Summit State Bank Reports 37% Increase in Net Income to $3,317,000 for First Quarter 2021 and Declaration of Dividend

Santa Rosa, California, UNITED STATES


SANTA ROSA, Calif., April 27, 2021 (GLOBE NEWSWIRE) -- Summit State Bank (Nasdaq: SSBI) today reported record net income for the quarter ended March 31, 2021 of $3,317,000 and diluted earnings per share of $0.55. This compares to net income of $2,415,000 and diluted earnings per share of $0.40 for the quarter ended March 31, 2020. 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 April 26, 2021 to be paid on May 21, 2021 to shareholders of record on May 14, 2021.

Net Income and Results of Operations

For the quarter ended March 31, 2021, Summit State Bank (“Bank”) had net income of $3,317,000 and diluted earnings per share of $0.55 compared to net income of $2,415,000 and $0.40 diluted earnings per share for the quarter ended March 31, 2020.

Net income increased $902,000 or 37% the first quarter of 2021 compared to first quarter of 2020. Net interest income increased to $9,190,000 in the first quarter of 2021 compared to $6,525,000 in the first quarter of 2020.

“The Bank recorded record earnings in 2020 and we continue to experience record earnings into the first quarter of 2021,” noted Brian Reed, President and CEO. “In the past year we have seen unprecedented events unfold across the globe. I am proud of the support our staff has provided to our customers and our local communities. Their diligence, long hours, and commitment to doing their best every day has allowed our Bank to achieve strong core financial performance.”

The net interest margin for the first quarter of 2021 was 4.35%, annualized return on average assets was 1.54% and annualized return on average equity was 17.80%. The first quarter of 2020 had a net interest margin was 3.88%, annualized return on average assets was 1.41% and annualized return on average equity was 14.13%. The Bank is experiencing growth in its margin due to a reduction in cost of funds; this reduction was caused by repricing high cost maturing deposits and an increase in low-cost, non-maturing deposit volume.

“We updated our five-year strategic plan in 2020 and are performing as expected,” said Brian Reed, President and CEO. “We remain on our path to grow core earnings by strategically managing our balance sheet.”

Interest income increased to $10,409,000 in the first quarter of 2021 compared to $8,292,000 in the first quarter of 2020, this was an increase of 26%. The increase in interest income is attributable to $1,099,000 from increases in loan balances and $1,057,000 from increases in income net of fees due to the Paycheck Protection Program (“PPP”) loans. The fees collected from all SBA PPP loans are amortized over the life of the loan and upon forgiveness the remaining fee income, net of cost, is taken into interest income. In the first quarter of 2021, the Bank recorded $906,000 in PPP fees net of costs; the Bank has $1,587,000 in remaining PPP fees net of costs left to amortize.

“Last year we funded $96,710,000 of PPP loans to over 600 businesses and are pleased to offer a second draw of funds to eligible customers through PPP Round 2,” said Reed. “To date the Bank funded over $35,000,000 in PPP Round 2 loans. We continue to actively work with our customers to request forgiveness from the SBA for the PPP Round 1 loans. Currently the Bank has approximately $28,000,000 remaining in SBA Round 1 loans to be forgiven.”

Net loans and deposits increased when comparing the first quarter of 2021 to 2020. Net loans increased 25% to $749,940,000 at March 31, 2021 compared to $601,400,000 at March 31, 2020. Excluding PPP loans, net loans increased 14% to $683,627,000 at March 31, 2021 when compared to March 31, 2020. Total deposits increased 30% to $747,350,000 at March 31, 2021 compared to $574,006,000 at March 31, 2020.

Non-interest income decreased in the first quarter of 2021 to $694,000 compared to $1,929,000 in the first quarter of 2020. The Bank recognized $348,000 in gains on sales of SBA guaranteed loan balances in the first quarter of 2021 compared to $697,000 in gains on sales of SBA guaranteed loans balances in the first quarter of 2020. The Bank recognized $871,000 in one-time investment security gains in the first quarter of 2020 caused by investments being called because of the reduced interest rate environment.

Operating expenses increased 9% in the first quarter of 2021 to $4,839,000 compared to $4,442,000 in the first quarter of 2020. The increase in expenses is primarily due to an increase in employee salaries, employee expenses, third-party IT services, and professional fees. The Bank is achieving economies of scale as it grows resulting in an efficiency ratio improvement which went from 58.31% for the first quarter of 2020 to 48.99% for the first quarter of 2021.

Nonperforming assets were $467,000 or 0.05% of total assets at March 31, 2021 compared to $416,000 or 0.06% on March 31, 2020. The nonperforming assets on March 31, 2021 consist of 2 loans that are secured by real property and another loan that has a guarantee from the State of California.

The Financial Accounting Standards Board has adopted a new accounting standard that must be implemented by January 1, 2023. This standard, referred to as Current Expected Credit Loss (“CECL”), requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize those losses as allowances for credit losses The Bank early adopted CECL on January 1, 2021. At adoption, the Bank recognized a one-time cumulative-effect adjustment on January 1, 2021 by recording a reduction in retained earnings of $1,575,000, an increase in the Allowance for Credit Losses (“ACL”) of $2,250,000, and an increase in the Deferred Tax Asset of $675,000. The decrease in retained earnings at adoption reduced the Bank’s common equity tier 1 capital for regulatory capital purposes.

In addition to the adjustment made to the ACL due to the CECL adoption, the Bank had a provision expense of $335,000 in the first quarter of 2021. The allowance for credit losses to total loans including SBA-guaranteed PPP loans was 1.51% on March 31, 2021 and 1.21% on March 31, 2020. Excluding $66,313,000 of PPP loan balances, the non-GAAP financial measurement ratio of allowance for credit losses increases to 1.65% on March 31, 2021.

As of March 31, 2021, 9 loans totaling $27,279,000 or 4% of the loan portfolio excluding PPP loans were in principal and interest deferral. Of the loans in deferral, 7 of those loans totaling $22,836,000 are extended deferments for a total deferment period up to one year; none of the loans in deferral qualify as a Troubled Debt Restructure. The deferral portfolio has a loan to value ranging from 34% to 78%, and 99% of the deferred loans are real estate secured.

Reed further explains, “We are fortunate to have improved financial performance during an unforgettable global crisis. With the recent change to the orange tier in Sonoma County, we will support our customers as they begin the post-pandemic recovery process. We will continue to monitor trends in the economy and adjust credit loss reserves, as needed, to account for any measured change in risk of loss.”

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $886 million and total equity of $76 million at March 31, 2021. 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, 69% of management are women and minorities with 60% 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
STATEMENTS OF INCOME
(In thousands except earnings per share data)
    
    
 Three Months Ended
 March 31, 2021 March 31, 2020
 (Unaudited) (Unaudited)
    
Interest income:   
Interest and fees on loans$9,976  $7,820 
Interest on deposits with banks 7   44 
Interest on investment securities 383   369 
Dividends on FHLB stock 43   59 
Total interest income 10,409   8,292 
Interest expense:   
Deposits 933   1,445 
Federal Home Loan Bank advances 286   322 
Total interest expense 1,219   1,767 
Net interest income before provision for credit losses 9,190   6,525 
Provision for credit losses (1) 335   600 
Net interest income after provision for credit losses 8,855   5,925 
Non-interest income:   
Service charges on deposit accounts 203   214 
Rental income 86   87 
Net gain on loan sales 348   697 
Net securities gain 7   871 
Other income 50   60 
Total non-interest income 694   1,929 
Non-interest expense:   
Salaries and employee benefits 3,018   2,723 
Occupancy and equipment 414   383 
Other expenses 1,407   1,316 
Total non-interest expense 4,839   4,422 
Income before provision for income taxes 4,710   3,432 
Provision for income taxes 1,393   1,017 
Net income$3,317  $2,415 
    
Basic earnings per common share$0.55  $0.40 
Diluted earnings per common share$0.55  $0.40 
    
Basic weighted average shares of common stock outstanding 6,070   6,070 
Diluted weighted average shares of common stock outstanding 6,075   6,074 
    
(1) Allowance in 2021 reported with current expected credit loss ("CECL") method, all prior period allowance is reported in accordance with previous GAAP incurred loss method.



SUMMIT STATE BANK
BALANCE SHEETS
(In thousands except share data)
      
      
 March 31, 2021 December 31, 2020March 31, 2020
 (Unaudited) (Unaudited) (Unaudited)
      
ASSETS     
      
Cash and due from banks$46,949 $30,826 $36,493 
Total cash and cash equivalents 46,949  30,826  36,493 
      
Investment securities:     
Available-for-sale (at fair value; amortized cost of $68,966,     
$66,335 and $58,690) 68,973  67,952  58,160 
Total investment securities 68,973  67,952  58,160 
      
Loans, less allowance for credit losses of $11,476, $8,882 and $7,375 (1) 749,940  745,939  601,400 
Bank premises and equipment, net 5,943  5,994  6,270 
Investment in Federal Home Loan Bank stock, at cost 3,429  3,429  3,342 
  4,119  4,119  4,119 
Accrued interest receivable and other assets 6,790  7,595  11,861 
      
Total assets$886,143 $865,854 $721,645 
      
LIABILITIES AND     
SHAREHOLDERS' EQUITY     
      
      
Demand - non interest-bearing$220,197 $199,097 $136,875 
Demand - interest-bearing 111,646  88,684  66,412 
Savings 44,588  42,120  27,459 
Money market 164,621  167,113  123,341 
Time deposits that meet or exceed the FDIC insurance limit 37,147  35,765  47,682 
Other time deposits 169,151  193,516  172,237 
Total deposits 747,350  726,295  574,006 
      
Federal Home Loan Bank advances 53,500  53,500  69,300 
Junior subordinated debt 5,880  5,876  5,865 
Accrued interest payable and other liabilities 3,904  4,554  4,273 
      
Total liabilities 810,634  790,225  653,444 
      
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  36,981 
  38,524  37,510  31,593 
Accumulated other comprehensive income (loss), net 4  1,138  (373)
      
Total shareholders' equity 75,509  75,629  68,201 
      
Total liabilities and shareholders' equity$886,143 $865,854 $721,645 
      
(1) Allowance in 2021 reported with current expected credit loss ("CECL") method, all prior period allowance is reported in accordance with previous GAAP incurred loss method.





Financial Summary
(Dollars in thousands except per share data)
    
 As of and for the
 Three Months Ended
 March 31, 2021 March 31, 2020
 (Unaudited) (Unaudited)
Statement of Income Data:   
Net interest income$9,190  $6,525 
Provision for credit losses (5) 335   600 
Non-interest income 694   1,929 
Non-interest expense 4,839   4,422 
Provision for income taxes 1,393   1,017 
Net income$3,317  $2,415 
    
Selected per Common Share Data:   
Basic earnings per common share$0.55  $0.40 
Diluted earnings per common share$0.55  $0.40 
Dividend per share$0.12  $0.12 
Book value per common share (1)$12.44  $11.24 
    
Selected Balance Sheet Data:    
Assets$886,143  $721,645 
Loans, net (5) 749,940   601,400 
Deposits 747,350   574,006 
Average assets 884,238   688,842 
Average earning assets 856,663   673,731 
Average shareholders' equity 75,554   68,569 
Nonperforming loans 467   472 
Total nonperforming assets 467   416 
Troubled debt restructures (accruing) 2,176   2,061 
    
Selected Ratios:   
Return on average assets (2) 1.52%  1.41%
Return on average common shareholders' equity (2) 17.80%  14.13%
Efficiency ratio (3) 48.99%  58.31%
Net interest margin (2) 4.35%  3.88%
Common equity tier 1 capital ratio 9.92%  10.30%
Tier 1 capital ratio 9.92%  10.30%
Total capital ratio 12.32%  12.50%
Tier 1 leverage ratio 8.10%  9.30%
Common dividend payout ratio (4) 21.95%  30.14%
Average shareholders' equity to average assets 8.54%  9.95%
Nonperforming loans to total loans 0.06%  0.08%
Nonperforming assets to total assets 0.05%  0.06%
Allowance for credit losses to total loans (5) 1.51%  1.21%
Allowance for credit losses to total loans excluding PPP (5)* 1.65%  1.21%
Allowance for credit losses to nonperforming loans (5) 2458.47%  1562.90%
 
(1) Total shareholders' equity divided by total common shares outstanding.
(2) Annualized.
(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.
(5) Allowance in 2021 reported with current expected credit loss ("CECL") method, all prior period allowance is reported in accordance with previous GAAP incurred loss method.
    
*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 credit 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 credit 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 credit 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.



          
 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020
 (In thousands)
          
Allowance for Credit Losses (ACL) on loans to Loans receivable, excluding SBA PPP loans      
          
Allowance for credit losses on loans (1)$(11,476) $(8,882) $(8,393) $(7,881) $(7,375)
          
Loans receivable (GAAP)$761,416  $754,820  $735,252  $709,689  $608,775 
Excluding SBA PPP loans 66,313   69,583   96,710   95,534   - 
Loans receivable, excluding SBA PPP (non-GAAP)$695,103  $685,237  $638,542  $614,155  $608,775 
          
ACL on loans to Loans receivable (GAAP) 1.51%  1.18%  1.14%  1.11%  1.21%
ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP) 1.65%  1.30%  1.31%  1.28%  1.21%
          
(1) Allowance in 2021 reported with current expected credit loss ("CECL") method, all prior period allowance is reported in accordance with previous GAAP incurred loss method.