Summit State Bank (Nasdaq: SSBI) today reported net income for the year ended December 31, 2022 increased $2,270,000, or 15%, to $16,968,000, or $2.54 per diluted share, compared to net income of $14,698,000, or $2.20 per diluted share for the year ended December 31, 2021. Strong loan and deposit growth and net interest margin expansion contributed to profitability for the quarter. For the fourth quarter ended December 31, 2022, net income increased 24% to $4,553,000, or $0.68 per diluted share, compared to $3,686,000, or $0.55 per diluted share, for the same period in 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 January 23, 2023. The quarterly dividend will be paid on February 16, 2023 to shareholders of record on February 9, 2023.

Results of Operations:

“We delivered another strong quarter, and record profits for the year 2022,” noted Brian Reed, President and CEO. “We saw substantial growth in the loan portfolio year-over-year, increases to our core deposit base, and expansion of our net interest margin. Continued growth in the loan and investment portfolios, combined with a higher interest rate environment, contributed significantly to the increased net interest income and profitability relative to the prior year. Additionally, noninterest bearing deposit balances continued to increase despite deposit pricing pressures. With our strong core operations and capital base, we have the resources in place to make our business stronger and more financially sustainable. Looking ahead, we remain committed to protecting our profitability as we continue to grow in a disciplined manner.”

The 2022 net interest margin was 4.34%, return on average assets was 1.69% and return on average equity was 19.72%. This compared to a net interest margin of 4.28%, return on average assets of 1.64% and return on average equity of 18.48% in 2021. For the fourth quarter of 2022, net interest margin was 4.29%, return on average assets was 1.69% and return on average equity was 20.84%. This compared to net interest margin of 4.34%, annualized return on average assets of 1.59% and annualized return on average equity of 17.46%, respectively, for the fourth quarter of 2021. These results were above the average 3.70% net interest margin, 1.18% return on average assets and 13.10% return on average equity posted by the 154 bank index peers that make up the Dow Jones U.S. MicroCap Bank index as of September 30, 2022.*

Interest income increased 17% to $48,956,000 in 2022 compared to $41,973,000 in 2021. The increase in interest income is attributable to a $5,932,000 increase in loan interest yield primarily driven by increased loan volume and secondarily by increased rates, $559,000 increase in interest on deposits with banks and $435,000 increase in investment interest.

For the fourth quarter of 2022, interest income increased 30% to $14,188,000 compared to $10,882,000 in the fourth quarter of 2021. The increase in interest income is attributable to a $2,655,000 increase in loan interest yield primarily driven by increased loan volume and secondarily by increased rates, $357,000 increase in interest on deposits with banks and $264,000 increase in investment interest.

Net loans and deposits increased when comparing 2022 to 2021. Net loans increased 11% to $913,707,000 at December 31, 2022 compared to $820,987,000 at December 31, 2021. Total deposits increased 19% to $962,654,000 at December 31, 2022 compared to $811,600,000 at December 31, 2021. Most of the deposit increase year-over-year is due to the Bank’s ongoing focus on growing local deposits organically. The Bank’s wholesale broker deposits decreased to $69,060,000 at December 31, 2022 compared to $78,414,000 at December 31, 2021.

Non-interest income increased in 2022 to $7,495,000 compared to $4,901,000 in 2021. The increase is primarily due to the Bank recognizing $5,839,000 in gains on sales of SBA guaranteed loan balances in 2022, compared to $3,343,000 in gains on sales of SBA guaranteed loans balances in 2021. For the fourth quarter of 2022, non-interest income increased to $2,132,000 compared to $1,249,000 in the fourth quarter of 2021. The Bank recognized $1,762,000 in gains on sales of SBA guaranteed loan balances in the fourth quarter of 2022, compared to $884,000 in gains on sales of SBA guaranteed loans balances in the same period a year earlier.

Operating expenses increased 16% in 2022 to $23,511,000 compared to $20,333,000 in 2021. A majority of the $3,178,000 increase is due to a $1,057,000 increase in salaries net of deferred fees and costs and a $525,000 increase in employee benefit-related expenses. Other factors attributing to the increase include a $401,000 increase in donations and payments as part of the non-profit partner program, a $309,000 increase in commissions directly related to the Bank’s loan portfolio growth, a $164,000 increase in IT-related expenses, $155,000 increase in Restricted Stock Awards and Stock Appreciation Rights expenses, and a $130,000 increase in marketing and advertising expenses.

For the fourth quarter of 2022, operating expenses increased to $6,395,000, compared to $4,907,000 in the fourth quarter of 2021. The $1,488,000 increase is due to a $623,000 increase in Restricted Stock Awards and Stock Appreciation Rights expenses, a $350,000 increase in employee benefit-related expenses, a $215,000 in donations and payments as part of the non-profit partner program, and a $188,000 increase in salaries and commissions net of deferred fees and costs.

Nonperforming assets were $3,756,000, or 0.34% of total assets, at December 31, 2022, and consisted of one real estate secured commercial loan for $3,189,000 that is in process of liquidation and one commercial and agriculture secured loan for $567,000. Nonperforming assets totaled $487,000, or 0.05% of total assets, at December 31, 2021. In the fourth quarter of 2022 the Bank charged off $190,000 and in the fourth quarter of 2021 the Bank charged off $92,000. For the full year, the Bank charged off $211,000 and $133,000 for 2022 and 2021, respectively.

Due to strong loan growth and increased risk in the economy, the Bank recorded a $2,541,000 provision for credit loss expense in 2022. This compares to $1,294,000 provision for credit loss expense in 2021. For the fourth quarter, the Bank recorded a $807,000 provision for credit loss expense, compared to a $959,000 provision for credit loss expense for the fourth quarter of 2021. The allowance for credit losses to total loans was 1.60% on December 31, 2022 and 1.48% on December 31, 2021.

“We continue to focus on being a reliable resource for our customers and communities through all economic cycles,” said Reed. “While the local and global economy remains a challenge, we have the right team in place, together with the strength of our local markets, to prosper in 2023.”

About Summit State Bank

Summit State Bank, a local community bank, has total assets of $1.1 billion and total equity of $89 million at December 31, 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, Super Premier Performing Bank, and Piper Sandler’s Bank & Thrift Sm-All Stars. 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 September 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 3.70%, return on average assets (ROAA) 1.18%, and return on average equity (ROAE) 13.10%.

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 annual report on Form 10-K for the period ended December 31, 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   Year Ended
          December 31, 2022   December 31, 2021   December 31, 2022   December 31, 2021
          (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
                       
Interest income:              
  Interest and fees on loans $ 13,097     $ 10,442   $ 46,124     $ 40,192
  Interest on deposits with banks   369       12     596       37
  Interest on investment securities   624       360     1,935       1,500
  Dividends on FHLB stock   98       68     301       244
      Total interest income   14,188       10,882     48,956       41,973
Interest expense:              
  Deposits     2,380       734     4,942       3,205
  Federal Home Loan Bank advances   463       198     1,212       787
  Junior subordinated debt   94       94     375       375
      Total interest expense   2,937       1,026     6,529       4,367
      Net interest income before provision for credit losses   11,251       9,856     42,427       37,606
Provision for credit losses on loans   807       959     2,683       1,294
Reversal of credit losses on unfunded loan commitments   (145 )     -     (142 )     -
      Net interest income after provision for (reversal of) credit              
        losses and unfunded loan commitments   10,589       8,897     39,886       36,312
Non-interest income:              
  Service charges on deposit accounts   219       220     859       858
  Rental income   37       89     199       353
  Net gain on loan sales   1,762       884     5,839       3,343
  Net (loss) gain on securities   (3 )     9     4       65
  Other income   117       47     594       282
      Total non-interest income   2,132       1,249     7,495       4,901
Non-interest expense:              
  Salaries and employee benefits   3,873       3,182     14,651       12,720
  Occupancy and equipment   506       429     1,716       1,637
  Other expenses   2,016       1,296     7,144       5,976
      Total non-interest expense   6,395       4,907     23,511       20,333
      Income before provision for income taxes   6,326       5,239     23,870       20,880
Provision for income taxes   1,773       1,553     6,902       6,182
      Net income $ 4,553     $ 3,686   $ 16,968     $ 14,698
                       
Basic earnings per common share (1) $ 0.68     $ 0.55   $ 2.54     $ 2.20
Diluted earnings per common share (1) $ 0.68     $ 0.55   $ 2.54     $ 2.20
                       
Basic weighted average shares of common stock outstanding (1)   6,688       6,685     6,687       6,680
Diluted weighted average shares of common stock outstanding (1)   6,688       6,685     6,687       6,682
                       
(1) Adjusted for 10% stock dividend declared; effective October 29, 2021        

SUMMIT STATE BANK
BALANCE SHEETS
(In thousands except share data)
             
        December 31, 2022   December 31, 2021
        (Unaudited)   (Unaudited)
             
ASSETS      
             
Cash and due from banks $ 75,240   $ 40,699
      Total cash and cash equivalents   75,240     40,699
             
Investment securities:      
  Available-for-sale (at fair value; amortized cost of $98,017      
    in 2022 and $69,902 in 2021)   83,785     69,367
             
Loans, less allowance for credit losses of $14,839 and $12,329   913,707     820,987
Bank premises and equipment, net   5,461     5,677
Investment in Federal Home Loan Bank stock, at cost   4,737     4,320
Goodwill     4,119     4,119
Affordable housing tax credit investments   8,881     3,500
Accrued interest receivable and other assets   17,086     9,411
             
      Total assets $ 1,113,016   $ 958,080
             
LIABILITIES AND      
SHAREHOLDERS' EQUITY      
             
Deposits:        
  Demand - non interest-bearing $ 252,033   $ 234,824
  Demand - interest-bearing   143,767     147,289
  Savings   67,117     69,982
  Money market   137,362     168,637
  Time deposits that meet or exceed the FDIC insurance limit   141,691     29,255
  Other time deposits   220,684     161,613
      Total deposits   962,654     811,600
             
Federal Home Loan Bank advances   41,000     48,500
Junior subordinated debt, net   5,905     5,891
Affordable housing commitment   4,677     2,483
Accrued interest payable and other liabilities   10,233     5,324
             
      Total liabilities   1,024,469     873,798
             
      Total shareholders' equity   88,547     84,282
             
      Total liabilities and shareholders' equity $ 1,113,016   $ 958,080

Financial Summary
(In thousands except per share data)
                 
    As of and for the   As of and for the
    Three Months Ended   Year Ended
    December 31, 2022   December 31, 2021   December 31, 2022   December 31, 2021
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Statement of Income Data:                
Net interest income   $ 11,251     $ 9,856   $ 42,427     $ 37,606
Provision for credit losses     807       959     2,683       1,294
Provision for (Reversal of) credit losses on unfunded loan commitments   (145 )     -     (142 )     -
Non-interest income     2,132       1,249     7,495       4,901
Non-interest expense     6,395       4,907     23,511       20,333
Provision for income taxes     1,773       1,553     6,902       6,182
Net income   $ 4,553     $ 3,686   $ 16,968     $ 14,698
                 
Selected per Common Share Data:                
Basic earnings per common share (5)   $ 0.68     $ 0.55   $ 2.54     $ 2.20
Diluted earnings per common share (5)   $ 0.68     $ 0.55   $ 2.54     $ 2.20
Dividend per share (5)   $ 0.12     $ 0.12   $ 0.12     $ 0.12
Book value per common share (1)(5)   $ 13.24     $ 11.09   $ 13.24     $ 11.09
                 
Selected Balance Sheet Data:                
Assets   $ 1,113,016     $ 958,080   $ 1,113,016     $ 958,080
Loans, net     913,707       820,987     913,707       820,987
Deposits     962,654       811,600     962,654       811,600
Average assets     1,070,000       920,909     1,005,186       895,393
Average earning assets     1,040,154       901,914     978,169       878,258
Average shareholders' equity     86,675       83,780     86,038       79,538
Nonperforming loans     3,756       487     3,756       487
Total nonperforming assets     3,756       487     3,756       487
Troubled debt restructures (accruing)     1,002       2,128     1,002       2,128
                 
Selected Ratios:                
Return on average assets (2)     1.69%       1.59%     1.69%       1.64%
Return on average common shareholders' equity (2)     20.84%       17.46%     19.72%       18.48%
Efficiency ratio (3)     47.77%       44.22%     47.10%       47.91%
Net interest margin (2)     4.29%       4.34%     4.34%       4.28%
Common equity tier 1 capital ratio     9.31%       9.73%     9.31%       9.73%
Tier 1 capital ratio     9.31%       9.73%     9.31%       9.73%
Total capital ratio     11.16%       11.77%     11.16%       11.77%
Tier 1 leverage ratio     8.53%       8.65%     8.53%       8.65%
Common dividend payout ratio (4)     17.72%       21.79%     19.01%       20.33%
Average shareholders' equity to average assets     8.10%       9.10%     8.56%       8.88%
Nonperforming loans to total loans     0.40%       0.06%     0.40%       0.06%
Nonperforming assets to total assets     0.34%       0.05%     0.34%       0.05%
Allowance for credit losses to total loans     1.60%       1.48%     1.60%       1.48%
Allowance for credit losses to nonperforming loans     395.09%       2532.64%     395.09%       2532.64%
         
(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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