Eleventh successive year of record net income Record assets of $1.701 billion
Santa Cruz County Bank, with assets of $1.701 billion, is a top-rated community bank headquartered in Santa Cruz County. Bank announced unaudited earnings for the fourth quarter and year ended December 31, 2021. Net income for the year ended December 31, 2021 was a record $21.3 million, 21% over prior year, while fourth quarter net income was $4.7 million. Pretax, pre-provision net earnings for 2021 exceeded 2020 by $9.4 million.
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Santa Cruz County Bank President and CEO Krista Snelling commented, “We recorded an incredible year of growth as evidenced by double-digit percentage increases, comparing 2021 to 2020, in assets, loans, deposits and net income, all of which set new historical milestones for Santa Cruz County Bank.
We continue to make a positive impact in the communities we serve through community engagement and as a trusted financial partner. Our amazing employees logged over 500 hours in community volunteer hours in 2021. Throughout 2021, we supported business owners as they navigated through a challenging year, providing guidance on the PPP forgiveness process to help position them for success in 2022. Santa Cruz County Bank, as a trusted partner, continues to build and strengthen relationships with local business owners. In our eighteenth year of delivering community banking at its best, we look forward to further expansion, welcoming new partnerships and clients, and the opening of our new Salinas branch by third quarter 2022.”
Financial Highlights
Performance highlights as of and for the quarter ended December 31, 2021 included the following:
- Assets of $1.70 billion as of December 31, 2021, an increase of $277.7 million or 20%, compared to December 31, 2020.
- Total gross loans (excluding PPP) of $1.11 billion, an increase of $192.9 million or 21%, compared to December 31, 2020.
- Deposits of $1.5 billion, an increase of $301.6 million or 25%, compared to December 31, 2020.
- Basic earnings per share of $1.11 and $5.01 for the three and twelve-month periods ended December 31, 2021, respectively.
- Provision for loan losses was $2.3 million for the fourth quarter of 2021 compared to $2.1 million for the trailing quarter and $2.1 million for the same period in 2020. The increase was driven primarily by growth in the non-PPP sector of the loan portfolio and qualitative reserve factors associated with the Omicron variant.
- Pretax, pre-provision net earnings were $9.0 million for the quarter ended December 31, 2021, compared to $9.9 million and $7.7 million for the quarters ended September 30, 2021 and December 31, 2020, respectively. Pretax, pre-provision net earnings for 2021 exceeded 2020 by $9.4 million.
- Net interest margin was 3.78% for the fourth quarter of 2021, as compared to 4.04% in the trailing quarter and 4.08% in the same quarter of 2020.
- For the quarters ended December 31, 2021 and September 30, 2021, return on average assets was 1.09% and 1.30%, respectively, and the return on average tangible equity was 11.85% and 14.10%, respectively.
- Efficiency ratio was 45.40% for the fourth quarter of 2021, as compared to 42.63% in the trailing quarter and 49.45% 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 14.89%.
- Continued strong credit quality with nonaccrual loans totaling only $376 thousand.
- Book value per share after cash dividends increased to $43.61 at December 31, 2021 compared to $42.92 at September 30, 2021.
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Fourth Quarter and Year-To-Date Earnings
For the fourth quarter 2021, net income was $4.7 million, compared to $5.5 million in the third quarter of 2021 and $4.0 million in the fourth quarter of 2020. In the fourth quarter of 2021, $2.3 million was provided for loan loss reserves compared to $2.1 million in both the third quarter of 2021 and the fourth quarter of 2020. The increase was driven primarily by growth in the non-PPP sector of the loan portfolio and qualitative reserve factors associated with the Omicron variant.
Pretax, pre-provision net earnings, was $9.0 million for the quarter ended September 30, 2021, compared to $9.9 million and $7.7 million for the quarters ended September 30, 2021 and December 31, 2020, respectively. The primary factor in year-over-year improvement was interest income driven by growth in core loans.
For the quarter, both basic and diluted earnings per share improved over prior year by $0.16 and $0.15, respectively.
Net income for the twelve months ended December 31, 2021 was $21.3 million compared to $17.6 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 core loans. Pretax, pre-provision net earnings was $9.4 million more in 2021 than 2020.
On a year-to-date basis, both basic and diluted earnings per share improved over prior year by $0.87.
Noninterest Income / Expense
Noninterest income for the quarter ended December 31, 2021 was $823 thousand compared to $835 thousand for the trailing quarter. Noninterest income for fourth quarter 2020 was $1.2 million with the difference concentrated within gains on SBA loans sold which was $430 thousand in the fourth quarter of 2020 versus none in 2021. Prior to the second half of 2021, management elected to curtail SBA loan sales, increase core loan balances and deploy liquidity. Notwithstanding, noninterest income for the twelve months ended December 31, 2021 exceeded prior year by $563 thousand.
Noninterest expense remained well controlled at $7.5 million for the quarter ended December 31, 2021, only $129 thousand or 2% more than prior quarter and only $37 thousand more than the same period last year.
Interest Income / Interest Expense and Net Interest Margin
Net interest income is the major earnings component of the Bank. Net interest income of $15.6 million for the quarter ended December 31, 2021 was less than prior quarter by 4.9%, or $800 thousand, but improved over the 2020 fourth quarter by11.1% or $1.6 million. The year over year increase is due primarily to growth in the non-PPP loan portfolio which increased by $192.9 million over the twelve months ended December 31, 2021. As of December 31, 2021, PPP loans accounted for $93.3 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 0.11% for the current quarter compared to 0.19% over the same period last year.
For the fourth quarter of 2021, net interest margin was 3.78%, compared to 4.04% in the trailing quarter and 4.08% for the corresponding period in 2020. For the twelve months ended December 31, 2021 and 2020 net interest margin was 3.99% for both periods. The reduction of net interest margin and net interest income experienced in fourth quarter 2021 is attributed to slower PPP loan forgiveness which resulted in less PPP loan fee income recognition. PPP forgiveness was $55.2 million in the fourth quarter versus $136.4 million in the third quarter. Consequently, PPP fee income was $2.3 million for fourth quarter 2021 compared to $3.5 million in third quarter 2021.
Assets
Total assets at December 31, 2021 increased by $277.7 million or 20% compared to prior year. This was due primarily to asset growth generated through PPP loan origination and planned organic growth including the Bank’s 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.
Loans and Asset Quality
Non-PPP loans increased by $192.9 million or 21% compared to the prior year, nearly replacing the $227.5 million year-over year reduction in PPP loans.
Allowance for loan losses of $20.0 million at December 31, 2021 represents a $7.0 million, or 53%, increase over the same period last year. The increase was primarily due to non-PPP loan growth, qualitative reserve factors related to the potential impact of Omicron and a specific reserve for one classified yet still performing loan in the amount of $1.3 million. The Bank’s asset quality remained strong with $376 thousand in nonaccrual loans at quarter end.
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