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Summit Financial Group Reports Second Quarter and First Half 2020 Results

MOOREFIELD, W.V., July 30, 2020 (GLOBE NEWSWIRE) — Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported second quarter 2020 net income of $6.95 million, or $0.54 per diluted share. In comparison, earnings for first quarter 2020 were $4.51 million, or $0.35 per diluted share, and for second quarter 2019 were $8.56 million, or $0.68 per diluted share.
For the six months ended June 30, 2020, Summit recorded net income of $11.5 million, or $0.88 per diluted share, compared with $15.7 million, or $1.23 per diluted share, for the comparable 2019 six-month period, representing a decrease of 26.8 percent or 28.5 percent per diluted share. H. Charles Maddy, III, President and Chief Executive Officer of Summit commented, “I am very gratified to report Summit achieved another quarter of strong core operating performance, highlighted by exceptional growth in net interest income, a relatively stable net interest margin and well-controlled noninterest expenses, despite the many economic and operational challenges posed by the COVID-19 crisis. I am especially proud of our management and employees as they continue to put forth consistent, high levels of client service during this uncertain time.”Highlights for Q2 2020Provision for credit losses of $3.00 million in Q2 2020 compared to $5.25 million in Q1 2020 and $300,000 in Q2 2019; while the increased credit provisions in 2020 resulted principally due to the estimated potential future economic impact of the COVID-19 crisis, $908,000 of the Q2 2020 provision for credit losses was attributable to loans acquired in conjunction with the purchase of the MVB Bank branches.Net interest income increased 30.3 percent (annualized) compared to Q1 2020 and increased 19.7 percent versus the same period in 2019, primarily due to loan growth and lower funding costs.Net interest margin in Q2 2020 decreased 8 basis points to 3.68 percent as compared to the linked quarter, as both yields on interest earning assets and deposit and other funding costs declined 38 basis points.Completed acquisition of four branch banking offices located in the economically vibrant Eastern Panhandle of West Virginia from MVB Bank, Inc.Mortgage warehouse lines of credit increased $85.6 million during Q2 2020.760 SBA PPP loans were originated during the quarter totaling $99.1 million.Excluding mortgage warehouse lines of credit, SBA PPP loans and loans acquired in conjunction with the purchase of the MVB Bank branches, loan balances decreased $7.39 million during the quarter.Efficiency ratio was 51.97 percent compared to 51.41 percent in the linked quarter and 56.45 percent for Q2 2019.Realized no securities gains or losses in Q2 2020 compared to realized net securities gains of $1.04 million in the linked quarter.Merger expenses were $637,000 in Q2 2020 compared to $788,000 in the linked quarter.Net foreclosed properties expenses decreased to $240,000 in Q2 2020 compared to $966,000 in Q1 2020; this is primarily the result of write downs of foreclosed properties to fair values totaling $946,000 in Q1 2020 compared to $218,000 in Q2 2020, while realized net gains on sales of foreclosed properties were $61,000 during both Q1 and Q2 2020.Nonperforming assets as a percentage of total assets improved to 1.07 percent compared to 1.16 percent for the linked quarter and 1.52 percent at the end of Q2 2019.COVID-19 ImpactsOperationsAs the COVID-19 related events unfolded throughout first half 2020, Summit implemented various plans, strategies and protocols to protect our employees, maintain services for clients, assure the functional continuity of our operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. In order to protect employees and assure workforce continuity and operational redundancy, we imposed business travel restrictions, enhanced our sanitizing protocols within our facilities and physically separated, to the extent possible, our critical operations workforce that cannot work remotely. We also maintained active communications with our critical vendors to assure all mission-critical activities and functions are being performed in line with our client-service standards.Capital and LiquidityAlthough there remains a high degree of uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic, management believes that our financial position, including high levels of capital and liquidity, will allow us to successfully endure the negative economic impacts of the crisis. Our capital management activities, coupled with our historically strong earnings performance and prudent dividend practices, have allowed us to build and maintain strong capital reserves. At June 30, 2020, all of Summit’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company bank subsidiary’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 9.0% at June 30, 2020, which is well in excess of the well-capitalized regulatory minimum of 5.0%.In addition, management believes the Company’s liquidity position remains strong. The Company’s bank subsidiary maintains a funding base largely comprised of core noninterest bearing demand deposit accounts and low cost interest-bearing transactional deposit accounts with clients that operate or reside within the footprint of its branch bank network. At June 30, 2020, the Company’s cash and cash equivalent balances were $42.8 million. In addition, Summit maintains an available-for-sale securities portfolio, comprised primarily of highly liquid U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities, which serves as a ready source of liquidity. At June 30, 2020, the Company’s available-for-sale securities portfolio totaled $322.5 million, $175.1 million of which was unpledged as collateral. The Company bank subsidiary’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at June 30, 2020 was $758.3 million, and it maintained $171.6 million of borrowing availability at the Federal Reserve Bank of Richmond’s discount window. The Company has not experienced significant draws on clients’ available commercial lines of credit and home equity lines of credit due to the COVID-19 crisis, nor has it observed any significant or unusual client activity that portends unmanageable levels of stress on our liquidity profile.LendingOur actions to identify and assess our COVID-19 related credit exposures by asset classes and borrower types continue, as does our loan modification program to assist both consumer and business borrowers that are experiencing financial hardships due to COVID-19 related challenges. Accordingly, the following table summarizes the aggregate balances of loans the Company has modified as result of COVID-19 through June 30, 2020 classified by types of loans and impacted borrowers.Modified loans with deferred payments will continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with bank regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral periods.  COVID-19 related loan modifications are also deemed to be insignificant borrower concessions, and therefore, such modified loans were not classified as troubled-debt restructured loans as of June 30, 2020. We anticipate that COVID-19 related loan modifications will continue throughout 2020.
The COVID-19 crisis is expected to continue to impact our financial results, as well as demand for our services and products during the second half of 2020 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future revenues, earnings results, allowance for credit losses, capital reserves and liquidity remain unknown at present.Merger & Acquisition ActivityOn April 24, 2020, Summit’s bank subsidiary, Summit Community Bank completed its acquisition of four branch banking offices located in the Eastern Panhandle of West Virginia from MVB Bank, Inc., a bank subsidiary of MVB Financial Corp. Summit assumed approximately $195.0 million in deposits and acquired approximately $35.3 million in loans in conjunction with this purchase. Further, Summit completed its acquisition of Cornerstone Financial Services, Inc. (“Cornerstone”) and its subsidiary, Cornerstone Bank, headquartered in West Union, West Virginia on January 1, 2020 and converted substantially all of its data processing systems to that of Summit’s on March 21, 2020. At consummation, Cornerstone had total assets of $195.0 million, loans of $39.8 million, and deposits of $173.0 million.Accordingly, the results of operations of Cornerstone and acquired MVB Bank branches are included in Summit’s consolidated results of operations from the dates of acquisition, and therefore Summit’s first half 2020 results reflect increased levels of average balances, income and expenses compared to its first quarter 2019 and fourth quarter 2019 results. Asset QualityWe realized net loan recoveries of $51,000 in second quarter 2020 compared to first quarter 2020 net loan charge-offs of $501,000 (0.10 percent of average loans annualized) while $2.51 million and $4.73 million were added to the allowance for loan credit losses through the provision for credit losses during Q2 2020 and Q1 2020, respectively. The allowance for loan credit losses stood at 1.22 percent of total loans at June 30, 2020, compared to 0.68 percent at year-end 2019.Similarly, during Q2 2020 and Q1 2020, we also added $493,000 and $551,000, respectively, to the allowance for credit losses on unfunded loan commitments through the provision for credit losses.As of June 30, 2020, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties and repossessed assets, totaled $30.5 million, or 1.07 percent of assets. This compares to $29.1 million, or 1.16 percent of assets at the linked quarter-end and $34.9 million, or 1.52 percent of assets at the end of Q2 2019.Results from OperationsTotal revenue for second quarter 2020, consisting of net interest income and noninterest income, increased 2.3 percent to $26.7 million compared to $26.1 million for second quarter 2019, which included $1.1 million realized securities gains and $1.9 million gain on sale of Summit Insurance Services, LLC. For the year-to-date period ended June 30, 2020, total revenue was $52.6 million compared to $48.9 million for the same period of 2019, representing a 7.6 percent increase primarily as a result of higher net interest income.For the second quarter of 2020, net interest income was $23.1 million, an increase of 19.7 percent from the $19.3 million reported in the prior-year second quarter and a 7.6 percent increase compared to the linked quarter. The net interest margin for second quarter 2020 was 3.68 percent compared to 3.76 percent for the linked quarter and 3.72 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 3.61 percent for Q2 2020, 3.70 percent for Q1 2020 and 3.62 percent for Q2 2019. Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for second quarter 2020 was $3.60 million compared to $4.50 million for the linked quarter and $6.81 million for the comparable period of 2019, which included $1.09 million realized securities gains and $1.91 million gain on sale of Summit Insurance Services, LLC. Excluding realized securities gains and the gain on the sale of Summit Insurance Services, LLC, noninterest income was $3.82 million for second quarter 2019.We recorded a $3.0 million provision for credit losses during second quarter 2020 compared to $5.25 million for the linked quarter and $300,000 in Q2 2019. As result of the adoption of CECL, the provision for credit losses now represents an estimate of the full amount of expected credit losses relative to loans, whereas under the pre-CECL incurred loss accounting method, the provision was only an estimate of probable existing loan losses.Q2 2020 total noninterest expense decreased 0.9 percent to $15.2 million compared to $15.3 million for the prior-year second quarter and increased 1.3 percent compared to the linked quarter. Noninterest expense for the first half of 2020 increased 3.4 percent compared to the first half of 2019. Our well-controlled noninterest expense includes increased expenses associated with the acquired Cornerstone and MVB branch operations (including merger-related expenses), decreased write-downs of foreclosed properties and income related to deferred director compensation plan expense of $100,000 for the first six months of 2020 compared to expense of $594,000 for the same period of 2019.  Under our director deferred compensation plans, directors optionally elect to defer their director fees into a “phantom” investment plan whereby the Company recognizes expense or benefit relative to the phantom returns or losses of such investments. As result of the stock market’s deterioration during 2020, we recognized income related to deferred director compensation this quarter.Balance SheetAt June 30, 2020, total assets were $2.86 billion, an increase of $457.9 million, or 19.0 percent since December 31, 2019. Total loans, net of unearned fees and allowance for loan losses, were $2.19 billion at June 30, 2020, up $292.1 million, or 15.4 percent, from the $1.90 billion reported at year-end 2019.  Loans, excluding mortgage warehouse lines of credit and acquired MVB loans, increased $91.7 million during the quarter, or 19.9 percent (annualized), and have increased $144.9 million, or 16.2 percent (on an annualized basis) since year-end 2019.At June 30, 2020, core deposits were $2.26 billion, an increase of $574.6 million, or 34.2 percent, since year end 2019. During first half 2020, checking deposits increased $382.5 million or 42.9 percent, core time deposits grew by $49.2 million or 13.2 percent and savings deposits increased $142.9 million or 34.2 percent.  Excluding acquired deposits (of both Cornerstone and MVB branches), core deposits have increased $206.6 million, or 12.3 percent, since year end 2019.Shareholders’ equity was $263.4 million as of June 30, 2020 compared to $247.8 million at December 31, 2019.  In conjunction with the acquisition of Cornerstone on January 1, 2020, Summit issued 570,000 shares of common stock valued at $15.4 million to the former Cornerstone shareholders.Tangible book value per common share decreased to $16.63 at June 30, 2020 compared to $18.11 at December 31, 2019. Summit had 12,922,045 outstanding common shares at Q2 2020 quarter end compared to 12,408,542 at year end 2019.As announced in Q1 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 Q2 2020, 8,722 shares of our common stock were repurchased under the Plan at an average price of $18.69 per share.Asset QualityAs of June 30, 2020, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $30.5 million, or 1.07 percent of assets. This compares to $29.1 million, or 1.16 percent of assets at the linked quarter-end, and $30.8 million, or 1.28 percent of assets at year end 2019.Second quarter 2020 net loan recoveries were $51,000, or 0.01 percent of average loans annualized; while adding $3.0 million to the allowance for loan losses through the provision for loan credit losses. The allowance for loan credit losses stood at 1.22 percent of total loans at June 30, 2020, compared to 0.68 percent at year-end 2019. About the CompanySummit Financial Group, Inc. is a $2.86 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 40 banking locations.FORWARD-LOOKING STATEMENTSThis 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 crisis, 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 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.









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