Summit State Bank (Nasdaq: SSBI) today reported net income for the third quarter ended September 30, 2022 increased $183,000, or 5%, to $3,979,000, or $0.59 per diluted share, compared to net income of $3,796,000, or $0.57 per diluted share for the third quarter ended September 30, 2021. Strong loan and deposit growth and net interest margin expansion contributed to profitability for the quarter. In the first nine months of 2022, net income increased 10% to $12.4 million, or $1.86 per diluted share, compared to $11.0 million, or $1.65 per diluted share, in the first nine months of 2021. Additionally, a quarterly dividend of $0.12 per share was declared for common shareholders.

Dividend:

The Board of Directors declared a quarterly cash dividend of $0.12 per share on October 25, 2022. The quarterly dividend will be paid on November 17, 2022 to shareholders of record on November 10, 2022.

Results of Operations:

“The highlights of the third quarter included substantial growth in the loan portfolio, increases to our core deposit base, and expansion of our net interest margin,” noted Brian Reed, President and CEO. “Loan production was stronger than anticipated during the third quarter, and noninterest bearing deposit balances continued to increase, despite deposit pricing pressures. We also surpassed the $1 billion asset milestone, which is a testament to our growth plan. As we head into a new economic environment, we continue to look for new strategies to help our customers while also growing our operations. We are located in some of the most vibrant Northern California markets with a diverse and strong economy. Together, with our strong core operations and ample capital base, we have the resources in place to make our business stronger and more financially sustainable.”

The net interest margin for the third quarter of 2022 was 4.42%, annualized return on average assets was 1.56% and annualized return on average equity was 18.12%. This compared to a net interest margin of 4.31%, annualized return on average assets of 1.68% and annualized return on average equity of 18.54%, respectively, for the third quarter of 2021. These results were above the average 3.42% net interest margin, 1.05% return on average assets and 11.52% return on average equity posted by the 154 bank index peers that make up the Dow Jones U.S. MicroCap Bank index as of June 30, 2022.*

Interest income increased 18% to $12,541,000 in the third quarter of 2022 compared to $10,601,000 in the third quarter of 2021. The increase in interest income is attributable to a $1,674,000 increase in loan interest yield primarily driven by increased loan volume and secondarily by increased rates, $143,000 increase in interest on deposits with banks and $125,000 increase in investment interest.

Net loans and deposits increased when comparing the third quarter of 2022 to 2021. Net loans increased 13% to $893,580,000 at September 30, 2022 compared to $792,504,000 at September 30, 2021. Total deposits increased 16% to $868,912,000 at September 30, 2022 compared to $749,007,000 at September 30, 2021. Most of the deposit increase year-over-year is due to the Bank’s ongoing focus on growing local deposits organically.

Non-interest income decreased in the third quarter of 2022 to $1,055,000 compared to $1,359,000 in the third quarter of 2021. The Bank recognized $578,000 in gains on sales of SBA guaranteed loan balances in the third quarter of 2022 compared to $951,000 in gains on sales of SBA guaranteed loans balances in the third quarter of 2021.

Operating expenses decreased slightly in the third quarter of 2022 to $5,533,000 compared to $5,550,000 in the third quarter of 2021. The decrease is primarily due to a $463,000 reduction in stock appreciation rights expense and is offset by a $310,000 increase in salaries and benefits net of deferred fees and costs and a $140,000 increase in IT expenses.

Nonperforming assets were $3,947,000, or 0.38% of total assets, at September 30, 2022, and consisted of three loans; one loan for $3,200,000 is a real estate secured commercial loan that is in process of liquidation and the other two loans for $759,000 are commercial and agriculture secured loans. Nonperforming assets totaled $416,000, or 0.05% of total assets, at September 30, 2021.

Due to strong loan production and increases in expected losses, the Bank recorded a $770,000 provision for credit loss expense in the third quarter of 2022. This compared to no provision for credit loss expense in the third quarter of 2021. The allowance for credit losses to total loans was 1.57% on September 30, 2022 and 1.42% on September 30, 2021.

“We remain focused on being a reliable resource for our customers and communities through all economic cycles,” said Reed. “While there will be challenges in the local and global economy in the near term, we have the right team in place, together with the strength of our local markets, to lead the momentum to grow during the remainder of the year and into 2023.”

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $1,044 million and total equity of $84 million at September 30, 2022. 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, 63% 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, Best Places to Work in the North Bay, Top Community Bank Loan Producer, Raymond James Bankers Cup, and Super Premier Performing Bank. 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.

*As of June 30, 2022, the Dow Jones U.S. MicroCap Bank Index tracked 154 banks with total common market capitalization under $250 million for the following ratios: NIM of 3.42%, return on average assets (ROAA) 1.05%, and return on average equity (ROAE) 11.52%.

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 September 30, 2022 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   Nine Months Ended
          September 30, 2022   September 30, 2021   September 30, 2022   September 30, 2021
          (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
                       
Interest income:              
  Interest and fees on loans $ 11,833   $ 10,159   $ 33,025   $ 29,752
  Interest on deposits with banks   154     11     227     25
  Interest on investment securities   485     360     1,312     1,139
  Dividends on FHLB stock   69     71     203     176
      Total interest income   12,541     10,601     34,767     31,092
Interest expense:              
  Deposits   1,100     720     2,560     2,471
  Federal Home Loan Bank advances   355     202     749     589
  Junior Subordinated Debt   94     94     281     281
      Total interest expense   1,549     1,016     3,590     3,341
      Net interest income before provision for credit losses   10,992     9,585     31,177     27,751
Provision for credit losses on loans   753     -     1,876     335
Provision for (reversal of) credit losses on unfunded loan commitments   17     -     3     -
      Net interest income after provision for (reversal of) credit              
          losses and unfunded loan commitments   10,222     9,585     29,298     27,416
Non-interest income:              
  Service charges on deposit accounts   219     227     640     638
  Rental income   38     89     162     264
  Net gain on loan sales   578     951     4,077     2,459
  Net securities gain   1     -     7     56
  Other income   219     92     477     234
      Total non-interest income   1,055     1,359     5,363     3,651
Non-interest expense:              
  Salaries and employee benefits   3,449     3,326     10,724     9,496
  Occupancy and equipment   405     394     1,230     1,227
  Other expenses   1,679     1,830     5,163     4,704
      Total non-interest expense   5,533     5,550     17,117     15,427
      Income before provision for income taxes   5,744     5,394     17,544     15,640
Provision for income taxes   1,765     1,598     5,129     4,629
      Net income $ 3,979   $ 3,796   $ 12,415   $ 11,011
                       
Basic earnings per common share (1) $ 0.59   $ 0.57   $ 1.86   $ 1.65
Diluted earnings per common share (1) $ 0.59   $ 0.57   $ 1.86   $ 1.65
                       
Basic weighted average shares of common stock outstanding (1)   6,688     6,680     6,687     6,678
Diluted weighted average shares of common stock outstanding (1)   6,688     6,680     6,687     6,681
                       
(1) Adjusted for 10% stock dividend declared; effective October 29, 2021              
                       

                 
SUMMIT STATE BANK
BALANCE SHEETS
(In thousands except share data)
                 
                 
        September 30, 2022   December 31, 2021 September 30, 2021
        (Unaudited)   (Unaudited)   (Unaudited)
                 
ASSETS          
                 
Cash and due from banks $ 42,818     $ 40,699     $ 37,772
      Total cash and cash equivalents   42,818       40,699       37,772
                 
Investment securities:          
  Available-for-sale (at fair value; amortized cost of $83,417,          
    $69,902 and $68,507)   68,694       69,367       68,803
      Total investment securities   68,694       69,367       68,803
                 
Loans, less allowance for credit losses of $14,209, $12,329 and $11,453   893,580       820,987       792,504
Bank premises and equipment, net   5,509       5,677       5,772
Investment in Federal Home Loan Bank stock, at cost   4,737       4,320       4,320
Goodwill     4,119       4,119       4,119
Affordable housing tax credit investments   8,964       3,500       -
Accrued interest receivable and other assets   15,391       9,411       9,302
                 
      Total assets $ 1,043,812     $ 958,080     $ 922,592
                 
LIABILITIES AND          
SHAREHOLDERS' EQUITY          
                 
Deposits:            
  Demand - non interest-bearing $ 254,135     $ 234,824     $ 229,557
  Demand - interest-bearing   147,349       147,289       115,253
  Savings   68,880       69,982       47,251
  Money market   149,409       168,637       163,640
  Time deposits that meet or exceed the FDIC insurance limit   102,660       29,255       31,279
  Other time deposits   146,479       161,613       162,027
      Total deposits   868,912       811,600       749,007
                 
Federal Home Loan Bank advances   73,700       48,500       80,000
Junior subordinated debt   5,902       5,891       5,887
Affordable housing commitment   4,752       2,483       -
Accrued interest payable and other liabilities   6,125       5,324       5,715
                 
      Total liabilities   959,391       873,798       840,609
                 
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 6,687,959, 6,684,759 and 6,684,759 (1)   37,145       37,014       37,014
  Retained earnings   57,641       47,644       44,761
  Accumulated other comprehensive (loss) income, net   (10,365 )     (376 )     208
                 
      Total shareholders' equity   84,421       84,282       81,983
                 
      Total liabilities and shareholders' equity $ 1,043,812     $ 958,080     $ 922,592
                 
(1) Adjusted for 10% stock dividend declared; effective October 29, 2021
                 

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, 2022   September 30, 2021   September 30, 2022   September 30, 2021
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Statement of Income Data:                
Net interest income   $ 10,992     $ 9,585     $ 31,177     $ 27,751  
Provision for credit losses on loans     753       -       1,876       335  
Provision for (Reversal of) credit losses on unfunded loan commitments   17       -       3       -  
Non-interest income     1,055       1,359       5,363       3,651  
Non-interest expense     5,533       5,550       17,117       15,427  
Provision for income taxes     1,765       1,598       5,129       4,629  
Net income   $ 3,979     $ 3,796     $ 12,415     $ 11,011  
                 
Selected per Common Share Data:                
Basic earnings per common share (5)   $ 0.59     $ 0.57     $ 1.86     $ 1.65  
Diluted earnings per common share (5)   $ 0.59     $ 0.57     $ 1.86     $ 1.65  
Dividend per share (5)   $ 0.12     $ 0.12     $ 0.36     $ 0.36  
Book value per common share (1)(5)   $ 12.62     $ 13.51     $ 12.62     $ 13.51  
                 
Selected Balance Sheet Data:                
Assets   $ 1,043,812     $ 922,592     $ 1,043,812     $ 922,592  
Loans, net     893,580       792,504       893,580       792,504  
Deposits     868,912       749,007       868,912       749,007  
Average assets     1,014,891       898,680       983,343       886,794  
Average earning assets     986,780       881,444       957,280       870,288  
Average shareholders' equity     87,142       81,234       85,824       78,109  
Nonperforming loans     3,947       416       3,947       416  
Total nonperforming assets     3,947       416       3,947       416  
Troubled debt restructurings (accruing)     1,011       2,146       1,011       2,146  
                 
Selected Ratios:                
Return on average assets (2)     1.56 %     1.68 %     1.69 %     1.66 %
Return on average common shareholders' equity (2)     18.12 %     18.54 %     19.34 %     18.85 %
Efficiency ratio (3)     45.93 %     50.71 %     46.85 %     49.22 %
Net interest margin (2)     4.42 %     4.31 %     4.35 %     4.26 %
Common equity tier 1 capital ratio     9.57 %     9.93 %     9.57 %     9.93 %
Tier 1 capital ratio     9.57 %     9.93 %     9.57 %     9.93 %
Total capital ratio     11.47 %     11.95 %     11.47 %     11.95 %
Tier 1 leverage ratio     8.71 %     8.54 %     8.71 %     8.54 %
Common dividend payout ratio (4)     20.31 %     19.20 %     19.48 %     19.84 %
Average shareholders' equity to average assets     8.59 %     9.04 %     8.73 %     8.81 %
Nonperforming loans to total loans     0.43 %     0.05 %     0.43 %     0.05 %
Nonperforming assets to total assets     0.38 %     0.05 %     0.38 %     0.05 %
Allowance for credit losses to total loans     1.57 %     1.42 %     1.57 %     1.42 %
Allowance for credit losses to nonperforming loans     359.97 %     2756.36 %     359.97 %     2756.36 %
         
(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) Adjusted for 10% stock dividend declared; effective October 29, 2021        
                 

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

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