Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the Consolidated Financial Statements and footnotes thereto that appear in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. The information contained in this section should be read in conjunction with these Consolidated Financial Statements and footnotes and the business and financial information provided in this Form 10-K. Unless otherwise indicated, the financial information presented in this section reflects the consolidated financial condition and results of operations of BayCom Corp and its subsidiary, United Business Bank. Because we conduct all of our material business operations through the Bank, the entire discussion relates to activities primarily conducted by the Bank.
History and Overview
BayCom is a bank holding company headquartered in Walnut Creek, California. The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individual consumers, through its branch network. At December 31, 2025, the Bank had 34 full-service branches, with 16 locations in California, one in Nevada, one in Washington, five in New Mexico and 11 in Colorado.
Our principal objective is to enhance shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth. Since 2010, we have expanded our geographic footprint through ten strategic acquisitions, which includes our most recent acquisition of PEB, which closed in February 2022. We believe our strategy of selectively acquiring and integrating community banks has yielded economies of scale and improved our overall franchise efficiency. Looking forward, we expect to continue pursuing strategic acquisitions, believing our targeted market areas present us with many and varied acquisition opportunities. We are also committed to organic growth, leveraging the potential within metropolitan and community markets where we
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currently operate. These markets offer significant opportunities to expand our commercial client base, increase interest-earning assets, and enhance market share. We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California; Seattle, Washington; Denver, Colorado; and Las Vegas, Nevada, and community markets including Albuquerque, New Mexico and Custer, Delta and Grand counties, Colorado, provides us access to low cost, stable core deposits that we can use to fund commercial loan growth. We strive to enhance our clients’ banking experience by providing them with a comprehensive suite of sophisticated products and services tailored to meet their needs, while delivering the high-quality, relationship-based service of a community bank. At December 31, 2025, the Company, on a consolidated basis, had total assets of $2.6 billion, loans receivable, net of $2.0 billion, deposits of $2.2 billion and shareholders’ equity of $338.6 million.
We continue to focus on growing our commercial loan portfolios through both acquisitions and organic growth. At December 31, 2025, our $2.0 billion total loan portfolio included $224.9 million, or 10.9%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.8 billion, or 89.1%, consisted of loans we originated.
The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less the provision for credit losses. 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.
Changes in market interest rates, the slope of the yield curve, and the rates we earn on interest earning assets or pay on interest bearing liabilities have a significant impact on our net interest spread, net interest margin and net interest income. During 2025, the Federal Open Market Committee of the Federal Reserve (“FOMC”) lowered the target range for the federal funds rate in response to continued moderation in inflation and evolving economic conditions. The FOMC reduced the target range by 75 basis points, from 4.25%–4.50% at December 31, 2024, to 3.50%–4.25% by year-end 2025. All reductions occurred between September and December 2025. Correspondingly, the prime rate, which generally moves in relation to the federal funds rate, was approximately 6.75% at year-end 2025. These rate levels influenced both asset yields and funding costs during the year.
Net interest margin increased to 3.82% for the year ended December 31, 2025, compared to 3.74% for the previous year and was driven by lower average costs of interest-bearing liabilities, particularly on money market and time deposits, and the redemption of subordinated debt. Based on the current composition of our balance sheet, we believe net interest margin could improve if interest rates remain at or near current levels; however, a decline in interest rates would likely negatively impact our net interest income.
The provision for credit losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions. We recorded a $4.1 million provision for credit losses for the year ended December 31, 2025, primarily driven by loan growth and increases in specific reserves. Net charge-offs totaled $948,000 for the year ended December 31, 2025. The lower net charge-offs primarily reflect fewer nonaccrual loan charge-offs, as well as payoffs and collections on previously nonaccrual loans.
Our net income is also affected by noninterest income and noninterest expenses. Noninterest income consists of, among other things: (i) service charges on loans and deposits; (ii) gain on sale of loans; and (iii) gain (loss) on equity securities and (iv) other noninterest income. Our noninterest income decreased $291,000 during the year ended December 31, 2025, as compared to 2024. Noninterest expense consists of, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing; (iv) FDIC and state assessments; (v) outside and professional services; (vi) amortization of intangibles; and (vii) other general and administrative expenses. Our noninterest expenses decreased $278,000 during the year ended December 31, 2025, as compared to 2024. Noninterest income and noninterest expenses are influenced by growth of our banking operations and loan and deposit volumes.
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Business Strategy
Our strategy is to continue to make strategic acquisitions of financial institutions within the Western United States, grow organically and preserve our strong asset quality through disciplined lending practices. We seek to achieve these results by focusing on the following:
Strategic Consolidation of Community Banks. We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency. We expect to continue to pursue strategic acquisitions of financial institutions and believe our target market areas present us with numerous acquisition opportunities as many of these financial institutions will continue to be burdened and challenged by new and more complex banking regulations, resource constraints, competitive limitations, rising technological and other business costs, management succession issues and liquidity concerns. In addition, we believe that the breadth of our operating experience and successful track record of integrating prior acquisitions increases the potential acquisition opportunities available to us. We will continue to employ a disciplined approach to our acquisition strategy and only seek to identify and partner with financial institutions that possess attractive market share, low-cost deposit funding and compelling noninterest income generating businesses. Our disciplined approach to acquisitions, consolidations and integrations, includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations, after taking into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive due diligence and developing an appropriate plan to address any non-acquired credit of the targeted institution; (iii) identifying an achievable cost savings estimate; (iv) executing definitive acquisition agreements that we believe provide adequate protections to us; (v) installing our credit procedures, audit and risk management policies and procedures, and compliance standards upon consummation of the acquisition; (vi) with the target’s management team to execute on synergies and cost saving related to the acquisition; and (vii) involving a broader management team across multiple departments in order to help ensure the integration of all business functions. We believe this approach allows us to realize the benefits of our acquisition and consolidation strategy. We also expect to continue to manage our branch network in order to ensure coverage for clients while minimizing any geographic overlap and driving corporate .
Enhance the Performance of the Banks We Acquire. We strive to successfully integrate the banks we acquire into our existing operational platform and enhance shareholder value through the creation of efficiencies within the combined operations. We seek to realize operating efficiencies from our recently completed acquisitions by utilizing technology to streamline our operations. We continue to centralize the back-office functions of our acquired banks as well as realize cost savings using third-party vendors and technology to take advantage of economies of scale as we continue to grow. We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches.
Focus on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community Markets. Our banking footprint has given us experience operating in small communities and large cities. We believe that our presence in smaller communities gives us a relatively stable source of low-cost core deposits, while our more metropolitan markets represent strong long term growth opportunities to expand our commercial client base and increase our current market share through organic growth. In acquiring United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community. As of December 31, 2025, our top ten depositors, which included 10 labor unions, accounted for roughly 11.7% of our total deposits. At that date, nearly 26.1% of our deposit base was comprised of noninterest bearing demand deposit accounts, significantly lowering our aggregate cost of funds.
Our Team of Seasoned Bankers Represents an Important Driver of our Organic Growth by Expanding Banking Relationships with Current and Potential Clients. We expect to continue to make opportunistic hires of talented and entrepreneurial bankers, to further augment our growth. Our bankers are incentivized to
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increase the size of their loan and deposit portfolios and generate fee income while maintaining strong credit quality. We also seek to cross sell our various banking products, including our deposit products, to our commercial loan clients, which provides a basis for expanding our banking relationships as well as a stable, low-cost deposit base. We believe we have built a scalable platform that will support our recent growth as well as efficiently and effectively manage our anticipated growth in the future, both organically and through acquisitions.
Preserve Our Asset Quality Through Disciplined Lending Practices. Our approach to credit management uses well defined policies and procedures, disciplined underwriting criteria and ongoing risk management. We believe we are a competitive and effective commercial lender, supplementing ongoing and active loan servicing with early-stage credit review provided by our bankers. This approach has allowed us to maintain loan growth with a diversified portfolio of assets. We believe our credit culture supports accountability amongst our bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company. At December 31, 2025, our ratio of nonperforming assets to total assets was 0.52% and our ratio of nonperforming loans to total loans was 0.65%. Over the 21 years since our inception, which timeframe includes a U.S. recession and a global pandemic, we have cumulative net charge-offs of $11.8 million. We believe our success in managing asset quality is illustrated by our aggregate net charge-off history.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
Allowance for credit losses for loans. The allowance for credit losses represents management’s estimate of current expected credit losses over the life of a financial asset carried at amortized cost at an appropriate level based upon management’s evaluation of the adequacy of collectively and individually evaluated loss reserves. The Company’s method for assessing the appropriateness of the allowance for credit losses includes specific allowances for individually analyzed loans, pooled loans component which includes both quantitative and qualitative factors, and a reserve for unfunded loan commitments.
Under the CECL methodology, expected credit losses reflect expected losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to historical periods. Loans that are deemed to be uncollectable are charged off and deducted from the allowance. The provision for credit losses and recoveries on loans previously charged off are added to the allowance. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.
All loans with an outstanding balance of $250,000 or more are individually evaluated for expected credit loss when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the
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loan agreement. We select loans for individual assessment on an ongoing basis using criteria such as payment performance, borrower reported and forecasted financial results, and other external factors when appropriate. Loans that do not share the same risk characteristics as pooled loans are evaluated individually for credit loss and generally include all nonaccrual loans, collateral dependent loans, and certain modified loans to borrowers experiencing financial difficulties. We measure the current expected credit loss of an individually evaluated loan based upon the fair value of the underlying collateral, adjusted for costs to sell when applicable, or if the loan is not collateral-dependent we utilize the present value of expected future cash flows, discounted at the effective interest rate. A loan for which the terms have been modified resulting in a concession, and where the borrower is experiencing financial difficulties, is considered a modified loan to a borrower experiencing financial difficulty. The allowance for credit losses on modified loans to borrowers experiencing financial difficulty is measured using the same method as individually evaluated loans. When the value of a concession is measured using the discounted cash flow method, the allowance for credit is determined by discounting the expected future cash flows at the original interest rate of the loan. To the extent a loan balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of or the fair value of the loan’s collateral if the loan is collateral-dependent. By definition, any loan that management has placed on non-accrual is required to be individually evaluated; however, not all individually evaluated loans need to be placed on non-accrual.
Our CECL methodology for the pooled loans component includes both quantitative and qualitative loss factors which are applied to our population of loans and assessed at a pool level. The quantitative CECL model estimates credit losses by applying pool-specific probability of default ("PD") and loss given default ("LGD") rates to the expected exposure at default ("EAD") over the contractual life of loans. The qualitative component considers internal and external risk factors that may not be adequately assessed in the quantitative model. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and curtailments, when appropriate. The pooled loans' contractual loan terms exclude extensions, renewals, and modifications. To estimate future prepayments by loan pool, we use our actual historical loan prepayment experience over a trailing time period, adjusted for forecasted economic conditions, to estimate future prepayments by loan pool. To estimate curtailment by loan pool we use our actual historical loan experience over a trailing time period, adjusted for forecasted economic conditions. Where observations in either case may be , the global rate, which is simply the aggregate performance of all loan segments of the Bank, is used.
The CECL model utilizes a discounted cash flow ("DCF") method to measure the expected credit losses on loans collectively evaluated that are sub-segmented by loan pools with similar credit risk characteristics, which generally correspond to federal regulatory reporting codes (i.e., Call Report codes), with PCD assets pooled separately by similar loan pools to evaluate and measure the allowance for credit losses:
Loans secured by real estate:
1-4 family residential construction loans and other construction loans and all land development and other land loans
Secured by farmland and finance agricultural production and other loans to farmers
Revolving, open-end loans secured by 1-4 family residential properties extended under lines of credit and closed-end loans secured by 1-4 family residential properties, secured by junior liens
Closed-end loans secured by 1-4 family residential properties, secured by first liens
Commercial real estate loans secured by owner-occupied non-farm nonresidential properties
Commercial real estate loans secured by other non-farm nonresidential properties and
Secured by multifamily (5 or more units) residential properties
Commercial and industrial loans
Loans to individuals for household, family and other personal expenditures (i.e., consumer loans)
In determining the PD for each pooled segment, the Bank utilized regression analyses to identify certain economic drivers that were considered highly correlated to historical Bank or peer loan default experience. The regression models developed by the Company correlate macroeconomic variables to historical credit performance based on Call Report data over 78 quarters, consisting of the period from the first quarter of 2004 through the fourth quarter of 2019 and the fourth quarter of 2021 through the first quarter of 2025. We elected to exclude historical data from 2020 first quarter to 2021 third quarter for purposes of estimating expected credit losses because we believe that period is an outlier and did
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not represent normal economic behavior considering the COVID-19 pandemic lockdown with changes in macroeconomic variables and the significant levels of government relief programs in place during that period. For all segments, the Company's actual loss history was not statistically relevant, thus the loss history of peers, defined as commercial financial institutions with asset size of $1.0 billion to $5.0 billion, domiciled in California, with similar concentrations of lending were utilized to determine loss rates. The peers utilized in the allowance for credit losses are segment specific. Additionally, management chose the national unemployment rate and U.S. gross domestic product as the primary economic forecast drivers for all segments. A third party provides LGD estimates for each segment based on a banking industry Frye-Jacobs Risk Index approach.
In its loss forecasting framework, the Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the assets. The quantitative CECL model applies the projected rates based on the economic forecasts for the four quarter (one-year) reasonable and supportable forecast horizon to EAD to estimate defaulted loans. The economic data is updated quarterly, which is based on Federal Reserve Economic Data (“FRED”) forecasts. Historical LGD rates are applied to estimated defaulted loans to determine estimated credit losses. For periods beyond the forecast horizon, the economic factors revert to historical averages on a straight-line basis over an eight-quarter (two-year) period. Subsequent to the reversion period for the remaining contractual life of loans and leases, the PD, LGD, and prepayment rates are based on historical experience during a full economic cycle.
Management considers whether adjustments to the quantitative portion of the allowance for credit losses are needed for differences in segment-specific risk characteristics or to reflect the extent to which it expects current conditions and reasonable and supportable forecasts of economic conditions to differ from the conditions that existed during the historical period included in the development of PD and LGD. During 2025, management applied qualitative adjustments primarily related to macroeconomic forecasts and changes in loan composition within the commercial real estate portfolio. Qualitative internal and external risk factors include, but are not limited to, the following:
Changes in the nature and volume of the loan portfolio.
Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.
Changes in lending policies and procedures, including changes in underwriting standards and collection.
Changes in economic and business conditions, and developments that affect the collectability of the portfolio.
Changes in the experience, ability, and depth of credit management and lending staff.
Changes in the quality of our systematic loan review processes.
Changes in the value of underlying collateral, where applicable.
Changes in concentration of credit.
● The effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio.
The estimated credit losses associated with unfunded loan commitments are calculated using the same models and methodologies noted above and incorporate utilization assumptions at the estimated time of default. While the provision for credit losses associated with unfunded loan commitments is included in "provision for credit losses" on the consolidated statement of income, the allowance for credit losses for unfunded loan commitments is maintained on the consolidated balance sheet in "Interest payable and other liabilities" .
Comparison of Financial Condition at December 31, 2025 and 2024
Total assets. Total assets decreased $70.8 million, or 2.7%, to $2.6 billion at December 31, 2025 from $2.7 billion at December 31, 2024. The decrease was primarily due to decreases in cash and cash equivalents of $157.5 million or 43.3%, and investment securities available-for-sale of $13.6 million or 7.0%, partially offset by an increase in loans receivable, net of $110.1 million or 5.7%.
Cash and cash equivalents. Cash and cash equivalents decreased $157.5 million, or 43.3%, to $206.5 million at December 31, 2025 from $364.0 million at December 31, 2024. The decrease primarily was due to a $161.2 million decrease in federal funds sold and interest-bearing balances in banks, reflecting the use of excess cash to fund the
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Company’s early redemption of the remaining $63.7 million of its outstanding Notes due 2030, as well as to support loan growth and deposit withdrawals.
Investment securities. Investment securities decreased $13.6 million, or 7.0%, to $179.7 million at December 31, 2025 from $193.3 million at December 31, 2024. The decrease primarily was due to $38.1 million in routine amortization, principal repayments and maturities and calls of securities, partially offset by $15.6 million of investment securities purchased during the year ended December 31, 2025. A $1.8 million fair value adjustment related to unrealized gains on investment securities available-for-sale also contributed to the increase.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of December 31, 2025. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.
Amount Due or Repricing Within:
One Year
Over One
Over Five
Over
or Less
to Five Years
to Ten Years
Ten Years
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
(Dollars in thousands)
Municipal securities
Mortgage-backed securities
Collateralized mortgage obligations
SBA securities
ABS securities
Corporate bonds
Total
See “Note 2 – Investment Securities” in the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional information on our investment securities.
Equity securities. Equity securities decreased $566,000, or 4.3% to $12.6 million at December 31, 2025 from $13.1 million at December 31, 2024, primarily due to mark-to-market adjustments recorded during the year ended December 31, 2025.
Loans, 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 credit losses, increased $110.1 million, or 5.7%, to $2.0 billion at December 31, 2025, from $1.9 billion at December 31, 2024. The increase was due to $440.4 million of new loan originations and $31.0 million of loan purchases, partially offset by $354.1 million of loan repayments and $5.1 million of loans sold.
Loan originations in 2025 were concentrated in California markets, primarily Los Angeles, Irvine/Southern California, San Francisco Bay Area and Sacramento/Northern California, with commercial and multifamily real estate secured loans accounting for the majority of the originations. Loan purchases were concentrated in New Mexico and Colorado.
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The following table provides information about our loan portfolio by type of loan, with PCD loans presented as a separate balance, at the dates presented.
As of December 31,
Percent
Percent
Amount
Total
Amount
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
PCD loans
Total Loans
Net deferred loan fees
Allowance for credit losses
Loans, net
The following table presents at December 31, 2025, the geographic distribution of our loan portfolio in dollar amounts and percentages.
San Francisco Bay
Total in State of
Area (1)
Other California (2)
California
All Other States (3)
Total
Total in
Total in
Total in
Total in
Total in
Amount
Category
Amount
Category
Amount
Category
Amount
Category
Amount
Category
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
Total loans
(1) Includes Alameda, Contra Costa, Solano, Sonoma, Marin, San Francisco, San Joaquin, San Mateo and Santa Clara Counties.
(2) Includes loans located in Sacramento and Northern California counties totaling $92.3 million and loans located in Los Angeles and Orange counties totaling $601.5 million.
(3) Includes loans located in the states of Colorado, Nevada, New Mexico, Washington and other states. At December 31, 2025, loans in Colorado, New Mexico, Washington and other states totaled $132.2 million, $44.5 million, $69.6 million, $89.9 million, and $425.3 million, respectively.
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The following table provides information about our loan portfolio segregated by legacy and acquired loans with a remaining discount, net of their discounts at the dates presented.
As of December 31,
Non-
Non-
Acquired
Acquired
Total
Acquired
Acquired
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner-occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
PCD loans
Total Loans
Deferred loan fees and costs, net
Allowance for credit losses
Loans, net
The following table sets forth contractual maturity and repricing information for our loan portfolio at December 31, 2025. Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. PCD loans are reported at their contractual interest rate. The schedule does not reflect the effects of possible prepayments or enforcement of due on sale clauses.
Maturing
Maturing
Maturing
After One
After Five
Maturing
Within
to Five
to Fifteen
After Fifteen
One Year
Years
Years
Years
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner-occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer and other
PCD loans
Total loans
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The following table sets forth the amounts of loans due after December 31, 2026, with fixed or adjustable rates:
Floating or
Fixed
Adjustable
Rate
Rate
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Commercial Real Estate
Construction and land
Total real estate
Consumer and other
PCD loans
Total loans
The following table sets forth the originations, purchases, sales and repayments of loans as of the dates indicated.
Years ended December 31,
(Dollars in thousands)
Loans originated
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
Total loans originated
Loans purchased or acquired through acquisitions
Other loans purchased
Loans sold
Commercial and Industrial
Owner occupied CRE
Non-owner occupied CRE
Other
Principal repayments
Transfer to real estate owned
Increase in allowance for credit losses and other items, net
Net increase in loans receivable and loans held for sale
Acquired loans. Acquired PCD loans are loans acquired through a business combination with evidence of more than insignificant credit deterioration and are accounted for under Accounting Standards Codification (“ASC”) Topic 326. Acquired non-PCD loans represent loans acquired through a business combination without more than insignificant evidence of credit deterioration and are accounted for under ASC Topic 310-20.
As of December 31, 2025, acquired non-PCD loans totaled $121.1 million with a remaining net premium of $397,000 compared to $140.6 million with a remaining net premium of $1.8 million as of December 31, 2024. The net premium for acquired non-PCD loans includes both a credit discount based on estimated losses in the acquired loans partially offset by any premium, based on market interest rates on the date of acquisition.
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As of December 31, 2025, the unpaid principal balance of acquired PCD loans totaled $16.1 million with a remaining net non-credit discount of $1.2 million, compared to $24.0 million with a remaining net non-credit discount of $1.5 million as of December 31, 2024.
Nonperforming assets and nonaccrual loans. Nonperforming assets generally consist of nonaccrual loans, accruing loans 90 days or more past due, and other real estate owned (“OREO”). Nonperforming assets increased $3.8 million to $13.4 million, or 0.65% of total loans, at December 31, 2025 compared to $9.7 million, or 0.50% of total loans, at December 31, 2024. There was no OREO at both December 31, 2025 and 2024.
The increase in nonperforming loans was primarily due to 13 new commercial real estate loans (secured by various types of real estate) totaling $13.0 million being placed on nonaccrual status during the year ended December 31, 2025, which were in the process of collection. These increases were partially offset by payoffs of 12 nonaccrual loans totaling $10.1 million, one $3.2 million non-accrual loan returned to accrual status as the loan is current and in the process of collection, and one fully charged off nonaccrual loan of $105,000. The rise in nonperforming loans reflects elevated credit risk primarily within the commercial real estate portfolio, more specifically, in the hotel and retail segments of the portfolio. When these loans were placed on non-accrual, updated appraisals were obtained and indicated collateral shortfalls, resulting in a $1.4 million specific reserve at December 31, 2025, of which $1.3 million related to loans placed on nonaccrual during the current year.
Accruing loans past due 30 to 89 days totaled $1.1 million at December 31, 2025, compared to $6.7 million at December 31, 2024. At December 31, 2025 and 2024, nonaccrual loans included $562,000 and $643,000 of loans 30-89 days past due, and $9.4 million and $4.4 million of loans less than 30 days past due, respectively. At December 31, 2025, the $9.4 million of loans less than 30 days past due was comprised of 15 loans all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
In general, loans are placed on nonaccrual status after being contractually delinquent for more than 90 days, or earlier, if management believes full collection of future principal and interest on a timely basis is unlikely. When a loan is placed on nonaccrual status, all interest accrued but not received is charged against interest income. When the ability to fully collect nonaccrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Interest received on such loans is recognized as interest income when received. A nonaccrual loan is restored to an accrual basis when principal and interest payments are paid current, and full payment of principal and interest is probable. Loans that are well secured and in the process of collection will remain on accrual status.
Loans may be acquired at a premium or discount to par value, in which case the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off-of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income.
Modified loans to borrowers experiencing financial difficulty. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses for loans. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses for loans is adjusted by the same amount.
Loan modifications to borrowers experiencing financial difficulty as of December 31, 2025 totaled $1.4 million compared to $2.7 million at December 31, 2024. All modified loans were classified as nonaccrual at both dates. Modified loans that are accruing and performing according to their modified terms are not considered nonperforming. The related allowance for credit losses on individually evaluated modified loans totaled $1,500 and $24,000 at December 31, 2025 and December 31, 2024, respectively.
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The following table sets forth the nonperforming loans, nonperforming assets and performing modified loans to borrowers experiencing financial difficulty as of the dates indicated:
December 31,
December 31,
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
Total nonaccrual loans
Accruing loans 90 days or more past due
Total nonperforming loans
Real estate owned
Total nonperforming assets (1)
Performing modified loans to borrowers experiencing financial difficulty – performing
PCD loans
Nonperforming assets to total assets (1)
Nonperforming loans to total loans (1)
Performing modified loans to borrowers experiencing financial difficulty are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios. PCD loans are considered performing and are not included in nonperforming assets in the table above.
At December 31, 2025 and 2024, we had no PCD loans that were 90 days or more past due and still accruing.
Allowance for credit losses. The allowance for credit losses is determined by us on a quarterly basis, although we are engaged in monitoring the appropriate level of the allowance on a more frequent basis. We assess the allowance for credit losses based on three categories: (i) originated loans, (ii) acquired non-credit-deteriorated loans, and (iii) acquired or purchased credit deteriorated loans. The allowance for credit losses reflects management’s estimate of current expected credit losses inherent in the loan portfolios. The computation includes elements of judgment and high levels of subjectivity.
At December 31, 2025, the Company’s allowance for credit losses for loans was $21.2 million, or 1.03% of total loans, compared to $17.9 million, or 0.92% of total loans, at December 31, 2024. A $4.1 million provision for credit losses was recorded for the year ended December 31, 2025.
Based on the current composition of the Company’s loan portfolio, management believes that the $21.2 million allowance for credit losses at December 31, 2025 is adequate to absorb probable losses inherent in the portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
For the year ended December 31, 2025, the $4.1 million provision for credit losses was primarily driven by loan growth, charge-offs during the current year, and increased reserves on both pooled loans and individually evaluated loans. The decrease in the provision for credit loss for unfunded commitments of $190,000 for the year ended December 31, 2025 was primarily due to a reduction in construction commitments being funded, partially offset by increased loss rates.
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The increase in the allowance for credit losses on pooled loans primarily reflected higher quantitative reserves resulting from the Company’s annual update to its CECL model methodology. The update incorporated more recent economic data and revised segment-specific peer group comparisons, which together contributed to a higher modeled reserve level. To a lesser extent, the increase also reflected updated economic forecasts, including a higher projected national unemployment rate and a weaker outlook for national gross domestic product compared to the assumptions used as of December 31, 2024. In addition, loan growth during the year and changes in the risk level associated with certain qualitative factors contributed to the increase. The allowance for credit losses on individually evaluated loans increased during the year primarily due to three commercial real estate loans placed on nonaccrual status for which updated appraisals indicated collateral shortfalls.
Net charge-offs totaled $948,000 for the year ended December 31, 2025 compared to $5.0 million for the year ended December 31, 2024. Charge-offs in 2024 included a $3.2 million charge-off related to a loan for which a specific reserve was established as of December 31, 2023.
The following table shows certain credit ratios at the dates and for the periods indicated and each component of the ratio’s calculations.
Year ended December 31,
(Dollars in thousands)
Allowance for credit losses on loans as a percentage of total loans outstanding at period end
Allowance for credit losses on loans
Total loans outstanding
Nonaccrual loans as a percentage of total loans outstanding at period end
Total nonaccrual loans
Total loans outstanding
Allowance for credit losses on loans as a percentage of nonaccrual loans at period end
Allowance for credit losses on loans
Total nonaccrual loans
Net charge-offs during period to average loans outstanding:
Commercial and industrial:
Net charge-offs
Average loans outstanding
Construction and land:
Net charge-offs
Average loans outstanding
Commercial real estate:
Net charge-offs
Average loans outstanding
Residential:
Net charge-offs
Average loans outstanding
Consumer:
Net charge-offs
Average loans outstanding
Total loans:
Total net charge-offs
Total average loans outstanding
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The following table shows the allocation of the allowance for credit losses at the indicated dates.
As of December 31,
Percent of
Percent of
Loans in
Loans in
Allowance
Category
Allowance
Category
Loan
by Loan
to Total
Loan
by Loan
to Total
Balance
Category
Loans
Balance
Category
Loans
(Dollars in thousands)
Commercial and industrial
Real estate:
Residential
Multifamily residential
Owner-occupied CRE
Non-owner occupied CRE
Construction and land
Total real estate
Consumer
PCD loans
Total Loans
As of December 31, 2024, the Company individually evaluated $14.9 million of loans, inclusive of the $13.4 million of nonaccrual loans as of that date. Of these individually evaluated loans, $4.5 million had a specific allowance of $1.4 million as of December 31, 2025. As of December 31, 2024, the Company individually evaluated $17.4 million in loans, all of which were on nonaccrual status. Of these individually evaluated loans, $9.2 million had a specific allowance of $392,000 as of December 31, 2024.
Management considers the allowance for credit losses for loans at December 31, 2025 to be adequate to cover future expected 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 credit losses for loans or that any increased allowance for credit losses for loans that may be required will not adversely impact our financial condition and results of operations. A further decline in national and local economic conditions as a result of unemployment levels, labor shortages and the effects of inflation, a potential recession, or economic growth caused by increasing political from acts of war, as well as supply chain , among other factors, could result in a material increase in the allowance for credit for loans and may affect the Company’s financial condition and results of operations. In addition, the determination of the amount of our allowance for credit for loans is subject to review by bank regulators as part of the routine examination process, which may result in additions to our allowance for credit based upon their judgment of information available to them at the time of their examination.
Right-of-use assets and lease liabilities. The Company recognizes operating leases on the Consolidated Balance Sheet as ROU assets and lease liabilities based on the value of the discounted future lease payments. ROU assets decreased $718,000, or 5.4%, to $12.7 million at December 31, 2025 from $13.4 million at December 31, 2024. Lease liabilities decreased $724,000, or 5.0%, to $13.7 million at December 31, 2025 from $14.4 million at December 31, 2024. The decrease in right-of-use assets and lease liabilities was due to normal depreciation and amortization, respectively, partially offset by changes in the ROU asset and liabilities resulting from lease extensions.
Premises and Equipment. Premises and equipment decreased $166,000, or 1.2%, to $13.2 million at December 31, 2025 from $13.4 million at December 31, 2024, driven by normal depreciation expenses associated with these assets.
Deposits. Deposits are our primary source of funding and mainly consist of core deposits from the communities served by our branch network. We offer a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include interest bearing and noninterest bearing demand accounts, savings,
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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 decreased $20.4 million, or 0.9%, to $2.2 billion at December 31, 2025 compared to December 31, 2024. Noninterest bearing deposits totaled $578.1 million, or 26.1% of total deposits, at December 31, 2025, compared to $689.0 million, or 30.8% of total deposits, at December 31, 2024. During the year ended December 31, 2025, some interest rate sensitive clients shifted a portion of their non-operating deposit balances from lower-cost deposits, including noninterest-bearing deposits, into higher-cost money market and time deposits.
The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.
December 31,
Percent
Percent
of Total
of Total
Amount
Deposits
Amount
Deposits
(Dollars in thousands)
Demand deposits (1)
NOW accounts
Savings
Money market
Time deposits
Total
Noninterest bearing.
The following table shows a summary of our average deposit amounts and average rates paid during the years indicated:
December 31,
Weighted
Weighted
Average
Average
Average
Average
Balance
Rate
Balance
Rate
(Dollars in thousands)
NOW accounts
Savings
Money market
Time deposits
Total interest bearing deposits
Demand deposits (1)
Total deposits
(1) Noninterest bearing.
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The following table shows time deposits by maturity and rate as of December 31, 2025.
Time deposits
(Dollars in thousands)
Maturities:
Due in three months or less
Due in over three months through six months
Due in over six months through 12 months
Total due within 12 months
Due in over 12 months through 24 months
Due in over 24 months
Total due over 12 months
Total
As of December 31, 2025 and 2024, approximately $1.0 billion, or 46.6% of total deposits, and $1.0 billion, or 46.8% of total deposits, respectively, were uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.
The following table sets forth the portion of our time deposits that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2025.
(Dollars in thousands)
Less than 3 months
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
Total
For additional information regarding our deposits, see “Note 10 – Deposits” of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Borrowings. Although deposits are our primary source of funds, we may from time to time utilize borrowings as a cost-effective source of funds when they can be invested at a positive interest rate spread, for additional capacity to fund loan demand, or to meet our asset/liability management goals. We are a member of and may obtain advances from the FHLB of San Francisco, which is part of the Federal Home Loan Bank System. The eleven regional Federal Home Loan Banks provide a central credit facility for their member institutions. These advances are provided upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 2025 and 2024, we had the ability to borrow from the FHLB up to $580.7 million and $540.2 million, respectively. At both December 31, 2025 and 2024, there were no FHLB advances outstanding.
The Bank has been approved for discount window advances from the FRB of San Francisco secured by certain types of loans. At December 31, 2025, we had the ability to borrow up to $49.3 million from the FRB of San Francisco, with no FRB of San Francisco advances outstanding at that date.
The Bank also has uncommitted Federal Funds lines with four corresponding banks. Cumulative available commitments totaled $65.0 million at both December 31, 2025 and December 31, 2024. There were no amounts outstanding under these facilities at both December 31, 2025 and 2024.
At December 31, 2025 and 2024, the Company had outstanding junior subordinated debt, net of marked-to-market, related to junior subordinated deferrable interest debentures assumed in connection with its previous acquisitions totaling $8.7 million. For additional information, see “Note 12 — Junior Subordinated Deferrable Interest Debentures”
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in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
During the third quarter of 2025, the Company redeemed all of the Company’s outstanding subordinated debt. At December 31, 2025, the Company had no subordinated debt remaining, compared to $63.7 million, net of issuance costs, at December 31, 2024. For additional information, see “Item 1–Business – Sources of Funds ”, contained in this Form 10-K. See also, “Note 13 — Subordinated Debt” in the Notes to the Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
We are required to provide collateral for certain local agency deposits. At December 31, 2025 and 2024, the FHLB of San Francisco had issued letter of credits on behalf of the Bank totaling $41.6 million and $41.1 million, respectively, as collateral for local agency deposits.
Shareholders’ equit y. Shareholders’ equity increased $14.2 million, or 4.4%, to $338.6 million at December 31, 2025 from $324.4 million at December 31, 2024. The increase was due to $23.9 million of net income, a $6.4 million decrease in accumulated other comprehensive loss, net of taxes, reflecting the increase in market interest rates during the year, and $653,000 in stock-based compensation related to the grant of equity awards. These changes were partially offset by the repurchase of $6.9 million of the Company’s common stock and the $9.9 million in cash dividends paid or accrued during 2025.
During the year ended December 31, 2025, the Company repurchased a total of 261,654 shares of its common stock at an average cost of $26.40 per share. At December 31, 2025, 202,444 shares remained available for future purchases under the current stock repurchase plan. For additional information related to our stock repurchases, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Stock Repurchases” contained in this Form 10-K.
Comparison of Operating Results for the Years Ended December 31, 2025 and 2024
Earnings summary. We reported net income of $23.9 million for the year ended December 31, 2025, compared to $23.6 million for the year ended December 31, 2024, an increase of $317,000 or 1.3%. Net income for the year ended December 31, 2025 reflects a $3.3 million increase in net interest income and a $278,000 decrease in noninterest expense, partially offset by a $2.8 million increase in the provision for credit losses, a $291,000 decrease in noninterest income and a $180,000 increase in the provision for income taxes. Diluted earnings per share were $2.18 for the year ended December 31, 2025, up $0.08 from diluted earnings per share of $2.10 for the year ended December 31, 2024.
Our efficiency ratio, calculated as noninterest expense divided by the sum of net interest income before provision for credit losses and noninterest income, was 63.51% for the year ended December 31, 2025, compared to 65.77% for the year ended December 31, 2024. The improvement in the efficiency ratio was primarily due to higher revenues and, to a lesser extent, a modest decrease in total noninterest expenses.
Interest income. Interest income for the year ended December 31, 2025 was $135.4 million, compared to $131.7 million for the year ended December 31, 2024, an increase of $3.7 million or 2.8%. Increased average yields and balances on interest-earning assets, specifically, loans and investment securities, drove the increase in interest income.
Interest income on loans, including fees, increased $10.1 million , or 9.7%, to $114.1 million for the year ended December 31, 2025, compared to $104.1 million for the year ended December 31, 2024. The increase was primarily due to a $114.3 million increase in the average balance of loans and a 19 basis point increase in the average loan yield. The average yield earned on loans, including the accretion of the net discount and deferred loan fees recognized, was 5.68% for the year ended December 31, 2025, compared to 5.49% for the year ended December 31, 2024. Interest income on loans for the year ended December 31, 2025 and 2024, included $501,000 and $523,000 respectively, in fees related to prepayment penalties. Interest income on loans for the years ended December 31, 2025 and 2024, also included $638,000 and $158,000, respectively, in accretion and amortization of the net discount on acquired loans, as well as revenue from PCD loans in excess of discounts. The remaining net discount on these acquired loans was $87,000 and $326,000 at December 31, 2025 and 2024, respectively.
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Interest income on investment securities, excluding FRB and FHLB stock, increased $438,000, or 4.9%, to $9.4 million for the year ended December 31, 2025 from $9.0 million for the year ended December 31, 2024. The increase was due to a 14 basis point increase in the average yield on investment securities to 4.65% for the year ended December 31, 2025 from 4.51% for the year ended December 31, 2024, and a $3.1 million increase in the average balance of investment securities. Dividends on FHLB and FRB stock totaled $1.6 million and $1.4 million for the years ended December 31, 2025 and 2024, respectively.
Interest income on fed funds sold and interest-bearing balances in banks decreased $6.8 million, or 39.9% to $10.3 million for the year ended December 31, 2025 from $17.1 million for the year ended December 31, 2024. The decrease was primarily due to a $86.5 million decrease in the average balance of federal funds sold and interest-bearing balances in banks, reflecting the use of excess cash to fund the early redemption of $63.7 million of the Company’s outstanding subordinated notes, as well as loan growth and deposit outflows. A 95 basis point decrease in the average yield on fed funds sold and interest-bearing balance in banks to 4.35% for the year ended December 31, 2025 from 4.35% for the year ended December 31, 2024 also contributed to the decrease.
Interest expense. Interest expense increased $366,000, or 0.9%, to $40.9 million for the year ended December 31, 2025 from $40.6 million for the year ended December 31, 2024, reflecting higher funding costs primarily related to increased rates of interest payable on our money market and time deposits . The average rate paid on interest bearing liabilities for the year ended December 31, 2025 was 2.51% compared to 2.54% for year ended December 31, 2024. The total average balance of interest-bearing liabilities increased $30.4 million, or 1.90%, to $1.6 billion for the year ended December 31, 2025, from the year ended December 31, 2024, primarily due to an increase in interest-bearing time deposits.
Interest expense on deposits increased $680,000, or 1.9%, to $36.8 million for the year ended December 31, 2025 from $36.1 million for the year ended December 31, 2024, primarily due to increases in the average balances of money market accounts and time deposits, partially offset by decreases in the average rates paid on those accounts. The average balance of time deposits increased $39.7 million, or 7.73%, to $553.2 million during 2025, compared to $513.5 million during 2024. Similarly, the average balance of money market accounts increased $31.5 million, or 4.9%, to $680.7 million during 2025, up from $649.2 million during 2024. The average rate paid on interest bearing deposits decreased to 2.34% for the year ended December 31, 2025, from 2.37% for the year ended December 31, 2024, with the average rate paid on time deposits decreasing 26 basis points to 3.73% during 2025 compared to 3.99% during 2024, and the average rate paid on money market deposits decreasing three basis points to 2.33% during 2025 compared to 2.36% during 2024.
The overall average cost of deposits, which includes noninterest-bearing deposits, was 1.68% for both the year ended December 31, 2025 and the year ended December 31, 2024. The average balance of noninterest bearing deposits decreased $15.8 million, or 2.54%, to $608.0 million for the year ended December 31, 2025 compared to $623.8 million for the year ended December 31, 2024.
Interest expense on borrowings, which in 2024 consisted primarily of subordinated debt and junior subordinated debentures, decreased in 2025, as the Company redeemed all of its subordinated debt in September 2025. Accordingly, borrowings outstanding at December 31, 2025 consisted primarily of junior subordinated debentures. The average balance of borrowings decreased $18.7 million, or 25.8%, to $53.6 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. At the same time, the average cost of borrowings increased 156 basis points to 7.68% in 2025, up from 6.13% in 2024.
Net interest income and net interest margin. Net interest income increased $3.3 million, or 3.6%, to $94.5 million for the year ended December 31, 2025, compared to $91.1 million for the year ended December 31, 2024. The increase primarily resulted from higher interest income on loans and investment securities and a decrease in interest expense on borrowings, partially offset by lower interest income on federal funds sold and interest-bearing balances in banks, as well as an increase in interest expense on deposits.
Net interest margin for the year ended December 31, 2025 was 3.82%, an eight basis point increase from 3.74% for the year ended December 31, 2024. The increase in net interest margin primarily reflects higher yields on interest-earning assets, particularly loans and investment securities, driven by both rate and volume increases. The average yield
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on interest-earning assets increased to 5.48% for 2025 from 5.40% in 2024, while the average cost of interest-bearing liabilities slightly decreased to 2.51% in 2025 from 2.54% in 2024.
Overall, net interest income growth and margin expansion were largely attributable to the combination of higher asset balances and rising yields, partially offset by modestly higher interest costs on deposits.
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Average Balances, Interest and Average Yields/Cost. The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average yields; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis. Loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/ discounts to interest and fees on loans. Non-accrual loans are included in the average balance.
Year ended December 31,
(Dollars in thousands)
Annualized
Annualized
Annualized
Average
Average
Average
Average
Average
Average
Balance (4)
Interest
Yield/Cost
Balance (4)
Interest
Yield/Cost
Balance (4)
Interest
Yield
(Dollars in thousands)
Interest earning assets
Fed Funds sold and interest-bearing balances in banks
Investments securities
FHLB Stock
FRB Stock
Total loans (1)
Total interest earning assets
Noninterest earning assets
Total average assets
Interest bearing liabilities
Savings
NOW accounts
Money market
Time deposits
Total interest bearing deposit accounts
Subordinated debt, net
Junior subordinated debentures, net
Other borrowings
Total interest bearing liabilities
Noninterest bearing deposits
Other noninterest bearing liabilities
Noninterest bearing liabilities
Total average liabilities
Average equity
Total average liabilities and equity
Net interest income
Interest rate spread (2)
Net interest margin (3)
Ratio of average interest earning assets to average interest bearing liabilities
Loan average balances are net of deferred origination fees and costs. Non-accrual loans are included in the average balances. Interest income on non-accruing loans is reflected in the period that it is collected, to the extent it is not applied to principal.
Interest rate spread is calculated as the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.
Net interest margin is calculated as net interest income divided by total average earning assets.
Average balances are average daily balances.
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Rate/Volume Analysis. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume. Yields have been calculated on a pre-tax basis.
Year ended December 31,
Year ended December 31,
2025 compared to 2024
2024 compared to 2023
Increase/(Decrease)
Increase/(Decrease)
Attributable to
Attributable to
Rate
Volume
Total
Rate
Volume
Total
(Dollars in thousands)
(Dollars in thousands)
Interest earning assets
Fed funds sold and interest bearing balances in banks
Investments securities
FHLB stock and FRB stock
Total loans
Total interest income
Interest bearing liabilities
Savings
NOW accounts
Money market accounts
Time deposits
Total deposit accounts
Subordinated debt, net
Junior subordinated debentures, net
Total interest expense
Net interest income
Provision for credit losses. We recorded a $4.1 million provision for credit losses for the year ended December 31, 2025, compared to a $1.3 million provision for credit losses for the year ended December 31, 2024. The provision for credit losses for the year ended December 31, 2025 was primarily driven by loan growth, charge-offs during the current year, and increased reserves on both pooled loans and individually evaluated loans. Net charge-offs totaled $948,000 for the year ended December 31, 2025 compared to net charge-offs of $5.0 million in 2024. The lower level of net charge-offs for 2025 primarily reflect fewer nonaccrual loan charge-offs, as well as payoffs and collections on previously nonaccrual loans. Approximately $9.4 million of nonaccrual loans were less than 30 days past due as of December 31, 2025, and were placed on nonaccrual primarily due to borrower-specific financial concerns or elevated risk in the underlying collateral rather than payment delinquency. The Company continues to monitor these loans closely, and certain loans may return to accrual status if the borrowers’ financial positions stabilize and full collection of principal and interest becomes probable.
Noninterest income. Total noninterest income decreased $291,000, or 4.6%, to $6.1 million for the year ended December 31, 2025 compared to $6.4 million for the year ended December 31, 2024. The decrease was primarily due to a $693,000 decrease in gain on equity securities as a result of negative fair value adjustments on these securities due to changes in market conditions and a $160,000 decrease in other income and fees, offset by a $222,000 decrease in loss on investment in SBIC fund, a $184,000 increase in service charges and other fees, and a $175,000 increase in loan servicing and other loan fees.
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The following table presents the key components of noninterest income for the years ended December 31, 2025 and 2024.
December 31,
$ Change
% Change
(Dollars in thousands)
Gain on sale of loans
(Loss) gain on equity securities
Service charges and other fees
Loan servicing and other loan fees
Loss on investment in SBIC fund
Other income and fees
Total noninterest income
N/M - Not meaningful
Noninterest expense. Total noninterest expense decreased $278,000, or 0.4%, to $63.9 million for the year ended December 31, 2025 compared to $64.1 million for the year ended December 31, 2024. The decrease was primarily due to a $2.1 million decline in other expense, which included the return of $1.2 million of excess funds to the Bank in 2025 from a loss reserve account previously established under the CalCAP. The excess funds were returned due to strong loan performance. No unused CalCAP funds were returned in 2024. The decrease in other expense also reflected lower legal and professional service costs, reduced FDIC insurance expense and a lower level of fraudulent check losses. These decreases were partially offset by a $1.3 million increase in salaries and wages resulting from higher incentive compensation and increased base wages, and a $593,000 increase in data processing expense due to newly implemented services in 2025.
The following table presents the key components of noninterest expense for the years ended December 31, 2025 and 2024:
Year ended December 31,
$ Change
% Change
(Dollars in thousands)
Salaries and employee benefits
Occupancy and equipment
Data processing
Other
Total noninterest expense
Income taxes. Income tax expense increased $180,000, or 2.1%, to $8.7 million for the year ended December 31, 2025 from $8.5 million for the year ended December 31, 2024, reflecting an increase in pre-tax income for the year ended December 31, 2025. The Company’s effective tax rate was 26.6% for the year ended December 31, 2025 compared to 26.5% for 2024.
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
For a discussion of the Company’s 2024 results compared to 2023, refer to Part I, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 14, 2025.
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.
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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 several different sources to meet our potential liquidity demands. Our primary sources of funds are deposits, principal and interest payments on loans and proceeds from sales of loans. During the years ended December 31, 2025, 2024 and 2023, the Bank sold $5.1 million, $14.0 million and $9.6 million in loans and loan participation interests, and received $354.1 million, $299.9 million and $196.7 million in principal repayments, respectively.
While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition.
During the years ended December 31, 2025 and 2024, deposits decreased by $20.4 million and increased by $101.3 million, respectively. Liquid assets in the form of cash and cash equivalents, time deposit in banks and investment securities available-for-sale decreased to $386.2 million at December 31, 2025 from $557.6 million at December 31, 2024. Further, management believes that our security portfolio is of high quality, helping to ensure marketability. Securities purchased during the years ended December 31, 2025 and 2024, excluding FHLB and FRB stock, totaled $15.6 million and $49.9 million, while securities repayments, maturities and sales in those years were $38.2 million, and $21.9 million, respectively. Certificates of deposit scheduled to mature in one year or less at December 31, 2025, totaled $471.2 million. It is management’s strategy to offer deposit rates that are competitive with other local financial institutions. As a result of this strategy, we believe that a significant portion of our maturing certificates of deposit will be retained.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements. As of December 31, 2025, the Bank had an available borrowing capacity of $580.7 million with the FHLB of San Francisco, with no borrowings outstanding at that date. The Bank also had Federal Funds lines with available commitments totaling $65.0 million with four correspondent banks. There were no amounts outstanding under these facilities at both December 31, 2025 and 2024. The Bank has been approved for discount window advances from the FRB of San Francisco secured by certain types of loans. At December 31, 2025 and December 31, 2024, we had the ability to borrow up to $49.3 million and $41.9 million, respectively, from the FRB of San Francisco. At both December 31, 2025 and December 31, 2024, we had no FRB of San Francisco advances outstanding. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.
Liquidity management is both a daily and long-term function of the Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and U.S. agency securities. 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 $67.5 million and $73.4 million, including $1.5 million and $9.6 million of undisbursed construction and development loan commitments, at December 31, 2025 and 2024, respectively. For information regarding our commitments, see “Note 15 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10 K.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $31.8 million and $30.4 million for the years ended December 31, 2025 and 2024, respectively. Net cash used in investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $90.8 million and $62.2 million for the years ended December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, financing activities, comprised primarily of net change in deposits, used net cash of $98.6 million, compared to $88.3 million of net cash provided by financing activities for the year ended December 31, 2024.
We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected
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return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. The Bank utilizes funds to acquire, upgrade, and maintain its equipment, IT infrastructure and operating locations, with the investment intended to provide longer-term utility to the Company’s business. Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises, IT infrastructure and equipment as of December 31, 2025 that would materially impact liquidity. We also have purchase obligations, generally with remaining terms of less than three years and contracts with various vendors to provide services, including information processing, for periods generally ranging from one to five years, for which our financial obligations are dependent upon satisfactory performance by the vendor.
As of December 31, 2025, we had total other future obligations and accrued expenses of $27.9 million, which includes $13.7 million of projected operating lease payments and $622,000 of scheduled interest payments on junior subordinated debentures, excluding any borrowings made after December 31, 2025. For information regarding our operating leases, see “Note 6, Leases” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. We believe that our liquid assets combined with the available lines of credit provide adequate liquidity to meet our current financial obligations for at least the next 12 months.
BayCom Corp is a separate legal entity from the Bank and must provide for its own liquidity. At December 31, 2025, the Company, on an unconsolidated basis, had liquid assets of $7.5 million. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders, funds paid out for Company stock repurchases, and payments on trust-preferred securities issued at the holding company level. The Company can receive dividends or other capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to make such payments.
During 2025, the Company declared $9.9 million of cash dividends on its common stock, of which $3.3 million was paid subsequent to year-end. The Company expects to continue paying quarterly cash dividends on its common stock, subject to the Board of Director’s discretion to modify or terminate this practice at any time and for any reason without prior notice. On February 19, 2026, the Company declared a quarterly cash dividend of $0.30 per share on the Company’s outstanding common stock, payable on April 9, 2026 to shareholders of record as of the close of business on March 12, 2026. Assuming continued payment during 2026 at this rate of $0.30 per share, our average total dividend paid each quarter would be approximately $3.3 million based on the number of our outstanding shares at December 31, 2025. The dividends, if any, we may pay may be limited as more fully discussed under “Business – Supervision and Regulation – BayCom Corp – Dividends” and “– Regulatory Capital Requirements” contained in “Part I. Item 1. Business” of this Form 10-K.
From time to time, our Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. In May 2024, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to five percent of BayCom’s common stock, or approximately 560,000 shares. The repurchase program does not have a set expiration date. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate the Company to purchase any particular number of shares. See "Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K for additional information relating to stock repurchases.
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Regulatory capital. The Bank, as a state-chartered, federally insured commercial bank, and member of the Federal Reserve is subject to the capital requirements established by the Federal Reserve. The Federal Reserve requires the Bank to maintain capital adequacy that generally parallels the FDIC requirements. The capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital. 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. Consistent with our goal to operate a sound and profitable organization, our policy is for the Bank to maintain “Well Capitalized” status under the Federal Reserve regulations. Based on capital levels at December 31, 2025 and 2024, the Bank was considered to be Well Capitalized.
The table below shows the capital ratios under the Basel III capital framework as of the dates indicated:
Minimum
Minimum
Regulatory
Regulatory
Requirement for
Actual
Requirement
“Well Capitalized”
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
BayCom Corp
As of December 31, 2025
Tier 1 leverage ratio
Common equity tier 1 capital
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
United Business Bank
As of December 31, 2025
Tier 1 leverage ratio
Common equity tier 1 capital
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2025, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank-only basis, and the Federal Reserve expects the holding company’s subsidiary banks to be Well Capitalized under the prompt corrective action regulations. If the Company were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2025, the Company would have exceeded all regulatory capital requirements.
For additional information see “Item 1. Business — Supervision and Regulation — United Business Bank — Capital Requirements” and Note 18, “Regulatory Matters” in the Notes to the Consolidated Financial Statements, included in “Item 8. Financial Statements and Supplementary Data”, within this Form 10-K.
