Santa Cruz County Bank Reports Year to Date Record Earnings

Santa Cruz County Bank, with assets of $1.70 billion, is a top-rated community bank headquartered in Santa Cruz County. Today the Bank announced unaudited earnings for the third quarter ended September 30, 2021. Year-to-date earnings for the nine-month period ended September 30, 2021 was a record $16.6 million, 23% over prior year.

Santa Cruz County Bank President and CEO, Krista Snelling, stated, “We are pleased to report record nine-month performance and growth in assets reaching a new milestone, $1.70 billion. We continue to experience solid (non-PPP) loan demand and quarterly growth in (non-PPP) gross loans, which have increased by $216.0 million or 26%, compared to September 30, 2020. Our ability to respond to and support businesses through the PPP loan process, and grow new relationships as we move forward is a key indicator that our Bank remains focused on and in tune with the needs of the communities we serve.”

Financial Highlights

Performance highlights as of and for the quarter ended September 30, 2021 included the following:

• Assets of $1.70 billion as of September 30, 2021, an increase of $260.5 million or 18%, compared to September 30, 2020.

• Total gross loans (excluding PPP) of $1.05 billion, an increase of $216.0 million or 26%, compared to September 30, 2020.

• Deposits of $1.50 billion, an increase of $319 million or 27%, compared to September 30, 2020.

• Basic earnings per share of $1.42 and $4.29 for the three and nine month periods ended September 30, 2021, respectively.

• Provision for loan losses was $2.1 million for the third quarter of 2021 compared to $2.1 million for the trailing quarter and $360 thousand for the same period in 2020. The increase was driven by growth in the non-PPP sector of the loan portfolio and a specific reserve for one classified yet still performing loan in the amount of $1.3 million.

• Pretax, pre-provision net earnings was $9.9 million for the quarter ended September 30, 2021, compared to $9.5 million and $7.9 million for the quarters ended June 30, 2021 and September 30, 2020, respectively.

• Net interest margin was 4.04% for the third quarter of 2021, as compared to 4.08% in the trailing quarter and 3.80% in the same quarter of 2020.

• For the quarters ended September 30, 2021 and June 30, 2021, return on average assets was 1.30% and 1.34%, respectively, and the return on average tangible equity was 14.10% and 14.14%, respectively.

• Efficiency ratio was 42.63% for the third quarter of 2021, as compared to 43.79% in the trailing quarter and 44.61% in the same quarter of 2020.

• All capital ratios were above regulatory requirements for a well-capitalized institution with a total risk-based capital ratio of 15.12%.

• Continued strong credit quality with nonaccrual loans totaling only $384 thousand and a single performing loan contributing to the loan loss provision.

• Book value per share after cash dividends increased to $47.21 at September 30, 2021 compared to $46.15 at June 30, 2021.

Third Quarter and Year-To-Date Earnings

For the third quarter 2021, net income was $5.5 million, compared to $5.3 million in the second quarter of 2021 and the third quarter of 2020. In the third quarter of 2021, $2.1 million was provided for loan loss reserves compared to $2.1 million in the second quarter of 2021 and $360 thousand in the third quarter of 2020. The increase was driven by growth in the non-PPP sector of the loan portfolio and a specific reserve for one classified yet still performing loan in the amount of $1.3 million.

Pretax, pre-provision net earnings, was $9.9 million for the quarter ended September 30, 2021, compared to $9.5 million and $7.9 million for the quarters ended June 30, 2021 and September 30, 2020, respectively. The primary factor in year-over-year improvement was interest income driven by growth in earning assets coupled with an increase in the net interest margin.

For the quarter, both basic and diluted earnings per share improved over prior year by $0.03 and $0.04, respectively.

Net income for the nine months ended September 30, 2021 was $16.6 million compared to $13.5 million over the same period in 2020. Consistent with the quarterly improvement, the primary factor in the improvement was interest income driven by growth in earning assets coupled with an increase in the net interest margin.

On a year-to-date basis, both basic and diluted earnings per share improved over prior year by $0.78 and $0.79, respectively.

Noninterest Income / Expense

Noninterest income for the quarter ended September 30, 2021 was $835 thousand compared to $1.3 million for the same period last year with the difference concentrated in gains on SBA loans sold, which was $431 thousand in the third quarter of 2020 versus none for the same period in 2021. Noninterest income in the third quarter 2021 was down $749 thousand from Q2 2021 with most of the variance again concentrated within gains on SBA loans sold. In the third quarter 2021, management elected to curtail SBA loan sales, increase loan balances and deploy liquidity.

Noninterest expense at $7.3 million for the quarter ended September 30, 2021 was $91 thousand or 1.2% less than prior quarter but increased 17% or $1.07 million compared to the same period last year. The year-over-year increase is due to multiple factors including headcount increases to support our asset growth, fully staffing and equipping our branch in Monterey, initial staffing and associated expense for expansion into Salinas and increase in our reserve for unfunded commitments, which is related to our loan growth.

Interest Income / Interest Expense and Net Interest Margin

Net interest income is the major earnings component of the Bank. Net interest income of $16.4 million for the quarter ended September 30, 2021 exceeded prior quarter by 6.5%, or $999 thousand, and improved over the 2020 third quarter by 26.8% or $3.5 million. The year over year increase is due primarily to growth in the non-PPP loan portfolio which increased by $216 million over the twelve months ended September 30, 2021. As of September 30, 2021, PPP loans accounted for $148.4 million of the loan portfolio, the majority of which was originated during 2021 while most PPP loans originated during 2020 have been forgiven. The Bank’s cost of funds was 0.12% for the current quarter compared to 0.21% over the same period last year.

For the third quarter of 2021, net interest margin was 4.04%, an improvement of 24 basis points from prior year and a decrease of four basis points from the second quarter of 2021. The year over year increase in net interest margin was due primarily to the reallocation of forgiven PPP loans to higher yielding non-PPP loans and a decrease in cost of funds.

Assets

Total assets for the third quarter 2021 increased by $260.5 million or 18% compared to prior year. This was due primarily to asset growth generated through PPP loan origination but also planned organic growth such as expansion into Monterey County. With over 50% of 2020 PPP loan originations made to new customers, the Bank’s business relationships in the tri-county market area expanded and the Bank continues to capitalize on opportunities afforded by the PPP program into the current quarter.