2023 1st Quarter Earnings

The Company’s Board of Directors increased its quarterly cash dividend by 11.1% to $0.05 per share. The dividend is payable on June 5, 2023 to shareholders of record on May 26, 2023. This marks the ninth consecutive, and second increase in the cash dividend payment since the Company initiated quarterly cash dividends on April 30, 2021.

“First quarter earnings were solid and further bolstered a balance sheet that exhibits a strong level of capital and ample liquidity,” stated William S. Keller, CEO. “During the recent market turmoil our team worked to communicate our overriding commitment to prudent risk management practices and how it positions us to be a reliable financial partner for our clients. At March 31, 2023, the Bank’s capital position was over three times the regulatory guidelines for well capitalized banks, and the level of uninsured or non-collateralized public deposits was approximately 35%. At quarter end, we held over $77 million in cash balances and $60 million in U.S. Treasury bills, and had access to significant borrowing capacity through the FHLB and Federal Reserve discount window, as well as a variety of other contingent liquidity sources.”  

“In April, the Company was awarded a $2.48 million grant as part of the CDFI Equitable Recovery Program. These funds will strengthen our ability to help low- and moderate-income communities recover from the pandemic and invest in their long-term prosperity,” said Keller. “As a CDFI, we have sought to generate economic growth and opportunity by investing in economically-disadvantaged communities since our founding. In the first quarter of 2023, we booked 24 new loans with total commitments of $33.7 million, with ten loans totaling $14.9 million in targeted communities. During the quarter the San Francisco Business Times announced that a client received the 2022 Real Estate Deal of the Year Award in the Community Impact category for its development of a low income, service supported housing project in Oakland. Our Bank’s involvement in this project would not have been possible if not for the targeted investment capital that the U.S. Treasury provided.”

“Deposit growth and pricing was an industrywide challenge during the first quarter, and we have not been immune to the effects of the Federal Reserve’s tightening monetary policy. Increasing interest rates have led to higher funding costs and a 29 basis point reduction in the first quarter net interest margin compared to the preceding quarter, and a 30 basis point decrease compared to the first quarter a year ago,” said Keller. “Deposit retention and acquisition remains competitive, but we are grateful for our loyal client base and the response from prospective value-aligned depositors. While we experienced an aggregate $45.4 million, or 6.4% outflow of deposits during the quarter, deposit levels were generally not impacted by the bank failures that occurred in mid-March, and the entirety of the decline was attributed to real estate services clients whose reduced business volumes translated into reduced deposit balances of $54.1 million. None of these clients have left the bank and their more robust deposit levels may be expected to return as industry activity rebounds.”

“Beginning January 1, 2023, we implemented the Current Expected Credit Losses standard, which replaced the former “incurred loss” model for recognizing credit losses with an “unexpected loss” model referred to as the CECL model. The transition required only a $39,000 initial provision, but utilizing CECL may have a more volatile impact on our allowance for credit losses moving forward,” said Mukhtar Ali, President and Chief Credit Officer. “At March 31, 2023, our loan loss reserves represent 0.99% of total non-guaranteed loans, compared to 1.31% a year earlier.”

“Commercial real estate loans against office properties totaled $66.4 million at March 31, 2023 and represented 33.24% of Capital. The non-Owner Occupied segment consisted of 21 notes totaling $50.2 million and carried a weighted average loan-to-value of 41.3%. All relationships in this category are performing as agreed,” said Ali.  

First Quarter 2023 Financial Highlights (at or for the period ended March 31, 2023) 

• Net income was $1.94 million in the first quarter of 2023, compared to $1.63 million in the first quarter a year ago, and $2.39 million in the preceding quarter. Earnings per common share was $0.22 in the first quarter of 2023, compared to $0.19 in the fourth quarter a year ago, and $0.28 in the preceding quarter.  
• Pre-tax, pre-provision, pre-CDFI grant income was $2.76 million in the first quarter of 2023, compared to $2.31 million in the quarter a year ago, and $3.39 million in the fourth quarter of 2022.
• Total assets increased $217.6 million, or 27.5%, to $1.01 billion at March 31, 2023, compared to $791.6 million a year earlier, and increased $33.1 million, or 3.4%, compared to $976.0 million three months earlier. Average assets for the quarter totaled $987.1 million, an increase of $227.7 million, or 30.0%, from the first quarter a year ago and a decrease of $12.2 million, or 1.2%, compared with the prior quarter. 
• Net interest income, before the provision for loan losses, increased 17.9% to $7.65 million in the first quarter of 2023, compared to $6.49 million in the first quarter a year ago. There was a $39,000 provision for loan losses recorded in the first quarter of 2023. This compared to no provision for loan losses in the first quarter of 2022, or the preceding quarter. 
• Non-interest income was $248,000 in the first quarter of 2023, compared to $180,000 in the first quarter a year ago, and decreased 12.2% compared to $9.00 million in the fourth quarter of 2022.
• 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 was 3.28% in the first quarter, compared to 3.57% in the preceding quarter, and 3.58% in the first quarter a year ago. The contraction in net interest margin in the first quarter of 2023 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 5.42%, compared to 4.30% in the quarter a year ago and 5.09% in the prior quarter. The average cost of funds in the first quarter was 1.94%, a 170 basis point increase compared to the first quarter a year ago and a 78 basis points increase compared to the prior quarter. 
• Loans, net of unearned income, increase $145.2 million, or 27.8%, to $666.9 million at March 31, 2023, compared to $521.7 million a year ago, and increased $9.2 million, or 1.4%, compared to $657.7 million three months earlier. Loan growth, excluding PPP loans, totaled $9.3 million for the quarter, driving increased interest income. At March 31, 2023, net non-PPP loans totaled $666.3 million, a 1.4% increase compared to $657.0 million at December 31, 2022, and a 32.0% increase compared to $504.8 million at March 31, 2022. In addition, at March 31, 2023, the unused portion of credit commitments totaled $141.9 million compared to $150.8 million in the prior quarter and $153.7 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 of $529,000 in gross PPP loans remaining on its books. Approximately $1,000 of the fee income recognized during the first quarter of 2023 was related to these PPP loan payoffs, compared to $36,000 of the fee income recognized during the preceding quarter and $596,000 of the fee income recognized during the first quarter of 2022. At March 31, 2023, approximately $11,000 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 $38.1 million, or 5.5%, to $660.4 million at March 31, 2023, compared to $698.5 million a year ago, and decreased $45.5 million, or 6.4%, compared to $705.9 million three months earlier. Non-interest bearing demand deposit accounts decreased 18.9% compared to a year ago and represented 29.7% of total deposits. Savings, NOW and money market accounts decreased 24.0% compared to a year ago and represented 43.8% of total deposits. Due to rising interest rates, CDs increased 129% compared to a year ago and comprised 26.5% of the total deposit portfolio, at March 31, 2023. For the quarter, the overall cost of funds was 194 basis points (“bp”) compared to 116 bp in the prior quarter, and 24 bp in the first quarter a year ago. 
• Asset quality remained strong with 0.021% nonperforming loans to gross loans at March 31, 2023. This compares to 0.046% of nonperforming loans to gross loans at December 31, 2022, and nonperforming loans at 0.004% of total loans at March 31, 2022. 
• The allowance for credit losses was $6.48 million, or 0.97% of gross loans at March 31, 2023, compared to $6.50 million, or 1.25% of total loans at March 31, 2022. The allowance, as a percentage of non-guaranteed loans, was 0.99% at March 31, 2023, compared to 1.31% a year ago. The allowance for credit losses reflects management’s assessment of the current economic environment. 
• Primarily due to the capital raise, total equity increased 180.2% to $187.9 million as of March 31, 2023, compared to $67.0 million a year ago. The Bank’s capital levels remained well above FDIC “Well Capitalized” standards as of March 31, 2023, with a Tier 1 capital ratio of 25.60%; Common Equity Tier 1 capital ratio of 9.75%; Total capital ratio of 26.52%; and Leverage ratio of 19.54%. 
• Book value per common share totaled $7.86 as of March 31, 2023, compared to $7.56 per common share a year ago.  
• Declared a quarterly cash dividend of $0.05 per share. The dividend is payable June 5, 2023 to shareholders of record on May 26, 2023. 

On April 10, 2023, Vice President Kamala Harris and Deputy Secretary of the Treasury Wally Adeyemo announced that the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) has awarded over $1.73 billion in grants to 603 Community Development Financial Institutions (CDFIs) across the country through the CDFI Equitable Recovery Program (CDFI ERP). The Company was awarded a $2.48 million grant as part of the CDFI ERP. These funds will strengthen the ability of CDFIs to help low- and moderate-income communities recover from the COVID-19 pandemic and invest in long-term prosperity.

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 its founding, the Company has received 21 Bank Enterprise Awards, a Rapid Response Grant and the recent Equitable Recovery Grant, totaling over $13.0 million in support of its lending activities in low to moderate income communities.  

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 May 1, 2023 at 6:00 a.m. PST.