Summit State Bank Reports 44% Increase in Net Income to $2,954,000 for Third Quarter 2020 and Declaration of Dividend

Santa Rosa, California, UNITED STATES


SANTA ROSA, Calif., Oct. 28, 2020 (GLOBE NEWSWIRE) -- Summit State Bank (Nasdaq: SSBI) today reported net income for the quarter ended September 30, 2020 of $2,954,000 and diluted earnings per share of $0.49.  This compares to net income of $2,045,000 and diluted earnings per share of $0.34 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 October 27, 2020 to be paid on November 20, 2020 to shareholders of record on November 13, 2020.

Net Income and Results of Operations

Net income increased by $909,000 or 44% in the third quarter of 2020 compared to the third quarter of 2019.

For the first nine months of 2020, net income increased by $2,946,000 (63%) to $7,588,000 compared to $4,642,000 in the first nine months of 2019. Net interest margin increased to 3.78% for the first nine months of 2020 compared to 3.64% for the first nine months of 2019.

“Net income for the third quarter 2020 and year-to-date 2020 represents records earnings for the bank driven by an increase in our balance sheet,” said Brian Reed, President and CEO. “We are continuing to realize the benefits of our managed growth.”

The annualized return on average assets for the third quarter of 2020 was 1.41%, the annualized return on average equity was 16.05% and the efficiency ratio was 47.44%. The third quarter of 2019 had an annualized return on average assets of 1.24%, an annualized return on average equity of 12.32% and an efficiency ratio of 54.44%.

Net interest income increased to $7,740,000 in the third quarter of 2020 compared to $5,773,000 in the third 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.

“We are very fortunate to have employees who truly care about our customers and go the extra mile to provide support through the many challenges this pandemic presents,” said Reed. “To date we funded $97,000,000 of PPP loans to over 600 businesses, this balance represents 13% of the Bank’s loan portfolio as of September 30, 2020.”

Total loans and deposits increased when comparing the third quarter of 2020 to third quarter of 2019; loans were $726,859,000 in 2020 (includes $96,710,000 of PPP loans) compared to $554,122,000 in 2019 and deposits were $688,026,000 in 2020 compared to $605,130,000 in 2019. The net interest margin increased to 3.77% for the third quarter of 2020 compared to 3.60% for the third quarter of 2019.

Non-interest income increased in the third quarter of 2020 to $1,188,000 compared to $1,001,000 in the third quarter of 2019. The Bank recognized $786,000 in gains on sales of SBA guaranteed loan balances in the third quarter of 2020 compared to $639,000 in gains on sales of SBA guaranteed loans balances in the third quarter of 2019.

There was a $546,000 or 15% increase in operating expenses in the third quarter of 2020 compared to the third quarter of 2019. The increase in expenses is primarily due to an increase in employee expenses and occupancy costs. The Bank is leveling off from a growth trend in operating expenses since the middle of 2019; this results in an improvement in the efficiency ratio by 7.00% when comparing 47.44% for the third quarter of 2020 to 54.44% for the third quarter of 2019.

Nonperforming assets were $267,000 or 0.03% of total assets on September 30, 2020 compared to $592,000 or 0.09% on September 30, 2019. Nonperforming assets on September 30, 2020 consist of one loan that is secured by real property and another loan that has a guarantee from the State of California. The Bank had a provision expense of $500,000 in the third quarter of 2020. The allowance for loan losses to total loans including SBA-guaranteed PPP loans was 1.14% on September 30, 2020 and 1.17% on September 30, 2019. Excluding $96,710,000 of PPP loans increases the ratio of allowance for loans losses to 1.31% on September 30, 2020 compared to 1.28% at June 30, 2020. 

“The Bank has deliberately built its balance sheet growth around strong-performing loans,” notes Reed. “Throughout this pandemic the Bank has experienced few credit problems. We cannot predict the future but are we are monitoring trends in high-risk industries and are adjusting loan loss reserves to our increased risk of loss.”

Year-to-date through September 30, 2020, the Bank deferred payments on a total of $153,000,000 or 21% of loans in its portfolio due to the COVID-19 pandemic. The deferral process increases the total balance due on the loan and re-amortizes the monthly payment through the original maturity date. As of September 30, 2020, 19 loans totaling $21,900,000 or 3% of the loan portfolio excluding PPP loans were in deferral. Approximately 95% of the deferred loans are real estate secured with an average loan to value ratio of 56%.

Reed further explains “we continue to monitor this fluid situation and are grateful to be a steady source of information and support for our customers. As we head into the last quarter of 2020 the Bank is prepared to support our customers through the SBA PPP loan forgiveness process.”

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $834 million and total equity of $73 million at September 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, 74% 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 Nine Months Ended
     September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
     (Unaudited) (Unaudited) (Unaudited) (Unaudited)
            
Interest income:       
 Interest and fees on loans$8,753 $7,031 $24,903 $20,113 
 Interest on deposits with banks 10  72  61  205 
 Interest on investment securities 364  459  1,126  1,525 
 Dividends on FHLB stock 43  57  189  165 
   Total interest income 9,169  7,619  26,279  22,008 
Interest expense:       
 Deposits 1,138  1,727  3,927  4,779 
 Federal Home Loan Bank advances 292  119  913  410 
   Total interest expense 1,430  1,846  4,839  5,189 
   Net interest income before provision for loan losses 7,740  5,773  21,440  16,819 
Provision for loan losses 500  210  1,600  490 
   Net interest income after provision for loan losses 7,240  5,563  19,840  16,329 
Non-interest income:       
 Service charges on deposit accounts 201  226  593  635 
 Rental income 89  86  264  258 
 Net gain on loan sales 786  639  1,803  805 
 Net securities gain (loss) 3  -  874  (6)
 Other income 109  50  277  142 
   Total non-interest income 1,188  1,001  3,811  1,834 
Non-interest expense:       
 Salaries and employee benefits 2,573  2,274  7,727  7,234 
 Occupancy and equipment 415  429  1,222  1,286 
 Other expenses 1,246  985  3,923  3,375 
   Total non-interest expense 4,235  3,688  12,872  11,895 
   Income before provision for income taxes 4,193  2,876  10,779  6,268 
Provision for income taxes 1,240  831  3,190  1,626 
   Net income$2,953 $2,045 $7,589 $4,642 
            
Basic earnings per common share$0.49 $0.34 $1.25 $0.77 
Diluted earnings per common share$0.49 $0.34 $1.25 $0.76 
            
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  6,074  6,073  6,072 



SUMMIT STATE BANK AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
         
         
    September 30, 2020 December 31, 2019September 30, 2019
    (Unaudited) (Unaudited) (Unaudited)
         
ASSETS

      
         
Cash and due from banks$24,257 $38,299 $12,104
  Total cash and cash equivalents  24,257  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 $58,390,     
  $53,591 and $57,631)  60,001  54,241  59,853
  Total investment securities  60,001  62,239  67,848
         
Loans, less allowance for loan losses of $8,393, $6,769 and $6,550 726,859  576,548  536,674
Bank premises and equipment, net 6,129  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 9,014  5,130  5,212
         
  Total assets $833,808 $695,978 $635,622
         
LIABILITIES AND
      
SHAREHOLDERS' EQUITY
      
         
Deposits:       
 Demand - non interest-bearing$200,352 $129,084 $119,535
 Demand - interest-bearing 76,694  69,383  65,227
 Savings 37,132  28,359  25,419
 Money market 140,008  128,377  99,585
 Time deposits that meet or exceed the FDIC insurance limit 35,160  76,564  85,315
 Other time deposits 198,680  142,070  137,176
  Total deposits  688,026  573,837  532,257
         
Federal Home Loan Bank advances 61,300  45,600  29,300
Junior subordinated debt 5,873  5,862  5,862
Accrued interest payable and other liabilities 5,185  3,335  3,462
         
  Total liabilities  760,384  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 6,069,600  36,981  36,981  36,974
 Retained earnings   35,309  29,906  27,483
 Accumulated other comprehensive income, net 1,134  457  284
         
  Total shareholders' equity  73,424  67,344  64,741
         
  Total liabilities and shareholders' equity $833,808 $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 Nine Months Ended
  September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Income Data:        
Net interest income $7,740  $5,773  $21,440  $16,819 
Provision for loan losses  500   210   1,600   490 
Non-interest income  1,188   1,001   3,811   1,834 
Non-interest expense  4,235   3,688   12,872   11,895 
Provision for income taxes  1,240   831   3,190   1,626 
Net income $2,953  $2,045  $7,589  $4,642 
         
Selected per Common Share Data:        
Basic earnings per common share $0.49  $0.34  $1.25  $0.77 
Diluted earnings per common share $0.49  $0.34  $1.25  $0.76 
Dividend per share $0.12  $0.12  $0.36  $0.36 
Book value per common share (2) $12.10  $10.96  $12.10  $10.96 
         
Selected Balance Sheet Data:         
Assets $833,808  $680,840  $833,808  $680,840 
Loans, net  726,859   554,122   726,859   554,122 
Deposits  688,026   605,130   688,026   605,130 
Average assets  830,976   652,043   771,638   634,375 
Average earning assets  814,013   635,579   754,749   618,081 
Average shareholders' equity  73,018   65,859   70,528   64,047 
Nonperforming loans  267   592   267   592 
Total nonperforming assets  267   592   267   592 
Troubled debt restructures (accruing)  2,203   2,429   2,203   2,429 
         
Selected Ratios:        
Return on average assets (1)  1.41%  1.24%  1.31%  0.98%
Return on average common shareholders' equity (1)  16.05%  12.32%  14.33%  9.69%
Efficiency ratio (3)  47.45%  54.44%  52.80%  63.75%
Net interest margin (1)  3.77%  3.60%  3.78%  3.64%
Common equity tier 1 capital ratio  10.65%  10.30%  10.65%  10.30%
Tier 1 capital ratio  10.65%  10.30%  10.65%  10.30%
Total capital ratio  12.90%  12.50%  12.90%  12.50%
Tier 1 leverage ratio  8.10%  9.00%  8.10%  9.00%
Common dividend payout ratio (4)  24.66%  35.60%  28.79%  47.07%
Average shareholders' equity to average assets  8.79%  10.10%  9.14%  10.10%
Nonperforming loans to total loans  0.04%  0.11%  0.04%  0.11%
Nonperforming assets to total assets  0.03%  0.09%  0.03%  0.09%
Allowance for loan losses to total loans  1.14%  1.17%  1.14%  1.17%
Allowance for loan losses to total loans excluding PPP 1.31%  1.17%  1.31%  1.17%
Allowance for loan losses to nonperforming loans  3146.32%  1105.95%  3146.32%  1105.95%
     
(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.    



    September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019
    (In thousands)
             
ACL on loans to Loans receivable, excluding SBA PPP loans        
             
Allowance for credit losses on loans   $(8,393) $(7,881) $(7,375) $(6,769) $(6,550)
             
Loans receivable (GAAP)   $735,252  $709,689  $608,775  $583,317  $560,672 
Excluding SBA PPP loans 96,710   95,534   -   -   - 
Loans receivable, excluding SBA PPP (non-GAAP)$638,542  $614,155  $608,775  $583,317  $560,672 
          
ACL on loans to Loans receivable (GAAP) 1.14%  1.11%  1.21%  1.16%  1.17%
ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP) 1.31%  1.28%  1.21%  1.16%  1.17%