Summit State Bank Reports $1,046,000 or 89% Increase in Net Income for Second Quarter 2020 and Declaration of Dividend

Santa Rosa, California, UNITED STATES


SANTA ROSA, Calif., July 28, 2020 (GLOBE NEWSWIRE) -- Summit State Bank (Nasdaq: SSBI) today reported net income for the quarter ended June 30, 2020 of $2,218,000 and diluted earnings per share of $0.37. This compares to net income of $1,172,000 and diluted earnings per share of $0.19 for the same quarter in 2019. Additionally, a quarterly dividend of $0.12 per share was declared for common shareholders.

Dividend

The Board of Directors declared a $0.12 per share quarterly dividend on July 27, 2020 to be paid on August 21, 2020 to shareholders of record on August 14, 2020.

Net Income and Results of Operations

Net income increased $1,046,000 or 89% the second quarter of 2020 compared to second quarter of 2019. Net income increased $2,037,000 or 78% in the first six months of 2020 compared to the first six months of 2019.

Net interest income increased to $7,174,000 in the second quarter of 2020 compared to $5,499,000 in the second quarter of 2019. The increase in net interest income is primarily attributable to increases in loan balances with a lesser portion of this increase driven by the Paycheck Protection Program (“PPP”) loans.

“The Bank is pleased to announce four consecutive quarters of strong earnings totaling $8,514,000 or $1.40 per share,” said Brian Reed, President and CEO. “Three and a half years ago, we implemented a strategic plan to restructure and grow the Bank’s balance sheet and this plan is now showing consistently strong earnings and balance sheet growth.”

“The COVID-19 pandemic presents a number of economic challenges and we continue to actively support our customers and local businesses in these unprecedented times,” said Reed. “To date we funded over $95,000,000 of PPP loans representing 13.5% of the June 30, 2020 loan portfolio. In these uncertain times we feel fortunate to be a position to help our customers and community. We stand ready to be a continue source of support for them going forward.”

Nonperforming assets were $410,000 or 0.05% of total assets at June 30, 2020 compared to $715,000 or 0.11% at June 30, 2019. Nonperforming assets at June 30, 2020 consist of loans which are predominantly secured by real property. The Bank had a provision expense of $500,000 in the second quarter of 2020. At June 30, 2020 the allowance for loan losses to total loans including SBA-guaranteed PPP loans was 1.11% at June 30, 2020 and 1.17% at June 30, 2019. Excluding $95,534,000 of PPP loans increases the ratio of allowance for loans losses to 1.28% at June 30, 2020.

In the second quarter of 2020 the Bank deferred payments on over $142,000,000 or 20% of loans in its portfolio. The deferral process increases the total balance due on the loan and re-amortizes the monthly payment through the original maturity date. As of June 30, 2020, approximately $54,000,000 or 9% of the loan portfolio excluding PPP loans were in deferral.

“The Bank has deliberately built its balance sheet growth around strong-performing loans,” notes Reed. “At the onset of the pandemic and continuing through today, the Bank has experienced minimal credit problems. We are actively monitoring our portfolio, assisting our customers through this economic downturn, and ensuring we maintain sufficient loan loss reserves.”

Reed further explains “The Bank will continue monitoring this fluid situation. We are watching trends in high-risk industries including retail, restaurants, and lodging. These high-risk industries comprise approximately 14% of our portfolio and we are increasing our loan loss reserves due to the increased risk of loss.”

Non-interest income increased in the second quarter of 2020 to $693,000 compared to $340,000 in the second quarter of 2019. The Bank recognized $320,000 in gains on sales of SBA guaranteed loan balances in the second quarter of 2020 compared to $0 in gains on sales of SBA guaranteed loans balances in the second quarter of 2019.

Total loans and deposits also increased when comparing the second quarter of 2020 to second quarter of 2019; loans were $701,808,000 in 2020 (includes $95,534,000 of PPP loans) compared to $536,674,000 in 2019 and deposits were $709,473,000 in 2020 compared to $532,257,000 in 2019. The net interest margin increased to 3.71% for the second quarter of 2020 compared to 3.64% for the second quarter of 2019.

Annualized return on average assets for the second quarter of 2020 was 1.12%, annualized return on average equity was 12.71% and the efficiency ratio was 53.59%. The second quarter of 2019 had an annualized return on average assets of 0.75%, annualized return on average equity of 7.36% and efficiency ratio of 68.34%.

There was a $221,000 or 6% increase in operating expenses in the second quarter of 2020 compared to the second quarter of 2019. The increase in expenses is primarily due to an increase in employee expenses and occupancy costs. The Bank is leveling off of a growth trend in operating expenses since the middle of 2019 resulting in an improvement in the efficiency ratio by 14.75% when comparing second quarter of 2020 to second quarter of 2019.

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $850 million and total equity of $71 million at June 30, 2020. Headquartered in Sonoma County, the Bank specializes in providing exceptional customer service and customized financial solutions to aid in the success of local small businesses and nonprofits throughout Sonoma County.

Summit State Bank is committed to embracing the diverse backgrounds, cultures and talents of its employees to create high performance and support the evolving needs of its customers and community it serves. At the center of diversity is inclusion, collaboration, and a shared vision for delivering superior service and results for shareholders. Presently, 73% of management are women and minorities with 75% represented on the Executive Management Team. Through the engagement of its team, Summit State Bank has received many esteemed awards including: Best Business Bank, Corporate Philanthropy Award and Best Places to Work in the North Bay. Summit State Bank’s stock is traded on the Nasdaq Global Market under the symbol SSBI. Further information can be found at www.summitstatebank.com.

Forward-looking Statements

Except for historical information contained herein, the statements contained in this news release, are forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which the Bank will be conducting its operations, including the real estate market in California and other factors beyond the Bank’s control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. You should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereof. The Bank undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Contact: Brian Reed, President and CEO, Summit State Bank (707) 568-4908

              
SUMMIT STATE BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except earnings per share data)
              
              
     Three Months Ended Six Months Ended
     June 30, 2020
 June 30, 2019 June 30, 2020
 June 30, 2019
     (Unaudited)
 (Unaudited) (Unaudited)
 (Unaudited)
              
Interest income:         
 Interest and fees on loans$8,329  $6,630  $16,148  $13,081 
 Interest on deposits with banks 7   32   51   133 
 Interest on investment securities 393   476   762   1,066 
 Dividends on FHLB stock 87   53   146   108 
   Total interest income 8,816   7,191   17,107   14,388 
Interest expense:         
 Deposits 1,343   1,581   2,788   3,052 
 Federal Home Loan Bank advances 299   111   621   290 
   Total interest expense 1,642   1,692   3,409   3,342 
   Net interest income before provision for loan losses 7,174   5,499   13,698   11,046 
Provision for loan losses 500   180   1,100   280 
   Net interest income after provision for loan losses 6,674   5,319   12,598   10,766 
Non-interest income:         
 Service charges on deposit accounts 178   219   393   409 
 Rental income 88   81   175   172 
 Net gain on loan sales 320   -   1,017   167 
 Net securities gain -   (7)  871   (7)
 Other income 107   47   167   92 
   Total non-interest income 693   340   2,623   833 
Non-interest expense:         
 Salaries and employee benefits 2,431   2,303   5,154   4,960 
 Occupancy and equipment 424   434   807   857 
 Other expenses 1,361   1,258   2,676   2,390 
   Total non-interest expense 4,216   3,995   8,637   8,207 
   Income before provision for income taxes 3,151   1,664   6,584   3,392 
Provision for income taxes 933   492   1,950   795 
   Net income$2,218  $1,172  $4,634  $2,597 
              
Basic earnings per common share$0.37  $0.19  $0.76  $0.43 
Diluted earnings per common share$0.37  $0.19  $0.76  $0.43 
              
Basic weighted average shares of common stock outstanding 6,070   6,069   6,070   6,068 
Diluted weighted average shares of common stock outstanding 6,074   6,075   6,072   6,071 
              


            
SUMMIT STATE BANK AND SUBSIDIARY 
CONSOLIDATED BALANCE SHEETS 
(In thousands except share data) 
            
            
    June 30, 2020
 December 31, 2019
 June 30, 2019
    (Unaudited)
 (Unaudited)
 (Unaudited)
            
ASSETS        
            
Cash and due from banks$67,954  $38,299  $12,104 
   Total cash and cash equivalents 67,954   38,299   12,104 
            
Investment securities:        
 Held-to-maturity, at amortized cost
 -   7,998   7,995 
 Available-for-sale (at fair value; amortized cost of $58,807,        
  $53,591 and $59,450) 60,472   54,241   59,853 
   Total investment securities 60,472   62,239   67,848 
            
Loans, less allowance for loan losses of $7,881, $6,769 and $6,328 701,808   576,548   536,674 
Bank premises and equipment, net 6,191   6,301   6,324 
Investment in Federal Home Loan Bank stock, at cost 3,429   3,342   3,341 
Goodwill
 4,119   4,119   4,119 
Accrued interest receivable and other assets 6,686   5,130   5,212 
            
   Total assets$850,659  $695,978  $635,622 
            
LIABILITIES AND        
SHAREHOLDERS' EQUITY        
            
Deposits:         
 Demand - non interest-bearing$202,012  $129,084  $119,535 
 Demand - interest-bearing 79,570   69,383   65,227 
 Savings 36,887   28,359   25,419 
 Money market 136,754   128,377   99,585 
 Time deposits that meet or exceed the FDIC insurance limit 44,092   76,564   85,315 
 Other time deposits 210,158   142,070   137,176 
   Total deposits 709,473   573,837   532,257 
            
Federal Home Loan Bank advances 58,500   45,600   29,300 
Junior subordinated debt 5,869   5,862   5,862 
Accrued interest payable and other liabilities 5,581   3,335   3,462 
            
   Total liabilities 779,423   628,634   570,881 
            
Shareholders' equity        
 Preferred stock, no par value; 20,000,000 shares authorized;        
  no shares issued and outstanding -   -   - 
 Common stock, no par value; shares authorized - 30,000,000 shares;       
  issued and outstanding 6,069,600, 6,069,600 and 6,067,975 36,981   36,981   36,974 
 Retained earnings
 33,083   29,906   27,483 
 Accumulated other comprehensive income, net 1,172   457   284 
            
   Total shareholders' equity 71,236   67,344   64,741 
            
   Total liabilities and shareholders' equity$850,659  $695,978  $635,622 
            


 
Financial Summary
(Dollars in thousands except per share data)
         
  As of and for the As of and for the
  Three Months Ended Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Income Data:        
Net interest income $7,174  $5,499  $13,698  $11,046 
Provision for loan losses  500   180   1,100   280 
Non-interest income  693   340   2,623   833 
Non-interest expense  4,216   3,995   8,637   8,207 
Provision for income taxes  933   492   1,950   795 
Net income $2,218  $1,172  $4,634  $2,597 
         
Selected per Common Share Data:        
Basic earnings per common share $0.37  $0.19  $0.76  $0.43 
Diluted earnings per common share $0.37  $0.19  $0.76  $0.43 
Dividend per share $0.12  $0.12  $0.24  $0.24 
Book value per common share (2) $11.74  $10.67  $11.74  $10.67 
         
Selected Balance Sheet Data:         
Assets $850,659  $635,622  $850,659  $635,622 
Loans, net  701,808   536,674   701,808   536,674 
Deposits  709,473   532,257   709,473   532,257 
Average assets  794,442   622,883   741,642   625,393 
Average earning assets  775,852   606,280   724,791   609,179 
Average shareholders' equity  69,969   63,855   69,269   63,126 
Nonperforming loans  410   715   410   715 
Total nonperforming assets  410   715   410   715 
Troubled debt restructures (accruing)  2,214   2,449   2,214   2,449 
         
Selected Ratios:        
Return on average assets (1)  1.12%  0.75%  1.25%  0.84%
Return on average common shareholders' equity (1)  12.71%  7.36%  13.42%  8.30%
Efficiency ratio (3)  53.59%  68.34%  55.90%  69.05%
Net interest margin (1)  3.71%  3.64%  3.81%  3.66%
Common equity tier 1 capital ratio  10.11%  10.70%  10.11%  10.7%
Tier 1 capital ratio  10.11%  10.70%  10.11%  10.7%
Total capital ratio  12.30%  13.00%  12.30%  13.0%
Tier 1 leverage ratio  8.23%  9.50%  8.23%  9.5%
Common dividend payout ratio (4)  32.82%  62.12%  31.44%  56.06%
Average shareholders' equity to average assets  8.81%  10.25%  9.34%  10.09%
Nonperforming loans to total loans  0.06%  0.13%  0.06%  0.13%
Nonperforming assets to total assets  0.05%  0.11%  0.05%  0.11%
Allowance for loan losses to total loans  1.11%  1.17%  1.11%  1.17%
Allowance for loan losses to total loans excluding PPP 1.28%  1.17%  1.28%  1.17%
Allowance for loan losses to nonperforming loans  1923.52%  885.39%  1923.52%  885.39%
     
(1) Annualized.        
(2) Total shareholders' equity divided by total common shares outstanding.    
(3) Non-interest expenses to net interest and non-interest income, net of securities gains.    
(4) Common dividends divided by net income available for common shareholders.    
         
Non-GAAP Financial Measures:        
This news release contains a non-GAAP (Generally Accepted Accounting Principles) financial measure in addition to results presented in accordance with GAAP for the allowance for loan losses to total loans excluding PPP loans. The Bank has presented this non-GAAP financial measure in the earnings release because it believes that it provides useful information to assess the Bank’s allowance for loan loss reserves. This non-GAAP financial measure has inherent limitations, is not required to be uniformly applied, and is not audited. Further, this non-GAAP financial measure should not be considered in isolation or as a substitute for the allowance for loan losses to total loans determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other financial institutions. Reconciliation of the GAAP and non-GAAP financial measurement is presented below.    


             
             
    June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
    (In thousands)
             
ACL on loans to Loans receivable, excluding SBA PPP loans        
             
Allowance for credit losses on loans   $(7,881) $(7,375) $(6,769) $(6,550) $(6,328)
             
Loans receivable (GAAP)   $709,689  $608,775  $583,317  $560,672  $543,002 
Excluding SBA PPP loans 95,534   -   -   -   - 
Loans receivable, excluding SBA PPP (non-GAAP)$614,155  $608,775  $583,317  $560,672  $543,002 
          
ACL on loans to Loans receivable (GAAP) 1.11%  1.21%  1.16%  1.17%  1.17%
ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP) 1.28%  1.21%  1.16%  1.17%  1.17%