Summit Financial Group Reports Higher Third Quarter 2021 Diluted Eps of $0.92 on Growth in Commercial and Total Loans, Increased Revenue, Further Asset Quality Improvement and Expense Discipline

MOOREFIELD, W.Va., Oct. 28, 2021 (GLOBE NEWSWIRE) —  Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported strong financial results for the third quarter of 2021, including growth in earnings, net interest income, revenue, and commercial and total loans, as well as further asset quality improvement and expense discipline.

The Company, which serves commercial and individual clients across West Virginia, the Washington, D.C. metropolitan area, Virginia, and Kentucky through Summit Community Bank, Inc., grew third quarter 2021 net income applicable to common shares to $12.0 million, or $0.92 per diluted share. Earnings increased 15.3 percent from $10.4 million, or $0.80 per diluted share, in the second quarter of 2021 and 24.9 percent from $9.6 million, or $0.74 per share, in the third quarter of 2020. For the nine months ended September 30, 2021, Summit grew earnings by 55.6 percent to $32.8 million, or $2.52 per share, from $21.1 million, or $1.62 per share, for the comparable 2020 nine-month period.

“With the significant increases in commercial and total loans achieved in the third quarter, a vibrant business pipeline, and Summit’s ability to retain and attract some of the top business bankers and other producers across all our markets, we are poised to continue generating sustainable loan growth in the recovering economy,” said H. Charles Maddy, III, President and Chief Executive Officer. “Third quarter results also reflected continued progress on key asset quality metrics, as well as how we’re well positioned to consistently leverage our low-cost operating model to profitably grow our balance sheet, as well as the top line.”

Highlights for Q3 2021

• Total loans, excluding mortgage warehouse lines of credit and Paycheck Protection Program (“PPP”) lending, increased 3.7 percent (14.8 percent annualized) during the quarter, which included $54 million acquired loans, 13.6 percent (18.2 percent annualized) year-to-date and 24.0 percent since September 30, 2020.
• Commercial loans excluding PPP lending increased 7.2 percent (28.9 percent annualized) during the quarter, 23.7 percent (31.5 percent annualized) year-to-date and 32.5 percent since September 30, 2020.
• Net interest income increased 4.6 percent from the linked quarter and 13.2 percent from the year-ago period, primarily due to loan growth and lower funding costs.
• Net interest margin (“NIM”) decreased 8 basis points to 3.47 percent from the linked quarter, as yield on interest earning assets decreased 15 basis points while the cost of deposits and other funding declined 8 basis points. Summit remains well positioned for a rising rate environment.
• Revenue from net interest income and noninterest income, excluding securities gains and losses, grew 4.1 percent from the linked quarter and 10.9 percent from the year-ago quarter.
• Achieved an efficiency ratio of 49.73 percent and lowered annualized non-interest expense to 2.01 percent of average assets.
• Reduced property held for sale by 5.5 percent during the quarter and 30.2 percent from September 30, 2020.
• Reduced nonperforming assets (“NPAs”) to 0.67 percent of total assets, excluding restructured assets, down 43 basis points during the quarter and 27 basis points from September 30, 2020.
• Summit’s asset quality and mix of new loans required no provision for credit losses in the quarter; period-end allowance for loan credit losses equaled $32.4 million, or 1.27 percent of total loans and 291.6 percent of nonperforming loans.
• As previously announced in July, completed 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.

Results from Operations

Net interest income grew to $28.0 million in the third quarter of 2021, an increase of 4.6 percent from the linked quarter and 13.2 percent from the prior-year third quarter. NIM for third quarter of 2021 was 3.47 percent compared to 3.55 percent for the linked quarter and 3.64 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 3.41 percent for the third quarter of 2021, 3.50 percent for the linked quarter and 3.59 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 third quarter 2021 was $4.6 million compared to $4.7 million for the linked quarter and $6.2 million for the comparable period of 2020. The Company recorded securities losses of $68,000 in the third quarter of 2021 and gains of $127,000 and $1.5 million in the linked and year-ago quarters, respectively. Excluding securities gains and losses, noninterest income was $4.6 million in each of the third and second quarters of 2021 and $4.7 million in the year-ago quarter.

Mortgage origination revenue was $742,000 in the third quarter of 2021 compared to $898,000 for the linked quarter and $780,000 for the year-ago period. Year to date, mortgage origination revenue grew to $2.6 million, increasing 61.2 percent from the first nine months of 2020.

Revenue from net interest income and noninterest income, excluding securities gains and losses, grew to $32.7 million, up 4.1 percent from $31.4 million in the linked quarter and 10.9 percent from $29.5 million in the year-ago quarter. Revenue, excluding securities gains, for the first nine months of 2021, grew to $94.8 million, up 17.0 percent from the first nine months of 2020 and outpacing the 11.2 percent noninterest expense increase recorded for the comparable nine-month periods.

Total noninterest expense increased to $17.3 million in the third quarter of 2021, up 1.8 percent from $17.0 million in the linked quarter and 11.8 percent from $15.5 million for the prior-year third quarter, reflecting acquisition-related expenses primarily from Summit’s recently completed branch acquisitions, as well as ongoing operating costs for its December 2020 purchase of Kentucky’s WinFirst Bank.

Salary and benefit expenses of $8.7 million in the third quarter of 2021 increased from $8.2 million in the linked quarter, while acquisitions closed in December 2020 and July 2021 contributed to an increase from $7.9 million in the year-ago period.

Additionally, other significant factors contributing to the changes in total noninterest expense in the third quarter of 2021 were: equipment expense of $1.9 million compared to $1.6 million for the linked quarter and $1.5 million for the year-ago period, FDIC assessments of $354,000 compared to $488,000 for the linked quarter and $320,000 for the year-ago period, as well as foreclosed properties expense of $370,000 compared to $746,000 in the linked quarter and $607,000 in the year-ago period.

Summit’s efficiency ratio was 49.73 percent in the third quarter of 2021 compared to 49.09 percent in the linked quarter and 48.95 percent for the year-ago period. Non-interest expense improved to 2.01 percent of average assets in the third quarter of 2021, compared to 2.09 percent during the linked quarter and 2.11 percent in the year-ago period.

Balance Sheet

At September 30, 2021, total assets were $3.51 billion, an increase of $402.6 million, or 13.0 percent since December 31, 2020.

Total loans net of unearned fees grew to $2.55 billion on September 30, 2021, increasing 5.1 percent during the third quarter, which included $54.4 million of loans in our branch acquisitions, 5.9 percent year-to-date and 13.4 percent since September 30, 2020. Excluding PPP and mortgage warehouse lending, total loans grew to $2.37 billion on September 30, 2021, increasing 3.7 percent during the third quarter, 13.6 percent year-to-date and 24.0 percent since September 30, 2020.

Total commercial loans, including commercial and industrial (C&I) and commercial real estate (CRE) and excluding PPP lending, grew to $1.6 billion on September 30, 2021, increasing 7.2 percent during the third quarter, 23.7 percent year-to-date and 32.5 percent since September 30, 2020. Residential real estate and consumer lending totaled $570.6 million on September 30, 2021, down 0.9 percent during the third quarter and 7.2 percent year-to-date, while increasing 2.0 percent from September 30, 2020.

PPP balances paid down to $23.8 million on September 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 $161.6 million on September 30, 2021 from a peak of $252.5 million on June 30, 2020.

Total deposits grew to $2.96 billion on September 30, 2021, increasing 8.3 percent during the third quarter, which included $164.0 million in deposits assumed in the acquisition of branches, 13.9 percent year-to-date and 20.6 percent since September 30, 2020. Core deposits grew to $2.86 billion on September 30, 2021, increasing 8.8 percent during the third quarter, 16.3 percent year-to-date and 24.2 percent since September 30, 2020.

Total shareholders’ equity was $323.3 million as of September 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 $18.83 as of September 30, 2021 compared to $17.50 at December 31, 2020 and $17.31 at September 30, 2020. Summit had 12,976,693 outstanding common shares at the end of the third 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 third quarter of 2021, no shares of our common stock were repurchased under the Plan.

Asset Quality

Net loan charge-offs (“NCOs”) were $370,000, or 0.06 percent of average loans annualized, in the third quarter of 2021. NCOs of $202,000 represented 0.03 percent of average loans annualized in the linked quarter, and $1.0 million or 0.18 percent of average loans annualized for third quarter 2020.

Summit’s asset quality and mix of new loans required no provision for credit losses in the third quarter of 2021, while its allowance for loan credit losses was $32.4 million, representing 1.27 percent of total loans and 291.6 percent of nonperforming loans, as of September 30, 2021. The provision for credit losses was $1.0 million and $3.25 million for the linked and year-ago quarters, respectively. The allowance for loan credit losses stood at $33.9 million or 1.39 percent of total loans on June 30, 2021 and $29.4 million or 1.30 percent at September 30, 2020. In support of continued anticipated loan growth, Summit currently expects provision expense of approximately $500,000 to $750,000 for reserve build in the fourth quarter of 2021.

As of September 30, 2021, NPAs consisting of nonperforming loans, foreclosed properties and repossessed assets, totaled $23.6 million, or 0.67 percent of assets, compared to $36.0 million, or 1.10 percent of assets at the linked quarter-end and $27.8 million, or 0.94 percent of assets at the end of third 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 during the current quarter.

The aggregate balances of loans the Company has modified as result of the COVID-19 pandemic continued to decline to $7.2 million or 0.3 percent of total loans on September 30, 2021, down from $8.7 million, or 0.4 percent on June 30, 2021, as summarized in the following table.

About the Company

Summit Financial Group, Inc. is the $3.51 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 45 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.

Contact: Robert S. Tissue, Executive Vice President & CFO
Telephone: (304) 530-0552
Email: [email protected]

NOTES

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

(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.

(C) – Return on average tangible equity = (Net income – Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income – Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

NOTES

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

(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.

(C) – Return on average tangible equity = (Net income – Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income – Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

NOTES

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

(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.

(C) – Return on average tangible equity = (Net income – Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income – Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

NOTES
(A) – Tangible book value per share = (Common shareholders’ equity – Intangible assets) / Common shares outstanding.
(B) – Tangible common equity to tangible assets = (Common shareholders’ equity – Intangible assets) / (Total assets – Intangible assets).