BayCom (B2J) Risk Analysis

Our business operations are significantly influenced by the extensive body of accounting regulations in the United States. Regulatory bodies regularly issue new guidance, altering accounting rules and reporting requirements, which can substantially affect the preparation and presentation of our financial statements. These changes may require enhanced judgments, additional data collection, new internal controls, or retrospective application, potentially leading to restatements of prior period financial statements or increased compliance costs. Under the Current Expected Credit Loss ("CECL") model, which we currently apply, financial assets carried at amortized cost, such as loans and held-to-maturity debt securities, are presented at the net amount expected to be collected. This forward-looking approach estimates expected credit losses by considering historical experience, current conditions, and reasonable and supportable forecasts affecting collectability. CECL contrasts with the prior "incurred loss" methodology under GAAP, which recognized losses only when they were probable. While CECL improves the timeliness of recognizing credit losses, its reliance on macroeconomic assumptions and forecasts may continue to introduce earnings volatility, particularly during periods of economic uncertainty, interest rate volatility, or changing credit conditions. In addition, CECL creates an accounting asymmetry: loan-related income is recognized periodically using the effective interest method, while expected credit losses are recognized up front. This asymmetry may give the impression of reduced profitability during periods of loan growth, particularly in higher-risk or rapidly changing economic environments, and relatively higher profitability during periods of stable or declining loan volumes, as income continues to accrue on loans with previously recognized losses.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and methods so that they comply with generally accepted accounting principles and reflect management's judgment regarding the most appropriate manner to report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in our reporting materially different results than would have been reported under a different alternative. Certain accounting policies, most notably the allowance for credit losses, are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. For more information, refer to "Critical Accounting Estimates" included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.

We performed our test for goodwill impairment at December 31, 2025 and the test concluded that recorded goodwill was not impaired. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price. Our evaluation of the fair value of goodwill involves a substantial amount of judgment. If our judgment were incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill, resulting in a charge against earnings, which may materially adversely affect our results of operations.