Santa Cruz County Bank Reports Earnings For Q1
Record gross loans of $1.3 billion (excluding PPP)
SANTA CRUZ, Calif., April 20, 2023 - Santa Cruz County Bank (the "Bank", OTCQX: SCZC), with assets of $1.73 billion, is a top-rated community bank headquartered in Santa Cruz County. Today, the Bank announced unaudited earnings for the first quarter ended March 31, 2023. Net income for the quarter was $8.9 million, an increase of 65% from $5.4 million over the prior year and down 11% from $10.0 million in the prior quarter. Basic and diluted earnings per share in the first quarter of 2023 both improved over the same quarter in 2022 by $0.42. Basic and diluted earnings per share decreased over the prior quarter by $0.13.
Santa Cruz County Bank President and CEO Krista Snelling commented, "As a community bank, we make a positive impact on the communities we serve. The Bank's liquidity position remains strong, and the funds entrusted to us by depositors are reinvested through loans to individuals and businesses for expansion and enterprise growth. We reported a milestone in gross loans for the quarter, which grew by $51 million and by $176 million over the prior year, while maintaining strong credit quality. The Bank's overall decrease in deposits of 4% compared to last year-end largely reflected our large depositors' business cycle for their planned activities.
During the quarter, we announced our rank as the #6 best performing community bank in the nation for banks under $3 billion in asset size by S&P Global Market Intelligence. This achievement marks our 6th year in the Top 100 Banks in the nation and is credit to the diligence of our entire team on the oversight and execution of our strong financial performance."
Financial Highlights
Performance highlights as of and for the quarter ended March 31, 2023 included the following:
Quarterly net income of $8.9 million increased 65% from $5.4 million in the first quarter ended March 31, 2022, and down 11% from $10.0 million in the prior quarter.
Our liquidity position remains healthy, as our primary liquidity ratio (cash and equivalents, deposits held in other banks and unpledged available-for-sale ("AFS") securities as a percentage of total assets) was 16.1% at March 31, 2023, compared to 19.6% at December 31, 2022.
Total assets of $1.73 billion as of March 31, 2023, an increase of $4.2 million or 0.25%, compared to $1.72 billion as of March 31, 2022, and a decrease of $17.1 million or 1% compared to $1.74 billion as of December 31, 2022.
Record gross loans (excluding PPP) of $1.3 billion, an increase of $176.3 million or 15%, compared to March 31, 2022, and an increase of $51.1 million or 4%, compared to December 31, 2022. The Bank continues to capitalize on lending opportunities in the core Santa Cruz market with a strong mix of loans serving our business community and the development of housing, including a $24 million multifamily loan.
Credit quality remains solid. Nonaccrual loans totaled $2.6 million, or 0.20% of gross loans, as of March 31, 2023, compared to $3.2 million, or 0.25% of total loans as of year-end 2022. The decrease during the first quarter is primarily due to the sale of a delinquent home equity line of credit of $800,000 without experiencing a loss.
Deposits totaled $1.46 billion at March 31, 2023, a decrease of $61.7 million or 4%, compared to March 31, 2022, and a decrease of $68.9 million or 4%, compared to December 31, 2022. The overall banking industry experienced elevated net deposit outflows surrounding the announcements of the Silicon Valley Bank and Signature Bank closures in mid-March. Total uninsured deposits, excluding collateralized deposits, represent approximately 43% of total deposits at March 31, 2023, compared to 48% at year-end.
Current Expected Credit Loss ("CECL") methodology was adopted January 1, 2023 and as a result, retained earnings was negatively impacted by $3.3 million upon adoption. Allowance for Credit Losses increased by $4.1 millionunder CECL, which is based on estimating loss for the life of the loans in the portfolio. In addition, allowance on unfunded credit commitments, presented as part of other liabilities, increased $530 thousand due to the CECL adoption. Loans previously acquired through acquisition with unamortized purchased discount are now included in the calculation of the CECL reserve requirement. Acquired loans that were not impaired at January 1, 2023totaled $107.2 million and contributed $2.0 million of the increase to the Allowance for Credit Losses at the date of adoption.
Provision for credit losses was $315 thousand for the first quarter of 2023 compared to $642 thousand for the trailing quarter and $645 thousand for the same period in 2022. The provision was driven by growth in the portfolio and partially offset by slight reductions in loss factors due to the shortening of average life of loans used in the CECL methodology in a slightly lower interest rate environment at March 31, 2023 compared to January 1, 2023.
Net interest margin was 5.08%, compared to 4.83% in the trailing quarter and 3.76% for the corresponding quarter in 2022. The Bank's large proportion of adjustable rate loans benefited from the rising prime index rate.
For the quarters ended March 31, 2023 and December 31, 2022, return on average assets was 2.08% and 2.22%, respectively, and the return on average tangible equity was 20.90% and 24.04%, respectively.
The efficiency ratio was 39.78% for the first quarter of 2023, as compared to 31.75% in the trailing quarter and 47.98% in the same quarter of 2022.
All capital ratios were above regulatory requirements for a well-capitalized institution with a total risk-based capital ratio of 14.71% at March 31, 2023, compared to 14.94% at December 31, 2022. The capital ratio decreased 24 basis points upon the adoption of the CECL on January 1, 2023. The Bank did not opt in for the 3-year phase-in CECL transition adjustment to regulatory capital due to the Bank's strong capital position.
Book value per share after cash dividends increased to $24.19 at March 31, 2023, compared to $23.32 at December 31, 2022 and $21.42 at March 31, 2022.