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Summit State Bank Reports Net Income of $10.8 Million for the Year 2023; Declares Quarterly Cash Dividend of $0.12 Per Common Share

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Summit State Bank (SSBI) reported a decrease in net income for the year ended December 31, 2023, with a 36% decline compared to the previous year. The fourth quarter of 2023 saw a decrease in net income and net interest margin, along with a 6% decrease in revenues. Despite challenges in the banking industry, the bank noted steady loan demand and increased deposit balances. However, nonperforming loans and assets increased, and the bank declared a quarterly cash dividend of $0.12 per share.
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Insights

The reported decrease in net income for Summit State Bank, by 36% year-over-year, is a significant metric that will likely influence investor sentiment. The dip in net income from $16,968,000 to $10,822,000 reflects pressures that the banking sector has faced due to a high-interest rate environment. This environment increases the cost of borrowing for banks, squeezing the net interest margin, which is evident in the reported decline from 4.29% to 2.85% year-over-year.

Moreover, the annualized return on average assets and equity showing a decline from 1.69% to 0.67% and 20.84% to 8.02%, respectively, indicates reduced profitability. These figures are crucial for investors as they assess the bank's efficiency in generating income from its assets and equity. It is also worth noting the bank's strategy to retain rate-sensitive deposits and benefit from new loan growth, which may partially offset the impact of increased funding costs.

From a balance sheet perspective, the growth in net loans and total deposits year-over-year is positive, suggesting an underlying business growth despite the challenging environment. However, the increase in nonperforming loans from 0.40% to 4.63% raises concerns about asset quality and potential future write-offs, which could further impact profitability.

The banking industry is currently navigating through a complex economic landscape characterized by high-interest rates. Summit State Bank's report highlights a critical trend where despite a steady loan demand, the net interest income growth is stunted. This is a common theme across the sector and can be indicative of broader economic headwinds.

The increase in total deposit balances suggests customer loyalty and a successful strategy in growing local deposits organically. However, the shift in deposit composition, with a decrease in noninterest bearing demand deposit accounts, is noteworthy. It reflects a change in consumer behavior, potentially due to rate shopping in a high-interest environment. The reported increase in the average cost of deposits from 1.06% to 2.79% year-over-year is a direct reflection of this environment.

Additionally, the lack of gains on sales of SBA guaranteed loan balances in the fourth quarter of 2023, compared to the previous year, represents a missed revenue opportunity and could signal a slow-down in this activity, possibly due to market saturation or reduced government incentives.

The increase in nonperforming loans to 4.63% and nonperforming assets to 3.94% of total assets is a red flag, indicating potential risk in the loan portfolio. These metrics are essential for risk assessment and could be a precursor to future financial instability if not managed effectively. The bank's credit quality will be under scrutiny and the adequacy of its allowance for credit losses, currently at 1.60%, will be critical in covering potential loan defaults.

Additionally, the one-time cyber fraud loss of $470,000 highlights the operational risks inherent in the banking industry. This incident may prompt a reevaluation of the bank's cybersecurity measures and could impact investor confidence in the bank's risk management practices.

The bank's capital levels, with tangible equity to tangible assets at 8.38%, remain above the 'well-capitalized' threshold, which provides a buffer against potential losses. However, maintaining this buffer will be crucial as the bank navigates the challenges of a high-interest rate environment and increasing asset risk.

SANTA ROSA, Calif., Jan. 30, 2024 (GLOBE NEWSWIRE) -- Summit State Bank (Nasdaq: SSBI) today reported net income for the year ended December 31, 2023 of $10,822,000, or $1.62 per diluted share, a decrease of $6,146,000, or 36%, compared to net income of $16,968,000, or $2.54 per diluted share for the year ended December 31, 2022. For the fourth quarter ended December 31, 2023, net income was $1,901,000, or $0.28 per diluted share, compared to $4,553,000 or $0.68 per diluted share, for the fourth quarter ended December 31, 2022.

The Board of Directors declared a quarterly cash dividend of $0.12 per share on January 29, 2024. The quarterly dividend will be paid on February 15, 2024 to shareholders of record on February 8, 2024.

“We closed out the year with solid operating results despite the challenges across the entire banking industry,” said Brian Reed, President and CEO. “The persistently high interest rate environment continued to impact net interest income growth with higher interest expense on deposits and borrowings, which affected our operating performance for the fourth quarter and the full year 2023. However, we continue to see steady loan demand in our markets, and total deposit balances have increased compared to a year ago. Further, our capital levels and excess liquidity positions remain strong, and together with revenue generation we have a solid foundation upon which to continue to grow in the year ahead.”

Fourth Quarter 2023 Financial Highlights (at or for the three months ended December 31, 2023)

  • Net income was $1,901,000, or $0.28 per diluted share in the fourth quarter of 2023, compared to $4,553,000, or $0.68 per diluted share, in the fourth quarter of 2022 and $1,821,000, or $0.27 per diluted share, for the quarter ended September 30, 2023.
  • Reversal of net credit losses was $65,000, compared to a provision for net credit losses of $662,000 in the fourth quarter a year ago and a reversal of net credit losses of $5,000 at September 30, 2023.
  • Net interest margin was 2.85%, compared to 4.29% in the fourth quarter a year ago and 2.80% in the preceding quarter.
  • Fourth quarter revenues (interest income plus noninterest income) decreased 6.0% to $15,333,000, compared to $16,320,000 in the fourth quarter a year ago and decreased 6.7% compared to $16,427,000 in the preceding quarter.
  • Annualized return on average assets was 0.67%, compared to 1.69% in the fourth quarter of 2022 and 0.63% in the preceding quarter.
  • Annualized return on average equity was 8.02%, compared to 20.84% in the fourth quarter a year ago and 7.70% in the preceding quarter.
  • Net loans increased $24,919,000 to $938,626,000 at December 31, 2023, compared to $913,707,000 one year earlier and increased $6,400,000 compared to $932,226,000 three months earlier.
  • Total deposits increased 5% to $1,009,693,000 at December 31, 2023 compared to $962,655,000 at December 31, 2022 and decreased 2% when compared to the prior quarter end of $1,030,836,000.
  • The Bank’s nonperforming loans to gross loans increased to 4.63% at December 31, 2023 compared to 3.72% at September 30, 2023 and 0.40% at December 31, 2022. Additionally, nonperforming assets to total assets increased to 3.94%, at December 31, 2023 compared to 3.09% at September 30, 2023 and 0.34% at December 31, 2022.
  • Book value increased to $14.40 per share, compared to $13.15 per share a year ago.
  • Declared a quarterly cash dividend of $0.12 per share for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022.

Operating Results

For the fourth quarter of 2023, the annualized return on average assets was 0.67% and the annualized return on average equity was 8.02%. This compared to an annualized return on average assets of 1.69% and an annualized return on average equity of 20.84%, respectively, for the fourth quarter of 2022.

“Following an unprecedented rise in funding costs that has affected the entire banking industry over the past year, our net interest margin started to stabilize during the fourth quarter; expanding five basis points compared to the prior quarter,” said Reed. “We are working hard to retain rate sensitive customer deposits, and while deposit pricing pressure persists, we continue to benefit from new loan growth as well as existing loans repricing at higher rates.” Summit’s net interest margin was 2.85% in the fourth quarter of 2023, compared to 2.80% in the preceding quarter and 4.29% in the fourth quarter of 2022.

Interest and dividend income increased 6% to $15,036,000 in the fourth quarter of 2023 compared to $14,188,000 in the fourth quarter of 2022. The increase in interest income is attributable to a $312,000 increase in loan interest yield primarily driven by increased loan volume and secondarily by increased rates, $423,000 increase in interest on deposits with banks and $113,000 increase in investment interest.

Non-interest income decreased in the fourth quarter of 2023 to $297,000 compared to $2,132,000 in the fourth quarter of 2022. The Bank recognized no gains on sales of SBA guaranteed loan balances in the fourth quarter of 2023, compared to $1,762,000 in gains on sales of SBA and USDA guaranteed loan balances in the fourth quarter of 2022.

Operating expenses decreased in the fourth quarter of 2023 to $5,483,000 compared to $6,395,000 in the fourth quarter of 2022. The decrease was primarily due to a $741,000 decrease in stock appreciation rights expense, a $570,000 decrease in annual bonus payout, offset by a one-time expense of $470,000 for a cyber fraud loss.

Balance Sheet Review

Net loans increased 3% to $938,626,000 at December 31, 2023 compared to $913,707,000 at December 31, 2022 and increased 1% compared to September 30, 2023.

Total deposits increased 5% to $1,009,693,000 at December 31, 2023 compared to $962,655,000 at December 31, 2022 and decreased 2% when compared to the prior quarter end. Most of the deposit growth year-over-year was due to the Bank’s ongoing focus on growing local deposits organically. At December 31, 2023, noninterest bearing demand deposit accounts decreased 20% compared to a year ago and represented 20% of total deposits; savings, NOW and money market accounts increased 47% compared to a year ago and represented 51% of total deposits, and CDs decreased 18% compared to a year ago and comprised 29% of total deposits. The average cost of deposits was 2.79% in the fourth quarter of 2023, compared to 1.06% in the fourth quarter of 2022, and 2.63% in the third quarter of 2023.

Shareholders’ equity was $97,678,000 at December 31, 2023, compared to $93,439,000 three months earlier and $88,547,000 a year earlier. The increase in shareholders’ equity compared to a year ago was primarily due to an increase of $7,571,000 in retained earnings and a decrease of $1,269,000 in accumulated other comprehensive loss; this change was related to a decrease in the unrealized loss on available for sale securities reflecting the decrease in market interest rates during the year. At December 31, 2023, book value was $14.40 per share, compared to $13.77 three months earlier, and $13.15 at December 31, 2022.

Summit State Bank continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with tangible equity to tangible assets of 8.38% at December 31, 2023, compared to 8.24% at September 30, 2023, and 8.10% at December 31, 2022.

Credit Quality

“Identifying and resolving problem credits and maintaining an adequate reserve balance remains a top priority,” said Reed. Nonperforming assets were $44,206,000, or 3.94% of total assets, at December 31, 2023, and consisted of eighteen loans; one loan totaling $6,449,000 is a real estate secured commercial loan, two loans totaling $5,690,000 are real estate secured construction and land loans and fifteen loans totaling $32,067,000 are commercial and agriculture secured loans. All nonperforming assets were individually assessed, many of which are sufficiently collateralized, resulting in a corresponding reserve of $1,613,000. There were $35,267,000 in nonperforming assets at September 30, 2023, and $3,756,000 in nonperforming assets at December 31, 2022.

Due to minimal projected change in expected losses, the Bank recorded a $65,000 reversal of net credit loss expense for unfunded commitments in the fourth quarter of 2023. This compared to $662,000 provision for net credit loss expense in the fourth quarter of 2022. The allowance for credit losses to total loans was 1.60% on December 31, 2023 and December 31, 2022. The real estate portfolio, which accounts for a majority of the Bank’s loan portfolio, has an average loan-to-value of 50% and debt service coverage ratio of 1.92% as of December 31, 2023.
During challenging economic times, we remain focused on our mission of providing exceptional service to our customers and meeting all of their financial needs,” said Reed.

About Summit State Bank

Founded in 1982 and headquartered in Sonoma County, Summit State Bank (Nasdaq: SSBI), is an award-winning community bank servicing the North Bay. The Bank serves small businesses, nonprofits, and the community, with total assets of $1,123 million and total equity of $98 million at December 31, 2023. The Bank has built its reputation over the past 40 years by specializing in providing exceptional customer service and customized financial solutions to aid in the success of its customers.

Summit State Bank is dedicated to investing in and celebrating 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. The Bank has been consistently recognized for its achievements and has been awarded Best Places to Work in the North Bay, Top Community Bank Loan Producer, Raymond James Bankers Cup, Super Premier Performing Bank, the Piper Sandler SM-ALL Star Award, the Independent Community Bankers of America’s Best-Performing Community Banks, and the San Francisco Business Times’ 2023 Bay Area Corporate Philanthropists. For more information, visit 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 annual report on Form 10-K for the period ended December 31, 2023 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, 2023 December 31, 2022 December 31, 2023 December 31, 2022
     (Unaudited) (Unaudited) (Unaudited) (Unaudited)
            
Interest and dividend income:       
 Interest and fees on loans$13,409  $13,097  $52,560  $46,124 
 Interest on deposits with banks 792   369   4,410   596 
 Interest on investment securities 712   624   2,855   1,935 
 Dividends on FHLB stock 123   98   416   301 
   Total interest and dividend income 15,036   14,188   60,241   48,956 
Interest expense:       
 Deposits 7,113   2,380   24,227   4,942 
 Federal Home Loan Bank advances -   463   177   1,212 
 Junior subordinated debt 94   94   375   375 
   Total interest expense 7,207   2,937   24,779   6,529 
   Net interest income before provision for credit losses 7,829   11,251   35,462   42,427 
(Reversal of) provision for credit losses on loans (31)  807   342   2,683 
Reversal of credit losses on unfunded loan commitments (65)  (145)  (68)  (142)
Provision for credit losses on investments 31   -   58   - 
   Net interest income after provision for (reversal of) credit       
    losses, unfunded loan commitments and investments 7,894   10,589   35,130   39,886 
Non-interest income:       
 Service charges on deposit accounts 219   219   872   859 
 Rental income 54   37   193   199 
 Net gain on loan sales -   1,762   2,481   5,839 
 Net (loss) gain on securities -   (3)  -   4 
 Other income 24   117   1,655   594 
   Total non-interest income 297   2,132   5,201   7,495 
Non-interest expense:       
 Salaries and employee benefits 3,044   3,873   15,399   14,651 
 Occupancy and equipment 386   506   1,713   1,716 
 Other expenses 2,053   2,016   7,938   7,144 
   Total non-interest expense 5,483   6,395   25,050   23,511 
   Income before provision for income taxes 2,708   6,326   15,281   23,870 
Provision for income taxes 807   1,773   4,459   6,902 
   Net income$1,901  $4,553  $10,822  $16,968 
            
Basic earnings per common share$0.28  $0.68  $1.62  $2.54 
Diluted earnings per common share$0.28  $0.68  $1.62  $2.54 
            
Basic weighted average shares of common stock outstanding 6,698   6,688   6,695   6,687 
Diluted weighted average shares of common stock outstanding 6,698   6,688   6,698   6,687 
            



SUMMIT STATE BANK
BALANCE SHEETS
(In thousands except share data)
       
    December 31, 2023 December 31, 2022
    (Unaudited) (Unaudited)
       
ASSETS   
       
Cash and due from banks$57,789 $77,567
   Total cash and cash equivalents 57,789  77,567
       
Investment securities:   
 Available-for-sale, less allowance for credit losses of $58 and $0   
   (at fair value; amortized cost of $97,034 in 2023 and $98,017 in 2022) 84,546  83,785
       
Loans, less allowance for credit losses of $15,221 and $14,839 938,626  913,707
Bank premises and equipment, net 5,316  5,461
Investment in Federal Home Loan Bank (FHLB) stock, at cost 5,541  4,737
Goodwill  4,119  4,119
Affordable housing tax credit investments 8,405  8,881
Accrued interest receivable and other assets 18,166  17,086
       
   Total assets$1,122,508 $1,115,343
       
LIABILITIES AND   
SHAREHOLDERS' EQUITY   
       
Deposits:    
 Demand - non interest-bearing$201,909 $252,033
 Demand - interest-bearing 244,748  143,767
 Savings 54,352  67,117
 Money market 212,278  137,362
 Time deposits that meet or exceed the FDIC insurance limit 63,159  141,691
 Other time deposits 233,247  220,685
   Total deposits 1,009,693  962,655
       
Federal Home Loan Bank advances -  41,000
Junior subordinated debt, net 5,920  5,905
Affordable housing commitment 4,094  4,677
Accrued interest payable and other liabilities 5,123  12,560
       
   Total liabilities 1,024,830  1,026,797
       
   Total shareholders' equity 97,678  88,546
       
   Total liabilities and shareholders' equity$1,122,508 $1,115,343
       



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, 2023 December 31, 2022 December 31, 2023 December 31, 2022
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Statement of Income Data:        
Net interest income $7,829  $11,251  $35,462  $42,427 
(Reversal of) provision for credit losses on loans  (31)  807   342   2,683 
Reversal of provision for credit losses on unfunded loan commitments (65)  (145)  (68)  (142)
Provision for credit losses on investments  31   -   58   - 
Non-interest income  297   2,132   5,201   7,495 
Non-interest expense  5,483   6,395   25,050   23,511 
Provision for income taxes  807   1,773   4,459   6,902 
Net income $1,901  $4,553  $10,822  $16,968 
         
Selected per Common Share Data:        
Basic earnings per common share $0.28  $0.68  $1.62  $2.54 
Diluted earnings per common share $0.28  $0.68  $1.62  $2.54 
Dividend per share $0.12  $0.12  $0.48  $0.48 
Book value per common share (1) $14.40  $13.15  $14.40  $13.15 
         
Selected Balance Sheet Data:         
Assets $1,122,508  $1,115,343  $1,122,508  $1,115,343 
Loans, net  938,626   913,707   938,626   913,707 
Deposits  1,009,693   962,655   1,009,693   962,655 
Average assets  1,123,057   1,070,000   1,142,790   1,005,186 
Average earning assets  1,089,808   1,040,154   1,110,801   978,169 
Average shareholders' equity  94,096   86,675   93,621   86,038 
Nonperforming loans  44,206   3,756   44,206   3,756 
Total nonperforming assets  44,206   3,756   44,206   3,756 
         
Selected Ratios:        
Return on average assets (2)  0.67%  1.69%  0.95%  1.69%
Return on average common shareholders' equity (2)  8.02%  20.84%  11.56%  19.72%
Efficiency ratio (3)  67.47%  47.77%  61.60%  47.10%
Net interest margin (2)  2.85%  4.29%  3.19%  4.34%
Common equity tier 1 capital ratio  10.15%  9.41%  10.15%  9.41%
Tier 1 capital ratio  10.15%  9.41%  10.15%  9.41%
Total capital ratio  12.00%  11.27%  12.00%  11.27%
Tier 1 leverage ratio  8.85%  8.53%  8.85%  8.53%
Common dividend payout ratio (4)  42.63%  17.72%  30.05%  19.01%
Average shareholders' equity to average assets  8.38%  8.10%  8.19%  8.56%
Nonperforming loans to total loans  4.63%  0.40%  4.63%  0.40%
Nonperforming assets to total assets  3.94%  0.34%  3.94%  0.34%
Allowance for credit losses to total loans  1.60%  1.60%  1.60%  1.60%
Allowance for credit losses to nonperforming loans  34.43%  395.09%  34.43%  395.09%
     
(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


FAQ

What is the ticker symbol for Summit State Bank?

The ticker symbol for Summit State Bank is SSBI.

What was the net income for Summit State Bank for the year ended December 31, 2023?

The net income for Summit State Bank for the year ended December 31, 2023 was $10,822,000, or $1.62 per diluted share, a decrease of 36% compared to the previous year.

What was the quarterly cash dividend declared by Summit State Bank on January 29, 2024?

Summit State Bank declared a quarterly cash dividend of $0.12 per share on January 29, 2024.

What was the annualized return on average assets for Summit State Bank in the fourth quarter of 2023?

The annualized return on average assets for Summit State Bank in the fourth quarter of 2023 was 0.67%.

How did the nonperforming loans to gross loans change for Summit State Bank at December 31, 2023 compared to September 30, 2023?

The nonperforming loans to gross loans increased to 4.63% at December 31, 2023 compared to 3.72% at September 30, 2023.

Summit State Bank

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