Summit Financial Group Reports Fourth Quarter and Full Year 2019 Results

MOOREFIELD, W.Va., Jan. 24, 2020 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported fourth quarter 2019 net income of $8.15 million, or $0.65 per diluted share. In comparison, earnings for third quarter 2019 were $8.06 million, or $0.65 per diluted share, and for fourth quarter 2018 were $7.45 million, or $0.60 per diluted share. Summit achieved returns on average assets and average tangible equity in fourth quarter 2019 of 1.39 percent and 15.25 percent, respectively, compared to 1.38 percent and 16.41 percent, respectively, in the same period of 2018.

Fourth quarter 2019 earnings compared to the linked quarter were positively impacted by increased net interest income resulting primarily from lower funding costs. Also positively impacting fourth quarter 2019 results compared to third quarter 2019 were $312,000 in gains on sales of foreclosed properties compared to $66,000 losses in the linked quarter. 

For the full year 2019, Summit achieved record net income of $31.9 million, or $2.53 per diluted share, compared with $28.1 million, or $2.26 per diluted share, for 2018. Our returns on average assets and average tangible equity for 2019 were 1.40 percent and 15.65 percent, respectively, compared to 1.32 percent and 16.09 percent, respectively, for 2018.

Earnings for 2019 were positively impacted by increased net interest income resulting primarily from loan growth as well as lower funding costs, increased realized securities gains and the gain on the sale of our former insurance agency, Summit Insurance Services, LLC (“SIS”). These results were partially offset by larger write-downs on foreclosed properties in Q2 2019 with the goal of selling such properties more rapidly, lower insurance commission revenue during 2019 and increased merger-related expenses.

H. Charles Maddy, III, President and Chief Executive Officer of Summit, commented, “I am very gratified Summit achieved a new annual earnings record both in net income and on a per share basis in 2019. In addition, I am particularly pleased by our continued strong core operating performance in this past quarter, highlighted by our exceptional growth in both our core loans and deposits, while at the same time maintaining a stable net interest margin. Our acquisition of Cornerstone Financial Services, Inc. closed at the beginning of 2020, and it serves to combine Summit with a financially strong bank that shares the same commitment to build long-term client relationships by providing ‘Service Beyond Expectations’. The financial synergies relative to this transaction are already evident. Looking forward to 2020 and beyond, I am optimistic as we gain momentum towards our goal to be a consistent growing, high-performing community banking institution."

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 fourth quarter and annual 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.

Highlights for Q4 2019

• Net interest income increased 8.40 percent (annualized) compared to Q3 2019 and increased 10.4 percent year-to-date 2019 versus the same period in 2018, primarily due to our loan growth;
  
  
• Net interest margin in Q4 2019 remained unchanged at 3.63 percent as compared to Q3 2019 while yields on loans declined 13 basis points and deposit and other funding costs declined 15 basis points;
  
  
• Loan balances, excluding mortgage warehouse lines of credit, increased $80.5 million during the quarter, and grew $131.4 million in 2019, principally in the commercial real estate and construction and development portfolios;
  
  
• Mortgage warehouse lines of credit decreased $18.8 million during the quarter, but grew $87.1 million during 2019;
  
  
• Efficiency ratio was 52.25 percent compared to 52.91 percent in the linked quarter and 51.02 percent for Q4 2018;
  
  
• Write-downs of foreclosed properties were $497,000 in Q4 2019 compared to $133,000 in Q3 2019, while the realized gains/losses on sales of foreclosed properties increased from a net loss of $66,000 in Q3 2019 to $312,000 net gains in Q4 2019; and
  
  
• Nonperforming assets as a percentage of total assets improved to 1.28 percent from 1.45 percent for the linked quarter and 1.66 percent at year end 2018.
  
  
• Announced our entering into a definitive agreement to acquire four MVB Bank branches in Berkeley and Jefferson Counties, West Virginia having aggregate approximate deposits and loans of $181 million and $46 million, respectively.  This transaction is expected to close early in Q2 2020.

Results of Operations

Total revenue for fourth quarter 2019, consisting of net interest income and noninterest income, increased 9.0 percent to $24.2 million, principally as a result of higher net interest income compared to $22.2 million for the fourth quarter 2018. For full year 2019, total revenue was $96.3 million compared to $87.2 million for 2018, a 10.4 percent increase primarily as a result of higher net interest income, increased realized securities gains and the gain on the sale of SIS.

For the fourth quarter of 2019, net interest income was $19.8 million, an increase of 9.8 percent from the $18.1 million reported in the prior-year fourth quarter and a 2.1 percent increase compared to the linked quarter. The net interest margin for fourth quarter 2019 remained unchanged from the linked quarter at 3.63 and increased from 3.61 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 3.60 percent for Q4 2019, 3.59 percent for Q3 2019 and 3.57 percent for Q4 2018.  

Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for fourth quarter 2019 was $4.40 million compared to $4.19 million for the comparable period of 2018. Excluding realized securities gains, noninterest income was $4.00 million for fourth quarter 2019, compared to $4.39 million reported for fourth quarter 2018 and was $3.31 million for the linked quarter. The lower levels of 2019 noninterest income compared to 2018 periods are primarily due to the elimination of insurance commission revenue as result of SIS’ sale in Q2 2019.

We recorded a $500,000 provision for loan losses during fourth quarter 2019 and 2018. Our provision continues to be directionally consistent with changes in the credit quality in our loan portfolio.

Q4 2019 total noninterest expense increased 5.6 percent to $13.2 million compared to $12.5 million for the prior-year fourth quarter and increased 2.8 percent compared to the linked quarter. 

Noninterest expense for full year 2019 increased 10.6 percent compared to 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, which totaled $800,000 in 2019 compared to income of $250,000 during 2018.

Balance Sheet

At December 31, 2019, total assets were $2.40 billion, an increase of $202.6 million, or 9.2 percent since December 31, 2018. Total loans, net of unearned fees and allowance for loan losses, were $1.90 billion at December 31, 2019, up $218.4 million, or 13.0 percent, from the $1.68 billion reported at year-end 2018. Loans, excluding mortgage warehouse lines of credit, increased $80.5 million during the quarter, or 18.9 percent (on an annualized basis), and have increased $131.4 million, or 7.9 percent (on an annualized basis) since year-end 2018.

At December 31, 2019, core deposits were $1.68 billion, an increase of $161.0 million or 10.6 percent during fourth quarter 2019 -- as checking deposits increased $46.8 million or 5.6 percent, core time deposits increase by $1.9 million or 0.5 percent and savings deposits increased $112.2 million or 36.7 percent, principally attributable to the growth in our online savings product.

Shareholders’ equity was $247.8 million as of December 31, 2019 compared to $219.8 million at December 31, 2018. Tangible book value per common share increased to $18.11 at December 31, 2019 compared to $15.75 at December 31, 2018. Summit had 12,408,542 outstanding common shares at year end 2019 compared to 12,312,933 at year end 2018.

Asset Quality

As of December 31, 2019, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties and repossessed assets, improved to $30.8 million, or 1.28 percent of assets. This compares to $33.7 million, or 1.45 percent of assets at the linked quarter-end, and $36.5 million, or 1.66 percent of assets at year end 2018.

Fourth quarter 2019 net loan charge-offs were $367,000, or 0.08 percent of average loans annualized, while $500,000 was added to the allowance for loan losses through the provision for loan losses. The allowance for loan losses stood at 0.68 percent of total loans at December 31, 2019, compared to 0.77 percent at year-end 2018. 

About the Company

Summit Financial Group, Inc. is a $2.40 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-six 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.

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

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

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

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

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

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