Form 10-Q. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018 for public business entities and one year later for all other entities. Early application of the amendments in the ASU is permitted. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-10 contains clarifications to ASU 2016-02 by providing a new transition method in addition to the existing transition method contained in ASU No. 2016-02 to allow entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This amendment has the same effective date as ASU 2016-02. The effect of the adoption of these ASUs will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on currents lease the adoption of these ASUs is not expected to have a material impact on the Company’s consolidated financial statements. In September 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) . This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019 for SEC filers, one year later for non SEC filing public business entities and annual reporting periods beginning after December 15, 2020 for nonpublic business entities and interim periods within the reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is reviewing the requirements of ASU 2016-13 and expects to begin developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. Upon adoption, the Company expects changes in the processes and procedures used to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses which will also reflect the new requirement to include the nonaccretable principal differences on purchased credit-impaired loans; however, the Company is still in the process of determining the magnitude of the change and its impact on the Company's consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350) : Simplifying the Accounting for Goodwill Impairment. This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The amendments in this ASU are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2021 for public business entities who are not SEC filers and one year later for all other entities. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's consolidated financial statements. In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) . This ASU was issued to allow a reclassification from accumulated other comprehensive income to retained earnings from stranded tax effects resulting from the revaluation of the net deferred tax asset ("DTA") to the new corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. The Company elected to early adopt this ASU and to reclassify $36,000 of stranded tax effects from accumulated other comprehensive income to retained earnings in the fourth quarter of 2017. In March 2018, FASB issued ASU No. 2018-05, Income Taxes (Topic 740) . This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Tax Act for which the accounting under Topic 740 was not yet complete, but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the consolidated financial statements as of December 31, 2017. As of September 30, 2018, the Company did not incur any adjustments to the provisional recognition. In June 2018, the FASB issued ASU NO. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This new guidance simplifies the accounting for share-based payment transactions for acquiring goods and services from nonemployees, applying some of the same requirements as employee share-based payment transactions. This ASU will not affect the accounting for share-based payment awards to nonemployee directors, which will continue to be treated as employee share-based transactions under the current standards. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim period within those fiscal years. Early adoption is permitted. As of September 30, 2018, the Company does not expect this ASU to have a material impact on the Company’s consolidated financial statement, as it is not the Company’s practice to issue stock-based awards to pay for goods and services from nonemployees, other than nonemployee directors. August, 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement . This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies. Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other technical changes. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements. |
ACQUISITION |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION | NOTE 3 – ACQUISITION On April 28, 2017, to increase its market area, reduce net funding costs, and improve operating efficiency, the Company acquired all the assets and assumed all the liabilities of First ULB Corp. (“FULB”) and its subsidiary, United Business Bank, FSB. The Company added eight locations including seven full service branches and one loan production office. The branch offices are located in Oakland, San Jose, Sacramento, San Francisco, Glendale, California and Albuquerque, New Mexico and Tukwila, Washington. The loan production office is located in Los Angeles, California. The Company paid a total of $41.9 million comprised of cash of $19.0 million and 1,371,579 shares of its common stock at a price of $16.66 per share in exchange for all of the common shares outstanding of FULB. Each share of FULB common stock was converted into .9733 share of the Company’s common stock. As of the merger date, the fair value of FULB’s consolidated assets totaled approximately $473.1 million and deposits totaled approximately $428.0 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $32.8 million at the date of merger. The Company also assumed the Floating Rate Junior Subordinated Deferrable Interest Debentures issued by FULB (the “Subordinated Debentures”) which are held by the First ULB Statutory Trust 1 (the “Trust”) and the lease obligation related to each facility. On November 3, 2017, to enhance its market share in the state of Washington, the Company acquired Plaza Bank (“Plaza Bank”) adding one branch office located in Seattle, Washington. The Company issued 626,381 shares of its common stock at a price of $19.10 per share in exchange for the all of the common shares outstanding of Plaza Bank. Each share of Plaza Bank’s common stock outstanding was converted into .084795 share of the Company’s common stock. As of the merger date, the fair value of Plaza Bank’s assets totaled approximately $75.8 million and deposits totaled approximately $54.2 million. The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $10.8 million at the date of merger. The Company assumed the lease obligation related to the branch facility. The acquisitions resulted in $10.4 million in goodwill which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of the acquisitions which we evaluate for impairment annually. Pro Forma Results of Operations The operating results of the Company for the nine months ended September 30, 2018 and 2017 include the operating results of FULB and Plaza Bank since their respective acquisition dates. The following table represents the net interest and net income, basic earnings per share and diluted earning per share as if the acquisition with FULB and Plaza Bank were effective as of January 1, 2018 and 2017 for the respective year in which each acquisition was closed. The unaudited pro forma information in the following table is intended for informational purposes only and is not necessarily indicative of our future operating results that would have occurred had the mergers been completed at the beginning of each respective period. No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions. The contributions of the FULB and Plaza Bank are fully accounted for in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018. The contribution of the acquired operations from FULB and Plaza Bank to our proforma results of operations for the nine months ended September 30, 2018 and 2017 is as follows:
The core deposit intangible represents the estimated future benefits of acquired deposits and is recorded separately from the related deposits. The transactions resulted in a core deposit intangible asset of $4.8 million from the acquisitions. The amortized core deposit intangible expense during the first nine months of 2018 and 2017 totaled $868,000 and $573,000, respectively. The core deposit intangible is amortized on an accelerated basis over an estimated ten-year life. The amortization is higher in the early years and then declines in the later years. The asset is evaluated periodically for impairment. No impairment loss was recognized as of September 30, 2018. Acquisition-related expenses are recognized as incurred and continue until all systems have been converted and operational functions become fully integrated. We incurred acquisition-related expenses in the consolidated statements of income in 2017 as follows:
Pending Acquisition On August 10, 2018, the Company entered into a definitive agreement (the "Agreement") with Bethlehem Financial Corporation, headquartered in Belin, New Mexico, pursuant to which BFC will be merged with and into BayCom Corp, and immediately thereafter BFC’s bank subsidiary, MyBank, will be merged with and into United Business Bank. MyBank serves central New Mexico through five branches operating in Belen, Rio Communities, Los Lunas, Albuquerque, and Mountainair, New Mexico. Under the terms of the Agreement, BFC shareholders will receive $62.00 in cash for each share of BFC common stock or approximately $23.5 million in aggregate. In the event the Agreement is terminated under certain specified circumstances in connection with a competing transaction, BFC will be required to pay the Company a termination fee of $1.5 million in cash. The proposed transaction has been approved by regulatory authorities and by the shareholders of BFC. It is expected to be completed on November 30, 2018, subject to the remaining customary closing conditions. At September 30, 2018, BFC reported total assets of $157.2 million, total loans of $77.2 million and total deposits of $136.3 million. The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement, attached as Exhibit 2.1 to BayCom Corp’s Current Report on Form 8-K which was filed with the SEC on August 13, 2018. |
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INVESTMENTS AVAILABLE FOR SALE |
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| Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVESTMENTS AVAILABLE FOR SALE | NOTE 4 – INVESTMENTS AVAILABLE FOR SALE The amortized cost, gross unrealized gains and losses and estimated fair values of securities at the dates indicated are summarized as follows:
The gross unrealized losses and the estimated fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at September 30, 2018 follows:
The gross unrealized losses and the fair value for securities available-for-sale and held-to-maturity aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at December 31, 2017 follows:
At September 30, 2018, there were 20 securities in an unrealized loss position for greater than twelve consecutive months. At the same time, there were 87 securities in an unrealized loss position for less than twelve consecutive months. At December 31, 2017, there was one security in an unrealized loss position for greater than twelve consecutive months, and there were 45 securities in an unrealized loss position for less than twelve consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to interest rate changes and the Company does not intend to sell nor expects it will be required to sell investment securities identified with unrealized losses prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at September 30, 2018 and December 31, 2017. The amortized cost and estimated fair value of available-for-sale securities at the dates indicated by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
For the nine months ended September 30, 2018, pretax recognized gains of $3,000 were recorded and no losses were recorded. No realized gains or losses were recorded for the nine months ended September 30, 2017. |
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LOANS |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOANS | NOTE 5 - LOANS Loans are summarized as follows at the dates indicated:
As of and for the periods noted, the Company’s total impaired loans including non-accrual loans, accruing TDR loans and accreting purchased credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are as follows:
Impaired loans on accrual are loans that have been restructured and are performing under modified loan agreements, and principal and interest is determined to be collectible. Nonaccrual loans are loans where principal and interest have been determined to not be fully collectible. The following table presents nonaccrual loans at the dates indicated:
The government guaranteed portion of nonaccrual loans was $2.3 million as of September 30, 2018. There was no government guaranteed portion of nonaccrual loans as of December 31, 2017. The following table presents loans by class modified as troubled debt restructuring (“TDR”) including any subsequent defaults at the dates indicated :
There were no commitments for additional funding of TDR loans at September 30, 2018. There was one loan that was modified as a TDR during the nine months ended September 30, 2018. There were no loans modified within the previous twelve months for which there was a payment default. Risk rating system Each loan is assigned a risk grade based on its characteristics. Loans with low to average credit risk are assigned a lower risk grade than those with higher credit risk as determined by the individual loan characteristics. The Company’s “Pass” loans includes loans with acceptable business or individual credit risk where the borrower’s operations, cash flow or financial condition provides evidence of low to average levels of risk. A “Special Mention” asset has potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. A Special Mention rating should be a temporary rating, pending the occurrence of an event that would cause the risk rating to either improve or to be downgraded. A “Substandard” asset is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Assets are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. The potential loss does not have to be recognizable in an individual credit for that credit to be risk rated substandard. Any asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and value, highly questionable and improbable. Doubtful assets have a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of the asset. Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure. Recoveries on loans receivable previously charged off are credited to the allowance for loan losses. The following tables represent the internally assigned grade by class of loans at the dates indicated:
The following tables provide an aging of the Company's loan receivable at the dates indicated:
Purchase Credit Impaired Loans (“PCI”) As part of acquisitions, the Company has purchased loans, some of which have shown evidence of credit deterioration since origination and it is probable at the acquisition that all contractually requirement payments would not be collected. The carrying amount and unpaid balance of PCI loans at the dates indicated:
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ALLOWANCE FOR LOAN LOSSES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ALLOWANCE FOR LOAN LOSSES | NOTE 6 – ALLOWANCE FOR LOAN LOSSES The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
At September 30, 2018 a loan totaling $1.4 million was 90 days or more past due and accruing interest. This loan is well secured and in the process of being renewed. At December 31, 2017 there were no loans that were 90 days or more past due where interest was still accruing. |
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PREMISES AND EQUIPMENT |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and Equipment | NOTE 7 – PREMISES AND EQUIPMENT Premises and equipment consisted of the following at the dates indicated:
Depreciation and amortization included in occupancy and equipment expense for the three and nine months ended September 30, 2018 was $227,000 and $693,000 compared to $225,000 and $532,000 for the three and nine months ended September 30, 2017, respectively. The Company leases its branches and administrative offices under noncanceable operating leases. The leases expire on various dates through 2025. All leases have an option to renew with renewal periods between three to twelve years. Future minimum lease payments as of September 30, 2018 are as follows:
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CASH SURRENDER VALUE OF LIFE INSURANCE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CASH SURRENDER VALUE OF LIFE INSURANCE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CASH SURRENDER VALUE OF LIFE INSURANCE | NOTE 8 - CASH SURRENDER VALUE OF LIFE INSURANCE Activity on the Bank owned life insurance policies is as follows for the periods indicated:
The Bank owned life insurance policies are recorded on the Company’s financial statements at their reported cash (surrender) values. As a result of current tax law and the nature of these policies, the Company records any increase, less any applicable surrender charges, in cash value of these policies as nontaxable noninterest income. If the Company decided to surrender any of the policies prior the death of the insured, such surrender may result in a tax expense related to the life-to-date cumulative increase in the cash surrender value of the policy. If the Company retains such policies until the death of the insured, the Company would receive nontaxable proceeds from the insurance company equal to the death benefit of the policies. |
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GOODWILL AND INTANGIBLE ASSETS |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND INTANGIBLE ASSETS | NOTE 9 – GOODWILL AND INTANGIBLE ASSETS Goodwill The goodwill at September 30, 2018 and December 31, 2017 was $10.4 million. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. As of September 30, 2018 and September 30, 2017, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the Company exceeded its carrying value, including goodwill. The quantitative assessment indicated it was more than likely than not that its fair value exceeded its carrying value, resulting in no impairment. Core Deposit Intangible Acquired intangible assets at the dates indicated were as follows:
The Company recorded total amortization expense of $868,000 for the nine months ended September 30, 2018, $850,000 for the year ended December 31, 2017 and $573,000 for the nine months ended September 30, 2017. Estimated annual amortization is as follows as of September 30, 2018:
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OTHER ASSETS |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER ASSETS | NOTE 10 – OTHER ASSETS At the dates indicated, the Company’s other assets consisted of the following:
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DEPOSITS |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DEPOSITS | NOTE 11 – DEPOSITS Deposits consisted of the following at the dates indicated:
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BORROWINGS |
9 Months Ended | |
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Sep. 30, 2018 | ||
| Debt Disclosure [Abstract] | ||
| BORROWINGS | NOTE 12 - BORROWINGS At September 30, 2018 the Company had no borrowings. At December 31, 2017 the Company had a secured term borrowing totaling $6.0 million and a line totaling $9.0 million with a correspondent bank secured by the Bank’s common stock. The Company has an approved secured borrowing facility with the FHLB for up to 25% of total assets for a term not to exceed five years under a blanket lien of certain types of loans. There were no outstanding borrowings under this facility at September 30, 2018 and December 31, 2017. As of September 30, 2018, the FHLB had issued a letter of credit on behalf of the Bank totaling $7.5 million as collateral for local agency deposits. No amounts have been drawn under this letter of credit. The Company has four Federal Funds lines with available commitments totaling $55.0 million with four correspondent banks. There were no amounts outstanding under these facilities at September 30, 2018 and December 31, 2017. |
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
9 Months Ended | |
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Sep. 30, 2018 | ||
| Debt Disclosure [Abstract] | ||
| JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES | NOTE 13– JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES The Company has an investment in the First ULB Statutory Trust I that is accounted for under the equity method. The Company acquired the Trust in the acquisition of FULB. The Trust is a Delaware business formed with capital of $192,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. The Trust issued 6,200 Floating Rate Capital Trust Pass-Through Securities (“Trust Preferred Securities”), with a liquidation value of $1,000 per security, for gross proceeds of $6.2 million. The entire proceeds of the issuance were invested by the Trust in $6.4 million of Subordinated Debentures issued by FULB and assumed by the Company in the FULB acquisition, with identical maturities, repricing and payment terms as the Trust Preferred Securities. The Subordinated Debentures mature on September 15, 2034, bear a current interest rate of 4.90% (based on 3-months Libor plus 2.5%), with quarterly repricing. The Subordinated Debentures are redeemable by the Company subject to prior approval from the Federal Reserve Board of Governors (“Federal Reserve”), on any March 15, September 15, September 15, or December 15. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the debenture. The Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on September 15, 2034. As of September 30, 2018 and December 31, 2017, the Trust Preferred Securities had an outstanding net book value of $5.4 million. Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security for each successive period beginning on March 15, June 15, September 15, and December 15, of each year. The Company also has the right to defer the payment of interest on each of the Subordinated Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity date. During such deferral period, distributions on the corresponding Trust Preferred Securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Trust Preferred Securities. |
OTHER LIABILITIES |
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| Other Liabilities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER LIABILITIES | NOTE 14 – OTHER LIABILITIES Other liabilities were comprised of the following at the dates indicated:
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EQUITY INCENTIVE PLANS |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EQUITY INCENTIVE PLANS | NOTE 15 – EQUITY INCENTIVE PLANS 2017 Omnibus Equity Incentive Plan The shareholders approved the Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017. The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-employee directors. An equity incentive award may be an option, stock appreciation rights, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan. Factors considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period. Generally, awards are restricted and have a vesting period of no longer than ten years. Subject to adjustment as provided in the 2017 Plan, the maximum number of shares of common stock that may be delivered pursuant to awards granted under the 2017 Plan is 450,000. The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors. The annual stock grant limit per person for officers and employees is the lessor of 50,000 shares or a value of $2.0 million, and per person for directors the maximum is 25,000 shares. All unvested restricted shares outstanding vest in the event of a change in control of the Company. There were no equity incentive awards granted during the three months ended September 30, 2018. During the nine months ended September 30, 2018, 93,380 shares of restricted stock were awarded and no other equity incentive awards were granted. During the three months ended September 30, 2017, 28,500 shares of restricted stock were awarded and no other equity incentive awards were granted. Awarded shares of restricted stock vest over (i) a one-year period following the date of grant, in the case of the non-employee directors, and (ii) a three-year or five-year period following the date of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers. 2014 Omnibus Equity Incentive Plan In 2014, the shareholders approved the Omnibus Equity Incentive Plan (the “2014 Plan”). A total of 148,962 equity incentive awards have been granted under the 2014 Plan. The awards are shares of restricted stock and have a vesting period of one to five years. No future equity awards will be made from the 2014 Plan. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date. For the nine months ended September 30, 2018 and 2017, total compensation expense for these plans was $818,000 and $318,000, respectively. As of September 30, 2018, there was $2.5 million of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately two years. The following table provides a summary of changes in non-vested restricted stock awards for the nine months ended September 30, 2018 and 2017:
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EARNINGS PER SHARE CALCULATION |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE CALCULATION | NOTE 16 – EARNINGS PER SHARE CALCULATION Earnings per common share (“EPS”) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. Dilutive income per share includes the effect of stock options and other potentially dilutive securities using the treasury stock method. Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share. All of the Company's nonvested restricted stock awards qualify as participating securities. There were no dilutive shares at September 30, 2018 or 2017. Earnings per share have been computed as follows for the periods shown:
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FAIR VALUE MEASUREMENT |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENT | NOTE 17 – FAIR VALUE MEASUREMENT On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825 10), Recognition and Measurement of Financial Assets and Financial Liabilities, which requires the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The Company’s fair values for financial instruments at September 30, 2018 were determined based on these requirements. The following definitions describe the levels of inputs that may be used to measure fair value: Level 1 - Inputs are unadjusted quoted prices in active markets (as defined) for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 - Inputs are inputs other than quoted prices include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 - Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process. There were no transfers between levels during 2018 or 2017. The following financial instruments are measured at fair value on a recurring basis at the dates indicated:
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The following tables present the recorded amounts of impaired loans measured at fair value on a non-recurring basis at the dates indicated:
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral equals or exceeds the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on a non-observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3. Fair Values of Financial Instruments. There have been no significant changes in valuation techniques during the periods reported. The following methods and assumptions were used to estimate the fair value disclosure for financial instruments: Cash and cash equivalents - Cash and cash equivalents include cash and due from banks and Fed funds sold, and are valued at their carrying amounts because of the short-term nature of these instruments. Interest bearing deposits in financial institutions - Interest bearing deposits in financial institutions are valued based on quoted interest rates for comparable instruments with similar remaining maturities. Investment Securities - The fair value of available of sale securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers. Other equity securities - The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par. Loans – Loans with variable interest rates are valued at their exit price value, because these loans are regularly adjusted to market rates. The fair value of fixed rate loans with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk. Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what the secondary markets are currently offering for loans with similar characteristics. As such, the Bank classifies those loans subjected to nonrecurring fair value adjustments as Level 2. Accrued interest receivable and payable - The accrued interest receivable and payable balance approximates its fair value. Deposits - The fair value of non-interest bearing deposits, interest bearing transaction accounts and savings accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities. Other borrowings - The fair value is estimated by discounting the future cash flows using current rates offered for similar borrowings. The discount rate is equal to the market rate of currently offered similar products. This is an adjustable rate borrowing and adjusts to market on a quarterly basis. Junior Subordinated Deferrable Interest Debentures - The fair value of the Subordinated Debentures is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 3 classification. The Subordinated Debentures are carried at their current carrying value, because the Subordinated Debentures regularly adjust to market rates Undisbursed loan commitments and standby letters of credit - The fair value of the off-balance sheet items is based on discounted cash flows of expected fundings. Non-financial assets and liabilities defined by the FASB ASC 820, Fair Value measurements, such as Bank premises and equipment, deferred taxes, and other liabilities are excluded from the table. In addition, we have not disclosed the fair value of financial instruments specifically. The following table provides summary information on the estimated fair value of financial instruments at September 30, 2018:
The carrying amount of loans includes $5.2 million of nonaccrual loans (loans that are not accruing interest) as of September 30, 2018. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. The following table provides summary information on the estimated fair value of financial instruments at December 31, 2017:
The carrying amounts of loans include $ 179 ,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2017. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. |
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COMMITMENTS AND CONTINGENCIES |
9 Months Ended | |
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Sep. 30, 2018 | ||
| Commitments and Contingencies Disclosure [Abstract] | ||
| COMMITMENTS AND CONTINGENCIES | NOTE 18 – COMMITMENTS AND CONTINGENCIES Lending and Letter of Credit Commitments In the normal course of business, the Company enters into various commitments to extend credit which are not reflected in the financial statements. These commitments consist of the undisbursed balance on personal and commercial lines of credit and of undisbursed funds on construction and development loans. At September 30, 2018 and December 31, 2017, undisbursed commitments total $73.4 million and $98.7 million, respectively. In addition, at September 30, 2018 and December 31, 2017, the Company has issued standby letter of credit commitments, primarily issued for the third party performance obligations of Company clients totaling $402,000 and $213,000, respectively, of which none was outstanding at both September 30, 2018 and December 31, 2017. The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon. The Company’s outstanding loan commitments are made using the same underwriting standards as comparable outstanding loans. As of September 30, 2018 and December 31, 2017, the reserve associated with these commitments was $310,000. Local Agency Deposits In the normal course of business, the Company accepts deposits from local agencies. The Company is required to provide collateral for certain local agency deposits in the states of California and Washington. As of September 30, 2018 and December 31, 2017 the FHLB issued a letter of credit on behalf of the Company totaling $7.5 million and $9.9 million, respectively, as collateral for local agency deposits. |
BASIS OF PRESENTATION (Policies) |
9 Months Ended | |
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Sep. 30, 2018 | ||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Revenue Recognition | Revenue Recognition In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations; and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. All of the Company’s revenue from contracts with customers in scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. For the nine months ended September 30, 2018, the Company recognized $238,000 in deposit fees, and $131,000 in debit card interchange fees considered in scope of ASC 606. There was a total of $5.1 million of noninterest income considered not in scope of ASC 606. On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards. |
ACQUISITION (Tables) |
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| Business acquisition, pro forma information | The contributions of the FULB and Plaza Bank are fully accounted for in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018. The contribution of the acquired operations from FULB and Plaza Bank to our proforma results of operations for the nine months ended September 30, 2018 and 2017 is as follows:
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| Business acquisition, integration, restructuring and other related costs | Acquisition-related expenses are recognized as incurred and continue until all systems have been converted and operational functions become fully integrated. We incurred acquisition-related expenses in the consolidated statements of income in 2017 as follows:
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INVESTMENTS AVAILABLE FOR SALE (Tables) |
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| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of amortized cost and estimated fair values of securities available-for-sale | The amortized cost, gross unrealized gains and losses and estimated fair values of securities at the dates indicated are summarized as follows:
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| Schedule of available-for-sale securities, continuous unrealized loss position, fair value | The gross unrealized losses and the estimated fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at September 30, 2018 follows:
The gross unrealized losses and the fair value for securities available-for-sale and held-to-maturity aggregated by the length of time that individual securities have been in a continuous unrealized loss position was at December 31, 2017 follows:
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| Schedule of investments classified by contractual maturity date | The amortized cost and estimated fair value of available-for-sale securities at the dates indicated by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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LOANS (Tables) |
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| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts, notes, loans and financing receivable | Loans are summarized as follows at the dates indicated:
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| Schedule of impaired financing receivables | As of and for the periods noted, the Company’s total impaired loans including non-accrual loans, accruing TDR loans and accreting purchased credit impaired (“PCI”) loans that have experienced post-acquisition declines in cash flows expected to be collected are as follows:
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| Schedule of financing receivables, non accrual status | The following table presents nonaccrual loans at the dates indicated:
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| Schedule of debtor troubled debt restructuring, current period | The following table presents loans by class modified as troubled debt restructuring (“TDR”) including any subsequent defaults at the dates indicated :
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| Schedule of financing receivable credit quality indicators | The following tables represent the internally assigned grade by class of loans at the dates indicated:
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| Schedule of past due financing receivables | The following tables provide an aging of the Company's loan receivable at the dates indicated:
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| Schedule of purchase credit impaired loans | The carrying amount and unpaid balance of PCI loans at the dates indicated:
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ALLOWANCE FOR LOAN LOSSES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses on Financing Receivables [Table Text Block] | The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
The following tables summarize the Company’s allowance for loan losses and loan balances individually and collectively evaluated for impairment as of or for the periods ending as indicated:
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PREMISES AND EQUIPMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment | Premises and equipment consisted of the following at the dates indicated:
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| Schedule of Future Minimum Rental Payments for Operating Leases | The Company leases its branches and administrative offices under noncanceable operating leases. The leases expire on various dates through 2025. All leases have an option to renew with renewal periods between three to twelve years. Future minimum lease payments as of September 30, 2018 are as follows:
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CASH SURRENDER VALUE OF LIFE INSURANCE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CASH SURRENDER VALUE OF LIFE INSURANCE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Activity on the Bank Owned Life Insurance Policies | Activity on the Bank owned life insurance policies is as follows for the periods indicated:
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GOODWILL AND INTANGIBLE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of finite-lived intangible assets | Acquired intangible assets at the dates indicated were as follows:
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| Schedule of finite-lived intangible assets, future amortization expense | The Company recorded total amortization expense of $868,000 for the nine months ended September 30, 2018, $850,000 for the year ended December 31, 2017 and $573,000 for the nine months ended September 30, 2017. Estimated annual amortization is as follows as of September 30, 2018:
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OTHER ASSETS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other assets | At the dates indicated, the Company’s other assets consisted of the following:
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DEPOSITS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposit liabilities, type | Deposits consisted of the following at the dates indicated:
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OTHER LIABILITIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | Other liabilities were comprised of the following at the dates indicated:
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EQUITY INCENTIVE PLANS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of nonvested restricted stock units activity | The following table provides a summary of changes in non-vested restricted stock awards for the nine months ended September 30, 2018 and 2017:
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EARNINGS PER SHARE CALCULATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of earnings per share, basic and diluted | Earnings per share have been computed as follows for the periods shown:
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FAIR VALUE MEASUREMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value, assets measured on recurring basis | The following financial instruments are measured at fair value on a recurring basis at the dates indicated:
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| Schedule of fair value measurements, nonrecurring | The following tables present the recorded amounts of impaired loans measured at fair value on a non-recurring basis at the dates indicated:
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| Schedule of estimated fair value of financial instruments | The following table provides summary information on the estimated fair value of financial instruments at September 30, 2018:
The carrying amount of loans includes $5.2 million of nonaccrual loans (loans that are not accruing interest) as of September 30, 2018. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received. The following table provides summary information on the estimated fair value of financial instruments at December 31, 2017:
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BASIS OF PRESENTATION (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2018 |
Aug. 13, 2018 |
Aug. 10, 2018 |
|
| Proceeds from Deposits from Customers | $ 238,000 | ||
| New Revenue Recognition Accounting Standard | 5,100 | ||
| Bethlehem Financial Corporation [Member] | |||
| Business Combination Cash Consideration Payable | $ 23,500 | $ 23,500 | |
| Debit Card [Member] | |||
| Revenue from Contract with Customer, Including Assessed Tax | $ 131,000 |
ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED (Details Textual) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended |
|---|---|---|
Feb. 28, 2018 |
Dec. 31, 2017 |
|
| New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | ||
| Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 21.00% | |
| Reclassification from Accumulated Other Comprehensive Income, Current Period, Net of Tax | $ 36,000 |
ACQUISITION (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Net interest income | $ 13,015 | $ 11,992 | $ 38,029 | $ 28,120 | |
| Net income | $ 3,518 | $ (839) | $ 3,181 | $ 11,875 | $ 6,099 |
| Basic earnings per share | $ 0.31 | $ 0.46 | $ 1.30 | $ 0.97 | |
| Diluted earnings per share | $ 0.31 | $ 0.46 | $ 1.30 | $ 0.97 | |
| Pro Forma [Member] | |||||
| Net interest income | $ 33,851 | ||||
| Net income | $ 7,689 | ||||
| Basic earnings per share | $ 1.23 | ||||
| Diluted earnings per share | $ 1.23 | ||||
ACQUISITION (Details 1) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Professional fees | $ 574 | |||||
| Data processing | $ 526 | $ 813 | $ 1,849 | $ 3,247 | 2,441 | |
| Salaries and employee benefits | $ 5,506 | 4,686 | $ 14,967 | $ 11,715 | 287 | |
| Other | 174 | |||||
| Total year-to-date | $ 3,476 | |||||
| FULB [Member] | ||||||
| Professional fees | 349 | |||||
| Data processing | 1,586 | |||||
| Salaries and employee benefits | 212 | |||||
| Other | 120 | |||||
| Total year-to-date | $ 2,267 | |||||
| Plaza [Member] | ||||||
| Professional fees | $ 225 | |||||
| Data processing | 855 | |||||
| Salaries and employee benefits | 75 | |||||
| Other | 54 | |||||
| Total year-to-date | $ 1,209 | |||||
INVESTMENTS AVAILABLE FOR SALE (Details 2) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Available-for-sale: Amortized Cost | ||
| Due in one year or less | $ 8,172 | $ 5,248 |
| Due after one through five years | 12,510 | 4,987 |
| Due after five years through ten years | 19,561 | 14,619 |
| Due after ten years | 30,242 | 15,348 |
| Available-for-sale Amortized Cost | 70,485 | 40,202 |
| Available-for-sale: Fair Value | ||
| Due in one year or less | 8,146 | 5,243 |
| Due after one through five years | 12,416 | 4,959 |
| Due after five years through ten years | 19,278 | 14,737 |
| Due after ten years | 29,842 | 15,566 |
| Available-for-sale Fair Value | $ 69,682 | $ 40,505 |
INVESTMENTS AVAILABLE FOR SALE (Details Textual) $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Gain On Investments, Pretax Recognised | $ 3,000 |
LOANS (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|---|---|
| Commercial and industrial | $ 113,229 | $ 113,801 | ||||
| Construction and land | 33,038 | 22,720 | ||||
| Commercial real estate | 671,515 | 669,150 | ||||
| Residential | 83,838 | 84,781 | ||||
| Consumer | 630 | 1,096 | ||||
| Total loans | 902,250 | 891,548 | ||||
| Net deferred loan fees | (381) | (469) | ||||
| Allowance for loan losses | (5,500) | $ (4,600) | (4,215) | $ (4,075) | $ (4,075) | $ (3,775) |
| Net loans | $ 896,369 | $ 886,864 |
LOANS (Details 2) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Financing Receivable, Recorded Investment, Nonaccrual Status | $ 5,206 | $ 179 |
| Commercial real estate [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | 2,008 | 166 |
| Residential [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | 127 | 0 |
| Commercial and industrial [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | 3,071 | 13 |
| Construction and land [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | 0 | 0 |
| Consumer [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | $ 0 | $ 0 |
LOANS (Details 6) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Unpaid Principal Balance | $ 14,160 | $ 17,417 |
| Carrying Value | 11,933 | 14,315 |
| Consumer [Member] | ||
| Unpaid Principal Balance | 0 | 0 |
| Carrying Value | 0 | 0 |
| Commercial real estate [Member] | ||
| Unpaid Principal Balance | 12,279 | 15,536 |
| Carrying Value | 10,552 | 13,018 |
| Residential [Member] | ||
| Unpaid Principal Balance | 1,774 | 1,732 |
| Carrying Value | 1,379 | 1,295 |
| Commercial and industrial [Member] | ||
| Unpaid Principal Balance | 107 | 149 |
| Carrying Value | 2 | 2 |
| Construction and land [Member] | ||
| Unpaid Principal Balance | 0 | |
| Carrying Value | $ 0 | $ 0 |
LOANS (Details Textual) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Financing Receivable, Recorded Investment, Nonaccrual Status | $ 5,206 | $ 179 |
| Loans Insured or Guaranteed by US Government Authorities [Member] | ||
| Financing Receivable, Recorded Investment, Nonaccrual Status | $ 2,300 |
ALLOWANCE FOR LOAN LOSSES (Details Textual) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | $ 0 | $ 0 |
| Greater Than 90 Days Past Due [Member] | ||
| Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | $ 1,400 | $ 0 |
PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Premises owned | $ 7,286 | $ 7,276 |
| Write-down on premises owned | (600) | 0 |
| Net premises owned | 6,686 | 7,276 |
| Less accumulated depreciation and amortization | (3,754) | (3,087) |
| Total premises and equipment, net | 7,744 | 8,399 |
| Leasehold Improvements [Member] | ||
| Leasehold improvements | 1,600 | 1,271 |
| Furniture Fixtures and Equipment [Member] | ||
| Leasehold improvements | $ 3,212 | $ 2,939 |
PREMISES AND EQUIPMENT (Details 1) $ in Thousands |
Sep. 30, 2018
USD ($)
|
|---|---|
| 2018 | $ 557 |
| 2019 | 2,177 |
| 2020 | 1,898 |
| 2021 | 1,575 |
| 2022 | 1,442 |
| Thereafter | 1,424 |
| Total | $ 9,073 |
PREMISES AND EQUIPMENT (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Depreciation, Depletion and Amortization | $ 227,000 | $ 225,000 | $ 693,000 | $ 532,000 |
CASH SURRENDER VALUE OF LIFE INSURANCE (Details) $ in Thousands |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
| Beginning balance | $ 17,132 | $ 6,470 | $ 6,470 |
| Increase in cash value of life insurance | 231 | 213 | 232 |
| Additional policies purchased | 0 | 4,003 | 10,430 |
| Death benefit carrying value payout | (777) | $ 0 | 0 |
| Ending balance | 16,586 | 17,132 | |
| End of period death benefit | $ 37,105 | $ 38,581 | |
| Number of policies owned | 42 | 44 | |
| Insurance companies used | 5 | 5 | |
| Current and former directors and officers covered | 25 | 26 | |
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||
| Beginning core deposit intangible | $ 4,772 | $ 802 | $ 802 |
| Additions | 0 | 4,820 | |
| Less accumulated amortization | (868) | $ (573) | (850) |
| Ending net core deposit intangible | $ 3,904 | $ 4,772 | |
GOODWILL AND INTANGIBLE ASSETS (Details 1) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||
| 2018 | $ 289 | ||
| 2019 | 1,145 | ||
| 2020 | 991 | ||
| 2021 | 977 | ||
| 2022 | 325 | ||
| Thereafter | 177 | ||
| Total | $ 3,904 | $ 4,772 | $ 802 |
GOODWILL AND INTANGIBLE ASSETS (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||
| Goodwill | $ 10,365 | $ 10,365 | |
| Amortization of Intangible Assets | $ 868 | $ 573 | $ 850 |
OTHER ASSETS (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Deferred tax assets, net | $ 7,429 | $ 6,519 |
| Accrued interest receivable | 3,337 | 3,002 |
| Investment in SBIC Fund | 1,532 | 799 |
| Prepaid assets | 1,238 | 2,391 |
| Servicing asset | 967 | 1,270 |
| Investment in statuatory trust | 301 | 296 |
| All other | 1,125 | 880 |
| Other Assets | $ 15,929 | $ 15,157 |
DEPOSITS (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Demand deposits | $ 349,346 | $ 327,309 |
| NOW accounts and savings | 211,629 | 191,550 |
| Money market | 366,417 | 356,640 |
| Time under $250,000 | 104,367 | 126,271 |
| Time $250,000 and over | 98,962 | 102,535 |
| Total deposits | $ 1,130,721 | $ 1,104,305 |
BORROWINGS (Details Textual) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, General Description of Terms | approved secured borrowing facility with the FHLB for up to 25% of total assets for a term not to exceed five years | |
| Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds | $ 0 | $ 0 |
| Line of Credit Facility, Current Borrowing Capacity | $ 7,500,000 | |
| Other Commitments, Description | Federal Funds lines with available commitments totaling $55.0 million with four correspondent banks | |
| Other Commitment | $ 55,000,000 | |
| Secured Long-term Debt, Noncurrent | 6,000,000 | |
| Long-term Line of Credit | $ 9,000,000 |
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Details Textual) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Subordinated Borrowing Terms and Conditions | The Trust is a Delaware business formed with capital of $192,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. | |
| Subordinated Borrowing Description | The Trust issued 6,200 Floating Rate Capital Trust Pass-Through Securities (“Trust Preferred Securities”), with a liquidation value of $1,000 per security | |
| Proceeds from Subordinated Short-term Debt | $ 6,400,000 | |
| Subordinated Borrowing, Due Date | Sep. 15, 2034 | |
| Subordinated Borrowing, Interest Rate | 4.90% | |
| Preferred Stock, Amount Authorized | $ 192,000 | |
| Preferred Stock, Liquidation Preference, Value | 1,000 | |
| Proceeds from Issuance of Preferred Stock and Preference Stock | 6,200,000 | |
| Junior Subordinated Notes | $ 5,428,000 | $ 5,387,000 |
| Junior Subordinated Debt [Member] | ||
| Debt Instrument, Description of Variable Rate Basis | 3-months Libor plus 2.5% | |
| Debt Instrument, Basis Spread on Variable Rate | 2.50% |
OTHER LIABILITIES (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Accrued expenses | $ 3,001 | $ 3,716 |
| Participant's portion payable | 1,591 | 0 |
| Deferred rents | 546 | 287 |
| CDARS Deferred Fees | 501 | 487 |
| Contingent liability | 435 | 878 |
| Accounts payable | 311 | 240 |
| Reserve for unfunded commitments | 310 | 310 |
| Accrued interest | 175 | 141 |
| Miscellaneous other liabilities | 612 | 1,362 |
| Other Liabilities | $ 7,482 | $ 7,421 |
EQUITY INCENTIVE PLANS (Details) - $ / shares shares in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
|
| Shares Non-vested | 152,155 | 74,007 | 67,481 | 77,405 | 77,405 | 68,605 |
| Shares Granted | 0 | 78,148 | 15,232 | 14,367 | 0 | 14,133 |
| Shares Vested | (21,155) | 0 | (8,706) | (24,291) | 0 | (5,333) |
| Shares Non-vested | 131,000 | 152,155 | 74,007 | 67,481 | 77,405 | 77,405 |
| Weighted-Average Grant Date Fair Value Non-vested | $ 18.47 | $ 14.75 | $ 13.51 | $ 12.06 | $ 12.06 | $ 11.51 |
| Weighted-Average Grant Date Fair Value Granted | 0 | 22.00 | 19.45 | 17.00 | 0 | 14.86 |
| Weighted-Average Grant Date Fair Value Vested | 14.08 | 0 | 13.40 | 10.96 | 0 | 12.47 |
| Weighted-Average Grant Date Fair Value Non-vested | $ 19.18 | $ 18.47 | $ 14.75 | $ 13.51 | $ 12.06 | $ 12.06 |
EARNINGS PER SHARE CALCULATION (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Net income | $ 3,518 | $ (839) | $ 3,181 | $ 11,875 | $ 6,099 |
| Weighted Average number of shares outstanding | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | |
| Average number of shares outstanding used to calculate diluted earngs per share | 10,869,275 | 6,870,614 | 9,295,274 | 6,270,991 | |
| Basic and diluted earnings per share | $ 0.31 | $ 0.46 | $ 1.30 | $ 0.97 | |
FAIR VALUE MEASUREMENT (Details Textual) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Fair Value Disclosures [Abstract] | ||
| Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest | $ 5,200 | $ 179,000 |
COMMITMENTS AND CONTINGENCIES (Details Textual)) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Loss Contingencies [Line Items] | ||
| Loans and Leases Receivable, Loans in Process | $ 73,400 | $ 98,700 |
| Guarantor Obligations, Maximum Exposure, Undiscounted | 402,000 | 213,000 |
| Loss Contingency Accrual | 310,000 | 310,000 |
| Advances from Federal Home Loan Banks | $ 7,500 | $ 9,900 |