Santa Cruz County Bank Reports Record Earnings For the Quarter and Year Ended December 31, 2022

• Record quarterly net income of $10.0 million increased 9% from $9.2 million in the prior quarter, and 114% from $4.7 million in the fourth quarter ended December 31, 2021.
• Total assets of $1.74 billion as of December 31, 2022, a decrease of $117.4 million or 6% compared to $1.86 billion as of September 30, 2022, and an increase of $43.2 million or 3%, compared to $1.70 billion as of  December 31, 2021.
• Record gross loans (excluding PPP) of $1.26 billion, an increase of $29.7 million or 2%, compared to September 30, 2022, and an increase of $151.8 million or 14%, compared to December 31, 2021.
• Credit quality remains strong. Nonaccrual loans totaled $3.2 million, or 0.25% of gross loans, as of December 31, 2022, compared to $2.4 million, or 0.19% of total loans as of the prior quarter-end, and $376 thousand, or 0.03% of total loans as of year-end 2021. The increase during the fourth quarter is primarily due to a delinquent home equity line of credit that is well-secured.
• Provision for loan losses was $642 thousand in the fourth quarter of 2022 compared to a reversal of $317 thousand for the third quarter of 2022 following the elimination of a qualitative factor related to the pandemic.  Provision for loan losses was $2.3 million for the fourth quarter in 2021. The provision in the fourth quarter of 2022 reflected organic loan growth, especially in construction loans and commercial loans, partially offset by the effect of the elimination of a qualitative factor in the construction loan segment.
• Deposits totaled $1.53 billion at December 31, 2022, a decrease of $125.5 million or 8%, compared to September 30, 2022, and an increase of $34.4 million or 2%, compared to December 31, 2021.
• Net interest margin was 4.83% for the fourth quarter of 2022, as compared to 4.22% in the trailing quarter and 3.78% in the fourth quarter of 2021. Net interest margin was 4.19% in 2022, as compared to 3.99% in 2021.
• For the quarters ended December 31, 2022 and September 30, 2022, return on average assets was 2.22% and 2.01%, respectively, compared to 1.09% in the fourth quarter of 2021, and the return on average tangible equity was 24.04% and 22.38%, respectively, compared to 11.77% in the fourth quarter of 2021.
• The efficiency ratio was 31.75% for the fourth quarter of 2022, as compared to 36.17% in the trailing quarter and 45.41% in the same quarter of 2021.
• All capital ratios were above regulatory requirements for a well-capitalized institution with a total risk-based capital ratio of 14.94% as of December 31, 2022, as compared to 14.46% at the prior quarter end and 14.88% as of December 31, 2021.
• Book value per share after cash dividends increased to $23.32 at December 31, 2022, compared to $22.06 at September 30, 2022 and $21.80 at December 31, 2021.

Interest Income / Interest Expense and Net Interest Margin
Net interest income is the major earnings component of the Bank. Net interest income of $20.8 million in the fourth quarter of 2022 increased $2.4 million or 13% from $18.4 million for the quarter ended September 30, 2022, and improved over the 2021 fourth quarter by $5.2 million or 33%. The increases are primarily due to the rise in market interest rates during 2022 and to a lesser degree, the organic loan growth during the quarter and the year ended December 31, 2022. The Bank's cost of funds increased slightly from 0.12% in the third quarter of 2022 to 0.16% in the fourth quarter of 2022. PPP loan fee income has been diminishing, with $57 thousand in the current quarter, $332 thousand in the prior quarter and $1.9 million in the same quarter last year.

For the fourth quarter of 2022, net interest margin was 4.83%, compared to 4.22% in the trailing quarter and 3.78% for the corresponding quarter in 2021. The Bank's 2022 net interest margin has expanded to 4.19% from 3.99% in 2021, primarily due to improvement on yield from earning assets, favorably impacted by multiple rate increases in prime and other indices, despite the net interest margin for 2021 benefiting from a significantly greater amount of PPP fee income than 2022.  The increase of $13.7 million in interest on loans in 2022 compared to 2021, due to a higher interest rate environment in 2022, more than offset decrease in loan fees, mainly attributable to a decrease in $8.0 million PPP fees as the PPP portfolio dwindled down during 2022.

	As of or for the Quarter Ended
	December 31, 2022				September 30, 2022
(Dollars in thousands)	Average Balance	Interest Income/ Expense	Avg Yield/ Cost		Average Balance	Interest Income/ Expense	Avg Yield/ Cost
ASSETS
Interest-earning cash	$   131,829	$        1,202	3.62 %		$      182,298	$          1,016	2.21 %
Investments	328,843	1,229	1.48 %		336,800	1,010	1.19 %
Loans	1,248,829	18,999	6.04 %		1,212,529	16,852	5.51 %
Total interest-earning assets	1,709,501	21,430	4.97 %		1,731,627	18,878	4.33 %
Noninterest-earning assets	83,980				78,666
Total assets	$ 1,793,481				$  1,810,293
LIABILITIES
Interest-bearing deposits	$   852,387	637	0.30 %		$    865,192	469	0.22 %
Borrowings	104	1	4.83 %		-	-	-
Total interest-bearing liabilities	852,491	638	0.30 %		865,192	469	0.22 %
Noninterest-bearing deposits	730,335				737,924
Other noninterest-bearing liabilities	17,396				16,630
Total liabilities	1,600,222				1,619,746
EQUITY	193,259				190,547
Total liabilities and equity	$  1,793,481				$  1,810,293
Net interest income /margin		$      20,792	4.83 %			$      18,409	4.22 %
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