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

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 [phone]

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, 2019			September 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	%