2022 2nd Quarter Earnings

The Company’s Board of Directors declared a quarterly cash dividend of $0.045 per share. The dividend is payable on September 6, 2022 to shareholders of record on August 25, 2022. This marks the sixth consecutive cash dividend since the Company initiated quarterly cash dividends on April 30, 2021.

“The highlight of the second quarter of 2022 was the closing of a $119.4 million capital raise from the US Treasury Department that pushed total assets to a record $886.0 million,” stated William S. Keller, President and CEO. “This capital, in the form of Tier 1 qualifying perpetual preferred stock, presents a truly transformative opportunity for our Bank, our shareholders, our clients and the communities we serve. This substantial increase in capital will result in expanded lending capacities and new services that better meet the needs of the Bay Area’s small and medium sized businesses, real estate developers and investors, service organizations and independent creators, especially those that operate and reside in traditionally underserved communities. Deployed properly, this new capital can support well over a billion dollars of asset growth and allows us to focus intently on enhancing shareholder value as we build on our successful community bank business model.”  

“We also reported another quarter of exceptional loan growth, with core loans excluding PPP loans increasing $73.3 million. With end of quarter loans outstanding being over $44 million more than the quarter average, we expect that these earning assets and our still robust loan pipeline will drive continued revenue growth in the coming quarters,” said Keller. “At the same time, we are also benefiting from higher yields on earning assets. As new loans that carry a higher interest rate are added to our balance sheet, and we recognize the full benefit of Federal Reserve interest rate increases, we expect to see our net interest margin improve even further in future quarters.”

The Company’s net interest margin was 3.63% in the second quarter of 2022, compared to 3.58% in the preceding quarter, and 2.96% in the second quarter a year ago. PPP loan fees and interest added 14 basis points to the net interest margin for the second quarter of 2022, compared to 26 basis points in the preceding quarter, but represented a 19 basis point drag on net interest margin in the second quarter a year ago. 

“Credit quality remains very strong, and we do not anticipate any adverse effect from our coming conversion to the CECL loan loss methodology,” said Mukhtar Ali, Chief Credit Officer. “However, due to substantial core loan growth during the quarter, and not as a result of any changes in credit quality metrics, the Company recorded a $400,000 provision for loan losses for the quarter ended June 30, 2022. Our loan loss reserves represent 1.19% of total non-guaranteed loans at June 30, 2022, compared to 1.42% a year earlier. We communicate with our borrows regularly and we continue to be impressed by their capabilities and resilience. As a result, we believe that we have adequate provisions in place to navigate the ongoing economic environment.” The Bank had $705,000 of loans past due 30 days or more at June 30, 2022, including $360,000 of SBA guaranteed PPP loans.

Second Quarter 2022 Financial Highlights (at or for the period ended June 30, 2022) 

• Net income was $1.84 million in the second quarter of 2022, compared to $2.41 million in the second quarter a year ago, and $1.62 million in the preceding quarter. Earnings per common share was $0.21 in the second quarter of 2022, compared to $0.18 in the prior quarter, and $0.27 in the second quarter a year ago. 
• Pre-tax, pre-provision, pre-CDFI grant income was $2.83 million in the second quarter of 2022, compared to $2.31 million in the first quarter of 2022, and $1.88 million in the second quarter of 2021.
• Total assets increased $90.5 million, or 11.4%, to $886.3 million at June 30, 2022, compared to $795.9 million a year earlier, and increased $94.8 million, or 12.0%, compared to $791.6 million three months earlier. Average assets for the quarter totaled $825.6 million, an increase of $45.0 million, or 5.8%, from the second quarter a year ago and an increase of $66.2 million, or 8.7%, compared with the prior quarter. 
• Net interest income, before the provision for loan losses, increased 29.3% to $7.21 million in the second quarter of 2022, compared to $5.58 million in the second quarter a year ago. There was a $400,000 provision for loan losses recorded in the second quarter of 2022, compared to a $250,000 provision for loan losses in the second quarter of 2021.
• Non-interest income was $376,000 during the second quarter of 2022, compared to $180,000 in the first quarter of 2022. In the second quarter of 2021, non-interest income was $2.00 million. Impacting non-interest income for the second quarter of 2021 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 modestly to $7.59 million in the second quarter of 2022, compared to $7.58 million in the second quarter a year ago, and increased 13.8% compared to $6.67 million in the first quarter of 2022.  
• Net interest margin for the second quarter expanded to 3.63%, compared to 3.58% in the preceding quarter and 2.96% in the second quarter a year ago. The expansion in net interest margin in the second quarter of 2022 as compared to the prior quarter was largely due to the increase in interest earning assets and higher loan yields during the current quarter, compared to the prior quarter. The average interest yield on non-PPP loans in the second quarter was 4.53%, compared to 4.48% in the prior quarter. The average cost of funds in the second quarter was 0.30%, a six basis point increase compared to the prior quarter and a four basis points increase compared to the prior year quarter.
• Loans, net of unearned income, increase $71.3 million, or 13.7%, to $590.4 million at June 30, 2022, compared to $519.0 million a year ago, and increased $60.8 million, or 11.5%, compared to $529.6 million three months earlier. Loan growth excluding PPP totaled $73.3 million for the quarter, driving increased interest income. At June 30, 2022, net non-PPP loans totaled $586.1 million, a 16.1% increase compared to $512.7 million at March 31, 2022, and a 36.2% increase compared to $430.2 million at June 30, 2021. In addition, at June 30, 2022, the unused portion of credit commitments totaled $153.9 million compared to $148.7 million in the prior quarter and $152.7 million a year ago. 
• Over the last two years, the Company was an active participant in the SBA PPP, resulting in over $158.0 million in PPP loans originated over the course of the two rounds of the program. At quarter end, the Company had a total $4.3 million in gross PPP loans remaining on its books. Approximately $313,000 of the fee income recognized during the second quarter of 2022 was related to these PPP loan payoffs, compared to $596,000 of the fee income recognized during the prior quarter. At June 30, 2022, approximately $120,000 in net unrecognized fee income remained to be recognized in relation to the PPP loan portfolio, which is predominantly expected during the next few quarters.
• Total deposits decreased $25.4 million, or 3.6%, to $672.5 million at June 30, 2022, compared to $697.9 million a year ago, and decreased $26.0 million, or 3.7%, compared to $698.4 million three months earlier. Noninterest bearing demand deposit accounts decreased 9.5% compared to a year ago and represented 35.5% of total deposits. Savings, NOW and money market accounts decreased 12.7% compared to a year ago and represented 45.2% of total deposits. Due to rising interest rates, CDs increased 51.3% compared to a year ago and comprised 19.3% of the total deposit portfolio, at June 30, 2022. For the quarter, the overall cost of deposits was 30 basis points (“bp”) compared to 24 bp in the prior quarter, and 26 bp in the second quarter a year ago. 
• Asset quality remained very strong with no nonperforming loans at June 30, 2022. This compares to nonperforming loans at 0.004% of total loans at March 31, 2022, and 0.007% at June 30, 2021. 
• The allowance for loan losses was $6.90 million, or 1.17% of total loans at June 30, 2022, compared to $5.93 million, or 1.14% of total loans at June 30, 2021. The allowance, as a percentage of non-guaranteed loans, was 1.19% at June 30, 2022, compared to 1.42% a year ago. The allowance for loan losses reflects management’s assessment of the current economic environment. 
• Primarily due to the capital raise, total equity increased 184.0% to $186.0 million as of June 30, 2022, compared to $65.5 million a year ago. The Bank’s capital levels remained well above FDIC “Well Capitalized” standards as of June 30, 2022, with a Tier 1 capital ratio of 28.78%; Common Equity Tier 1 capital ratio of 10.67%; Total capital ratio of 29.85%; and Leverage ratio of 22.99%. 
• Book value per common share totaled $7.50 as of June 30, 2022. The net increase from a year ago was 0.9% after accounting for unrealized losses on available-for-sale securities. 
• Declared a quarterly cash dividend of $0.045 per share. The dividend is payable September 9, 2022 to shareholders of record on August 31, 2022. 

On June 7, 2022, the Company announced that it had completed a $119.4 million investment from the US Treasury Department. Treasury’s investment, made under the Emergency Capital Investment Program (“ECIP”), is in the form of non-cumulative Senior Perpetual Preferred Stock. For the first two years from the date of issuance of the Senior Perpetual Preferred Stock the dividend rate shall be zero percent (0%) per annum, and thereafter dividend payments begin accruing with a maximum dividend rate of two percent (2%) and the dividend rate may be reduced to one half percent (0.5%) based on the level of increased qualified lending undertaken by the Bank. On October 18, 2021 Treasury announced that 204 credit unions, banks, and savings and loan holding companies applied for total investments of over $12.88 billion under the ECIP Program and that the demand exceeded the amount available by $4.13 billion.

On December 14, 2021, the US Treasury announced it would invest $8.7 billion in up to 186 Minority Depository Institutions (“MDI”) and CDFI banks and credit unions to accelerate the recovery of small businesses, minority-owned businesses and consumers, especially those in low-income and underserved communities that may have been disproportionately impacted by the economic effects of the COVID-19 pandemic. The Bank previously announced that it was one of the only five banks and six credit unions in California to be approved by the US Treasury for an ECIP investment.   

During the second quarter of 2021, the Company was named a recipient of the CDFI Rapid Response Program, and was granted and fully deployed $1.83 million, which was the largest award made available to any institution. On June 15, 2021, the U.S. Department of Treasury awarded $1.25 billion on 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. The grant funds may be 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.

While the ECIP capital investment and last year’s Rapid Response Grant were extraordinary events brought on by the Federal response to the pandemic, the Bank has maintained a long and important relationship with the US Treasury’s CDFI Fund since inception, and since our founding we have received twenty-one Bank Enterprise Awards totaling over $8.8 million in recognition of our lending activities in the communities we serve. 

For additional information on the ECIP Program please visit  

https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses/emergency-capital investment-program 

For additional information on the CDFI Rapid Response Program please visit  

https://www.cdfifund.gov/programs-training/programs/rrp  

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.

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