Summit State Bank of Santa Rosa reports earnings rise 44% in Q3
Summit State Bank (Nasdaq: SSBI) on Wednesday announced a 44% increase in net income for the third quarter of 2020 — a year marred by a global pandemic that has caused economic turbulence in the United States.
The Santa Rosa-based bank reported $2.9 million in net income for the quarter ending Sept. 30, compared to the $2 million reported for the same period in 2019. This rise in income equates to a 49-cent diluted earnings per share, a profitability measure that takes into account all convertible securities that change to equity or common stock.
The balance sheet boost comes on the heels of an 89% increase in net income, when comparing the second quarters of 2020 versus 2019.
For all the strife 2020 has brought on, the Wine Country bank’s officials credit their path to its restructuring three years ago begun by former President Jim Brush, who retired last April.
“This is part of our growth plan where you build the cost structure first, then the assets. There are good earnings in our loan portfolio,” current President Brian Reed, who worked on the restructuring as well, told the Business Journal.
Reed pointed to the credit quality of the bank’s U.S. Small Business Administration guaranteed loans as crucial to its profitability. From the second quarter to the third, the bank gained $786,000 in loan balances. The Paycheck Protection Program funding represents 13% of the lending business, with the bank processing $97 million in PPP loans to 600 businesses.
The financial institution has benefited greatly in non-interest income, which is primarily derived by a collective of fees from deposits and transactions as well as account service charges.
Net interest income, classified as the difference between revenue generated by interest-bearing assets and the costs of servicing liabilities, also went up by $2.2 million to $7.7 million from loan balances for this past period compared to 2019’s.
“Banks recoup some short-term benefits from the PPP program. The real question comes back to credit quality (of the loans), which is critical in times like these. The proof will be in the pudding,” Reed said, adding the balance sheet is driven by strong performing loans. “This is how we’re going to withstand this environment.”
For the nine months of 2020, the bank has deferred payments on 21% of its loans due to the COVID-19 crisis. Although it’s difficult to predict the future, the fourth quarter of this year may experience business failures.
“And that hurts,” Reed said.
Summit State Bank has pledged to continue to monitor “high-risk” industries, characterized as those in hospitality, wine, restaurant, retail and agriculture. They only collectively represent 29% of the bank’s real estate portfolio. Over half of the portfolio (52%) lies in commercial real estate, the bank’s report as of June 30 shows.
In addition, year-to-year deposits have also surged to $688 million for this past quarter in contrast to 2019’s $532 million. Here, Reed has discovered funds dropped in the bank have remained there, opposed to recirculating out to pay for expenses in this market.
All in all, Reed said he’s pleased with the outcome of the earnings report, especially given the challenges faced by communities.
“We are continuing to realize the benefits of our managed growth,” he said.
With that, the Summit State Bank Board of Directors declared a 12-cent-per-share quarterly dividend on Oct. 27 to be paid on Nov. 20 to shareholders.
Summit State Bank holds $834 million in total assets and $73 million as of this past quarter ending Sept. 30.
Susan Wood covers law, cannabis, production and agriculture as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times in San Diego County, Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or susan.wood@busjrnl.com.
