SSBI Summit State Bank

Summit State Bank (Nasdaq: SSBI) today reported net income for the quarter ended June 30, 2020 of $2,218,000 and diluted earnings per share of $0.37. This compares to net income of $1,172,000 and diluted earnings per share of $0.19 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 July 27, 2020 to be paid on August 21, 2020 to shareholders of record on August 14, 2020.

Net Income and Results of Operations

Net income increased $1,046,000 or 89% the second quarter of 2020 compared to second quarter of 2019. Net income increased $2,037,000 or 78% in the first six months of 2020 compared to the first six months of 2019.

Net interest income increased to $7,174,000 in the second quarter of 2020 compared to $5,499,000 in the second 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.

“The Bank is pleased to announce four consecutive quarters of strong earnings totaling $8,514,000 or $1.40 per share,” said Brian Reed, President and CEO. “Three and a half years ago, we implemented a strategic plan to restructure and grow the Bank’s balance sheet and this plan is now showing consistently strong earnings and balance sheet growth.”

“The COVID-19 pandemic presents a number of economic challenges and we continue to actively support our customers and local businesses in these unprecedented times,” said Reed. “To date we funded over $95,000,000 of PPP loans representing 13.5% of the June 30, 2020 loan portfolio. In these uncertain times we feel fortunate to be a position to help our customers and community. We stand ready to be a continue source of support for them going forward.”

Nonperforming assets were $410,000 or 0.05% of total assets at June 30, 2020 compared to $715,000 or 0.11% at June 30, 2019. Nonperforming assets at June 30, 2020 consist of loans which are predominantly secured by real property. The Bank had a provision expense of $500,000 in the second quarter of 2020. At June 30, 2020 the allowance for loan losses to total loans including SBA-guaranteed PPP loans was 1.11% at June 30, 2020 and 1.17% at June 30, 2019. Excluding $95,534,000 of PPP loans increases the ratio of allowance for loans losses to 1.28% at June 30, 2020.

In the second quarter of 2020 the Bank deferred payments on over $142,000,000 or 20% of loans in its portfolio. The deferral process increases the total balance due on the loan and re-amortizes the monthly payment through the original maturity date. As of June 30, 2020, approximately $54,000,000 or 9% of the loan portfolio excluding PPP loans were in deferral.

“The Bank has deliberately built its balance sheet growth around strong-performing loans,” notes Reed. “At the onset of the pandemic and continuing through today, the Bank has experienced minimal credit problems. We are actively monitoring our portfolio, assisting our customers through this economic downturn, and ensuring we maintain sufficient loan loss reserves.”

Reed further explains “The Bank will continue monitoring this fluid situation. We are watching trends in high-risk industries including retail, restaurants, and lodging. These high-risk industries comprise approximately 14% of our portfolio and we are increasing our loan loss reserves due to the increased risk of loss.”

Non-interest income increased in the second quarter of 2020 to $693,000 compared to $340,000 in the second quarter of 2019. The Bank recognized $320,000 in gains on sales of SBA guaranteed loan balances in the second quarter of 2020 compared to $0 in gains on sales of SBA guaranteed loans balances in the second quarter of 2019.

Total loans and deposits also increased when comparing the second quarter of 2020 to second quarter of 2019; loans were $701,808,000 in 2020 (includes $95,534,000 of PPP loans) compared to $536,674,000 in 2019 and deposits were $709,473,000 in 2020 compared to $532,257,000 in 2019. The net interest margin increased to 3.71% for the second quarter of 2020 compared to 3.64% for the second quarter of 2019.

Annualized return on average assets for the second quarter of 2020 was 1.12%, annualized return on average equity was 12.71% and the efficiency ratio was 53.59%. The second quarter of 2019 had an annualized return on average assets of 0.75%, annualized return on average equity of 7.36% and efficiency ratio of 68.34%.

There was a $221,000 or 6% increase in operating expenses in the second quarter of 2020 compared to the second quarter of 2019. The increase in expenses is primarily due to an increase in employee expenses and occupancy costs. The Bank is leveling off of a growth trend in operating expenses since the middle of 2019 resulting in an improvement in the efficiency ratio by 14.75% when comparing second quarter of 2020 to second quarter of 2019.

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $850 million and total equity of $71 million at June 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, 73% 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								Six Months Ended
					June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
					(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Interest income:
	Interest and fees on loans				$	8,329			$	6,630			$	16,148			$	13,081
	Interest on deposits with banks					7				32				51				133
	Interest on investment securities					393				476				762				1,066
	Dividends on FHLB stock					87				53				146				108
			Total interest income			8,816				7,191				17,107				14,388
Interest expense:
	Deposits					1,343				1,581				2,788				3,052
	Federal Home Loan Bank advances					299				111				621				290
			Total interest expense			1,642				1,692				3,409				3,342
			Net interest income before provision for loan losses			7,174				5,499				13,698				11,046
Provision for loan losses						500				180				1,100				280
			Net interest income after provision for loan losses			6,674				5,319				12,598				10,766
Non-interest income:
	Service charges on deposit accounts					178				219				393				409
	Rental income					88				81				175				172
	Net gain on loan sales					320				-				1,017				167
	Net securities gain					-				(7	)			871				(7	)
	Other income					107				47				167				92
			Total non-interest income			693				340				2,623				833
Non-interest expense:
	Salaries and employee benefits					2,431				2,303				5,154				4,960
	Occupancy and equipment					424				434				807				857
	Other expenses					1,361				1,258				2,676				2,390
			Total non-interest expense			4,216				3,995				8,637				8,207
			Income before provision for income taxes			3,151				1,664				6,584				3,392
Provision for income taxes						933				492				1,950				795
			Net income		$	2,218			$	1,172			$	4,634			$	2,597
Basic earnings per common share					$	0.37			$	0.19			$	0.76			$	0.43
Diluted earnings per common share					$	0.37			$	0.19			$	0.76			$	0.43
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				6,075				6,072				6,071

SUMMIT STATE BANK AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
				June 30, 2020				December 31, 2019				June 30, 2019
				(Unaudited)				(Unaudited)				(Unaudited)
ASSETS
Cash and due from banks				$	67,954			$	38,299			$	12,104
			Total cash and cash equivalents		67,954				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 $58,807,
		$53,591 and $59,450)			60,472				54,241				59,853
			Total investment securities		60,472				62,239				67,848
Loans, less allowance for loan losses of $7,881, $6,769 and $6,328					701,808				576,548				536,674
Bank premises and equipment, net					6,191				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					6,686				5,130				5,212
			Total assets	$	850,659			$	695,978			$	635,622
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
	Demand - non interest-bearing			$	202,012			$	129,084			$	119,535
	Demand - interest-bearing				79,570				69,383				65,227
	Savings				36,887				28,359				25,419
	Money market				136,754				128,377				99,585
	Time deposits that meet or exceed the FDIC insurance limit				44,092				76,564				85,315
	Other time deposits				210,158				142,070				137,176
			Total deposits		709,473				573,837				532,257
Federal Home Loan Bank advances					58,500				45,600				29,300
Junior subordinated debt					5,869				5,862				5,862
Accrued interest payable and other liabilities					5,581				3,335				3,462
			Total liabilities		779,423				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 6,067,975			36,981				36,981				36,974
	Retained earnings				33,083				29,906				27,483
	Accumulated other comprehensive income, net				1,172				457				284
			Total shareholders' equity		71,236				67,344				64,741
			Total liabilities and shareholders' equity	$	850,659			$	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								Six Months Ended
		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Statement of Income Data:
Net interest income		$	7,174			$	5,499			$	13,698			$	11,046
Provision for loan losses			500				180				1,100				280
Non-interest income			693				340				2,623				833
Non-interest expense			4,216				3,995				8,637				8,207
Provision for income taxes			933				492				1,950				795
Net income		$	2,218			$	1,172			$	4,634			$	2,597
Selected per Common Share Data:
Basic earnings per common share		$	0.37			$	0.19			$	0.76			$	0.43
Diluted earnings per common share		$	0.37			$	0.19			$	0.76			$	0.43
Dividend per share		$	0.12			$	0.12			$	0.24			$	0.24
Book value per common share (2)		$	11.74			$	10.67			$	11.74			$	10.67
Selected Balance Sheet Data:
Assets		$	850,659			$	635,622			$	850,659			$	635,622
Loans, net			701,808				536,674				701,808				536,674
Deposits			709,473				532,257				709,473				532,257
Average assets			794,442				622,883				741,642				625,393
Average earning assets			775,852				606,280				724,791				609,179
Average shareholders' equity			69,969				63,855				69,269				63,126
Nonperforming loans			410				715				410				715
Total nonperforming assets			410				715				410				715
Troubled debt restructures (accruing)			2,214				2,449				2,214				2,449
Selected Ratios:
Return on average assets (1)			1.12	%			0.75	%			1.25	%			0.84	%
Return on average common shareholders' equity (1)			12.71	%			7.36	%			13.42	%			8.30	%
Efficiency ratio (3)			53.59	%			68.34	%			55.90	%			69.05	%
Net interest margin (1)			3.71	%			3.64	%			3.81	%			3.66	%
Common equity tier 1 capital ratio			10.11	%			10.70	%			10.11	%			10.7	%
Tier 1 capital ratio			10.11	%			10.70	%			10.11	%			10.7	%
Total capital ratio			12.30	%			13.00	%			12.30	%			13.0	%
Tier 1 leverage ratio			8.23	%			9.50	%			8.23	%			9.5	%
Common dividend payout ratio (4)			32.82	%			62.12	%			31.44	%			56.06	%
Average shareholders' equity to average assets			8.81	%			10.25	%			9.34	%			10.09	%
Nonperforming loans to total loans			0.06	%			0.13	%			0.06	%			0.13	%
Nonperforming assets to total assets			0.05	%			0.11	%			0.05	%			0.11	%
Allowance for loan losses to total loans			1.11	%			1.17	%			1.11	%			1.17	%
Allowance for loan losses to total loans excluding PPP			1.28	%			1.17	%			1.28	%			1.17	%
Allowance for loan losses to nonperforming loans			1923.52	%			885.39	%			1923.52	%			885.39	%
(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.

				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019
				(In thousands)
ACL on loans to Loans receivable, excluding SBA PPP loans
Allowance for credit losses on loans				$	(7,881	)		$	(7,375	)		$	(6,769	)		$	(6,550	)		$	(6,328	)
Loans receivable (GAAP)				$	709,689			$	608,775			$	583,317			$	560,672			$	543,002
Excluding SBA PPP loans					95,534				-				-				-				-
Loans receivable, excluding SBA PPP (non-GAAP)				$	614,155			$	608,775			$	583,317			$	560,672			$	543,002
ACL on loans to Loans receivable (GAAP)					1.11	%			1.21	%			1.16	%			1.17	%			1.17	%
ACL on loans to Loans receivable, excluding SBA PPP loans (non-GAAP)					1.28	%			1.21	%			1.16	%			1.17	%			1.17	%