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Summit State Bank reported today that its assets rose nearly $100 million over the past year to about $611 million on Dec. 31, up from $514 million at the end of 2016.

For the fourth quarter, the bank reported lower earnings due largely to what it characterized as positive factors. The Tax Cuts and Jobs Act enacted on Dec. 22 resulted in a write-down of deferred-tax assets of $292,000. The bank’s board also awarded a bonus to non-executive employees of $2,000 apiece, for a total of $144,000, also taken against 2017 earnings. As a result, the bank posted net income of $478,000 for the quarter, down from $1.2 million for the fourth quarter of 2016. Long term, however, the reduced corporate taxes from 35 percent to 21 percent will boost profitability.

Summit State Bank declared diluted earnings per share of 8 cents for the fourth quarter of 2017, down from 20 cents in the same quarter of 2016.

For the full year, net income for the bank was $3.3 million, down from nearly $5 million for all of 2016.

When a bank grows its loan portfolio, federal regulators require that it set aside loan-loss provisions without specifying exactly how much must be set aside. “It’s not related to losses,” said Jim Brush, CEO and president of Summit State Bank. “It’s related to the fact that we grew the loan portfolio by quite a bit. It’s a charge to the earnings, but isn’t related to losses. There’s not an exact requirement — just a strong urge” by regulators. “We had several of those hits in the fourth quarter.”

In the fourth quarter, Summit State Bank had a 10.6 percent increase in gross loans, and was up 23.2 percent for the year. The bank recorded a loan-loss provision of $350,000 for the fourth quarter and $520,000 for the year. In 2016, no loan-loss provisions were made.

Brush attributed the growth in loans to hard work by the bank’s employees.

“We grew loans but reduced our investment portfolio by about $40 million,” Brush said. “We replaced some of our assets by letting investments bleed off. It sets us up well for the future.”

Though the reduction in corporate tax rates from 35 to 21 percent in the act will help the bank in 2018, other factors constitute headwinds, such as the interest-rate increases by the Federal Reserve during 2017, also expected this year. “The interest rate increases brought on by the Federal Reserve during 2017 proved challenging as net interest income declined by $101,000 during 2017 compared to 2016,” the bank said in a statement. The boost in interest rates affects the bank’s interest-bearing liabilities.

Banks located in industrial areas have more loans that are lines of credit, Brush said, such as funding for manufacturing. “Those are typically based on prime,” and rise with prevailing rates. “In our area, we have a lot more commercial-real-estate loans that are fixed for up to five years. Our rates don’t fluctuate as quickly when rates go up, but our costs (for funds) do fluctuate (go up). Our costs go up slightly faster than our income. We are liability-sensitive. Most banks are asset-sensitive,” and quickly benefit from rising interest rates.

Most of the new Summit State Bank loans were recorded in the second half of 2017. “The bank should experience the positive impacts on earnings in 2018 from the increased loans generated in 2017 by having a full year of interest income related to the increase,” said Brush.

Summit State Bank, a state-chartered commercial bank, has its headquarters in Santa Rosa and most of its operations in Sonoma County. The bank has a small-business lending office in Roseville that will emphasize Small Business Administration loans in Northern California. The bank has five offices in Santa Rosa, Petaluma, Rohnert Park and Healdsburg.

James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at: james.dunn@busjrnl.com or 707-521-4257