2022 3rd Quarter Earnings

The Company’s Board of Directors declared a quarterly cash dividend of $0.045 per share. The dividend is payable on December 5, 2022 to shareholders of record on November 28, 2022. This marks the seventh consecutive quarterly cash dividend since the Company initiated quarterly cash dividends on April 30, 2021.

“The third quarter began to reflect the earnings potential of June’s $119.4 million preferred capital raise. That capital immediately supported $60.8 million of loan growth and $95.6 million of investment security purchases, mostly short term Treasuries. Those earning assets, combined with the Federal Reserves’ rate increases, resulted in a quarter over quarter increase in total interest income of $1.4 million, or 18 percent,” stated William S. Keller, President and CEO. “While loan closings moderated in the third quarter, we have a robust pipeline and expect to see loan growth return in the coming quarter. True to our mission and purpose, many of these loans are located in targeted communities, and represent the kind of market-based investment opportunities that the US Treasury envisioned enabling when it developed the preferred stock investment program.”  

“Our purpose driven, relationship banking model also continues to resonate with businesses and organizations who maintain deposits with us. Strong third quarter deposit growth, especially in Money Markets pushed Total Assets above $1 billion for the first time. In addition to a $136.6 million increase in money market accounts, we also continued to add duration to our deposit base by increasing Time Deposits by $17.9 million. We have now increase Time Deposits by $71.1 million in the last six months,” said Keller. “While we expect continued core deposit growth, it should be noted that historically the second and third quarters have represented seasonal highs for deposits, and we would not be surprised by some end of year run off. Further, we are not immune from deposit rate pressure and we are seeing increasing migration from non-interest bearing to interest bearing accounts.”

“Higher than typical liquidity levels, and the resulting effect on the mix of our earning assets, put pressure our net interest margin during the quarter. As we continue to deploy this new capital into loan production and other higher yielding assets, we should better recognize the full benefit of the Federal Reserve interest rate increases, and expect to see our net interest margin improve in future quarters,” said Keller. The Company’s net interest margin was 3.48% in the third quarter of 2022, compared to 3.63% in the preceding quarter, and 3.39% in the third quarter a year ago. PPP loan fees and interest added 2 basis points to the net interest margin for the third quarter of 2022, compared to 14 basis points in the preceding quarter, and 3 basis points in the third quarter a year ago. 

“Overall credit quality remains very strong and we believe that we have adequate provisions in place to navigate the uncertain economic environment and our coming conversion to the CECL loan loss methodology,” said Mukhtar Ali, Chief Credit Officer. “As a result, we did not record a provision for loan losses for the quarter ended September 30, 2022. Our loan loss reserves now represent 1.17% of total non-guaranteed loans, compared to 1.37% a year earlier.” The Bank had $538,000 of loans past due 30 days or more at September 30, 2022.

Third Quarter 2022 Financial Highlights (at or for the period ended September 30, 2022) 

• Net income was $2.21 million in the third quarter of 2022, compared to $1.57 million in the second quarter a year ago, and $1.84 million in the preceding quarter. Earnings per common share was $0.25 in the third quarter of 2022, compared to $0.21 in the prior quarter, and $0.18 in the third quarter a year ago. 
• Pre-tax, pre-provision, pre-CDFI grant income was $3.14 million in the third quarter of 2022, compared to $2.83 million in the second quarter of 2022, and $2.37 million in the third quarter of 2021.
• Total assets increased $264.5 million, or 35.3%, to $1.014 billion at September 30, 2022, compared to $749.7 million a year earlier, and increased $127.9 million, or 14.4%, compared to $886.4 million three months earlier. Average assets for the quarter totaled $910.4 million, an increase of $152.0 million, or 20.5%, from the third quarter a year ago and an increase of $84.8 million, or 10.3%, compared with the prior quarter. 
• Net interest income, before the provision for loan losses, increased 24.5% to $7.77 million in the third quarter of 2022, compared to $6.25 million in the third quarter a year ago. There was no provision for loan losses recorded in the third quarter of 2022, compared to a $150,000 provision for loan losses in the third quarter of 2021.
• Non-interest income was $205,000 during the second quarter of 2022, compared to $376,000 in the second quarter of 2022, and $173,000 in the third quarter a year ago.
• Operating revenue (net interest income before the provision for loan losses plus non-interest income) increased 24.3% to $7.98 million in the third quarter of 2022, compared to $6.42 million in the third quarter a year ago, and increased 5.2% compared to $7.59 million in the second quarter of 2022.  
• Net interest margin for the third quarter expanded to 3.48%, compared to 3.63% in the preceding quarter and 3.39% in the third quarter a year ago. The contraction in net interest margin in the third quarter of 2022 was largely due to the increase in liquidity from the capital raise during the current quarter, compared to the preceding quarter. The average interest yield on non-PPP loans in the third quarter was 4.75%, compared to 4.53% in the prior quarter. The average cost of funds in the third quarter was 0.76%, a 46 basis point increase compared to the prior quarter and a 51 basis points increase compared to the prior year quarter.
• Loans, net of unearned income, increase $79.1 million, or 15.2%, to $597.8 million at September 30, 2022, compared to $518.7 million a year ago, and increased $7.42 million, or 1.3%, compared to $590.4 million three months earlier. Loan growth, excluding PPP, totaled $9.74 million for the quarter, driving increased interest income. At September 30, 2022, net non-PPP loans totaled $595.8 million, a 1.7% increase compared to $586.1 million at June 30, 2022, and a 30.9% increase compared to $455.2 million at September 30, 2022. In addition, at September 30, 2022, the unused portion of credit commitments totaled $167.4 million compared to $153.9 million in the prior quarter and $174.8 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 of $2.0 million in gross PPP loans remaining on its books. Approximately $60,000 of the fee income recognized during the third quarter of 2022 was related to these PPP loan payoffs, compared to $313,000 of the fee income recognized during the prior quarter. At September 30, 2022, approximately $50,000 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 $149.1 million, or 22.8%, to $803.6 million at September 30, 2022, compared to $654.4 million a year ago, and increased $131.1 million, or 19.5%, compared to $672.5 million three months earlier. Noninterest bearing demand deposit accounts decreased 10.6% compared to a year ago and represented 28.5% of total deposits. Savings, NOW and money market accounts increased 26.4% compared to a year ago and represented 53.2% of total deposits. Due to rising interest rates, CDs increased 143.5% compared to a year ago and comprised 18.4% of the total deposit portfolio, at September 30, 2022. For the quarter, the overall cost of deposits was 76 basis points (“bp”) compared to 30 bp in the prior quarter, and 25 bp in the third quarter a year ago. 
• Asset quality remained very strong with no nonperforming loans at September 30, 2022 or at June 30, 2022. This compares to nonperforming loans at 0.006% of total loans at September 30, 2021. 
• The allowance for loan losses was $6.91 million, or 1.16% of total loans at September 30, 2022, compared to $6.08 million, or 1.17% of total loans at September 30, 2021. The allowance, as a percentage of non-guaranteed loans, was 1.17% at September 30, 2022, compared to 1.37% 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 172.1% to $181.9 million as of September 30, 2022, compared to $66.9 million a year ago. The Bank’s capital levels remained well above FDIC “Well Capitalized” standards as of September 30, 2022, with a Tier 1 capital ratio of 29.02%; Common Equity Tier 1 capital ratio of 10.69%; Total capital ratio of 30.11%; and Leverage ratio of 20.76%. 
• Book value per common share totaled $7.27 as of September 30, 2022, compared to $7.54 per common share a year ago.  
• Declared a quarterly cash dividend of $0.045 per share. The dividend is payable December 5, 2022 to shareholders of record on November 28, 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.   

While the ECIP capital investment was an extraordinary event 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. “Since our founding we have received twenty-one Bank Enterprise Awards and a Rapid Response Grant totaling over $10.6 million in support of our lending activities in low to moderate income communities,” said Keller. “In addition, in September we submitted our application to participate in the CDFI Fund’s $1.75 billion Equitable Recovery Program and we are excited by the opportunity this program offers to the communities we serve.”

For additional information on the US Treasury’s 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 Fund’s Rapid Response Program please visit  

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

For additional information on the CDFI Fund’s Equitable Recovery Program please visit  

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

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:

Transmitted on Globe Newswire on October 28, 2022 at 8:19 a.m. PDT.