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Summit Financial Group Reports Record Second Quarter and First Half 2019 Results

Q2 2019 Diluted EPS $0.68 compared to $0.56 for Q1 2019 and $0.51 for Q2 2018

MOOREFIELD, W. Va., July 25, 2019 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (SMMF) today reported record second quarter 2019 net income of $8.56 million, or $0.68 per diluted share. In comparison, earnings for first quarter 2019 were $7.09 million, or $0.56 per diluted share, and for second quarter 2018 were $6.28 million, or $0.51 per diluted share.

For the six months ended June 30, 2019, Summit recorded net income of $15.7 million, or $1.23 per diluted share, compared with $13.7 million, or $1.10 per diluted share, for the comparable 2018 six-month period, representing an increase of 14.1 percent or 11.8 percent per diluted share. 

Both quarterly and six-month 2019 earnings were positively impacted by increased net interest income resulting primarily from loan growth as well as a higher net interest margin, significant realized securities gains, and the previously announced gain on sale of our insurance agency, Summit Insurance Services, LLC (“SIS”) in Q2. These results were partially offset by larger write-downs on foreclosed properties in Q2 with the goal of selling such properties more rapidly.

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 converted its business processes and accounts to that of Summit’s during Q2 2019; accordingly, PBI’s results of operations are included in Summit’s consolidated results of operations from the date of acquisition.  Therefore, Summit’s second quarter and six months ended June 30, 2019 period results reflect increased levels of average balances, income and expenses compared to the same periods of 2018.  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 $382,000 in Q2 2019 versus $63,000 in the prior quarter.

Highlights for Q2 2019

  • Loan balances, excluding mortgage warehouse lines of credit, grew $28.6 million during the quarter, and $61.5 million year-to-date;
  • Net interest income increased 14.90 percent (annualized) primarily as result of loan growth and higher loan yields, while funding costs remained well controlled; these factors also contributed to the 6 basis points increase in net interest margin to 3.72 percent;
  • Efficiency ratio was 56.21 percent compared to 55.88 percent for Q2 2018;
  • Provision for loan losses was $300,000 for the quarter compared to $250,000 for the linked quarter;
  • Realized securities gains of $1.09 million in Q2 2019;
  • Write-downs of foreclosed properties were $1.20 million in Q2 2019 compared to $249,000 in Q1 2019, while the net gain on sales of foreclosed properties increased from $1,000 in Q1 2019 to $156,000 in Q2 2019; and
  • Recognized a $1.91 million pre-tax gain on the sale of SIS.

H. Charles Maddy, III, President and Chief Executive Officer of Summit, commented, “I am very pleased to report that Summit achieved record earnings both for the quarter and the six-month periods just ended. I am particularly gratified by this past quarter’s solid core operating performance highlighted by our quarter-over-quarter strong lending activity, growth in net interest income and higher net interest margin. Further, this past quarter’s sale of SIS unlocked significant value for our shareholders, as the transaction resulted in a $0.54 increase in the Company’s tangible book value per share, while the entity’s earnings historically accounted for less than $0.01 per share of our quarterly earnings.”

Results from Operations

Total revenue for second quarter 2019, consisting of net interest income and noninterest income, increased 21.7 percent to $26.1 million, principally as a result of higher net interest income, increased realized securities gains and the gain on the sale of Summit Insurance Services, LLC, compared to $21.4 million for the second quarter 2018. For the year-to-date period ended June 30, 2019, total revenue was $48.9 million compared to $43.6 million for the same period of 2018, representing a 12.2 percent increase primarily as a result of higher net interest income and the gain on the sale of Summit Insurance Services, LLC.

For the second quarter of 2019, net interest income was $19.3 million, an increase of 11.5 percent from the $17.3 million reported in the prior-year second quarter and a 3.7 percent increase compared to the linked quarter. The net interest margin for second quarter 2019 was 3.72 percent compared to 3.66 percent for the linked quarter and 3.58 percent for the year-ago quarter. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments, Summit’s net interest margin would have been 3.62 percent for Q2 2019, 3.64 percent for Q1 2019 and 3.56 percent for Q2 2018.  

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 second quarter 2019 was $6.81 million compared to $4.15 million for the comparable period of 2018. Excluding realized securities gains and the gain on the sale of Summit Insurance Services, LLC, noninterest income was $3.82 million for second quarter 2019, compared to $4.06 million reported for second quarter 2018 and $4.23 million for the linked quarter.

We recorded a $300,000 provision for loan losses during second quarter 2019 and $750,000 in Q2 2018. Our provision continues to be directionally consistent with changes in the credit quality in our loan portfolio.

Q2 2019 total noninterest expense increased 20.4 percent to $15.3 million compared to $12.7 million for the prior-year second quarter and increased 10.6 percent compared to the linked quarter.  Our increased noninterest expense is principally due to higher foreclosed properties expense due to increased write-downs on foreclosed properties with the goal of selling such properties more rapidly and to merger-related expenses.

Noninterest expense for the first half of 2019 increased 16.5 percent compared to the first half of 2018. Our increased noninterest expense is principally due to expenses associated with the acquired PBI operations (including merger-related expenses), increased write-downs of foreclosed properties and to deferred director compensation plan expense of $594,000 for the first six months of 2019 compared to $145,000 for the same period of 2018.  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 than we recognized previously when market values were lower.

Balance Sheet

At June 30, 2019, total assets were $2.30 billion, an increase of $98.6 million, or 4.5 percent since December 31, 2018. Total loans, net of unearned fees and allowance for loan losses, were $1.81 billion at June 30, 2019, up $123.8 million, or 7.4 percent, from the $1.68 billion reported at year-end 2018.  Loans, excluding mortgage warehouse lines of credit, increased $28.6 million during the quarter, or 6.8 percent (on an annualized basis), and have increased $61.5 million, or 7.4 percent (on an annualized basis) since year-end 2018.

At June 30, 2019, deposits were $1.80 billion, an increase of $162.7 million, or 10.0 percent, since year end 2018. During first half 2019, checking deposits increased $78.0 million or 10.5 percent, time deposits grew by $67.5 million or 11.1 percent and savings deposits increased $17.2 million or 6.1 percent.

Shareholders’ equity was $235.7 million as of June 30, 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 $17.04 at June 30, 2019 compared to $15.75 at December 31, 2018. Summit had 12,449,986 outstanding common shares at Q2 2019 quarter end 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 Q2 2019, 235,717 shares of our common stock were repurchased under the Plan at an average price of $25.74 per share. Through June 30, 2019, the Company has repurchased 447,540 shares under the Plan since its inception at an average price of $23.99 per share.

Asset Quality

As of June 30, 2019, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $34.9 million, or 1.52 percent of assets. This compares to $34.4 million, or 1.53 percent of assets at the linked quarter-end, and $36.5 million, or 1.66 percent of assets at year end 2018. During Q2 2019, nonperforming loans increased $3.50 million as result of two commercial real estate loan relationships in Virginia totaling $3.85 million that became nonperforming, while foreclosed properties declined by $3.00 million as result of sales activity and the prior noted write-downs.

Second quarter 2019 net loan charge-offs were $280,000, or 0.06 percent of average loans annualized; while adding $300,000 to the allowance for loan losses through the provision for loan losses. The allowance for loan losses stood at 0.72 percent of total loans at June 30, 2019, compared to 0.77 percent at year-end 2018. 

About the Company

Summit Financial Group, Inc. is a $2.30 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-two banking locations.

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)      
Q2 2019 vs Q2 2018      
       
     For the Quarter Ended   Percent 
 Dollars in thousands  6/30/2019 6/30/2018  Change 
 Statements of Income       
   Interest income       
    Loans, including fees  $   24,352   $   20,962 16.2 %
    Securities      2,396       2,303 4.0 %
    Other      134       134 0.0 %
   Total interest income      26,882       23,399 14.9 %
   Interest expense       
    Deposits      5,967       4,309 38.5 %
    Borrowings      1,652       1,815 -9.0 %
   Total interest expense      7,619       6,124 24.4 %
   Net interest income      19,263       17,275 11.5 %
   Provision for loan losses      300       750 -60.0 %
   Net interest income after provision       
    for loan losses      18,963       16,525 14.8 %
         
   Noninterest income       
    Insurance commissions      606       1,013 -40.2 %
    Trust and wealth management fees      612       672 -8.9 %
    Service charges on deposit accounts      1,224       1,116 9.7 %
    Bank card revenue      893       801 11.5 %
    Realized securities gains      1,086       87 n/m  
    Gain on sale of Summit Insurance Services, LLC      1,906       - n/a  
    Bank owned life insurance income      248       249 -0.4 %
    Other income      235       210 11.9 %
  Total noninterest income     6,810       4,148 64.2 %
   Noninterest expense       
    Salaries and employee benefits     7,576       6,922 9.4 %
    Net occupancy expense     880       840 4.8 %
    Equipment expense     1,219       1,071 13.8 %
    Professional fees     475       385 23.4 %
    Advertising and public relations     155       188 -17.6 %
    Amortization of intangibles     420       413 1.7 %
    FDIC premiums     88       240 -63.3 %
    Bank card expense     473       361 31.0 %
    Foreclosed properties expense, net of losses     1,545       350 341.4 %
    Merger-related expense     382       - n/a  
    Other expenses     2,116       1,965 7.7 %
  Total noninterest expense     15,329       12,735 20.4 %
   Income before income taxes      10,444       7,938 31.6 %
   Income taxes      1,880       1,658 13.4 %
   Net income  $   8,564   $   6,280 36.4 %


SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)    
Quarterly Performance Summary (unaudited)      
Q2 2019 vs Q2 2018    
         
     For the Quarter Ended   Percent 
    6/30/2019 6/30/2018  Change 
 Per Share Data       
   Earnings per common share       
    Basic  $   0.68   $   0.51   33.3 %
    Diluted  $   0.68   $   0.51   33.3 %
         
   Cash dividends  $   0.15   $   0.13   15.4 %
         
   Average common shares outstanding       
    Basic      12,539,095       12,366,522   1.4 %
    Diluted      12,600,071       12,431,984   1.4 %
         
   Common shares outstanding at period end      12,449,986       12,373,747   0.6 %
         
 Performance Ratios       
   Return on average equity    14.62 %   12.16 % 20.2 %
   Return on average tangible equity    17.02 %   14.68 % 15.9 %
   Return on average assets    1.52 %   1.19 % 27.7 %
   Net interest margin (A)    3.72 %   3.58 % 3.9 %
   Efficiency ratio (B)    56.21 %   55.88 % 0.6 %
         

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)    
Six Month Performance Summary (unaudited)      
2019 vs 2018      
         
     For the Six Months Ended   Percent 
 Dollars in thousands  6/30/2019 6/30/2018  Change 
 Statements of Income       
   Interest income       
    Loans, including fees  $   47,404   $   41,329 14.7 %
    Securities      4,981       4,694 6.1 %
    Other      365       274 33.2 %
   Total interest income      52,750       46,297 13.9 %
   Interest expense       
    Deposits      11,531       7,858 46.7 %
    Borrowings      3,383       3,906 -13.4 %
   Total interest expense      14,914       11,764 26.8 %
   Net interest income      37,836       34,533 9.6 %
   Provision for loan losses      550       1,250 -56.0 %
   Net interest income after provision       
    for loan losses      37,286       33,283 12.0 %
         
   Noninterest income       
    Insurance commissions      1,780       2,126 -16.3 %
    Trust and wealth management fees      1,198       1,339 -10.5 %
    Service charges on deposit accounts      2,405       2,207 9.0 %
    Bank card revenue      1,707       1,550 10.1 %
    Realized securities gains      1,082       819 32.1 %
    Gain on sale of Summit Insurance Services, LLC      1,906       - n/a  
    Bank owned life insurance income      486       523 -7.1 %
    Other income      476       459 3.7 %
  Total noninterest income     11,040       9,023 22.4 %
   Noninterest expense       
    Salaries and employee benefits     14,923       13,744 8.6 %
    Net occupancy expense     1,803       1,672 7.8 %
    Equipment expense     2,398       2,153 11.4 %
    Professional fees     878       719 22.1 %
    Advertising and public relations     308       291 5.8 %
    Amortization of intangibles     897       848 5.8 %
    FDIC premiums     88       480 -81.7 %
    Bank card expense     911       696 30.9 %
    Foreclosed properties expense, net of losses     1,930       675 185.9 %
    Merger-related expense     445       - n/a  
    Other expenses     4,608       3,771 22.2 %
  Total noninterest expense     29,189       25,049 16.5 %
   Income before income taxes      19,137       17,257 10.9 %
   Income taxes      3,481       3,534 -1.5 %
   Net income  $   15,656   $   13,723 14.1 %
         


SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)    
Six Month Performance Summary (unaudited)      
2019 vs 2018    
         
     For the Six Months Ended   Percent 
    6/30/2019 6/30/2018  Change 
 Per Share Data       
   Earnings per common share       
    Basic  $   1.24   $   1.11   11.7 %
    Diluted  $   1.23   $   1.10   11.8 %
         
   Cash dividends  $   0.29   $   0.26   11.5 %
         
   Average common shares outstanding       
    Basic      12,627,806       12,362,679   2.1 %
    Diluted      12,688,865       12,425,751   2.1 %
         
   Common shares outstanding at period end      12,449,986       12,373,747   0.6 %
         
 Performance Ratios       
   Return on average equity    13.46 %   13.43 % 0.2 %
   Return on average tangible equity    15.93 %   16.21 % -1.7 %
   Return on average assets    1.39 %   1.29 % 7.8 %
   Net interest margin (A)    3.69 %   3.58 % 3.1 %
   Efficiency ratio (B)    56.35 %   54.86 % 2.7 %
         

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  6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018
 Statements of Income           
   Interest income           
    Loans, including fees  $   24,352   $   23,051     $   22,659     $   21,295   $   20,962
    Securities      2,396       2,586         2,527         2,367       2,303
    Other      134       231         127         138       134
   Total interest income      26,882       25,868         25,313         23,800       23,399
   Interest expense           
    Deposits      5,967       5,564         5,103         4,714       4,309
    Borrowings      1,652       1,731         2,158         1,873       1,815
   Total interest expense      7,619       7,295         7,261         6,587       6,124
   Net interest income      19,263       18,573         18,052         17,213       17,275
   Provision for loan losses      300       250         500         500       750
   Net interest income after provision           
    for loan losses      18,963       18,323         17,552         16,713       16,525
   Noninterest income           
    Insurance commissions      606       1,174         1,132         1,062       1,013
    Trust and wealth management fees      612       586         627         687       672
    Service charges on deposit accounts      1,224       1,180         1,209         1,215       1,116
    Bank card revenue      893       814         809         793       801
    Realized securities gains (losses)      1,086       (3 )       (205 )       8       87
    Gain on sale of Summit Insurance Services, LLC      1,906       -         -         -       -
    Bank owned life insurance income      248       238         248         250       249
    Other income      235       241         367         196       210
  Total noninterest income     6,810       4,230         4,187         4,211       4,148
   Noninterest expense           
    Salaries and employee benefits     7,576       7,347         6,928         6,806       6,922
    Net occupancy expense     880       924         836         856       840
    Equipment expense     1,219       1,179         1,139         1,118       1,071
    Professional fees     475       403         385         503       385
    Advertising and public relations     155       153         193         170       188
    Amortization of intangibles     420       476         410         413       413
    FDIC premiums     88       -         140         210       240
    Bank card expense     473       439         395         384       361
    Foreclosed properties expense, net of losses     1,545       384         507         169       350
    Merger-related expense     382       63         59         86       -
    Other expenses     2,116       2,492         1,474         1,643       1,965
  Total noninterest expense     15,329       13,860         12,466         12,358       12,735
   Income before income taxes      10,444       8,693         9,273         8,566       7,938
   Income tax expense      1,880       1,601         1,823         1,667       1,658
   Net income  $   8,564   $   7,092     $   7,450     $   6,899   $   6,280


SUMMIT FINANCIAL GROUP, INC. (NASDAQ:  SMMF)          
Five Quarter Performance Summary (unaudited)          
           
     For the Quarter Ended 
    6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018
 Per Share Data           
   Earnings per common share           
    Basic  $   0.68   $   0.56   $   0.60   $   0.56   $   0.51  
    Diluted  $   0.68   $   0.56   $   0.60   $   0.55   $   0.51  
             
   Cash dividends  $   0.15   $   0.14   $   0.14   $   0.13   $   0.13  
             
   Average common shares outstanding           
    Basic      12,539,095       12,717,501       12,358,104       12,374,350       12,366,522  
    Diluted      12,600,071       12,778,644       12,407,678       12,439,051       12,431,984  
             
   Common shares outstanding at period end      12,449,986       12,661,528       12,312,933       12,382,450       12,373,747  
             
 Performance Ratios           
   Return on average equity    14.62 %   12.28 %   13.85 %   13.00 %   12.16 %
   Return on average tangible equity    17.02 %   14.80 %   16.41 %   15.53 %   14.68 %
   Return on average assets    1.52 %   1.27 %   1.38 %   1.31 %   1.19 %
   Net interest margin (A)    3.72 %   3.66 %   3.61 %   3.53 %   3.58 %
   Efficiency ratio (B)    56.21 %   56.50 %   51.02 %   54.25 %   55.88 %
             

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  6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018
             
 Assets           
  Cash and due from banks $   13,481   $   14,265   $   23,061   $   9,382   $   8,314  
  Interest bearing deposits other banks     42,994       43,689       36,479       44,452       38,097  
  Securities     269,920       297,126       293,284       288,040       283,221  
  Loans, net     1,805,850       1,725,064       1,682,005       1,632,747       1,617,373  
  Property held for sale     21,390       24,393       21,432       22,017       21,606  
  Premises and equipment, net     42,896       39,345       37,553       36,888       36,017  
  Goodwill and other intangible assets     23,585       29,349       25,842       26,252       26,665  
  Cash surrender value of life insurance policies     42,976       42,714       42,420       42,208       41,932  
  Other assets     36,022       33,696       38,510       36,741       34,427  
    Total assets $   2,299,114   $   2,249,641   $   2,200,586   $   2,138,727   $   2,107,652  
                                 
 Liabilities and Shareholders' Equity           
  Deposits $   1,797,493   $   1,789,032   $   1,634,826   $   1,651,064   $   1,639,996  
  Short-term borrowings     225,343       186,292       309,084       238,403       202,429  
  Long-term borrowings and          
    subordinated debentures     20,315       20,319       20,324       20,328       40,332  
  Other liabilities     20,262       20,368       16,522       15,376       15,016  
  Shareholders' equity     235,701       233,630       219,830       213,556       209,879  
    Total liabilities and shareholders' equity $   2,299,114   $   2,249,641   $   2,200,586   $   2,138,727   $   2,107,652  
                                 
  Book value per common share $   18.93   $   18.45   $   17.85   $   17.25   $   16.96  
  Tangible book value per common share $   17.04   $   16.13   $   15.75   $   15.13   $   14.81  
  Tangible common equity to tangible assets   9.3 %   9.2 %   8.9 %   8.9 %   8.8 %
             


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SUMMIT FINANCIAL GROUP INC. (NASDAQ:  SMMF)          
Regulatory Capital Ratios (unaudited)            
               
    6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018  
Summit Financial Group, Inc.            
  CET1 Risk-based Capital 11.1 % 11.4 % 11.1 % 11.1 % 11.0 %