Summit Financial Group Reports Second Quarter 2021 EPS of $0.80, Growth in Loans and Revenue, and Lower Credit Costs

MOOREFIELD, W.Va., July 29, 2021 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported financial results for the second quarter of 2021, including continued strong earnings on growth in loans and total revenue, as well as lower credit costs.

Second quarter 2021 net income applicable to common shares totaled $10.4 million, or $0.80 per diluted share. Net income applicable to common shares were $10.4 million or $0.80 per diluted share in the first quarter of 2021 and $6.9 million or $0.54 per diluted share in the second quarter of 2020. For the six months ended June 30, 2021, Summit recorded net income applicable to common shares of $20.8 million, or $1.60 per diluted share, compared with $11.5 million, or $0.88 per diluted share, for the comparable 2020 six-month period, representing an increase of 81.4 percent or 81.8 percent per diluted share.  

“Summit’s performance in the second quarter and first half of this year gives us even greater confidence in our loan growth goals for 2021 and beyond,” said H. Charles Maddy, III, President and Chief Executive Officer. “We expect to continue benefitting from production and pipelines that reflect our success in growing commercial relationships in our existing markets, particularly in the D.C., Northern Virginia, Charleston and Huntington, West Virginia regions, complemented by recent acquisitions. We intend to continue creating significant organic growth opportunities, while leveraging Summit’s operational efficiencies and core deposits in strong legacy locations, as well as our high-performing bankers in every community we serve.”

Highlights for Q2 2021

• Total loans, excluding mortgage warehouse lines of credit and PPP loans, increased 3.7 percent (14.8 percent annualized) during the quarter, 9.6 percent (19.2 percent annualized) year-to-date and 22.0 percent since June 30, 2020.
• Net interest income increased 2.1 percent compared to the linked quarter, and increased 16.2 percent from the year-ago period, primarily due to loan growth and lower funding costs.
• Net interest margin (“NIM”) decreased 10 basis points to 3.55 percent from the linked quarter, as yield on interest earning assets decreased 16 basis points while the cost of deposits and other funding declined 8 basis points.
• Recorded an efficiency ratio of 49.09 percent and maintained non-interest expense at 2.09 percent of average assets.
• Provision for credit losses declined to $1.0 million. Allowance for loan credit losses at period end equaled $33.9 million, or 1.39 percent of total loans and 148.2 percent of nonperforming loans.
• Announced the acquisition of substantially all of MVB Bank’s Southern West Virginia community banking operations including four full-service branches and two drive-up locations in and around the state’s largest cities of Charleston and Huntington, approximately $163.1 million in deposits, and $53.9 million in loans, with an accretive transaction that closed earlier this month.
• Raised $15.0 million in growth capital through a previously disclosed private placement of 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock to provide flexibility for executing our strategic plan.
  

Results from Operations

Net interest income grew to $26.8 million in the second quarter of 2021, an increase of 2.1 percent from the linked quarter and 16.2 percent from the prior-year second quarter. NIM for second quarter 2021 was 3.55 percent compared to 3.65 percent for the linked quarter and 3.68 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 3.50 percent for the second quarter of 2021, 3.60 percent for the linked quarter and 3.61 percent for the year-ago period.

Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for second quarter 2021 was $4.7 million compared to $5.0 million for the linked quarter and $3.6 million for the comparable period of 2020. The Company recorded securities gains of $127,000 in the second quarter of 2021 and $476,000 in the linked quarter. Excluding securities gains, noninterest income was $4.6 million for second quarter 2021 and $4.5 million for the linked quarter. Mortgage origination revenue was $898,000 in the second quarter of 2021 compared to $998,000 for the linked quarter and $641,000 for the year-ago period, due to higher volumes of secondary market loans driven primarily by historically low interest rates.

Revenue from net interest income and noninterest income, excluding securities gains, grew to $31.4 million, up 2.1 percent from $30.8 million in the linked quarter and 17.8 percent from $26.7 million in the year-ago quarter. Revenue, excluding securities gains, for the first half of 2021, grew to $62.1 million, up 20.5 percent from the first half of 2020 and outpacing the 10.8 percent noninterest expense increase recorded for the comparable six-month periods.

Total noninterest expense increased to $17.0 million in the second quarter of 2021, up 3.7 percent from $16.4 million in the linked quarter and 12.1 percent from $15.2 million for the prior-year second quarter, reflecting acquisition-related expenses primarily from Summit’s recently completed Southern West Virginia branch acquisition, as well as ongoing operating costs for its April 2020 branch acquisitions in West Virginia’s Eastern Panhandle and its December 2020 purchase of Kentucky’s WinFirst Bank.

Salary and benefit expenses of $8.2 million in the second quarter of 2021 declined from $8.4 million in the linked quarter, while acquisitions closed in April and December 2020 contributed to an increase from $7.7 million in the year-ago period. Additionally, other significant factors contributing to the changes in total noninterest expense in the second quarter of 2021 were:   FDIC assessments of $488,000 compared to $277,000 for the linked quarter and $110,000 for the year-ago period, as well as foreclosed properties expense of $746,000 compared to $227,000 in the linked quarter and $240,000 in the year-ago period. Summit’s efficiency ratio improved to 49.09 percent in the second quarter of 2021 from 49.79 percent in the linked quarter and 51.97 percent for the year-ago period. Non-interest expense was 2.09 percent of average assets in the second quarter of 2021, unchanged from the linked quarter and improved from 2.23 percent in the year-ago period.

Balance Sheet

At June 30, 2021, total assets were $3.27 billion, an increase of $166.1 million, or 5.3 percent since December 31, 2020.

Total loans net of unearned fees and excluding PPP and mortgage warehouse lending grew to $2.28 billion on June 30, 2021, increasing 3.7 percent during the second quarter, 9.6 percent year-to-date and 22.0 percent since June 30, 2020.

Total commercial loans, including commercial and industrial (C&I) and commercial real estate (CRE) and excluding PPP lending, grew to $1.5 billion on June 30, 2021, increasing 5.9 percent during the second quarter, 15.3 percent year-to-date and 26.4 percent since June 30, 2020. Residential real estate and consumer lending totaled $576.8 million on June 30, 2021, down 2.0 percent during the second quarter and 6.4 percent year-to-date, while increasing 0.8 percent from June 30, 2020.

PPP balances paid down to $40.4 million on June 30, 2021 from a peak of $98.5 million on September 30, 2020. Mortgage warehouse lines of credit, sourced solely from a participation arrangement with a large regional bank, have paid down to $105.3 million on June 30, 2021 from a peak of $252.5 million on June 30, 2020.

Total deposits grew to $2.73 billion on June 30, 2021, increasing 0.2 percent during the second quarter, 5.1 percent year-to-date and 11.3 percent since June 30, 2020. Core deposits grew to $2.63 billion on June 30, 2021, increasing 0.8 percent during the second quarter, 6.9 percent year-to-date and 16.4 percent June 30, 2020.

Total shareholders’ equity was $315.2 million as of June 30, 2021 compared to $281.6 million at December 31, 2020. During the second quarter of 2021, Summit raised $15.0 million in growth capital through a previously disclosed private placement of 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock.

Tangible book value per common share increased to $19.01 as of June 30, 2021 compared to $17.50 at December 31, 2020 and $16.63 at June 30, 2020. Summit had 12,963,057 outstanding common shares at the end of the second quarter of 2021 compared to 12,942,004 at year end 2020.

As announced in the first quarter of 2020, the Board of Directors authorized the open market repurchase of up to 750,000 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. During the second quarter of 2021, no shares of our common stock were repurchased under the Plan.

Asset Quality

Net loan charge-offs (“NCOs”) were $202,000, or 0.03 percent of average loans annualized, in the second quarter of 2021. NCOs of $189,000 represented 0.03 percent of average loan annualized in the linked quarter, and the Company recorded net recoveries of $51,000 in the year-ago period.

Summit’s provision for credit losses was $1.0 million in the second quarter of 2021, while its allowance for loan credit losses was $33.9 million, representing 1.39 percent of total loans and 148.2 percent of nonperforming loans, as of June 30, 2021. The provision for credit losses was $1.5 million and $3.0 million for the linked and year-ago quarters, respectively. The allowance for loan credit losses stood at $34.0 million or 1.39 percent of total loans on March 31, 2021 and $27.2 million or 1.22 percent at June 30, 2020.

As of June 30, 2021, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties and repossessed assets, totaled $36.0 million, or 1.10 percent of assets, compared to NPAs of $39.3 million, or 1.21 percent of assets at the linked quarter-end and $30.5 million, or 1.07 percent of assets at the end of second quarter 2020. A loan relationship totaling $9.5 million impacted by the COVID-19 pandemic and on nonaccrual at June 30, 2021 was restored to full accrual status in July 2021.

The aggregate balances of loans the Company has modified as result of the COVID-19 pandemic continued to decline to $8.7 million or 0.4 percent of total loans on June 30, 2021, down from $33.9 million, or 1.4 percent on March 31, 2021, as summarized in the following table.

About the Company

Summit Financial Group, Inc. is the $3.27 billion financial holding company for Summit Community Bank, Inc. Its talented bankers serve commercial and individual clients throughout West Virginia, the Washington, D.C. metropolitan area, Virginia, and Kentucky. Summit’s focus on in-market commercial lending and providing other business banking services in dynamic markets is designed to leverage its highly efficient operations and core deposits in strong legacy locations. Residential and consumer lending, trust and wealth management, and other retail financial services are offered through convenient digital and mobile banking platforms, including MySummit.bank, and 46 full-service branch locations. More information on Summit Financial Group, Inc. (NASDAQ: SMMF), headquartered in West Virginia’s Eastern Panhandle in Moorefield, is available at SummitFGI.com.

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: the effect of the COVID-19 pandemic, including the negative impacts and disruptions on the communities we serve, and the domestic and global economy, which may have an adverse effect on our business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations of our acquisitions; 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 acquisition-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 acquisition-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 acquisition-related expenses, gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.