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Summit Financial Group Reports First Quarter 2019 Results

Summit Financial Group Reports First Quarter 2019 Results

Q1 2019 Diluted EPS $0.56, compared to $0.60 for Q4 2018 and $0.60 for Q1 2018

MOOREFIELD, W.Va., April 25, 2019 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (SMMF) today reported quarterly net income of $7.09 million for first quarter 2019, or $0.56 per diluted share.  In comparison, earnings for fourth quarter 2018 were $7.45 million, or $0.60 per diluted share, and for first quarter 2018, $7.44 million, or $0.60 per diluted share.

Summit completed its acquisition of Peoples Bankshares, Inc. (“PBI”) and its subsidiary, First Peoples Bank, headquartered in Mullens, West Virginia on January 1, 2019 and will convert substantially all of its data processing systems to that of Summit’s effective April 27, 2019; accordingly, PBI’s results of operations are included in Summit’s consolidated results of operations from the date of acquisition, and therefore Summit’s first quarter 2019 results reflect increased levels of average balances, income and expenses compared to its first quarter 2018 and fourth quarter 2018 results.  At consummation, PBI had total assets of $133.1 million, loans of $42.4 million, and deposits of $112.9 million. In addition, our merger-related expenses totaled $63,000 in Q1 2019 versus $59,000 in the prior quarter.

Highlights for Q1 2019

  • Net interest margin for the quarter increased 5 basis points to 3.66 percent compared to Q4 2018 and is 8 basis points higher compared to Q1 2018;  
  • Provision for loan losses totaled $250,000 compared to $500,000 for the prior quarter and for the year-ago quarter;
  • Efficiency ratio was 56.50 percent compared to 51.02 percent for the linked quarter as result of higher noninterest expenses due to the PBI acquisition and outsized deferred director compensation plan expense as result of exceptionally robust stock market performance during Q1 2019;
  • Realized securities losses of $3,000 in Q1 2019 compared to $205,000 in Q4 2018; the Company realized securities gains of $732,000 in Q1 2018;
  • Write-downs of foreclosed properties were $249,000 in Q1 2019 compared to $318,000 in Q4 2018, while the net loss on sales of foreclosed properties decreased to $1,000 in Q1 2019 from $70,000 in Q4 2018; and
  • Nonperforming assets as a percentage of total assets declined to 1.53 percent compared to 1.66 percent for the linked quarter and to 1.73 percent a year-ago.

H. Charles Maddy, III, President and Chief Executive Officer of Summit, commented, “I am very pleased to report Summit achieved another quarter of solid core operating results highlighted by the improvement in our net interest margin. Further, despite the quarter’s challenges of integrating PBI’s banking operations with that of Summit’s, we nonetheless maintained a core efficiency ratio well below that of most of our peers. We have again demonstrated our ability to successfully execute on a disciplined M&A strategy, which we believe will continue to present us with significant opportunities going forward as we seek to be a consistently growing, high-performing community banking institution.”

Results from Operations

Total revenue for first quarter 2019, consisting of net interest income and noninterest income, increased 3.0 percent to $22.8 million compared to $22.1 million for the first quarter 2018.

For the first quarter of 2019, net interest income increased 7.6 percent to $18.6 million compared to $17.3 million for the prior-year first quarter and grew 2.9 percent compared to the linked quarter principally as a result of $51.6 million in growth in average loans and 7 basis point improvement in average loan yields during the quarter. The net interest margin for first quarter 2019 was 3.66 percent compared to 3.58 percent for the same year-ago quarter, and 3.61 percent for the linked quarter. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to acquired interest earning assets and interest bearing liabilities, Summit’s net interest margin was 3.64 percent for Q1 2019. 

Noninterest income, consisting primarily of insurance commissions from Summit's insurance agency subsidiary, trust and wealth management fees and service fee income from community banking activities, for first quarter 2019 was $4.23 million compared to $4.88 million for the comparable period of 2018. Excluding realized securities gains and losses, noninterest income was $4.23 million for first quarter 2019, compared to $4.14 million reported for first quarter 2018 and $4.39 million for the linked quarter.

We recorded a $250,000 provision for loan losses during first quarter 2019 and $500,000 during Q1 2018.  The decreased need for loan loss provisioning in Q1 2019 is directionally consistent with changes in the credit quality in our loan portfolio (fewer charge-offs) and our modest loan growth.

Q1 2019 total noninterest expense increased 12.6 percent to $13.86 million compared to $12.31 million for the prior-year first quarter and increased 11.2 percent compared to $12.47 million for the linked quarter.  Our increased noninterest expense is principally due to expenses associated with the acquired PBI operations and to an outsized deferred director compensation plan expense of $484,000 recognized in Q1 2019 compared to deferred director compensation plan benefits of ($25,000) and ($354,000) recorded in Q1 2018 and Q4 2018, respectively.  Under our director deferred compensation plans, directors optionally elect to defer their director fees into a "phantom" investment plan whereby the Company recognizes expense or benefit relative to the phantom returns or losses of such investments. As result of the stock market’s exceptionally robust performance during Q1 2019, we recognized significantly greater quarterly deferred director compensation expense this quarter than we have ever recognized previously.

Balance Sheet

At March 31, 2019, total assets were $2.25 billion, an increase of $49.1 million, or 8.9 percent (on an annualized basis) since December 31, 2018. Total loans, net of unearned fees and allowance for loan losses, were $1.73 billion at March 31, 2019, up $43.1 million, or 10.2 percent (on an annualized basis), from the $1.68 billion reported at year-end 2018.  Loans, excluding mortgage warehouse lines of credit and acquired PBI loans, decreased $9.5 million during the quarter, or 2.3 percent (on an annualized basis).

At March 31, 2019, deposits were $1.79 billion, an increase of $154.2 million, or 9.4 percent, since year end 2018. During Q1 2019, checking deposits increased $77.3 million or 10.4 percent, time deposits increased by $53.6 million or 8.9 percent and savings deposits grew $26.5 million or 9.3 percent.

Shareholders’ equity was $233.6 million as of March 31, 2019 compared to $219.8 million at December 31, 2018. In conjunction with the acquisition of PBI on January 1, 2019, Summit issued 465,931 shares of common stock valued at $9.0 million to the former PBI shareholders.

Tangible book value per common share increased to $16.13 at March 31, 2019 compared to $14.36 at the end of first quarter 2018 and $15.75 at year end 2018. Summit had 12,661,528 outstanding common shares at March 31, 2019 compared to 12,312,933 at year end 2018.

As announced in Q3 2018, the Board of Directors authorized the open market repurchase of up to 500,000 shares of the issued and outstanding shares of Summit's common stock.  The timing and quantity of stock purchases under this repurchase plan are at the discretion of management.  The plan will expire December 31, 2019, but may be discontinued, suspended, or restarted at any time at the Company's discretion.  During Q1 2019, 125,200 shares of our common stock were repurchased under the Plan at an average price of $22.95 per share. Through March 31, 2019, the Company has repurchased 207,623 shares under the Plan since its inception at an average price of $21.96 per share.

Asset Quality

As of March 31, 2019, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $34.4 million, or 1.53 percent of assets. This compares to $36.5 million, or 1.66 percent of assets at the linked quarter-end, and $36.9 million, or 1.73 percent of assets, at first quarter-end 2018 as result of our continuing emphasis on improving our overall asset quality.

First quarter 2019 net loan charge-offs were $165,000, or 0.04 percent of average loans annualized; while adding $250,000 to the allowance for loan losses through the provision for loan losses. The allowance for loan losses stood at 0.76 percent of total loans at March 31, 2019, compared to 0.77 percent at year-end 2018.

About the Company

Summit Financial Group, Inc. is a $2.25 billion financial holding company headquartered in Moorefield, West Virginia. Summit provides community banking services primarily in the Eastern Panhandle and Southern regions of West Virginia and the Northern, Shenandoah Valley and Southwestern regions of Virginia, through its bank subsidiary, Summit Community Bank, Inc., which operates thirty-three banking locations. Summit also operates Summit Insurance Services, LLC in Moorefield, West Virginia and Leesburg, Virginia.

FORWARD-LOOKING STATEMENTS

This press release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.

Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially.  Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies.  We undertake no obligation to revise these statements following the date of this press release.

 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)    
Quarterly Performance Summary (unaudited)      
Q1 2019 vs Q1 2018      
       
     For the Quarter Ended   Percent 
 Dollars in thousands  3/31/2019 3/31/2018  Change 
 Statements of Income       
  Interest income      
  Loans, including fees $ 23,051     $ 20,366   13.2 %
  Securities   2,586       2,391   8.2 %
  Other   231       140   65.0 %
       Total interest income   25,868       22,897   13.0 %
  Interest expense      
  Deposits   5,564       3,549   56.8 %
  Borrowings   1,731       2,091   -17.2 %
       Total interest expense   7,295       5,640   29.3 %
  Net interest income   18,573       17,257   7.6 %
  Provision for loan losses   250       500   -50.0 %
  Net interest income after provision      
  for loan losses   18,323       16,757   9.3 %
         
  Noninterest income      
  Insurance commissions   1,174       1,113   5.5 %
  Trust and wealth management fees   586       667   -12.1 %
  Service charges on deposit accounts   1,180       1,091   8.2 %
  Bank card revenue   814       749   8.7 %
  Realized securities (losses) gains   (3 )     732   n/a               
  Bank owned life insurance income   238       275   -13.5 %
  Other income   241       249   -3.2 %
       Total noninterest income   4,230       4,876   -13.2 %
  Noninterest expense          
  Salaries and employee benefits   7,347       6,821   7.7 %
  Net occupancy expense   924       832   11.1 %
  Equipment expense   1,179       1,083   8.9 %
  Professional fees   403       333   21.0 %
  Advertising and public relations   153       103   48.5 %
  Amortization of intangibles   476       436   9.2 %
  FDIC premiums   -       240   n/a               
  Bank card expense   439       335   31.0 %
  Foreclosed properties expense, net of losses   384       325   18.2 %
  Merger-related expense   63       -   n/a               
  Other expenses   2,492       1,806   38.0 %
       Total noninterest expense   13,860       12,314   12.6 %
  Income before income taxes   8,693       9,319   -6.7 %
  Income taxes   1,601       1,876   -14.7 %
                 Net income $ 7,092     $ 7,443   -4.7 %


SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)    
Quarterly Performance Summary (unaudited)      
Q1 2019 vs Q1 2018    
     For the Quarter Ended   Percent 
    3/31/2019 3/31/2018  Change 
 Per Share Data       
  Earnings per common share      
  Basic $ 0.56   $ 0.60   -6.7 %
  Diluted $ 0.56   $ 0.60   -7.5 %
         
  Cash dividends $ 0.14   $ 0.13   7.7 %
         
  Average common shares outstanding      
  Basic   12,717,501     12,358,849   2.9 %
  Diluted   12,778,644     12,383,757   3.2 %
         
  Common shares outstanding at period end   12,661,528     12,366,360   2.4 %
         
 Performance Ratios       
  Return on average equity   12.28 %   14.73 % -16.6 %
  Return on average tangible equity   14.80 %   17.04 % -13.1 %
  Return on average assets   1.27 %   1.40 % -9.3 %
  Net interest margin (A)   3.66 %   3.58 % 2.2 %
  Efficiency ratio (B)   56.50 %   53.84 % 4.9 %
         

NOTE (A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21%.

NOTE (B) – Computed on a tax equivalent basis excluding gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles. 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)        
Five Quarter Performance Summary (unaudited)        
           
     For the Quarter Ended 
 Dollars in thousands  3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
 Statements of Income           
   Interest income           
    Loans, including fees  $   23,051     $   22,659     $   21,295   $   20,962   $   20,366
    Securities      2,586         2,527         2,367       2,303       2,391
    Other      231         127         138       134       140
        Total interest income      25,868         25,313         23,800       23,399       22,897
   Interest expense           
    Deposits      5,564         5,103         4,714       4,309       3,549
    Borrowings      1,731         2,158         1,873       1,815       2,091
        Total interest expense      7,295         7,261         6,587       6,124       5,640
           Net interest income      18,573         18,052         17,213       17,275       17,257
   Provision for loan losses      250         500         500       750       500
   Net interest income after provision           
    for loan losses      18,323         17,552         16,713       16,525       16,757
   Noninterest income           
    Insurance commissions      1,174         1,132         1,062       1,013       1,113
    Trust and wealth management fees      586         627         687       672       667
    Service charges on deposit accounts      1,180         1,209         1,215       1,116       1,091
    Bank card revenue      814         809         793       801       749
    Realized securities (losses) gains      (3 )       (205 )       8       87       732
    Bank owned life insurance income      238         248         250       249       275
    Other income      241         367         196       210       249
       Total noninterest income     4,230         4,187         4,211       4,148       4,876
   Noninterest expense           
    Salaries and employee benefits     7,347         6,928         6,806       6,922       6,821
    Net occupancy expense     924         836         856       840       832
    Equipment expense     1,179         1,139         1,118       1,071       1,083
    Professional fees     403         385         503       385       333
    Advertising and public relations     153         193         170       188       103
    Amortization of intangibles     476         410         413       413       436
    FDIC premiums     -         140         210       240       240
    Bank card expense     439         395         384       361       335
    Foreclosed properties expense, net of losses     384         507         169       350       325
    Merger-related expense     63         59         86       -       -
    Other expenses     2,492         1,474         1,643       1,965       1,806
       Total noninterest expense     13,860         12,466         12,358       12,735       12,314
   Income before income taxes      8,693         9,273         8,566       7,938       9,319
   Income tax expense      1,601         1,823         1,667       1,658       1,876
           Net income  $   7,092     $   7,450     $   6,899   $   6,280   $   7,443

 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)          
Five Quarter Performance Summary (unaudited)          
           
     For the Quarter Ended 
    3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
 Per Share Data           
   Earnings per common share           
    Basic  $   0.56   $   0.60   $   0.56   $   0.51   $   0.60  
    Diluted  $   0.56   $   0.60   $   0.55   $   0.51   $   0.60  
             
   Cash dividends  $   0.14   $   0.14   $   0.13   $   0.13   $   0.13  
             
   Average common shares outstanding           
    Basic      12,717,501       12,358,104       12,374,350       12,366,522       12,358,849  
    Diluted      12,778,644       12,407,678       12,439,051       12,431,984       12,383,757  
             
   Common shares outstanding at period end      12,661,528       12,312,933       12,382,450       12,373,747       12,366,360  
             
 Performance Ratios           
   Return on average equity    12.28 %   13.85 %   13.00 %   12.16 %   14.73 %
   Return on average tangible equity    14.80 %   16.41 %   15.53 %   14.68 %   17.80 %
   Return on average assets    1.27 %   1.38 %   1.31 %   1.19 %   1.40 %
   Net interest margin (A)    3.66 %   3.61 %   3.53 %   3.58 %   3.58 %
   Efficiency ratio (B)    56.50 %   51.02 %   54.25 %   55.88 %   53.84 %
             

NOTE (A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21%.

NOTE (B) – Computed on a tax equivalent basis excluding gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles. 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)        
Selected Balance Sheet Data (unaudited)          
             
 Dollars in thousands, except per share amounts  3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
             
 Assets           
  Cash and due from banks $   14,265     $   23,061     $   9,382     $   8,314     $   9,042  
  Interest bearing deposits other banks     43,689         36,479         44,452         38,097         38,365  
  Securities     297,126         293,284         288,040         283,221         296,890  
  Loans, net     1,725,064         1,682,005         1,632,747         1,617,373         1,631,150  
  Property held for sale     24,393         21,432         22,017         21,606         21,442  
  Premises and equipment, net     39,345         37,553         36,888         36,017         35,554  
  Goodwill and other intangible assets     29,349         25,842         26,252         26,665         27,077  
  Cash surrender value of life insurance policies     42,714         42,420         42,208         41,932         41,668  
  Other assets     33,696         38,510         36,741         34,427         33,707  
    Total assets $   2,249,641     $   2,200,586     $   2,138,727     $   2,107,652     $   2,134,895  
             
 Liabilities and Shareholders' Equity           
  Deposits $   1,789,032     $   1,634,826     $   1,651,064     $   1,639,996     $   1,654,523  
  Short-term borrowings     186,292         309,084         238,403         202,429         193,513  
  Long-term borrowings and          
    subordinated debentures     20,319         20,324         20,328         40,332         65,336  
  Other liabilities     20,368         16,522         15,376         15,016         16,514  
  Shareholders' equity     233,630         219,830         213,556         209,879         205,009  
    Total liabilities and shareholders' equity $   2,249,641     $   2,200,586     $   2,138,727     $   2,107,652     $   2,134,895  
             
  Book value per common share $   18.45     $   17.85     $   17.25     $   16.96     $   16.55  
  Tangible book value per common share $   16.13     $   15.75     $   15.13     $   14.81     $   14.36  
  Tangible common equity to tangible assets   9.2 %     8.9 %     8.9 %     8.8 %     8.4 %
             

 

 

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SUMMIT FINANCIAL GROUP INC. (NASDAQ:  SMMF)          
Regulatory Capital Ratios (unaudited)            
               
    3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018  
Summit Financial Group, Inc.            
  CET1 Risk-based Capital 11.4 % 11.1 % 11.1 % 11.0 % 10.7 %  
  Tier 1 Risk-based Capital 12.5 % 12.2 % 12.2 % 12.1 % 11.8 %  
  Total Risk-based Capital 13.2 % 12.9 % 12.9 % 12.8 % 12.5 %  
  Tier 1 Leverage 10.2 % 10.1 % 10.1 % 9.9 % 9.5 %  
               
Summit Community Bank, Inc.            
  CET1 Risk-based Capital 12.3 % 12.0 % 12.0