CBB Comments on Banking Industry Events - March 2023

An Open Letter to Our Clients and the Bay Area Community from Our CEO

Community Bank of the Bay is committed to providing you with the most professional, personal, and safe banking experience available. We realize that these priorities take on different importance at different times. Our professional and personal service is on display daily, but the safety and soundness of our Bank is always our management and board’s top priority. While other banks have recently been exposed as having overly concentrated business mixes and poor risk management practices, Community Bank of the Bay has none of those attributes. We are not like those banks and I will share with you some of the reasons why. (All data from publicly available December 31, 2022, FDIC Call Reports.)

Diversification is a time-honored risk management tool, and we are grateful to have a well-diversified, solid client base. Each of the recent bank failures had large concentrations on both sides of their balance sheet from specific industries, or subindustries, such as crypto assets and related businesses. When these industries came under pressure, either due to cyclical patterns or even possible fraud, the banks’ business contracted rapidly and exposed large losses in their securities portfolio. Our Bank does not have these types of concentrated positions, and as a result, our deposit base and loan portfolio reflect a broad spectrum of individuals, businesses, and non-profits.

A bank’s securities portfolio is supposed to be a safe store of liquidity, but since all bonds will experience some interim market loss as interest rates rise, management must carefully limit this risk even for securities they expect to be held to maturity. One of the banks that recently failed reported total pre-tax losses in its Held to Maturity securities portfolio of $15.16 billion against a reported equity position of $15.46 billion. The unrecognized losses almost equaled the bank’s capital. Our management has taken a much more conservative approach to our Bank’s securities portfolio. Our unrealized after-tax loss in the Held to Maturity portfolio is only $1.9 million against total equity of $183.6 million, or a minimal 1.0 percent. Moreover, $145 million, or 56.4 percent of our portfolio consists of short-term “laddered” US Treasury bonds with regular monthly maturities. Along with cash balances at the Federal Reserve Bank, this portfolio provides us with immediate access to significant liquidity, even before counting our contingent funding and borrowing options.

Finally, no discussion of bank safety can be complete without reviewing the institution’s Equity Capital position. The level of a bank’s capital in relation to its total size is likely the most relied upon metric of financial strength. Since the Great Recession, Community Bank of the Bay has maintained Capital levels in excess of the highest regulatory standard of “Well Capitalized”. That level of safety was a financial commitment we made to our shareholders, clients and our regulatory partners, and we have never fallen short of that standard.

In June 2022, our financial strength reached an even higher level when after a competitive process, our Bank received a $119.4 million investment from the U.S. Department of Treasury. This investment increased our Capital to a level of unparalleled strength. Our Total Capital is not simply in excess of the “Well Capitalized” standard; it is 3.26 times that standard and ranks Community Bank of the Bay in the top 5 percent of peer banks nationwide, while Leverage is even better at 3.85 times the regulatory standard and ranks us in the top 2 percent of peer banks nationwide. There are very few banks that can rely on their Capital position for safety the way we can.

We recognize that there are uncertain times and hope this information provides you with the confidence that you deserve. In all areas of our Bank, from how we serve our clients and communities to how we manage risk, we strive to be worthy of your support and our motto:

Community Bank of the Bay

Different. On Purpose.

Thank you for your trust in us. We will work hard to continually earn it.

Sincerely,

President & Chief Executive Officer, Community Bank of the Bay