MOOREFIELD, W.V. , July 26, 2018 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported record second quarter 2018 net income of $6.28 million, or $0.51 per diluted share, compared to $5.28 million, or $0.43 per diluted share, for the second quarter of 2017, an increase of 19.0 percent, or 18.6 percent per diluted share.

For the six months ended June 30, 2018, Summit recorded net income of $13.72 million, or $1.10 per diluted share, compared with $3.66 million, or $0.32 per diluted share, for the comparable 2017 six-month period, representing an increase of 274.7 percent or 243.8 percent per diluted share.  The lower earnings in the first half of 2017 were principally attributable to a legal settlement during first quarter 2017 which reduced earnings by $0.54 per diluted share.

Highlights for Q2 2018 include:

• Loan balances, excluding mortgage warehouse lines of credit, declined $22.1 million during the quarter, principally due to seasonal reductions in certain significant commercial lines of credit, and are unchanged year-to-date;
• Net interest margin was unchanged at 3.58 percent compared to Q1 2018;
• Efficiency ratio was 55.88 percent compared to 53.84 percent for Q1 2018, due to flat net interest income coupled with marginally higher operating expenses, principally due to increased personnel costs, resulting from normal merit wage increases;
• Provision for loan losses increased $250,000 during the quarter principally to provide for an expected loss relative to a single commercial loan secured by residential rental real estate;
• Realized securities gains of $87,000 in Q2 2018 compared to $732,000 in the linked quarter;
• Write-downs of foreclosed properties were $163,000 in Q2 2018 compared to $257,000 in Q1 2018, while the net gain on sales of foreclosed properties decreased from $64,000 in Q1 2018 to a net loss of $58,000 in Q2 2018;
• Announced our entering into a definitive merger agreement to acquire Peoples Bankshares, Inc. and its wholly-owned subsidiary, First Peoples Bank, Inc., headquartered in Mullens, West Virginia; and
• Forbes Magazine recognized Summit Community Bank as the #1 Best-in-State Bank in West Virginia for 2018. This ranking was based upon the results of surveys conducted by the market research firm Statista of more than 25,000 customers in the U.S. for their opinions on their current and former banking relationships. Banks were rated on customers’ overall recommendations and satisfaction, as well as their opinions in regard to each institution’s trust, terms and conditions, branch services, digital services and financial advice.

H. Charles Maddy, III, President and Chief Executive Officer of Summit, commented, “Summit achieved record second quarter earnings, despite the challenges of softening loan demand and somewhat higher overhead costs from the important investments we are making both in our people and in our infrastructure to maintain our growth momentum. Further, I am particularly pleased by the opportunities represented by our pending acquisition of Peoples Bankshares, Inc., announced recently and expected to close at beginning of 2019. This deal will serve to combine Summit with a financially strong bank that has a similar culture, core values and guiding principles as ours, and shares the same commitment to build long-term client relationships by providing ‘Service Beyond Expectations.’”

Results from Operations

Total revenue for second quarter 2018, consisting of net interest income and noninterest income, declined 1.6 percent to $21.4 million, principally as a result of lower net interest income, compared to $21.8 million for the second quarter 2017. For the year-to-date period ended June 30, 2018, total revenue was $43.6 million compared to $38.0 million for the same period of 2017, representing a 14.7 percent increase primarily due to the acquisition of First Century Bankshares, Inc. in Q2 2017.

For the second quarter of 2018, net interest income was $17.3 million, a decrease of 3.2 percent from the $17.8 million reported in the prior-year second quarter and remained nearly unchanged compared to the linked quarter. The net interest margin for second quarter 2018 was 3.58 percent compared to 3.81 percent for the same year-ago quarter, and 3.58 percent for the linked quarter. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired from FCB and HCB, Summit’s net interest margin was 3.56 percent for Q2 2018 and 3.55 percent for first half of 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 2018 was $4.15 million compared to $3.92 million for the comparable period of 2017. Excluding realized securities gains, noninterest income was $4.06 million for second quarter 2018, compared to $3.83 million reported for second quarter 2017 and $4.14 million for the linked quarter.

We recorded a $750,000 provision for loan losses during second quarter 2018 and $250,000 in Q2 2017.  The need for increased loan loss provisioning during 2018 is directionally consistent with changes in the credit quality in our loan portfolio.

Q2 2018 total noninterest expense decreased 8.6 percent to $12.74 million compared to $13.94 million for the prior-year second quarter principally due to no merger expenses being incurred in the 2018 quarter compared to $1.46 million in Q2 2017. Noninterest expense for the first half of 2018 decreased 24.0 percent compared to the first half of 2017. Summit recorded a $9.9 million charge to resolve fully all litigation with Residential Funding Company, LLC and ResCap Liquidating Trust (collectively “ResCap”) during Q1 2017. Excluding the impact of the ResCap litigation settlement charge, noninterest expense for first half of 2018 increased 8.66 percent to $25.0 million compared to $23.1 million for the first half of 2017, principally as result of the FCB acquisition.

Balance Sheet

At June 30, 2018, total assets were $2.11 billion, a decrease of $26.6 million, or 1.2 percent since December 31, 2017. Total loans, net of unearned fees and allowance for loan losses, were $1.62 billion at June 30, 2018, up $23.6 million, or 1.5 percent, from the $1.59 billion reported at year-end 2017.  Loans, excluding mortgage warehouse lines of credit, declined $22.1 million during the quarter, or 5.5 percent (on an annualized basis), and have remained nearly unchanged since year-end 2017.

At June 30, 2018, deposits were $1.64 billion, an increase of $39.4 million, or 2.5 percent, since year end 2017. During first half 2018, checking deposits increased $61.1 million or 9.7 percent, time deposits grew by $13.5 million or 2.2 percent and savings deposits declined $35.2 million or 9.8 percent.

Shareholders’ equity was $209.9 million as of June 30, 2018 compared to $201.5 million at December 31.

Tangible book value per common share increased to $14.81 at June 30, 2018 compared to $14.08 at December 31, 2017. Summit had 12,373,747 outstanding common shares at Q2 2018 quarter end compared to 12,358,562 at year end 2017.

Asset Quality

As of June 30, 2018, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $37.4 million, or 1.77 percent ofassets. This compares to $36.9 million, or 1.73 percent of assets at the linked quarter-end, and $37.4 million, or 1.78 percent of assets, at second quarter-end 2017.

Second quarter 2018 net loan charge-offs were $428,000, or 0.10 percent of average loans annualized; while adding $750,000 to the allowance for loan losses through the provision for loan losses. The allowance for loan losses stood at 0.77 percent of total loans at June 30, 2018, compared to 0.78 percent at year-end 2017.  If the acquired FCB and HCB loans which were recorded at fair value on the acquisition dates were excluded, the allowance for loan losses to total loans ratio at June 30, 2018 and December 31, 2017 would have been 0.87 percent and 0.91 percent, respectively.

About the Company

Summit Financial Group, Inc. is a $2.11 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.

ADDITIONAL INFORMATION ABOUT THE MERGER WITH PEOPLES BANKSHARES, INC. (“PEOPLES”) AND WHERE TO FIND IT

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed Merger, Summit will file with the SEC a Registration Statement on Form S-4 with respect to the offering of Summit common stock as the Merger Consideration under the Securities Act, which will include a proxy statement of Peoples seeking approval of the Merger by Peoples’ shareholders and a prospectus of Summit. Peoples will deliver the proxy statement/prospectus to its shareholders. In addition, Summit may file other relevant documents concerning the proposed Merger with the SEC. Investors and security holders are urged to read the registration statement and proxy statement/prospectus and other relevant documents when they become available because they will contain important information about the proposed Merger.

Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Security holders of Summit and Peoples may also obtain free copies of these documents by directing a request to Ms. Teresa Ely, Summit’s Director of Shareholder Relations, by telephone at (304) 530-0526 or by email at tely@summitfgi.com or by accessing these documents at Summit’s website: www.summitfgi.com.

NOTE (A) – 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.

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

NOTE (A) – 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.