Community Bank of the Bay Earns $1.24 Million in Third Quarter 2020; Deposits Increase 32% and Loans increase 21% Year-Over-Year; Lower Loan Loss Provision Quarter-Over-Quarter
As a note, Oakland’s Community Bank of The Bay was started in 1996 by The City of Oakland and with the intention of being the first, true, city-owned bank. A public bank. But the reality of the responsibilities and expenses of carrying money forced The City of Oakland to jettison its involvement, and in order to survive, Community Bank of The Bay had to become a more conventional financial institution. In other words, it had to establish loans that could be retired by an expected income stream, not one that was more uncertain, as is the case at times with clients in marginal neighborhoods. The one answer to the problem was not done: for The City of Oakland to heavily subsidize the bank.
Oakland – Community Bank of the Bay (OTCPink: CBYAA), an Oakland-based, San Francisco Bay Area commercial bank with full-service offices in Oakland, Danville and San Mateo, today reported net income of $1.24 million for the third quarter of 2020, compared to $1.3 million in the third quarter of 2019. Operating results were driven by 32% deposit growth and 21% loan growth, year-over-year, and stable asset quality metrics. All financial results are unaudited.
“Our third quarter 2020 results were solid considering the effects of the pandemic and associated low interest rate environment. As a result, our pre-tax, pre-provision earnings of $2.04 million in the third quarter were essentially unchanged compared to $2.09 million in the third quarter a year ago. Our credit quality remains excellent and is confirmation of the strength and resourcefulness of our clients, while robust year-over-year deposit and loan growth is a testament to our teams’ hard work and reflective of how our unique twenty-two-year history resonates with our community,” stated William S. Keller, President and CEO. “As we navigate through the pandemic, our primary concern remains the health and safety of our customers and clients. By having a flexible technology platform and remote Relationship Manager business model already in place prior to the pandemic, we have been able to make a relatively uninterrupted transition to a remote work environment.
“Our participation in the SBA’s Paycheck Protection Program (PPP) during the second and third quarter of 2020 helped service the needs of our business customers as well as new customers in our community,” Keller continued. “As of September 30, 2020, we had funded 395 PPP loans totaling $81.2 million, with approximately one-third of loans going to potential new clients and many have already transitioned to full client relationships. We are now starting to process applications for PPP loan forgiveness. Unearned PPP loan fees, net of unearned PPP costs, are approximately $1.5 million. Based on current SBA guidance we expect the timing of the loan forgiveness program to benefit fourth quarter 2020 earnings as net deferred loan fees on forgiven loans are recognized.”
In spite of a robust business development effort and strong pipeline, maintaining quality net loan growth has been a challenge as the dramatic decline in interest rates has driven increased prepayment activity. In the first nine months of 2020 we have booked new non-PPP loan commitments of almost $95 million and absorbed loan payoffs of almost $50 million. Commercial credit line commitments have increased $29.1 million or 37.4%, while usage has increased by only $10.3 million and average line usage has declined from 50% to 46%.
“The magnitude of the economic implications of the coronavirus pandemic are still relatively unknown,” said Mukhtar Ali, Chief Credit Officer. “Despite sound credit quality metrics, and extremely low levels of net charge-offs, we booked a $250,000 loan loss provision in the third quarter, and a $1,250,000 provision for loan losses year-to-date. We believe we are well positioned to navigate through this pandemic, having built up significant loan loss reserves representing 1.40% of total non-guaranteed loans at September 30, 2020, compared to 1.12% a year earlier. Our portfolio exposure to the industries most affected by the pandemic are almost entirely secured by real estate with conservative loan-to-value ratios and strong guarantors. More importantly, the majority of these loans, especially in the hospitality and gas station segments, are experienced and resilient operators who we have worked directly with through several previous credit cycles.”
The Bank’s exposure to the industry segments generally considered most at risk from the effects of the pandemic as of September 30, 2020 consists of:
Industry Segments ($ in thousands) – Balances % of Total Balances – Loan Modifications
Hospitality $ – 41,972 – 10.5 % – $ 9,389
Gasoline Stations – 17,416 – 4.4 % –
Food Service – 14,837 3.7 % 4,114
Entertainment and Recreation – 14,160 3.6 % 9,539
Retail, Excluding Grocers and Gasoline Stations – 5,157 1.3 % 796
Total $ 93,542 – 23.5 % – $ 23,838
“We also offered loan accommodation options to support our clients who had been affected by the economic impacts resulting from the pandemic. As of September 30, 2020, loans totaling $30.6 million, or approximately 7.7% of the non-PPP loans remain on deferral. $17.7 million of the deferred loans are scheduled to resume full payment terms in the fourth quarter, while the remaining deferrals expire early in 2021,” added Ali.
Third Quarter 2020 Financial Highlights (at or for the period ended September 30, 2020)
Net income was $1.24 million in the third quarter of 2020, compared to $1.30 million in the third quarter a year ago. Earnings per share was $0.14 in the third quarter of 2020, compared to $0.15 in the third quarter a year ago. As has been the case in each of the last fifteen years, third quarter earnings included receipt of the maximum Bank Enterprise Award granted by the Community Development Financial Institutions Fund of the US Treasury for the Bank’s commitment to underserved communities.
Total assets increased $145.0 million, or 29.5%, to $636.4 million at September 30, 2020, compared to $491.4 million a year earlier, and increased $24.3 million, or 4.0%, compared to $612.0 million three months earlier. Average earning assets for the quarter totaled $578.0 million, an increase of $143.0 million, or 32.9%, from the third quarter a year ago and an increase of $26.9 million, or 4.9%, compared with the prior quarter end.
Pre-tax core earnings excluding gains on loan sales, Bank Enterprise Awards and loan loss provisions, was essentially unchanged, down $6,000 or 0.3% to $1.84 million in the third quarter compared to the third quarter a year ago.
Net interest income, before the provision for loan losses, increased 2% to $4.86 million in the third quarter of 2020, compared to $4.77 million in the third quarter a year ago. Operating net income declined $98,000 in the third quarter of 2020 compared to the third quarter a year ago as an $87,000 increase in net interest income and a $24,000 increase in non-interest income was offset by a $159,000 increase in non-interest expense and a $50,000 increase in the provision for loan loss reserve.
Net interest margin for the third quarter totaled 3.35% compared with 3.39% for the prior quarter and 4.36% in the third quarter a year ago. The change in margin from the prior quarter was primarily due to a 17 basis point decrease in the average yield on earning assets, 11 bp of which was directly attributable to the increase in PPP loans that carry a 1% yield. The average interest yield on non-PPP loans in the third quarter was 5.10%, a decrease of only 1 basis points from the prior quarter. The average Cost of Funds in the third quarter was 0.51%, a decline of 15 basis points compared to the prior quarter.
Net loans increased $82.6 million, or 20.9%, to $477.9 million at September 30, 2020, compared to $395.3 million a year ago, and grew nominally compared to $474.2 million three months earlier. The increase in net loans compared to the prior year primarily reflects the origination of SBA PPP loans during the third quarter and second quarter of 2020, and totaled $81.2 million outstanding as of September 30, 2020 offset by a $23.4 million decline in Acquired Loans due to accelerated prepayments.
Total deposits increased $129.9 million, or 32.4%, to $530.6 million at September 30, 2020, compared to $400.7 million a year ago and increased $23.7 million, or 4.7%, compared to $506.9 million three months earlier. The increase in total deposits from a year ago was partially attributable to SBA PPP loan funds deposited into customer accounts at origination. Noninterest bearing demand deposit accounts increased 49.2% compared to a year ago and represented 43.2% of total deposits, savings, NOW and money market accounts increased 8.7% compared to a year ago and represented 35.1% of total deposits and CDs increased 51.8% when compared to a year ago and comprised 21.7% of the total deposit portfolio, at September 30, 2020.
Asset quality remained excellent with only $200,649 of nonperforming loans at September 30, 2020, representing 0.04% of total loans. This compares to nonperforming loans at 0.19% of total loans at September 30, 2019, and 0.02% at June 30, 2020. The year over year improvement in NPAs reflects the stability of the loan portfolio and the ongoing pay down in principal balances. The full $102,383 increase from the prior quarter reflects balances that are awaiting payoff from their SBA guaranty.
The allowance for loan losses totaled $5.35 million, or 1.12% of total loans at September 30, 2020, compared to $4.06 million, or 1.03% of total loans at September 30, 2019. The allowance, as a percentage of non-guaranteed loans, was 1.40% at September 30, 2020, compared to 1.12% a year ago. The increasing allowance now stands at 2,655% of non-performing loans and reflects management’s assessment of the current economic environment.
Total equity as of September 30, 2020 of $60.0 million increased $1.3 million, or 2.3%, from the prior quarter end and increased 9.5% compared to a year ago. The Bank’s capital levels are well above FDIC “Well Capitalized” standards as of September 30, 2020, with a Tier 1 Common Equity capital ratio of 14.70%; Total risk-based capital ratio of 15.95%; and Tier 1 leverage ratio of 9.79%.
Book value per common share totaled $6.86 as of September 30, 2020, an increase of 8.7% from a year ago.
About Community Bank of the Bay
Community Bank of the Bay (OTCPink: CBYAA) 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.
This post based on a press release sent to Zennie62Media by Community Bank of The Bay, Oakland.