Suncrest Bank Reports First Quarter Earnings

SACRAMENTO, Calif. and VISALIA, Calif., April 27, 2020 /PRNewswire/ -- Suncrest Bank (OTCQX: SBKK) today reported unaudited financial results for the first quarter of 2020.

"During the quarter the bank surpassed $1.0 billion in total assets representing an important milestone in our history," said Mr. Ciaran McMullan, President and CEO of Suncrest Bank. "Over the last 12 months we have demonstrated our ability to grow organically with total assets increasing by over 12%, and have also seen significant increases in loan growth with new loan originations up for the 6th consecutive quarter," McMullan added.

"However, in anticipation of the expected future economic impact of the COVID-19 pandemic, it is likely that our strong organic growth rate will be effected going forward. We also took the prudent decision to increase our provision for loan losses by $600,000 or 120% over the linked quarter."

McMullan added, "As a Preferred Lender with the Small Business Administration (SBA), we are actively participating in implementation of the CARES Act and the Paycheck Protection Program (PPP) specifically. Providing access to this funding is critical to the survival and recovery of small businesses across our state and our team worked tirelessly to process as many applications as possible. During the first phase of PPP the bank processed 340 applications for a total value of approximately $107 million. We plan on being actively involved in phase two of the Program." 

First Quarter 2020 Highlights

• Net income of $2.88 million
• Diluted EPS of $0.23
• Net Interest Margin (NIM) increased by 0.02%, to 4.16%
• Cost of Funds declined by 0.06%, to 0.54%
• Return on average tangible assets of 1.18%
• Return on average tangible equity of 10.50%
• Efficiency ratio of 54.71%
• New loan originations1 of $49.6 million
• Total loans increased by $12.4 million or 1.9% over the linked quarter
• Total loans increased by $44.0 million or 6.9% over Q1 2019
• Total deposits increased by $55.7 million or 6.7% over the linked quarter
• Total deposits increased by $98.5 million or 12.5% over Q1 2019
• Tier 1 leverage ratio increased to 11.00%

Income Statement

Net income declined slightly over the linked quarter and the same quarter last year at $2.88 million compared to $3.04 million for the linked quarter and $2.99 million for the same quarter last year. The decline in net income over the linked quarter is primarily due to an increase in provision for loan losses of $600,000, partially offset by a reduction in income taxes.

Interest income remained steady at $10.9 million versus $10.8 million for the linked quarter. However, interest income increased by approximately $570,000 or 5.6% over the first quarter of 2019 due to $421,000 in non-recurring income in the current quarter. Interest expense declined to $1.1 million as compared to $1.3 million over the linked quarter due to a decline in our cost of funds of 6 basis points (bps), while it increased by approximately $200,000 over the same quarter last year. This increase over the same quarter last year was primarily due to an increase in our cost of funds of 5 bps over that period.

During March 2020, the Federal Reserve cut its benchmark rate by 1.50% in response to the emerging COVID-19 pandemic. As a result, the Prime rate decreased from 4.75% to 3.25% and the overnight Fed Funds rate declined to 0.25%.  While occurring late in the quarter, this dramatic change in the interest rate environment impacted our Core NIM4 which declined over the linked quarter by 9 bps to 3.98% primarily due to a decrease in yields on earning assets. As a result, core net interest income decreased slightly over the linked quarter and same quarter last year by $89,000 or 0.9% and $21,000 or 0.2% respectively.

However, our cost of funds improved by 6 bps during the quarter, declining to 54 bps overall while our cost of funds for the month of March was 46 bps.

Core NIM declined over the same quarter last year by 58 bps due to an overall increase in cost of funds of 5 bps and core loan yield declining from 5.76% to 5.42%.  In addition, the yield on deposits in other financial institutions declined from 2.55% to 1.33% due to the drop in rates during the period. 

Service charges, fees and other income was steady over the linked quarter and increased slightly over the same quarter last year.  Noninterest income for the linked quarter included a small gain on sale of loans of $50,000 while there was no gain on sale in the current quarter or the same quarter last year.

Total noninterest expense increased over the linked quarter by $222,000 or 4.2%.  This was primarily driven by an increase in salary and benefit costs due to annual costs of living adjustments and increased healthcare costs.

Income taxes declined as a result of lower income before taxes and includes a $350,000 one-time tax adjustment as a result of net operating loss carryback provisions of the Cares Act.

Balance Sheet

Total assets at March 31, 2020 were $1.046 billion representing an increase of $61.2 million or 6.2% over the linked quarter, and a year over year increase of $114.9 million or 12.3%. The increase over the linked quarter and year over year, was primarily the result of an increase in deposits of $55.7 million and $98.5 million, respectively. 

Total deposits at March 31, 2020 were $884.3 million, an increase of $55.7 million or 6.7% over the linked quarter driven primarily by normal cyclical deposit inflows for some of our largest agribusiness accounts.  Total deposits increased year over year by $98.5 million or 12.5% with the growth being in non-maturity deposits5 of $110.2 million or 15.9%. Over the same period, we allowed more price sensitive certificate of deposit (CD) balances to decline by $11.8 million or 12.6%.

Total loans at March 31, 2020 were $679.9 million, an increase of $12.4 million or 1.9% over the linked quarter. The largest increase being in Non-Owner Occupied Commercial Real Estate (CRE) which increased by $28.7 million or 14.8%. The Construction Loan portfolio declined by $8.6 million over the linked quarter as a larger hotel construction project was finalized and transferred to the CRE category mentioned above. This impact on the construction loan pool was partially offset by loan advance on other construction projects.

The largest year over year increases have been in Farmland, Owner Occupied and Non-Owner Occupied CRE which increased by $18.0 million or 14.5%, $8.1 million or 9.0%, and $68.3 million or 44.1%, respectively.

Trend in Loan Growth and New Originations

New loan originations for the quarter were $49.6 million representing the 6^th consecutive quarter that new originations have increased over the linked quarter. This exceptionally positive trend reflects the strong economic conditions we were experiencing prior to COVID-19 and the success we have had over the last 12 months bringing on board new business development staff with experience working with larger and more complex client relationships.

Paycheck Protection Program Loans

Since the SBA began accepting applications for the PPP through participating lenders on April 3, 2020, the national response has been tremendous. Suncrest Bank fully participated in the program and experienced extraordinary demand for PPP loans. During the first phase of PPP the bank processed 340 applications for a total value of approximately $107 million. We expect this volume to generate approximately $3.1 million in fees payable to the bank. The Bank intends to fully participate in phase two of the program.

Asset Quality 

Non-performing assets were $4.5 million or 0.43% of total assets at March 31, 2020 compared to $5.5 million or 0.56% at December 31, 2019. Non-performing assets declined by $1.0 million due to successful collections and also the $0.5 million partial charge-off of one larger non-accrual relationship which carried a specific reserve of an equal amount.

To quantify the COVID-19 impact on the Bank's portfolio, qualitative factors which contribute to the Allowance for Loan Loss (ALLL) adequacy were reassessed and adjusted upward.  These factors included consideration of current economic and business conditions.  The adjustment of qualitative factors and their application to the Bank's portfolio together with additional provision due to growth and other reserve requirements indicated a total provision for loan losses of $1.1 million.

The ALLL as a percentage of total loans, excluding acquired loans that have been marked to fair value, was 1.22% at March 31, 2020 compared to 1.17% at December 31, 2019.

Classified non-accrual loans declined over the linked quarter as discussed above. Classified accrual loans increased slightly due to advances on crop lines.

Initial Impacts of COVID-19

In late March and early April interagency regulatory guidance[6] was issued encouraging banks to work with borrowers impacted by COVID-19. Since then we have been taking proactive actions to mitigate adverse impacts on borrowers and to ensure agreed upon loan performance while providing cash flow relief and ease liquidity constraints. These actions include short-term (i.e. three to six months) loan modifications such as payment deferrals of principal and/or interest. The table below provides a summary of the modifications we had undertaken by loan category as at April 24, 2020.

As indicated by the table above, the Bank approved borrower tailored loan modifications for 10.8% of its portfolio.  Primary targeted portfolio segments were non owner occupied CRE, Hotels, owner occupied CRE and C&I.

Capital

Suncrest Bank remained well capitalized at March 31, 2020. All of the bank's capital ratios are above minimum regulatory standards for "well capitalized" institutions.

At March 31, 2020 tangible book value per common share was $9.05 with common shares issued of 12,442,800 as of the same date. This compares to a tangible book value per common share of $8.52 at December 31, 2019.

About Suncrest Bank

Suncrest Bank, member FDIC, is locally owned and operated and offers a full range of commercial, small business and agribusiness loans, cash management services and personal deposit products throughout the Central Valley of California and the Greater Sacramento Region. It is regularly rated Five Stars by Bauer Financial as one of the nation's strongest financial institutions, and in 2017 and 2018 was named to the OTCQX® Best 50, a ranking of top performing companies traded on the OTCQX Best Market. It is a Preferred Lender with the Small Business Administration and its stock can be purchased on the open market, trading on the OTCQX under the ticker symbol SBKK. For all other information, visit www.suncrestbank.com

Forward Looking Statements

Except for the historical information in this news release, the matters described herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs, results of examinations by our banking regulators, our ability to maintain adequate levels of capital and liquidity, our ability to manage loan delinquency rates, our ability to price deposits to retain existing customers and achieve low-cost deposit growth, manage expenses and lower the efficiency ratio, expand or maintain the net interest margin, mitigate interest rate risk for changes in the interest rate environment, competitive pressures in the banking industry, access to available sources of credit to manage liquidity, the local and national economic environment, and other risks and uncertainties.  Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this release. Suncrest Bank undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Investors are encouraged to read the Suncrest Bank annual reports which are available on our website.

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1 Includes unfunded commitments
2 Represents interest recoveries on non-accrual loans
3 Represents accretion of acquired loan fair value marks
4 Excludes non-recurring income, income from accretion of fair value marks and non-recurring costs, non-GAAP financial measure
5 Includes noninterest-bearing Demand, Savings, NOW and Money Market Accounts
6 Interagency Joint Press Release, March 22^nd 2020 (as revised on April 7^th), and CARES Act Section 4013 

SOURCE Suncrest Bank