SSBI Summit State Bank

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