2022 4th Quarter Earnings

For the year 2022, net income increased 8.7% to a record $8.06 million, compared to $7.41 million in 2021, which included a non-recurring $1.83 million CDFI grant. Strong earning asset growth, including a 21.8% increase in core loans contributed to record profitability for the year.

The Company’s Board of Directors declared a quarterly cash dividend of $0.045 per share. The dividend is payable on March 6, 2023 to shareholders of record on February 24, 2023. This marks the seventh consecutive quarterly cash dividend since the Company initiated quarterly cash dividends on April 30, 2021.

“Total assets increased $260.5 million, or 36.4% in 2022, mainly due to a $95.7 million increase in deposits and the proceeds from the $119.4 million preferred capital raise. As those funds were deployed into core loans and other earning assets, our fourth quarter and full year 2022 results were a measurable improvement from the previous year,” stated William S. Keller, President and CEO. “Since our founding, we have sought to generate economic growth and opportunity by investing in economically disadvantaged communities. In the fourth quarter we booked 43 new loans with total commitments of $104.5 million. True to our mission, 29 of those loans, totaling $75.5 million were in targeted communities and represent the kind of market-based investment opportunities that the US Treasury sought to enable when it developed the preferred stock investment program.”  

“The growth in earning assets also helped keep our net interest margin stable compared to the prior quarter. The Company’s net interest margin was 3.57% in the fourth quarter of 2022, which was a 9 basis point increase compared to the preceding quarter, and a 12 basis point decrease compared to 3.69% in the fourth quarter a year ago, when PPP loan fees and interest added 50 basis points to the margin,” said Keller. “While we have been successful in managing our net interest margin, we have not been immune to the liquidity and deposit pricing pressures resulting from the Federal Reserve’s increasing interest rate program. These challenges became more pronounced in December 2022 when certain client transactions resulted in a drawdown of bank balances. Replacing those balances with higher cost alternatives pressured our overall Cost of Funds and in December our total funding costs increased to 1.48% versus 1.16% for the entire quarter. While we should see a measured rebound of the year end seasonal outflow in business deposit accounts, we do recognize deposit growth as the key challenge going forward, and we are devoting significant attention to it.”

“Credit quality remains strong and we are well positioned to transition to the CECIL loan loss methodology. However, additional loan growth or potential adjustments to the loan loss model inputs, most specifically a rising unemployment rate, will require additional provisions,” said Mukhtar Ali, Chief Credit Officer. “At December 31, 2022, our loan loss reserves represent 1.06% of total non-guaranteed loans, compared to 1.28% a year earlier.” The Bank had $1.49 million of loans past due 30 days or more at December 31, 2022. 

Fourth Quarter 2022 Financial Highlights (at or for the period ended December 31, 2022) 

• Net income was $2.39 million in the fourth quarter of 2022, compared to $1.75 million in the fourth quarter a year ago, and $2.21 million in the preceding quarter. Earnings per common share was $0.28 in the fourth quarter of 2022, compared to $0.20 in the fourth quarter a year ago, and $0.25 in the preceding quarter.  
• Pre-tax, pre-provision, pre-CDFI grant income was $3.39 million in the fourth quarter of 2022, compared to $1.74 million in the quarter a year ago, and $3.14 million in the third quarter of 2022.
• Total assets increased $260.5 million, or 36.4%, to $976.0 million at December 31, 2022, compared to $715.6 million a year earlier, and decreased $38.2 million, or 3.8%, compared to $1.04 billion three months earlier. Average assets for the quarter totaled $999.3 million, an increase of $258.1 million, or 34.8%, from the fourth quarter a year ago and an increase of $88.9 million, or 9.8%, compared with the prior quarter. 
• Net interest income, before the provision for loan losses, increased 31.4% to $8.75 million in the fourth quarter of 2022, compared to $6.66 million in the fourth quarter a year ago. There was no provision for loan losses recorded in the fourth quarter of 2022, or the third quarter of 2022. This compared to a $200,000 provision for loan losses in the fourth quarter of 2021.
• Non-interest income was $253,000 in the fourth quarter of 2022, compared to $226,000 in the fourth quarter a year ago, and $205,000 in the preceding quarter.
• Operating revenue (net interest income before the provision for loan losses plus non-interest income) increased 30.7% to $9.00 million in the fourth quarter of 2022, compared to $6.88 million in the fourth quarter a year ago, and increased 12.8% compared to $7.98 million in the third quarter of 2022.  
• Net interest margin wad 3.57% in the fourth quarter, compared to 3.48% in the preceding quarter, and 3.69% in the fourth quarter a year ago. The contraction in net interest margin in the fourth quarter of 2022 was primarily due to the increase in deposit costs as well as increased liquidity from the capital raise during the current quarter, compared to the quarter a year ago. The average interest yield on non-PPP loans in the fourth quarter was 5.09%, compared to 4.21% in the quarter a year ago and 4.75% in the prior quarter. The average cost of funds in the fourth quarter was 1.16%, a 93 basis point increase compared to the fourth quarter a year ago and a 40 basis points increase compared to the prior quarter. 
• Loans, net of unearned income, increase $118.8 million, or 22.1%, to $657.7 million at December 31, 2022, compared to $538.8 million a year ago, and increased $59.9 million, or 10.0%, compared to $597.8 million three months earlier. Loan growth, excluding PPP loans, totaled $61.2 million for the quarter, driving increased interest income. At December 31, 2022, net non-PPP loans totaled $657.0 million, a 10.3% increase compared to $595.8 million at September 30, 2022, and a 31.3% increase compared to $500.2 million at December 31, 2021. In addition, at December 31, 2022, the unused portion of credit commitments totaled $150.8 million compared to $167.4 million in the prior quarter and $159.3 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 $0.7 million in gross PPP loans remaining on its books. Approximately $36,000 of the fee income recognized during the fourth quarter of 2022 was related to these PPP loan payoffs, compared to $60,000 of the fee income recognized during the preceding quarter and $829,000 of the fee income recognized during the fourth quarter of 2021. At December 31, 2022, approximately $13,000 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 increased $95.7 million, or 15.7%, to $705.9 million at December 31, 2022, compared to $610.2 million a year ago, and decreased $97.7 million, or 12.2%, compared to $803.6 million three months earlier. Noninterest bearing demand deposit accounts decreased 14.5% compared to a year ago and represented 28.8% of total deposits. Savings, NOW and money market accounts increased 20.3% compared to a year ago and represented 50.3% of total deposits. Due to rising interest rates, CDs increased 91.0% compared to a year ago and comprised 20.9% of the total deposit portfolio, at December 31, 2022. For the quarter, the overall cost of deposits was 116 basis points (“bp”) compared to 76 bp in the prior quarter, and 23 bp in the fourth quarter a year ago. 
• Asset quality remained very strong with 0.046% nonperforming loans at December 31, 2022. This compares to no nonperforming loans at September 30, 2022, and nonperforming loans at 0.005% of total loans at December 31, 2021. 
• The allowance for loan losses was $6.89 million, or 1.05% of total loans at December 31, 2022, compared to $6.28 million, or 1.17% of total loans at December 31, 2021. The allowance, as a percentage of non-guaranteed loans, was 1.06% at December 31, 2022, compared to 1.28% 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 171.7% to $184.9 million as of December 31, 2022, compared to $68.0 million a year ago. The Bank’s capital levels remained well above FDIC “Well Capitalized” standards as of December 31, 2022, with a Tier 1 capital ratio of 25.18%; Common Equity Tier 1 capital ratio of 9.46%; Total capital ratio of 26.10%; and Leverage ratio of 19.26%. 
• Book value per common share totaled $7.50 as of December 31, 2022, compared to $7.67 per common share a year ago.  
• Declared a quarterly cash dividend of $0.045 per share. The dividend is payable March 6, 2023 to shareholders of record on February 24, 2023. 

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 February 7, 2023 at 6:00 a.m. PST.