SSBI Summit State Bank

Summit State Bank (Nasdaq: SSBI) today reported record net income for the quarter ended June 30, 2021 of $3,898,000 and diluted earnings per share of $0.64. This compares to net income of $2,218,000 and diluted earnings per share of $0.37 for the quarter ended June 30, 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 July 26, 2021 to be paid on August 20, 2021 to shareholders of record on August 13, 2021.

Net Income and Results of Operations

Net income increased $1,680,000 or 76% the second quarter of 2021 compared to second quarter of 2020. Net interest income increased to $8,976,000 in the second quarter of 2021 compared to $7,174,000 in the second quarter of 2020.

“The Bank continues to experience strong core earnings growth in the first half of 2021,” noted Brian Reed, President and CEO. “The full opening of local businesses in June was a welcomed change. Although the future impacts to the economy is unknown and many economic indicators provide a mixed review on the speed of the recovery, we are pleased to see many businesses beginning to feel the positive impact of this transition.”

The net interest margin for the second quarter of 2021 was 4.13%, annualized return on average assets was 1.76% and annualized return on average equity was 20.18%. The second quarter of 2020 had a net interest margin was 3.71%, annualized return on average assets was 1.12% and annualized return on average equity was 12.71%. 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.

Interest income increased to $10,082,000 in the second quarter of 2021 compared to $8,816,000 in the second quarter of 2020, this was an increase of 14%. The increase in interest income is primarily attributable to $1,201,000 from increases in loan balances and $87,000 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 second quarter of 2021, the Bank recorded $468,000 in PPP fees net of costs; the Bank has $1,094,000 in remaining PPP fees net of costs left to amortize.

“The Bank funded $134,000,000 of PPP loans for both Round 1 and Round 2 to over 860 loans averaging about $156,000 per loan,” said Reed. “We are pleased to have the opportunity to provide our customers and communities with these loans. We are now focused on actively working with our customers to request forgiveness from the SBA for both rounds of PPP loans. Currently the Bank has approximately $13,000,000 in SBA Round 1 loans and $35,000,000 in SBA Round 2 loans remaining to be forgiven.”

Loans increased 8% to $765,461,000 at June 30, 2021 compared to $709,689,000 at June 30, 2020. Excluding PPP loans, loans increased 17% to $717,295,000 at June 30, 2021 compared to $614,155,000 at June 30, 2020. Total deposits increased 8% to $763,953,000 at June 30, 2021 compared to $709,473,000 at June 30, 2020.

Non-interest income increased in the second quarter of 2021 to $1,597,000 compared to $693,000 in the second quarter of 2020. The Bank recognized $1,160,000 in gains on sales of SBA guaranteed loan balances in the second quarter of 2021 compared to $320,000 in gains on sales of SBA guaranteed loans balances in the second quarter of 2020.

Operating expenses increased $821,000 or 19% in the second quarter of 2021 to $5,037,000 compared to $4,216,000 in the second quarter of 2020. The increase in expenses is primarily due to deferred loan costs for PPP loans boarded Q2 2020 totaling approximately $590,000; these costs are amortized over two-years and all remaining balances are expensed when a PPP loan is paid in full, or the forgiveness payment is received by the SBA. Other factors causing the increase in expense is a $113,000 increase in commissions directly related to the Bank’s loan portfolio growth and a $70,000 increase in salary expenses net of deferred loan costs. The Bank is achieving economies of scale as it grows, resulting in an efficiency ratio improvement which went from 53.59% for the second quarter of 2020 to 47.86% for the second quarter of 2021.

Nonperforming assets were $464,000 or 0.05% of total assets at June 30, 2021 compared to $407,000 or 0.05% on June 30, 2020. The nonperforming assets on June 30, 2021 consist of 2 loans that are secured by real property and another loan that has a guarantee.

The Bank had no provision expense in the second quarter of 2021. The allowance for credit losses to total loans including SBA-guaranteed PPP loans was 1.50% on June 30, 2021 and 1.11% on June 30, 2020. Excluding $48,166,000 of PPP loan balances, the non-GAAP financial measurement ratio of allowance for credit losses increases to 1.60% and 1.28% on June 30, 2021 and 2020, respectively.  

As of June 30, 2021, 5 loans totaling $3,169,000 or 0.4% of the loan portfolio excluding PPP loans were in principal and interest deferral. The loan to value ranges from 11% to 68%, and 93% of the deferred loans are real estate secured.

Reed further explains “we are fortunate to maintain improved financial performance on our core operations during an unforgettable global crisis. With the recent change to fully opening businesses Sonoma County, we continue to support our customers as they transition into the post-pandemic recovery process.”

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $902 million and total equity of $79 million at June 30, 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, 66% 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.

SUMMIT STATE BANK
STATEMENTS OF INCOME
(In thousands except earnings per share data)
					Three Months Ended						Six Months Ended
					June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
					(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Interest income:
	Interest and fees on loans				$	9,618		$	8,329		$	19,591		$	16,148
	Interest on deposits with banks					7			7			15			51
	Interest on investment securities					396			393			779			762
	Dividends on FHLB stock					61			87			104			146
			Total interest income			10,082			8,816			20,489			17,107
Interest expense:
	Deposits					818			1,343			1,751			2,788
	Federal Home Loan Bank advances					194			205			387			433
	Junior Subordinated Debt					94			94			187			188
			Total interest expense			1,106			1,642			2,325			3,409
			Net interest income before provision for credit losses			8,976			7,174			18,164			13,698
Allowance for credit losses (1)						-			500			335			1,100
			Net interest income after provision for credit losses			8,976			6,674			17,828			12,598
Non-interest income:
	Service charges on deposit accounts					208			178			411			393
	Rental income					88			88			175			175
	Net gain on loan sales					1,160			320			1,509			1,017
	Net securities gain					49			-			56			871
	Other income					92			107			142			167
			Total non-interest income			1,598			693			2,293			2,623
Non-interest expense:
	Salaries and employee benefits					3,153			2,431			6,170			5,154
	Occupancy and equipment					418			424			832			807
	Other expenses					1,466			1,361			2,874			2,676
			Total non-interest expense			5,037			4,216			9,877			8,637
			Income before provision for income taxes			5,536			3,151			10,244			6,584
Provision for income taxes						1,638			933			3,031			1,950
			Net income		$	3,899		$	2,218		$	7,214		$	4,634
Basic earnings per common share					$	0.64		$	0.37		$	1.19		$	0.76
Diluted earnings per common share					$	0.64		$	0.37		$	1.19		$	0.76
Basic weighted average shares of common stock outstanding						6,070			6,070			6,070			6,070
Diluted weighted average shares of common stock outstanding						6,075			6,074			6,072			6,072
(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)
				June 30, 2021			December 31, 2020			June 30, 2020
				(Unaudited)			(Unaudited)			(Unaudited)
ASSETS
Cash and due from banks				$	56,143		$	30,826		$	67,954
			Total cash and cash equivalents		56,143			30,826			67,954
Investment securities:
	Available-for-sale (at fair value; amortized cost of $66,666,
		$66,335 and $58,807)			67,096			67,952			60,472
			Total investment securities		67,096			67,952			60,472
Loans, less allowance for credit losses of $11,482, $8,882 and $7,881 (1)					753,979			745,939			701,808
Bank premises and equipment, net					5,841			5,994			6,191
Investment in Federal Home Loan Bank stock, at cost					4,320			3,429			3,429
Goodwill					4,119			4,119			4,119
Accrued interest receivable and other assets					10,145			7,595			6,686
			Total assets	$	901,643		$	865,854		$	850,659
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
	Demand - non interest-bearing			$	232,206		$	199,097		$	202,012
	Demand - interest-bearing				120,664			88,684			79,570
	Savings				50,380			42,120			36,887
	Money market				162,157			167,113			136,754
	Time deposits that meet or exceed the FDIC insurance limit				32,535			35,765			44,092
	Other time deposits				166,011			193,516			210,158
			Total deposits		763,953			726,295			709,473
Federal Home Loan Bank advances					48,500			53,500			58,500
Junior subordinated debt					5,884			5,876			5,869
Accrued interest payable and other liabilities					4,329			4,554			5,581
			Total liabilities		822,666			790,225			779,423
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
	Retained earnings				41,693			37,510			33,083
	Accumulated other comprehensive income, net				303			1,138			1,172
			Total shareholders' equity		78,977			75,629			71,236
			Total liabilities and shareholders' equity	$	901,643		$	865,854		$	850,659
(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								As of and for the
		Three Months Ended								Six Months Ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Statement of Income Data:
Net interest income		$	8,976			$	7,174			$	18,164			$	13,698
Provision for credit losses (5)			-				500				335				1,100
Non-interest income			1,598				693				2,293				2,623
Non-interest expense			5,037				4,216				9,877				8,637
Provision for income taxes			1,638				933				3,031				1,950
Net income		$	3,899			$	2,218			$	7,214			$	4,634
Selected per Common Share Data:
Basic earnings per common share		$	0.64			$	0.37			$	1.19			$	0.76
Diluted earnings per common share		$	0.64			$	0.37			$	1.19			$	0.76
Dividend per share		$	0.12			$	0.12			$	0.24			$	0.24
Book value per common share (1)		$	13.01			$	11.74			$	13.01			$	11.74
Selected Balance Sheet Data:
Assets		$	901,643			$	850,659			$	901,643			$	850,659
Loans, net (5)			753,979				701,808				753,979				701,808
Deposits			763,953				709,473				763,953				709,473
Average assets			888,439				794,442				880,752				741,642
Average earning assets			872,483				775,852				864,616				724,791
Average shareholders' equity			77,477				69,969				76,520				69,269
Nonperforming loans			464				407				464				407
Total nonperforming assets			464				407				464				407
Troubled debt restructures (accruing)			2,160				2,214				2,160				2,214
Selected Ratios:
Return on average assets (2)			1.76	%			1.12	%			1.65	%			1.25	%
Return on average common shareholders' equity (2)			20.18	%			12.71	%			19.01	%			13.42	%
Efficiency ratio (3)			47.87	%			53.59	%			48.41	%			55.90	%
Net interest margin (2)			4.13	%			3.71	%			4.24	%			3.81	%
Common equity tier 1 capital ratio			10.03	%			10.40	%			10.03	%			10.40	%
Tier 1 capital ratio			10.03	%			10.40	%			10.03	%			10.40	%
Total capital ratio			12.04	%			12.60	%			12.04	%			12.60	%
Tier 1 leverage ratio			8.29	%			8.20	%			8.29	%			8.20	%
Common dividend payout ratio (4)			18.68	%			32.82	%			20.19	%			31.44	%
Average shareholders' equity to average assets			8.72	%			8.81	%			8.69	%			9.34	%
Nonperforming loans to total loans			0.06	%			0.06	%			0.06	%			0.06	%
Nonperforming assets to total assets			0.05	%			0.05	%			0.05	%			0.05	%
Allowance for credit losses to total loans (5)			1.50	%			1.11	%			1.50	%			1.11	%
Allowance for credit losses to total loans excluding PPP (5)*			1.60	%			1.28	%			1.60	%			1.28	%
Allowance for credit losses to nonperforming loans (5)			2476.35	%			1938.33	%			2476.35	%			1938.33	%
(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.

				June 30, 2021				March 31, 2021				December 30, 2020				September 30, 2020				June 30, 2020
				(In thousands)
Allowance for Credit Losses (ACL) on loans to Loans receivable, excluding SBA PPP loans
Allowance for credit losses on loans (1)				$	(11,482	)		$	(11,476	)		$	(8,882	)		$	(8,393	)		$	(7,881	)
Loans receivable (GAAP)				$	765,461			$	761,416			$	754,820			$	735,252			$	709,689
Excluding SBA PPP loans					48,166				66,313				69,583				96,710				95,534
Loans receivable, excluding SBA PPP (non-GAAP)				$	717,296			$	695,103			$	685,237			$	638,542			$	614,155
ACL on loans to Loans receivable (GAAP)					1.50	%			1.51	%			1.18	%			1.14	%			1.11	%
ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP)					1.60	%			1.65	%			1.30	%			1.31	%			1.28	%
(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.

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