Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On July 18, 2023, the audit committee of the board of directors of BayCom Corp (the “Company,” “we” or “our”) concluded that the Company’s previously issued consolidated financial statements for the interim period ended March 31, 2023 and year ended December 31, 2022, as well as for the interim periods included in that fiscal year (the “Restated Periods”), should no longer be relied upon because of errors related to the accounting for unrealized losses on preferred equity securities that resulted in material misstatements of noninterest income and accumulated other comprehensive income. Additionally, the Company’s earnings releases and other public communications should no longer be relied upon to the extent that they relate to our consolidated financial statements for the Restated Periods.
At the time of its purchase of the preferred equity securities for investment purposes, the Company inappropriately accounted for them as available-for-sale debt securities under Accounting Standards Codification (“ASC”) Topic 320 – Investments-Debt Securities. As such, the changes in the fair value of these securities were not recorded as part of net income but rather as a component of shareholders’ equity (in accumulated other comprehensive income, net of tax). However, as a result of subsequent research and third-party consultation, the Company determined that the securities should instead have been accounted for under ASC Topic 321 – Investments-Equity Securities. The result of this change in classification of the preferred equity securities is that the change in the fair value of the securities each quarter should have been recorded in noninterest income in the consolidated statements of income.
As soon as practicable, we intend to amend our Form 10-Qs for the quarterly periods ended March 31, 2023, September 30, 2022, June 30, 2022, and March 31, 2022, and our Form 10-K for the year ended December 31, 2022 (the “Original Filings”), to reflect the restatement of our consolidated financial statements for the Restated Periods (the “Amended Form 10-Qs” and the “Amended Form 10-K”). We expect to file the Amended Form 10-Qs and the Amended Form 10-K before we file our Form 10-Q for the quarterly period ended June 30, 2023 (the “Form 10-Q”).
We expect our restated financial statements for the Restated Periods to differ from the amounts reported in the Original Filings. The restated amounts for the quarter ended March 31, 2023 and the year ended December 31, 2022 are expected to be approximately as follows:
| | | | | | | | | | | | | |
| | As Restated | | As Restated | | As Previously Reported | | As Previously Reported | |
| | March 31, | | December 31, | | March 31, | | December 31, | |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Consolidated Balance Sheets | | | | | | | | | | | | | |
Investment securities available-for-sale | | $ | 152,427 | | $ | 154,004 | | $ | 165,261 | | $ | 167,761 | |
Equity securities | | | 12,834 | | | 13,757 | | | — | | | — | |
Accumulated other comprehensive loss, net of tax | | | (12,858) | | | (11,561) | | | (15,970) | | | (14,818) | |
Retained earnings | | | 129,558 | | | 124,122 | | | 132,670 | | | 127,379 | |