2021 3rd Quarter Earnings

The Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share.  The dividend is payable on December 3, 2021 to shareholders of record on November 23, 2021.  This marks the third consecutive dividend payment since the Company initiated quarterly cash dividends on April 30, 2021.

“The third quarter represented a transition for the Company, as we continue to wind down from the unprecedented events of the pandemic, and we refocus on more traditional banking activities,” stated William S. Keller, President and CEO.  “Operating revenue increased during the third quarter compared to a year ago, driven by lower cost of funds, stable non-interest-bearing deposits and increased loan balances.  After two quarters of minimal core loan growth, caused by high refinance activity and reduced market demand, we are now seeing increased loan activity.  As a result, core loan growth during the third quarter was robust at $25.0 million, or 5.8% on a linked quarter basis, with an uptick in commercial real estate loans.  We anticipate carrying this trend into the fourth quarter as our loan pipeline remains strong and refinance activity appears to have slowed.”

“The highly successful PPP lending program sponsored by the SBA has helped thousands of businesses in the San Francisco Bay Area, which is our core market,” Keller continued.  We are proud to have been active participants in PPP, and our lending team clearly responded to the needs of local businesses of all sizes resulting in over $154 million in PPP loans originated over the course of the two rounds of the program. While the significant contributions to net income and loan portfolio growth are unlikely to be repeated in future quarters, the opportunities to serve new clients and deepen relationships with existing customers positions us well for the future.  Even without the PPP loans contribution, we had strong loan growth during the quarter, due to the hard work and continued efforts of our lending team bringing new customers into the Bank.  The success of our lending services is fueling profitability and providing new market opportunities, and is reflected in our balance sheet growth with total deposits increasing 23.33% in the past year, while net non-PPP loans grew by 14.7% in that period.”

As of September 30, 2021, the Company had received payments from the SBA for forgiveness of $90.5 million for 545 PPP borrowers.  At quarter end, the Company had at total of $63.5 million in gross PPP loans remaining on its books.  Approximately $575,00 of the fee income recognized during the third quarter of 2021 related to these PPP loan payoffs, compared to $191,000 of the fee income recognized during the prior quarter.  “We are beginning to see accelerated forgiveness applications from our clients and anticipate completing the forgiveness process within the next few quarters,” said Keller.

The Company’s net interest margin was 3.39% in the third quarter of 2021, a 43-basis point improvement compared to 2.96% in the preceding quarter, and a two-basis point improvement compared to 3.37% in the third quarter a year ago.  “PPP loan fees and interest on net interest income had a positive impact on net interest margin for the third quarter of 2021.  However, liquidity levels have been higher than usual throughout the year, due to larger deposit balances and the resulting effect on the mix of our earning assets, with higher excess reserves at the Fed continuing to put pressure on margin,” said Keller.  PPP loan fees and interest added 40 basis points to the net interest margin for the third quarter of 2021, compared to adding 11 basis points in the preceding quarter.  Excess reserves had a negative impact on the net interest margin for the third quarter of 2021, contracting the net interest margin by 92 basis points, compared to a 97 basis point decrease for the second quarter of 2021. 

“During the third quarter of 2021, we booked a $150,000 loan loss provision in recognition of considerable core loan growth and improving economic indicators in our market,” said Mukhtar Ali, Chief Credit Officer.  “Our loan loss reserves represent 1.37% of total non-guaranteed loans at September 30, 2021, compared to 1.41% a year earlier.  We continue to review our loan portfolio and communicate with our borrowers, and we believe we have adequate provisions in place as we navigate through the later stages of the pandemic.”  The Bank had only one loan for $74 thousand on deferral at September 30, 2021.  

Third Quarter 2021 Financial Highlights (at or for the period ended September 30, 2021)

• Net income increased 26.4% to $1.57 million in the third quarter of 2021, compared to $1.24 million in the third quarter a year ago, and decreased compared to the record results of $2.41 million in the preceding quarter.  Earnings per share was $0.18 in the third quarter of 2021, compared to $0.27 in the prior quarter, and $0.14 in the third quarter a year ago. 
• Pre-tax core earnings excluding gains on loan sales, PPP loan fees and loan loss provisions, was down $111,000 or 6.3% to $1.64 million in the third quarter compared to the third quarter a year ago.   
• Total assets increased $113.4 million, or 17.8%, to $749.7 million at September 30, 2021, compared to $636.3 million a year earlier, but decreased $46.2 million, or 5.8% compared to $795.9 million three months earlier.  Average assets for the quarter totaled $758.4 million, an increase of $151.5 million, or 25.0%, from the third quarter a year ago and a decrease of $22.2 million, or 2.9%, compared with the prior quarter.
• Net interest income, before the provision for loan losses, increased 25.9% to $6.25 million in the third quarter of 2021, compared to $4.96 million in the third quarter a year ago.  The provision for loan losses was $150,000 in the third quarter of 2021, compared to $250,000 in the third quarter of 2020.
• Non-interest income was $173,000 during the third quarter of 2021, compared to $352,000 for the third quarter a year ago, and a record $2.00 million in the second quarter of 2021.  Impacting non-interest income for the prior quarter was the proceeds from the $1.83 million CDFI Rapid Response Grant.
• Operating revenue (net interest income before the provision for loan losses plus non-interest income) increased 20.8% to $6.42 million in the third quarter of 2021, compared to $5.31 million in the third quarter of 2020.
• Net interest margin for the third quarter improved to 3.39%, compared to 2.96% in the preceding quarter and 3.37% in the third quarter a year ago.  The expansion in net interest margin in the third quarter of 2021 as compared to the prior quarter was largely due to the increase in recognition of PPP origination fee income due to $25.0 in PPP loan forgiveness.  Excluding all PPP-related income and balances, the net interest margin would have been 3.24% in the third quarter of 2021, and 3.26% in the second quarter of 2021.  The average interest yield on non-PPP loans in the third quarter was 4.65%, compared to 4.87% in the prior quarter.  The average cost of funds in the third quarter was 0.25%, a one basis point decline compared to the prior quarter and a 26 basis points decline compared to the prior year.  
• Net loans increased $40.8 million, or 8.5%, to $518.7 million at September 30, 2021, compared to $477.9 million a year ago, and decreased modestly compared to $519.0 million three months earlier, largely due to $25.0 million in PPP loan forgiveness during the current quarter.  At September 30, 2021, net non-PPP loans totaled $455.1 million, a 5.8% increase compared to $430.1 million at June 30, 2021, and a 14.7% increase compared to $396.7 million at September 30, 2020.  In addition, at September 30, 2021 the unused portion of credit commitments totaled $117.2 million compared to $112.6 million in the prior quarter and $89.8 million a year ago. 
• Total deposits increased $123.8 million, or 23.3%, to $654.4 million at September 30, 2021, compared to $530.6 million a year ago and decreased $43.5 million, or 6.2% compared to $697.9 million three months earlier.  The decrease compared to the prior quarter end was largely due to planned reductions in wholesale deposits.  Noninterest bearing demand deposit accounts increased 11.7% compared to a year ago and represented 39.1% of total deposits. Savings, NOW and money market accounts increased 81.6% compared to a year ago and represented 51.6% of total deposits.  CDs decreased 47.4% when compared to a year ago and comprised 9.3% of the total deposit portfolio, at September 30, 2021. 
• Asset quality remained exemplary with $31,200 of nonperforming loans at September 30, 2021, representing 0.01% of total loans.  This compares to nonperforming loans at 0.01% of total loans at June 30, 2021, and 0.04% at September 30, 2020.  
• The allowance for loan losses increased to $6.08 million, or 1.17% of total loans at September 30, 2021, compared to $5.35 million, or 1.12% of total loans at September 30, 2020.  The allowance, as a percentage of non-guaranteed loans, was 1.37% at September 30, 2021, compared to 1.41% a year ago.  The allowance for loan losses reflects management’s assessment of the current economic environment.  
• Total equity increased 11.4% to $66.8 million as of September 30, 2021, compared to a year ago.  The Bank’s capital levels remained well above FDIC “Well Capitalized” standards as of September 30, 2021, with a Tier 1 Common Equity capital ratio of 12.53%; Total risk-based capital ratio of 13.70%; and Tier 1 leverage ratio of 8.75%.
• Book value per common share totaled $7.54 as of September 30, 2021, an increase of 9.9% from a year ago.
• Declared a quarterly cash dividend of $0.04 per share.  The dividend is payable December x, 2021 to shareholders of record on November xx, 2021.  

On June 15, 2021, the U.S. Department of the Treasury awarded $1.25 billion in COVID-19 relief funds to 863 Community Development Financial Institutions (CDFIs).  The grants were made through Treasury’s CDFI Rapid Response Program (CDFI RRP) to provide capital for CDFIs to respond to the economic challenges created by the COVID-19 pandemic, particularly in underserved communities.  During the second quarter of 2021, the Company was named a recipient of the CDFI RRP, and was granted and fully deployed $1.83 million, which was the largest award made available to any institution.  Additionally, the Bank was just one of 149 commercial banks around the country to receive the grant.  The grant funds were used to support eligible activities such as the development and delivery of financial products and services, certain operational activities, and to enable CDFIs to build capital reserves and loan-loss reserves.  The CDFI RRP was authorized by the Consolidated Appropriations Act of 2021, which included a number of important opportunities to assist CDFI banks in serving their communities.

For additional information on the CDFI Rapid Response Program please visit
https://www.cdfifund.gov/programs-training/programs/rrp

In December, 2020, Bay Community Bancorp was formed, a bank holding company that is now the parent company of Community Bank of the Bay.  The holding company structure provides more capital options to support its growing San Francisco Bay Area franchise, in addition to providing additional revenue generating opportunities.  The financial data presented in this release is now consolidated, which affected results for the third, second and first quarters of 2021 and the fourth quarter of 2020.  The results for the third quarter of 2021, second quarter of 2021, the first quarter of 2021 and the fourth quarter of 2020 are comparable to prior Bank-only quarters.

About Bay Community Bancorp 

Bay Community Bancorp (OTCPink: CBOBA) is the parent company of Community Bank of the Bay, a San Francisco Bay Area commercial bank with full-service offices in Oakland, Danville and San Mateo.  Community Bank of the Bay serves the financial needs of closely held businesses and professional service firms, as well as their owner-operators and non-profit organizations throughout the San Francisco Bay Area.  Community Bank of the Bay is a member of the FDIC, an SBA Preferred Lender, and a CDARS depository institution, headquartered in Oakland, with full-service branches in Danville and San Mateo.  It is also California’s first FDIC-insured certified Community Development Financial Institution and one of only three operating in the Bay Area.  The bank is recognized for establishing the Bay Area Green Fund to provide financing to sustainable businesses and projects and supports environmentally responsible values.  Additional information on the bank is available online at www.BankCBB.com.

Forward-Looking Statements

This release may contain forward-looking statements, such as, among others, statements about plans, expectations and goals concerning growth and improvement. Forward-looking statements are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, government regulations and general economic conditions, including the real estate market in California and other factors beyond the Bank’s control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereof. The Bank does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether to reflect new information, future events, or otherwise, except as required by law.

FINANCIAL TABLES TO FOLLOW: