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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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
The Board of Directors declared a quarterly cash dividend of
“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 to4.29% in the fourth quarter a year ago and2.80% 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 decreased6.7% compared to$16,427,000 in the preceding quarter. - Annualized return on average assets was
0.67% , compared to1.69% in the fourth quarter of 2022 and0.63% in the preceding quarter. - Annualized return on average equity was
8.02% , compared to20.84% in the fourth quarter a year ago and7.70% in the preceding quarter. - Net loans increased
$24,919,000 t o$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 t hree 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 decreased2% 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 to3.72% at September 30, 2023 and0.40% at December 31, 2022. Additionally, nonperforming assets to total assets increased to3.94% , at December 31, 2023 compared to3.09% at September 30, 2023 and0.34% 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
“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
Interest and dividend income increased
Non-interest income decreased in the fourth quarter of 2023 to
Operating expenses decreased in the fourth quarter of 2023 to
Balance Sheet Review
Net loans increased
Total deposits increased
Shareholders’ equity was
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
Credit Quality
“Identifying and resolving problem credits and maintaining an adequate reserve balance remains a top priority,” said Reed. Nonperforming assets were
Due to minimal projected change in expected losses, the Bank recorded a
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
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 | ||||||||
(at fair value; amortized cost of | 84,546 | 83,785 | ||||||
Loans, less allowance for credit losses of | 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
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