SSBI Summit State Bank

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