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Summit State Bank Reports Net Income of $928,000 for Second Quarter 2024

SANTA ROSA, Calif., July 31, 2024 (GLOBE NEWSWIRE) -- Summit State Bank (the “Bank”) (Nasdaq: SSBI) today reported net income for the second quarter ended June 30, 2024 of $928,000, or $0.14 per diluted share, compared to net income of $2,985,000, or $0.45 per diluted share for the second quarter ended June 30, 2023.

“Our second quarter earnings continue to be directly impacted by the high interest rate environment and its impact on funding costs, a challenge that is affecting the entire banking industry,” said Brian Reed, President and CEO. “We are implementing steps to grow net income and remain focused on improving our financial performance. Loan balances decreased modestly during the second quarter related to our efforts to focus on asset quality and pricing versus growth. Our focus is on improving our performance metrics and increasing profitability in each successive quarter. While the possibility of a continued industry-wide higher-for-longer interest rate cycle still exists, we remain optimistic about our future performance.”

Second Quarter 2024 Financial Highlights (at or for the three months ended June 30, 2024)

  • Net income was $928,000, or $0.14 per diluted share, compared to $2,985,000, or $0.45 per diluted share, in the second quarter of 2023 and $1,395,000, or $0.21 per diluted share, for the first quarter ended March 31, 2024.
  • The allowance for credit losses to total loans was 1.52% on June 30, 2024 which is based on estimating credit losses for the life of the loans in the portfolio.
  • The Bank maintains strong total liquidity of 479,202,000, or 44.3% of total assets as of June 30, 2024. This includes on balance sheet liquidity (cash and equivalents and unpledged available-for-sale securities) of $115,094,000 or 10.6% of total assets, plus available borrowing capacity of $364,108,000 or 33.6% of total assets.
  • The Bank remains well-capitalized and all regulatory capital ratios were well above minimum requirements on June 30, 2024.
  • Net loans decreased $11,292,000 to $913,514,000 at June 30, 2024, compared to $924,806,000 one year earlier and decreased $4,171,000 compared to $917,685,000 three months earlier.
  • Total deposits decreased 8% to $966,587,000 at June 30, 2024, compared to $1,048,316,000 at June 30, 2023, and increased 3% when compared to the prior quarter end of $939,202,000.
  • Book value was $14.44 per share, compared to $13.92 per share a year ago and $14.43 in the preceding quarter.

Operating Results

For the second quarter of 2024, the annualized return on average assets was 0.35% and the annualized return on average equity was 3.82%. This compared to an annualized return on average assets of 1.03% and an annualized return on average equity of 12.69%, respectively, for the second quarter of 2023.

Summit’s net interest margin was 2.71% in the second quarter of 2024, compared to 2.81% in the preceding quarter and 3.44% in the second quarter of 2023. The increased interest costs were partially offset by positive trends in loan yields. Interest and dividend income decreased 8.0% to $14,371,000 in the second quarter of 2024 compared to $15,625,000 in the second quarter of 2023. The decrease in interest income is attributable to a $998,000 decrease in interest on deposits with banks, a $298,000 decrease in interest on loans, and offset by an increase in dividends on FHLB stock of $48,000.

“Higher funding costs outpaced the increase in loan yields during the second quarter, causing our net interest margin to contract 10 basis points compared to the preceding quarter,” said Reed. “The cost of deposits was 2.95% during the second quarter, compared to 2.83% during the preceding quarter, as customers continue to look for higher yields. Given the current interest rate environment, the change in deposit mix has and will continue to place pressure on funding costs. While the bank has seen an increase in deposit costs, we are fortunate to maintain local deposit relationships as we work through this interest rate cycle.”

Noninterest income decreased in the second quarter of 2024 to $801,000 compared to $1,449,000 in the second quarter of 2023. The variance is primarily attributed to the Bank recognizing $1,023,000 in one-time FHLB fee income for prepayment of long term advances in the second quarter of 2023. This was partially offset by the Bank recognizing $270,000 in gains on sales of SBA and USDA guaranteed loan balances in the second quarter of 2024 compared to no gains on sales of SBA and USDA guaranteed loan balances in the second quarter of 2023.

Operating expenses decreased in the second quarter of 2024 to $6,627,000 compared to $6,822,000 in the second quarter of 2023. The decrease is primarily due to a reduction in stock appreciation rights expense of $416,000 and a decrease in employee bonus expense of $328,000. This was offset by a $278,000 increase in salaries and commissions net of deferred fees and costs and a $209,000 increase in FDIC Insurance expenses.

Balance Sheet Review

Net loans decreased 1% to $913,514,000 at June 30, 2024, compared to $924,806,000 at June 30, 2023, and decreased 0.5% compared to March 31, 2024. The Bank’s largest loan types are commercial real estate loans which make up 74% of the portfolio, secured by farmland totaling 9% of the portfolio, and 6% in commercial and industrial loans. Of the commercial real estate total, approximately 34% or $231,000,000 is owner occupied and the remaining 66% or $459,000,000 is non-owner occupied. The portfolio is well diversified between industries with no significant concentrations, including no material concentration in office space which totals $113,700,000.

Total deposits decreased 8% to $966,587,000 at June 30, 2024, compared to $1,048,316,000 at June 30, 2023, and increased 3% when compared to the prior quarter end. At June 30, 2024, noninterest bearing demand deposit accounts decreased 14% compared to a year ago and represented 19% of total deposits; savings, NOW and money market accounts increased 11% compared to a year ago and represented 49% of total deposits, and CDs decreased 24% compared to a year ago and comprised 32% of total deposits. The decrease in deposits is a result of the Bank managing its liquidity levels and asset growth. The average cost of deposits was 2.95% in the second quarter of 2024, compared to 2.26% in the second quarter of 2023.

Shareholders’ equity was $97,949,000 at June 30, 2024, compared to $97,878,000 three months earlier and $94,435,000 a year earlier. The increase in shareholders’ equity compared to a year ago was primarily due to an increase of $2,807,000 in retained earnings. At June 30, 2024 book value was $14.44 per share, compared to $14.43 three months earlier, and $13.92 at June 30, 2023.

Summit State Bank continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with average equity to assets of 9.04% at June 30, 2024, compared to 8.96% at March 31, 2024, and 8.15% at June 30, 2023. The increase compared to June 2023 was due to the Bank’s retention of capital which is exceeding asset growth.

Credit Quality

“We continue to closely monitor asset quality and are diligently working to reduce portfolio risk,” said Reed. “Nonperforming loans which are concentrated in the secured by farmland category declined from the immediate prior quarter while our commercial real estate portfolios continue to perform well.”

Nonperforming assets were $40,994,000, or 3.79% of total assets, at June 30, 2024. This compared to $41,548,000 in nonperforming assets at March 31, 2024, and $24,908,000 in nonperforming assets at June 30, 2023. There are three specific relationships totaling $31,800,000, and one real estate owned for $5,130,000, that together make up 90% of nonperforming assets portfolio. These three relationships are secured by farmland and the Bank has specific reserves set aside based on current appraised values.

Net charge-offs were $1,347,000 during the three months ended June 30, 2024, compared to net recoveries of $281,000 during the three months ended March 31, 2024 and net recoveries of $10,000 during the three months ended June 30, 2023. Net charge offs for the three months ended June 30, 2024 were related to a loan taken into real estate owned.

For the second quarter of 2024, consistent with factors within the allowance for credit losses, the Bank recorded a $6,000 provision for credit loss expense for loans, a $26,000 reversal of credit losses for unfunded loan commitments and a $4,000 provision for credit losses on investments. This compared to no provision for credit loss expense on loans and a $35,000 provision for credit losses on unfunded loan commitments and no provision for credit losses on investments in the second quarter of 2023.

The allowance for credit losses to total loans was 1.52% on June 30, 2024, and 1.62% on June 30, 2023. The decrease is due to charging off $1,347,000 on a loan taken into real estate owned; this loan was previously listed as nonperforming and carried a specific reserve amount equal to the chargeoff amount. Although the loan portfolio decreased in the second quarter of 2024, there was a minimal provision for credit losses on loans of $6,000 recorded during the three months ended June 30, 2024.

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $1.1 billion and total equity of $98 million at June 30, 2024. 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 to customers and results for shareholders. Presently, 54% 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 by North Bay biz magazine, Best Places to Work in the North Bay by North Bay Business Journal, Top Performing Banks by ICBA, Top Community Bank Loan Producer, Raymond James Bankers Cup, Super Premier Performing Bank by Findley Reports, Bank & Thrift SM-ALL Star by Piper Sandler, Corporate Philanthropy Award by the San Francisco Business Times, Hall of Fame by North Bay Biz Magazine, and Diversity in Business. 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

The financial results in this release are preliminary. Final financial results and other disclosures will be reported in Summit State Bank’s quarterly report on Form 10-Q for the period ended June 30, 2024 and may differ materially from the results and disclosures in this release due to, among other things, the completion of final review procedures, the occurrence of subsequent events or the discovery of additional information.

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.

         
SUMMIT STATE BANK
STATEMENTS OF INCOME
(In thousands except earnings per share data)
         
         
    Three Months Ended
    June 30, 2024 March 31, 2024 June 30, 2023
    (Unaudited) (Unaudited) (Unaudited)
         
Interest and dividend income:     
 Interest and fees on loans$13,083  $13,274  $13,381 
 Interest on deposits with banks 451   362   1,449 
 Interest on investment securities 709   712   715 
 Dividends on FHLB stock 128   129   80 
   Total interest and dividend income 14,371   14,477   15,625 
Interest expense:     
 Deposits 7,046   6,786   5,819 
 Federal Home Loan Bank advances 137   190   48 
 Junior subordinated debt 94   94   94 
   Total interest expense 7,277   7,070   5,961 
   Net interest income before provision for credit losses 7,094   7,407   9,664 
Provision for (reversal of) credit losses on loans 6   (15)  - 
(Reversal of) provision for credit losses on unfunded loan commitments (26)  (65)  35 
Provision for (reversal of) credit losses on investments 4   (5)  - 
   Net interest income after provision for (reversal of) credit     
   losses on loans, unfunded loan commitments and investments 7,110   7,492   9,629 
Non-interest income:     
 Service charges on deposit accounts 227   233   215 
 Rental income 60   60   39 
 Net gain on loan sales 270   514   - 
 Other income 244   141   1,195 
   Total non-interest income 801   948   1,449 
Non-interest expense:     
 Salaries and employee benefits 4,039   4,182   4,199 
 Occupancy and equipment 443   485   442 
 Other expenses 2,145   1,733   2,181 
   Total non-interest expense 6,627   6,400   6,822 
   Income before provision for income taxes 1,284   2,040   4,256 
Provision for income taxes 356   645   1,271 
   Net income$928  $1,395  $2,985 
         
Basic earnings per common share$0.14  $0.21  $0.45 
Diluted earnings per common share$0.14  $0.21  $0.45 
         
Basic weighted average shares of common stock outstanding 6,719   6,698   6,697 
Diluted weighted average shares of common stock outstanding 6,719   6,698   6,700 
         


        
SUMMIT STATE BANK
STATEMENTS OF INCOME
(In thousands except earnings per share data)
        
        
    Six Months Ended
    June 30, 2024  June 30, 2023
    (Unaudited)  (Unaudited)
        
Interest and dividend income:    
 Interest and fees on loans$26,358   $26,321 
 Interest on deposits with banks 813    2,355 
 Interest on investment securities 1,421    1,434 
 Dividends on FHLB stock 258    164 
   Total interest and dividend income 28,850    30,274 
Interest expense:    
 Deposits 13,832    10,219 
 Federal Home Loan Bank advances 328    167 
 Junior Subordinated Debt 188    187 
   Total interest expense 14,348    10,573 
   Net interest income before provision for credit losses 14,502    19,701 
(Reversal of) provision for credit losses on loans (9)   400 
(Reversal of) provision for credit losses on unfunded loan commitments (91)   2 
(Reversal of) provision for credit losses on investments (1)   - 
   Net interest income after provision for (reversal of) credit    
   losses on loans, unfunded loan commitments and investments 14,603    19,299 
Non-interest income:    
 Service charges on deposit accounts 460    422 
 Rental income 120    79 
 Net gain on loan sales 784    1,435 
 Other income 385    1,473 
   Total non-interest income 1,749    3,409 
Non-interest expense:    
 Salaries and employee benefits 8,221    7,992 
 Occupancy and equipment 928    894 
 Other expenses 3,879    3,755 
   Total non-interest expense 13,028    12,641 
   Income before provision for income taxes 3,324    10,067 
Provision for income taxes 1,001    2,966 
   Net income$2,323   $7,101 
        
Basic earnings per common share$0.35   $1.06 
Diluted earnings per common share$0.35   $1.06 
        
Basic weighted average shares of common stock outstanding 6,708    6,689 
Diluted weighted average shares of common stock outstanding 6,708    6,690 
        


         
SUMMIT STATE BANK
BALANCE SHEETS
(In thousands except share data)
         
         
    June 30, 2024 March 31, 2024 June 30, 2023
    (Unaudited) (Unaudited) (Unaudited)
         
ASSETS     
         
Cash and due from banks$40,142  $37,712  $112,412 
   Total cash and cash equivalents 40,142   37,712   112,412 
         
Investment securities:     
 Available-for-sale, less allowance for credit losses of $57, $53 and $0     
   (at fair value; amortized cost of $96,407, $96,973 and $97,386) 83,105   83,832   83,593 
         
Loans, less allowance for credit losses of $14,145, $15,487 and $15,261 913,514   917,685   924,806 
Bank premises and equipment, net 5,306   5,287   5,426 
Investment in Federal Home Loan Bank stock (FHLB), at cost 5,889   5,541   5,541 
Goodwill  4,119   4,119   4,119 
Other Real Estate Owned 5,130   -   - 
Affordable housing tax credit investments 7,942   8,165   8,586 
Accrued interest receivable and other assets 16,898   17,850   16,926 
         
   Total assets$1,082,045  $1,080,191  $1,161,409 
         
LIABILITIES AND     
SHAREHOLDERS' EQUITY     
         
Deposits:      
 Demand - non interest-bearing$183,181  $179,328  $212,489 
 Demand - interest-bearing 218,124   222,313   194,596 
 Savings 42,974   48,214   57,003 
 Money market 212,750   222,153   176,616 
 Time deposits that meet or exceed the FDIC insurance limit 74,744   65,763   175,810 
 Other time deposits 234,814   201,431   231,802 
   Total deposits 966,587   939,202   1,048,316 
         
Federal Home Loan Bank advances 3,500   28,600   - 
Junior subordinated debt 5,927   5,924   5,913 
Affordable housing commitment 4,061   4,094   4,435 
Accrued interest payable and other liabilities 4,021   4,493   8,310 
         
   Total liabilities 984,096   982,313   1,066,974 
         
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 6,784,099, 6,784,099 and 6,784,099 37,623   37,552   37,301 
 Retained earnings   69,651   69,539   66,844 
 Accumulated other comprehensive loss, net (9,325)  (9,213)  (9,710)
         
   Total shareholders' equity 97,949   97,878   94,435 
         
   Total liabilities and shareholders' equity$1,082,045  $1,080,191  $1,161,409 
         


 
Financial Summary
(Dollars in thousands except per share data)
       
  As of and for the
  Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
  (Unaudited) (Unaudited) (Unaudited)
Statement of Income Data:      
Net interest income $7,094  $7,407  $9,664 
Provision for (reversal of) credit losses on loans  6   (15)  - 
(Reversal of) provision for credit losses on unfunded loan commitments (26)  (65)  35 
Provision for (reversal of) credit losses on investments 4   (5)  - 
Non-interest income  801   948   1,449 
Non-interest expense  6,627   6,400   6,822 
Provision for income taxes  356   645   1,271 
Net income $928  $1,395  $2,985 
       
Selected per Common Share Data:      
Basic earnings per common share $0.14  $0.21  $0.45 
Diluted earnings per common share $0.14  $0.21  $0.45 
Dividend per share $0.12  $0.12  $0.12 
Book value per common share (1) $14.44  $14.43  $13.92 
       
Selected Balance Sheet Data:      
Assets $1,082,045  $1,080,191  $1,161,409 
Loans, net  913,514   917,685   924,806 
Deposits  966,587   939,202   1,048,316 
Average assets  1,078,700   1,087,960   1,157,193 
Average earning assets  1,049,254   1,057,338   1,125,327 
Average shareholders' equity  97,548   97,471   94,340 
Nonperforming loans  35,864   41,548   24,908 
Net loans (charged-off) recovered  (1,067)  281   10 
Other real estate owned  5,130   -   - 
Total nonperforming assets  40,994   41,548   24,908 
       
Selected Ratios:      
Return on average assets (2)  0.35%  0.51%  1.03%
Return on average common shareholders' equity (2)  3.82%  5.74%  12.69%
Efficiency ratio (3)  83.94%  76.60%  61.39%
Net interest margin (2)  2.71%  2.81%  3.44%
Common equity tier 1 capital ratio  10.39%  10.37%  9.40%
Tier 1 capital ratio  10.39%  10.37%  9.40%
Total capital ratio  12.26%  12.24%  11.23%
Tier 1 leverage ratio  9.31%  9.21%  8.36%
Common dividend payout ratio (4)  87.96%  58.27%  27.40%
Average shareholders' equity to average assets  9.04%  8.96%  8.15%
Nonperforming loans to total loans  3.87%  4.45%  2.65%
Nonperforming assets to total assets  3.79%  3.85%  2.14%
Allowance for credit losses to total loans  1.52%  1.66%  1.62%
Allowance for credit losses to nonperforming loans  39.44%  37.27%  61.27%
   
(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.
   


 
Financial Summary
(Dollars in thousands except per share data)
      
  As of and for the
  Six Months Ended
  June 30, 2024  June 30, 2023
  (Unaudited)  (Unaudited)
Statement of Income Data:     
Net interest income $14,502   $19,701 
(Reversal of) provision for credit losses on loans  (9)   400 
(Reversal of) provision for credit losses on unfunded loan commitments (91)   2 
(Reversal of) provision for credit losses on investments (1)   - 
Non-interest income  1,749    3,409 
Non-interest expense  13,028    12,641 
Provision for income taxes  1,001    2,966 
Net income $2,323   $7,101 
      
Selected per Common Share Data:     
Basic earnings per common share $0.35   $1.06 
Diluted earnings per common share $0.35   $1.06 
Dividend per share $0.24   $0.24 
Book value per common share (1) $14.44   $13.92 
      
Selected Balance Sheet Data:     
Assets $1,082,045   $1,161,409 
Loans, net  913,514    924,806 
Deposits  966,587    1,048,316 
Average assets  1,083,330    1,146,612 
Average earning assets  1,053,296    1,114,790 
Average shareholders' equity  97,509    92,587 
Nonperforming loans  35,864    24,908 
Net loans (charged-off) recovered  (1,067)   22 
Other real estate owned  5,130    - 
Total nonperforming assets  40,994    24,908 
      
Selected Ratios:     
Return on average assets (2)  0.43%   1.25%
Return on average common shareholders' equity (2)  4.78%   15.47%
Efficiency ratio (3)  80.17%   54.70%
Net interest margin (2)  2.76%   3.56%
Common equity tier 1 capital ratio  10.39%   9.40%
Tier 1 capital ratio  10.39%   9.40%
Total capital ratio  12.26%   11.23%
Tier 1 leverage ratio  9.31%   8.36%
Common dividend payout ratio (4)  70.12%   23.14%
Average shareholders' equity to average assets  9.00%   8.07%
Nonperforming loans to total loans  3.87%   2.65%
Nonperforming assets to total assets  3.79%   2.14%
Allowance for credit losses to total loans  1.52%   1.62%
Allowance for credit losses to nonperforming loans  39.44%   61.27%
   
(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.
 

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


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