Suncrest Bank : October 27, 2020 – Suncrest Bank Third Quarter Earnings Release

FOR IMMEDIATE RELEASE

October 26, 2020

Contacts: Mr. Ciaran McMullan, President/CEO or Ms. Jean Carandang, CFO. 559-802-1000

Suncrest Bank Reports Third Quarter Earnings. Net Income Increased by 19%.

SACRAMENTO, Calif. and VISALIA, Calif. Suncrest Bank (OTCQX: SBKK) today reported unaudited financial results for the third quarter of 2020.

"We are delighted to report an increase in core net income of 19% over the linked quarter and 10% over the same quarter last year," said Mr. Ciaran McMullan, President and CEO of Suncrest Bank. "This strong result was driven by increased net interest income and slightly reduced loan loss provision when compared to the linked quarter"

"We have also seen a significant reduction in the number of borrowers utilizing our loan modification program with only 1.4% of our total loans still on a deferred payment plan."

"During the quarter we began assisting our PPP borrowers through the loan forgiveness application and over 30% of our customers have started the forgiveness process to date," McMullan added. "We also began growing our relationship with the approximately 180 new customers assisted through the PPP, gaining over $11 million in new deposits exclusive of PPP funds, and over $16 million in new loan opportunities."

"In addition, we were honored this quarter to receive a number of prestigious awards including The Corporate Citizenship Award for Economic Opportunity for our work promoting financial inclusion throughout our communities."

Third Quarter 2020 Highlights

• Net income of $3.21 million, an increase of 19.3% over the linked quarter
• Diluted EPS of $0.26 compared to $0.22 for the linked quarter
• Total loans (excluding PPP loans) increased by $2.8 million during the quarter
• New originations1 (excluding PPP loans) of $40.2 million
• Return on average tangible assets of 1.03%
• Return on average tangible equity of 10.52%
• Efficiency ratio of 51.27%
• Tangible book value per share of $9.96, an increase of 34 cents during the quarter
• Tier 1 leverage ratio of 9.50%
• Repurchased 209,800 shares, average price of $8.32
• Corporate Citizenship Award 2020 - Sacramento Business Journal
• Best Places to Work 2020 - Sacramento Business Journal
• Readers' Choice Award for Best Bank 2020 - Porterville Recorder

Income Statement

Net income for the quarter was $3.21 million compared to $2.69 million for the linked quarter and $3.07 million for the same quarter last year. The increase over the linked quarter is primarily due to an increase in net interest income of approximately $673,000 and a reduction in provision for loan losses of $200,000. The increase over Q3 2019 is mostly driven by an increase in net interest income partially offset by an increase in the provision for loan losses from $500,000 in Q3 2019 to $1.0 million in the current quarter. Core net income, which excludes non-recurring items, increased by approximately 10% over the third quarter of 2019 driven by improved net interest income.

1 Includes unfunded commitments

Interest income increased to $11.3 million versus $10.6 million for the linked quarter and $10.9 million for the third quarter of 2019. These increases are primarily due to the impact of increased average loans outstanding during the quarter (primarily Paycheck Protection Program "PPP" loans). Interest expense declined to $704,000 as compared to $750,000 over the linked quarter due to a decline in our cost of funds to 25 basis points (bps) from 29 bps last quarter. In addition, the decrease in interest expense was $545,000 over the same quarter last year due to a decline in our cost of funds by 36 basis points.

Net interest Margin (NIM) declined to 3.47% for the quarter, a decrease of 9 bps over the linked quarter and 75 bps over the same quarter last year, primarily due to the decrease in yields on earning assets as well as the impact of PPP loans earning a note rate of 1%. Excluding PPP loans, our NIM would have been 3.56% for the quarter. Per the table below, we saw minimal non-recurring income during the quarter.

					Non-recurring Income
								Non-
			NIM		Interest		Income from	recurring		Core Net Interest		Core Net	Core		Core
Period		Net Income	recoveries2		accretion3	costs			Income4		Income4	NIM4	Diluted EPS4
Q3 2020	$	3,208,462	3.47%	$	8,956	$	(14,727)	$	-	$	10,582,442	$	3,212,527	3.47%	$	0.26
Q2 2020	$	2,688,843	3.56%	$	6,663	$	(28,495)	$	-	$	9,879,346	$	2,704,221	3.56%	$	0.22
Q3 2019	$	3,065,315	4.31%	$	578	$	197,226	$	-	$	9,406,133	$	2,923,315	4.22%	$	0.23

Noninterest income increased over the linked quarter by approximately $87,000 driven in part by a loss on sale of securities of $54,000 recorded in the linked quarter together with an increase in service charges.

Total noninterest expense increased over the linked quarter and the same quarter last year by approximately $282,000 and $339,000 respectively. While noninterest expense increased, our key cost management performance ratios all improved during the quarter. Our efficiency ratio declined to 51.27% while our burden ratio and noninterest expense to average assets improved to 1.62% and 1.74% respectively.

Balance Sheet

Total assets at September 30, 2020 remained unchanged at $1.29 billion as compared to the linked quarter. Total assets increased $293.0 million or 29.4% over the same quarter last year as a result of an increase in loans of $152.3 million, including PPP loans of $130.4 million. Investment Securities increased $140.0 million over the same quarter last year and were funded by an increase in deposits.

Total deposits at September 30, 2020 were $1.051 billion, an increase of $1.7 million or 0.2% over the linked quarter. Total deposits increased year over year by $207.3 million or 24.6% with the growth being in non-maturity deposits5 of $216.2 million or 28.4%. Over the same period certificate of deposit (CD) balances declined by $8.9 million or 10.9%.

In order to encourage involvement in the Paycheck Protection Program, the Federal Reserve provided a liquidity facility to participating financial institutions, in the form of term financing backed by PPP loans. The PPP Liquidity Facility carries an interest rate of 35 bps and at September 30, 2020 the bank had drawn $68.6 million on the facility.

1. Represents interest recoveries on non-accrual loans
2. Represents accretion of acquired loan fair value marks
3. Excludes non-recurring income, income from accretion of fair value marks and non-recurring costs, non-GAAP financial measure
4. Includes noninterest-bearing Demand, Savings, NOW and Money Market Accounts

Total loans at September 30, 2020 were $809.5 million, an increase of $4.9 million or 0.6% over the linked quarter.

Total loans (excluding PPP loans) increased by $21.9 million or 3.33% over Q3, 2019. The largest year over year increases have been in Non-Owner Occupied CRE which increased by $52.7 million or approximately 29.7%.

Additional Business Generated Through PPP

Through our participation in the PPP the bank was able to assist approximately 180 new customers. During the quarter we started to expand our relationship with these customers beyond their PPP loan. To date, approximately 50 of these customers have established additional non-PPP related business with the bank, including over $11 million in new deposits (exclusive of PPP funds), approximately $7.0 million in new loan commitments booked and an additional $9.0 million in the pipeline.

PPP Loan Forgiveness

During the quarter we began assisting our PPP borrowers through the loan forgiveness application. To date, over 30% of our customers have started the forgiveness process utilizing the bank's dedicated online portal. In addition, 46% of all PPP loans funded by Suncrest are under $150,000 and could qualify for automatic or further simplified loan forgiveness in the future.

Asset Quality

Non-performing assets remained at $4.4 million or 0.34% of total assets at September 30, 2020 compared to the same percentage at June 30, 2020.

Based on our scenario analyses of potential COVID-19 impacts on the economy in general and on the Bank's portfolio in particular, we increased our provision for loan losses by $1.0 million during the quarter. Our allowance as a percentage of total loans (excluding PPP loans and acquired loans that have been marked to fair value) was 1.60% at September 30, 2020 compared to 1.43% at June 30, 2020.

Per the table below, classified loans remained stable over the quarter and are 1.78% of total loans.

		Q3 2020	Q2 2020	Q1 2020	Q4 2019
	Total Classified Loans (a)	$14,370,053	$14,399,989	$7,691,907	$8,513,450
	Classified - Accrual Loans	$10,111,838	$10,102,519	$3,394,437	$3,327,728
	Classified - Non-Accrual Loans	$4,258,215	$4,297,470	$4,297,470	$5,185,722
	Total Classified / Total Loans	1.78%	1.79%	1.13%	1.28%
	Total Classified / Total Loans	2.12%	2.13%	1.13%	1.28%
	(excluding PPP)
(a) Includes classified accrual loans and non-accrual loans

Loan Modification Program

During the quarter we saw a significant reduction in the number of borrowers utilizing the banks Covid-19 loan modification program. Per the table below, only 23 borrowers or 1.4% of total loans remain on a deferred payment plan. All other borrowers with approved loan modifications have resumed payments in full.

						Loans on Deferred
Industry Sector		Loans Modified			Payment 9/30/20
Hotels	$	20,792,810		7	$	-		0
Non Owner Occupied (NOO) CRE - Retail	$	17,138,466		18	$	4,980,233		7
C&I / Owner Occupied CRE	$	13,914,698		45	$	3,542,943		9
NOO CRE-Other	$	12,331,232		6	$	-		0
Multi-Family	$	4,046,357		5	$	480,591		1
Restaurants	$	2,160,460		5	$	1,549,891		4
SFR Secured	$	492,079		2	$	492,079		2
Agribusiness	$	792,583		1	$	-		0
Total Payment Relief	$	71,668,685		89	$	11,045,737		23
% of Total Portfolio		8.9%				1.4%
% of Total Portfolio (excluding PPP)		10.6%				1.6%

SBA Loans

Per the CARES Act, the Small Business Administration (SBA) was empowered to make all required payments on the Bank's eligible SBA loans for six months. This program expired in September 2020. As of September 30, 2020, the bank's SBA loan portfolio comprised 40 loans with a principal balance of $18.5 million. All of these SBA borrowers have resumed payments with the exception of two loans with a principal balance of $0.4 million. We expect both loans to resume normal payments in October.

Capital

Suncrest Bank remained well capitalized at September 30, 2020. All of the bank's capital ratios are above minimum regulatory standards for "well capitalized" institutions.

During the quarter the bank repurchased 209,800 shares at an average price of $8.32 per share.

At September 30, 2020 tangible book value per common share was $9.96 with common shares issued of 12,235,500 as of the same date. This compares to a tangible book value per common share of $9.62 at June 30, 2020.