Summit Financial Group Reports First Quarter 2017 Results

MOOREFIELD, W. Va., April 27, 2017 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ:SMMF) today reported a first quarter 2017 net loss of $1.62 million, or ($0.15) per diluted share, compared to earnings of $4.06 million, or $0.38 per diluted share, reported for the first quarter of 2016 and earnings of $4.71 million, or $0.44 per diluted share, reported for the fourth quarter of 2016. Summit’s first quarter 2017 net loss resulted principally from a legal settlement which reduced its earnings by $0.58 per diluted share.

First Quarter 2017 Significant Highlights:

  • As previously announced, a charge of $9.9 million, or $6.2 million after-tax, was recorded to resolve fully all litigation with the Residential Funding Company, LLC and ResCap Liquidating Trust (collectively, “ResCap”);

  • Total revenues increased 1.5 percent compared to the linked quarter and 11.1 percent compared to the year ago quarter, principally as result of the acquisition of HCB;

  • Net loans, excluding mortgage warehouse lines of credit, grew $40.8 million, or 12.5 percent (on an annualized basis), compared to December 31, 2016;

  • Net interest margin increased 20 basis points compared to the linked quarter and 4 basis points compared to the year-ago quarter, reflecting our improving yields on interest earning assets and relatively stable funding costs;

  • Gains realized on sales of securities declined from $393,000 in Q1 2016 to a loss of $58,000 in Q1 2017;

  • Write-downs of foreclosed properties were $418,000 in Q1 2017 compared to $109,000 during Q1 2016;

  • Merger-related expenses of $109,000 were incurred during Q1 2017, compared to $588,000 in Q4 2016 and $112,000 in Q1 2016.

  • Nonperforming assets as a percentage of total assets declined for the eighteenth consecutive quarter to 2.16 percent compared to 2.22 percent at December 31, 2016, reaching its lowest level since Q2 2008;

  • On April 1, 2017, Summit completed its acquisition of First Century Bankshares, Inc. (“FCB”) and its subsidiary, First Century Bank, headquartered in Bluefield, West Virginia. At March 31, 2017, FCB had approximately $404.8 million in total assets.

H. Charles Maddy III, President and Chief Executive Officer of Summit, commented, “While I was very disappointed recently to report the substantial charge to our first quarter earnings to resolve the ResCap litigation, we believe this settlement was in the best interests of the Company and our shareholders; it eliminates the possibility of any additional exposure relative to this issue and puts it behind us, thus allowing us to direct more resources towards enhancing long-term shareholder value. On a more positive note, Summit achieved another quarter of solid core operating performance highlighted by our improving net interest margin and core loan growth. The former Highland County Bankshares’ banking operations are now fully integrated into Summit, and its impact on our performance is exceeding our expectations. Going forward, our recently closed acquisition of FCB represents another exceptional opportunity. This transaction combines two financially strong banks with similar cultures, core values and exceptional opportunities for operational synergies, as well as a shared commitment to build long-term client relationships by providing service beyond expectations. We converted FCB’s data processing systems and re-identified its branches to that of Summit’s effective April 24, 2017.”

HCB Acquisition

On October 1, 2016, Summit completed its acquisition of Highland County Bankshares, Inc. (“HCB”) and its subsidiary, First & Citizens Bank, headquartered in Monterey, Virginia. Accordingly, HCB’s results of operations are included in Summit’s consolidated results of operation from the date of acquisition, and therefore Summit’s first quarter 2017 results reflect increased levels of average balances, income and expense as compared to its first quarter 2016 results.

At consummation, HCB had total assets of $122.8 million, loans of $60.8 million, and deposits of $106.9 million. Had the HCB acquisition taken place on January 1, 2016, Summit’s pro forma combined total revenues, net income and diluted earnings per share would have approximated $16.0 million, $4.5 million and $0.42, respectively, for the quarter ended March 31, 2016. Summit recognized net accretion income totaling $144,000 in Q1 2017 related to HCB’s loan fair value acquisition accounting adjustments.

Results from Operations

Total revenue for first quarter 2017, consisting of net interest income and noninterest income, increased 11.1 percent to $16.2 million, principally as result of the HCB acquisition, compared to $14.6 million for the first quarter 2016, and was relatively unchanged compared to the linked quarter.

For the first quarter of 2017, net interest income was $13.6 million, an increase of 15.7 percent from the $11.8 million reported in the prior-year first quarter and an increase of $173,000 compared to the linked quarter. The net interest margin for first quarter 2017 was 3.54 percent compared to 3.34 percent for the year-ago quarter, and 3.50 percent for the linked quarter.

Noninterest income, consisting primarily of insurance commissions from Summit's insurance agency subsidiary and service fee income from community banking activities, for first quarter 2017 was $2.58 million compared to $2.81 million for the comparable period of 2016 and $3.00 million for Q4 2016. Excluding realized securities gains and losses, noninterest income was $2.64 million for first quarter 2017 compared to $2.41 million reported for first quarter 2016 and $2.71 million for the linked quarter.

We recorded a $250,000 provision for loan losses during first quarters 2017 and 2016.

Excluding the impact of the $9.9 million charge to settle the ResCap litigation, noninterest expense for Q1 2017 increased 6.6 percent to $9.12 million compared to $8.55 million for the prior-year first quarter, principally due to the acquisition of HCB; but it declined 2.9 percent compared to the linked quarter’s noninterest expense of $9.39 million due to operational efficiencies achieved relative to the former HCB’s banking operations.

Balance Sheet

At March 31, 2017, total assets were $1.78 billion, an increase of $17.8 million, or 1.0 percent since December 31, 2016. Total loans, net of unearned fees and allowance for loan losses, were $1.29 billion at March 31, 2017, down $14.9 million, or 1.1 percent, from the $1.31 billion reported at year-end 2016. Excluding mortgage warehouse lines of credit, net loans increased $40.8 million or 12.5 percent (annualized) since year-end 2016.

At March 31, 2017, deposits were $1.30 billion, an increase of $5.7 million, or 0.4 percent, since year end 2016. During Q1 2017, checking deposits and savings deposits increased by $15.4 million or 3.7 percent and $5.2 million, or 1.5 percent while time deposits declined $14.9 million or 2.7 percent.

Shareholders’ equity was $153.6 million as of March 31, 2017 compared to $155.4 million December 31, 2016. Tangible book value per common share decreased to $13.03 at March 31, 2017 compared to $13.20 at December 31, 2016. Summit had 10,750,477 outstanding common shares at Q1 2017 quarter end compared to 10,736,970 at year end 2016.

Asset Quality

As of March 31, 2017, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $38.4 million, or 2.16 percent of assets. This compares to $39.1 million, or 2.22 percent of assets at the linked quarter, and $40.1 million, or 2.66 percent of assets, at first quarter 2016.

First quarter 2017 net loan charge-offs were $207,000, or 0.06 percent of average loans on an annualized basis, compared to net loan charge-offs of $407,000 for the first quarter of 2016. The allowance for loan losses stood at $11.7 million, or 0.90 percent of total loans at March 31, 2017, compared to 0.88 percent at year-end 2016.

About Summit

Summit Financial Group, Inc. is a $2.1 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 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 -- Q1 2017 vs Q1 2016
For the Quarter Ended Percent
Dollars in thousands 3/31/20173/31/2016 Change
Condensed Statements of Income (unaudited)
Interest income
Loans, including fees $ 15,671 $ 13,436 16.6%
Securities 1,851 1,726 7.2%
Other 152 3 n/a
Total interest income 17,674 15,165 16.5%
Interest expense
Deposits 2,390 2,170 10.1%
Borrowings 1,654 1,216 36.0%
Total interest expense 4,044 3,386 19.4%
Net interest income 13,630 11,779 15.7%
Provision for loan losses 250 250 0.0%
Net interest income after provision
for loan losses 13,380 11,529 16.1%
Noninterest income
Insurance commissions 968 924 4.8%
Service fees related to deposit accounts 1,168 978 19.4%
Realized securities (losses) gains (58) 393 n/a
Other income 501 511 -2.0%
Total noninterest income 2,579 2,806 -8.1%
Noninterest expense
Salaries and employee benefits 5,187 4,682 10.8%
Net occupancy expense 567 540 5.0%
Equipment expense 735 656 12.0%
Professional fees 285 472 -39.6%
Amortization of intangibles 97 50 94.0%
FDIC premiums 210 300 -30.0%
Merger-related expense 109 112 -2.7%
Foreclosed properties expense 104 124 -16.1%
(Gain) on sales of foreclosed properties (156) (6)n/a
Write-downs of foreclosed properties 418 109 283.5%
Litigation settlement 9,900 - n/a
Other expenses 1,560 1,515 3.0%
Total noninterest expense 19,016 8,554 122.3%
(Loss) income before income taxes (3,057) 5,781 n/a
Income tax (benefit) expense (1,441) 1,719 n/a
Net (loss) income $ (1,616) $ 4,062 n/a


SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary -- Q1 2017 vs Q1 2016
For the Quarter Ended Percent
3/31/20173/31/2016 Change
Per Share Data
Earnings per common share
Basic$(0.15)$0.38 n/a
Diluted$(0.15)$0.38 n/a
Cash dividends$0.11 $0.10 10.0%
Average common shares outstanding
Basic 10,738,365 10,671,856 0.6%
Diluted 10,738,365 10,679,301 0.6%
Common shares outstanding at period end 10,750,477 10,681,880 0.6%
Performance Ratios
Return on average equity -4.11% 11.10%n/a
Return on average tangible equity -4.51% 11.70%n/a
Return on average assets -0.37% 1.08%n/a
Net interest margin 3.54% 3.50%1.1%
Efficiency ratio (A) 51.16% 55.93%-8.5%

NOTE (A) – Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles.



SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary
For the Quarter Ended
Dollars in thousands 3/31/201712/31/20169/30/20166/30/20163/31/2016
Condensed Statements of Income (unaudited)
Interest income
Loans, including fees $ 15,671 $ 15,780 $ 14,142 $ 13,622 $ 13,436
Securities 1,851 1,796 1,759 1,656 1,726
Other 152 161 5 5 3
Total interest income 17,674 17,737 15,906 15,283 15,165
Interest expense
Deposits 2,390 2,430 2,209 2,154 2,170
Borrowings 1,654 1,850 1,659 1,395 1,216
Total interest expense 4,044 4,280 3,868 3,549 3,386
Net interest income 13,630 13,457 12,038 11,734 11,779
Provision for loan losses 250 - - 250 250
Net interest income after provision
for loan losses 13,380 13,457 12,038 11,484 11,529
Noninterest income
Insurance commissions 968 992 1,016 1,090 924
Service fees related to deposit accounts 1,168 1,194 1,138 1,059 978
Realized securities gains (losses) (58) 291 61 383 393
Other income 501 521 534 513 511
Total noninterest income 2,579 2,998 2,749 3,045 2,806
Noninterest expense
Salaries and employee benefits 5,187 5,308 4,819 4,764 4,682
Net occupancy expense 567 522 525 512 540
Equipment expense 735 700 716 686 656
Professional fees 285 344 270 429 472
Amortization of intangibles 97 97 50 50 50
FDIC premiums 210 75 200 300 300
Merger-related expenses 109 588 80 153 112
Foreclosed properties expense 104 97 100 93 124
(Gain) on sales of foreclosed properties (156) (465) (168) (276) (6)
Write-downs of foreclosed properties 418 165 134 259 109
Litigation settlement 9,900 - - - -
Other expenses 1,560 1,961 1,693 1,467 1,515
Total noninterest expense 19,016 9,392 8,419 8,437 8,554
(Loss) income before income taxes (3,057) 7,063 6,368 6,092 5,781
Income tax (benefit) expense (1,441) 2,353 2,087 1,849 1,719
Net (loss) income $ (1,616) $ 4,710 $ 4,281 $ 4,243 $ 4,062



SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary
For the Quarter Ended
3/31/201712/31/20169/30/20166/30/20163/31/2016
Per Share Data
Earnings per common share
Basic $ (0.15)$ 0.44 $ 0.40 $ 0.40 $ 0.38
Diluted $ (0.15)$ 0.44 $ 0.40 $ 0.40 $ 0.38
Cash dividends $ 0.11 $ 0.10 $ 0.10 $ 0.10 $ 0.10
Average common shares outstanding
Basic 10,738,365 10,710,164 10,692,423 10,681,995 10,671,856
Diluted 10,738,365 10,762,445 10,727,140 10,701,017 10,679,301
Common shares outstanding at period end 10,750,477 10,736,970 10,701,841 10,692,320 10,681,880
Performance Ratios
Return on average equity -4.11% 12.22% 11.29% 11.49% 11.10%
Return on average tangible equity -4.51% 13.42% 11.86% 12.10% 11.70%
Return on average assets -0.37% 1.07% 1.08% 1.10% 1.08%
Net interest margin 3.54% 3.34% 3.32% 3.40% 3.50%
Efficiency ratio (A) 51.16% 56.67% 53.30% 55.35% 55.93%

NOTE (A) – Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles


SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Selected Balance Sheet Data (unaudited)
Dollars in thousands, except per share amounts 3/31/201712/31/20169/30/20166/30/20163/31/2016
Assets
Cash and due from banks$ 19,326 $ 4,262 $ 25,067 $ 4,161 $ 4,005
Interest bearing deposits other banks 38,895 42,354 9,432 8,897 12,655
Securities 282,028 266,542 262,102 261,633 271,515
Loans, net 1,292,915 1,307,862 1,234,605 1,166,723 1,096,790
Property held for sale 23,491 24,504 24,767 23,425 24,684
Premises and equipment, net 26,377 23,737 21,802 21,405 21,589
Goodwill and other intangible assets 13,587 13,652 7,348 7,398 7,448
Cash surrender value of life insurance policies 39,412 39,143 38,504 38,246 37,989
Other assets 40,411 36,591 34,009 33,293 31,893
Total assets$ 1,776,442 $ 1,758,647 $ 1,657,636 $ 1,565,181 $ 1,508,568
Liabilities and Shareholders' Equity
Deposits$ 1,301,241 $ 1,295,519 $ 1,156,785 $ 1,096,545 $ 1,094,544
Short-term borrowings 228,868 224,461 234,657 205,552 153,448
Long-term borrowings and
subordinated debentures 65,804 66,259 93,735 94,214 94,692
Other liabilities 26,910 17,048 18,640 18,201 19,755
Shareholders' equity 153,619 155,360 153,819 150,669 146,129
Total liabilities and shareholders' equity$ 1,776,442 $ 1,758,647 $ 1,657,636 $ 1,565,181 $ 1,508,568
Book value per common share$ 14.29 $ 14.47 $ 14.37 $ 14.09 $ 13.68
Tangible book value per common share$ 13.03 $ 13.20 $ 13.69 $ 13.40 $ 12.98
Tangible common equity to tangible assets 7.9% 8.1% 8.9% 9.2% 9.2%



SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Regulatory Capital Ratios
3/31/201712/31/2016 9/30/2016 6/30/2016 3/31/2016
Summit Financial Group, Inc.
CET1 Risk-based Capital10.3% 10.5% 11.1%11.5% 11.9%
Tier 1 Risk-based Capital11.5% 11.8% 12.4%12.9% 13.5%
Total Risk-based Capital12.3% 12.6% 13.3%13.8% 14.5%
Tier 1 Leverage Ratio9.4% 9.4% 10.4%10.5% 10.7%
Summit Community Bank, Inc.
CET1 Risk-based Capital11.6% 11.9% 12.5%13.0% 13.6%
Tier 1 Risk-based Capital11.6% 11.9% 12.5%13.0% 13.6%
Total Risk-based Capital12.4% 12.7% 13.4%13.9% 14.5%
Tier 1 Leverage Ratio9.4% 9.5% 10.5%10.6% 10.7%



SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition
Dollars in thousands3/31/201712/31/20169/30/20166/30/20163/31/2016
Commercial $ 134,808 $ 119,088 $ 110,466 $ 101,521 $ 101,743
Mortgage warehouse lines 30,217 85,966 108,983 80,282 -
Commercial real estate
Owner occupied 217,733 203,047 192,254 190,534 202,680
Non-owner occupied 401,795 381,921 367,196 348,099 353,350
Construction and development
Land and development 68,079 72,042 65,430 65,702 66,483
Construction 16,511 16,584 11,276 8,506 7,997
Residential real estate
Non-jumbo 266,140 265,641 228,777 225,919 221,368
Jumbo 60,780 65,628 57,276 52,105 50,057
Home equity 75,299 74,596 75,161 75,904 74,097
Consumer 24,440 25,534 19,756 19,520 19,095
Other 8,831 9,489 9,649 10,008 11,235
Total loans, net of unearned fees 1,304,633 1,319,536 1,246,224 1,178,100 1,108,105
Less allowance for loan losses 11,718 11,674 11,619 11,377 11,315
Loans, net$ 1,292,915 $ 1,307,862 $ 1,234,605 $ 1,166,723 $ 1,096,790



SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Deposit Composition
Dollars in thousands 3/31/201712/31/20169/30/20166/30/20163/31/2016
Non interest bearing checking$ 152,086 $ 149,737 $ 122,652 $ 120,845 $ 122,378
Interest bearing checking 275,678 262,591 212,172 205,095 210,878
Savings 342,548 337,348 321,563 306,785 286,695
Time deposits 530,929 545,843 500,398 463,820 474,593
Total deposits$ 1,301,241 $ 1,295,519 $ 1,156,785 $ 1,096,545 $ 1,094,544



SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information
For the Quarter Ended
Dollars in thousands 3/31/201712/31/20169/30/20166/30/20163/31/2016
Gross loan charge-offs$ 315 $ 400 $ 331 $ 263 $ 561
Gross loan recoveries (108) (456) (573) (75) (154)
Net loan charge-offs (recoveries)$ 207 $ (56)$ (242)$ 188 $ 407
Net loan charge-offs to average loans (annualized) 0.06% -0.02% -0.09% 0.07% 0.15%
Allowance for loan losses$ 11,718 $ 11,674 $ 11,619 $ 11,377 $ 11,315
Allowance for loan losses as a percentage
of period end loans 0.90% 0.88% 0.93% 0.97% 1.02%
Nonperforming assets:
Nonperforming loans
Commercial$ 226 $ 298 $ 846 $ 399 $ 430
Commercial real estate 4,734 4,844 4,867 5,773 6,140
Residential construction and development 3,936 4,465 4,360 5,400 5,467
Residential real estate 5,886 4,815 4,174 3,531 3,248
Consumer 162 152 169 91 121
Total nonperforming loans 14,944 14,574 14,416 15,194 15,406
Foreclosed properties
Commercial real estate 1,749 1,749 1,749 976 976
Commercial construction and development 8,276 8,610 8,664 8,708 8,717
Residential construction and development 12,635 13,265 13,741 12,989 13,808
Residential real estate 831 880 613 752 1,183
Total foreclosed properties 23,491 24,504 24,767 23,425 24,684
Other repossessed assets 12 12 12 38 -
Total nonperforming assets$ 38,447 $ 39,090 $ 39,195 $ 38,657 $ 40,090
Nonperforming loans to period end loans 1.15% 1.10% 1.16% 1.29% 1.39%
Nonperforming assets to period end assets 2.16% 2.22% 2.36% 2.47% 2.66%
Troubled debt restructurings
Performing$ 28,183 $ 28,066 $ 28,287 $ 27,750 $ 29,452
Nonperforming 719 564 863 2,133 897
Total troubled debt restructurings$ 28,902 $ 28,630 $ 29,150 $ 29,883 $ 30,349

Loans Past Due 30-89 Days
For the Quarter Ended
In thousands 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Commercial$ 162 $ 175 $ 405 $ 422 $ 465
Commercial real estate 2,758 434 626 214 920
Construction and development 291 552 235 520 218
Residential real estate 2,924 5,517 2,941 4,763 3,055
Consumer 155 375 144 177 73
Other 17 14 13 12 14
Total$ 6,307 $ 7,067 $ 4,364 $ 6,108 $ 4,745



SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q1 2017 vs Q1 2016
Q1 2017 Q1 2016
AverageEarnings /Yield / AverageEarnings /Yield /
Dollars in thousandsBalancesExpenseRate BalancesExpenseRate
ASSETS
Interest earning assets
Loans, net of unearned interest
Taxable$ 1,278,386 $ 15,549 4.93% $ 1,089,083 $ 13,291 4.91%
Tax-exempt 13,292 186 5.68% 15,824 220 5.59%
Securities
Taxable 186,332 1,128 2.46% 209,365 1,083 2.08%
Tax-exempt 95,300 1,112 4.73% 79,314 974 4.94%
Interest bearing deposits other banks
and Federal funds sold 40,698 152 1.51% 8,092 3 0.15%
Total interest earning assets 1,614,008 18,127 4.55% 1,401,678 15,571 4.47%
Noninterest earning assets
Cash & due from banks 4,631 3,762
Premises & equipment 24,504 21,594
Other assets 98,253 89,642
Allowance for loan losses (11,761) (11,562)
Total assets$ 1,729,635 $ 1,505,114
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits$ 262,849 $ 148 0.23% $ 209,733 $ 83 0.16%
Savings deposits 339,930 625 0.75% 277,396 506 0.73%
Time deposits 540,692 1,616 1.21% 471,597 1,581 1.35%
Short-term borrowings 196,946 995 2.05% 168,548 240 0.57%
Long-term borrowings and
subordinated debentures 66,146 660 4.05% 95,052 976 4.13%
Total interest bearing liabilities 1,406,563 4,044 1.17% 1,222,326 3,386 1.11%
Noninterest bearing liabilities
Demand deposits 148,286 120,464
Other liabilities 17,700 15,928
Total liabilities 1,572,549 1,358,718
Shareholders' equity 157,086 146,396
Total liabilities and
shareholders' equity$ 1,729,635 $ 1,505,114
NET INTEREST EARNINGS $ 14,083 $ 12,185
NET INTEREST MARGIN 3.54% 3.50%

Contact: Robert S. Tissue, Sr. Vice President & CFO Telephone: (304) 530-0552 Email: rtissue@summitfgi.com

Source:Summit Financial Group, Inc.