MOOREFIELD, W.Va., Feb. 01, 2021 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. (NASDAQ: SMMF) today reported fourth quarter 2020 net income of $10.3 million, or $0.79 per diluted share, both representing a quarterly record. In comparison, earnings for third quarter 2020 were $9.62 million, or $0.74 per diluted share, and for fourth quarter 2019 were $8.15 million, or $0.65 per diluted share.

For the full year 2020, Summit recorded net income of $31.3 million, or $2.41 per diluted share, compared with $31.9 million, or $2.53 per diluted share, for 2019, representing a decrease of 1.7 percent or 4.7 percent per diluted share. The principal factor negatively impacting our earnings this past year was the $13.0 million increase in our provision for credit losses ($9.84 million after taxes, or $0.76 per diluted share) compared to 2019. Recently adopted loan loss accounting rules now require us to record all estimated future losses in our loan portfolio, and this contributed significantly to our credit loss provision for 2020 as we recorded our estimate of loan losses expected to result from the COVID-19 pandemic.

Summit completed its acquisition of WinFirst Financial Corp. (“WFC”) and its subsidiary, WinFirst Bank, headquartered in Winchester, Kentucky on December 14, 2020; accordingly, WFC’s results of operations are included in Summit’s consolidated results of operations from the date of acquisition. At consummation, WFC had total assets of $143.4 million, loans of $123.8 million, and deposits of $103.6 million.

H. Charles Maddy, III, President and Chief Executive Officer commented, “I am very pleased to report Summit concluded a challenging year by achieving both record quarterly earnings and net revenues in fourth quarter of 2020. I am particularly gratified by our continued strong core operating performance, highlighted by strong growth in net interest income, all while maintaining a stable net interest margin and well-controlled noninterest expenses. These results validate not only our core growth strategies, but our ability to remain disciplined in trying times. This is also a tribute to our management and employees who have worked tirelessly the past year to put forth consistent, high levels of client service despite the many challenges. Looking ahead, I am inspired by our gaining momentum towards the goal to be a consistently growing, high-performing community banking institution. We are both fundamentally and financially strong as we face the challenges of 2021 and beyond.”

Highlights for Q4 2020

• Net interest income increased 23.3 percent (annualized) compared to Q3 2020 and increased 32.2 percent year over year, primarily due to loan growth and lower funding costs.
• Net interest margin in Q4 2020 increased 12 basis points to 3.76 percent as compared to the linked quarter, as yield on interest earning assets increased 4 basis points while the cost of deposits and other funding declined 11 basis points, as well as our diligence and disciplined approach toward asset/liability management.
• Excluding mortgage warehouse lines of credit and acquired WFC loans, loan balances increased $29.8 million during the quarter, despite PPP loan pay downs totaling $22.6 million in Q4 2020.
• Recorded provision for credit losses of $3.00 million (of which $2.0 million is attributable to acquired WFC loans) in Q4 2020 compared to $3.25 million in Q3 2020 and $500,000 in Q4 2019; our increased credit provisions in 2020 are principally due to the estimated potential future economic impact of the COVID-19 crisis.
• Efficiency ratio was 49.38 percent compared to 48.95 percent in the linked quarter and 52.25 percent for Q4 2019.
• Net foreclosed properties expenses increased to $676,000 in Q4 2020 compared to $607,000 in Q3 2020 as net losses on sales of foreclosed properties in Q4 2020 totaled $489,000 compared to $44,000 net gains in Q3 2020 and write downs of foreclosed properties to estimated fair values totaled $64,000 in Q4 2020 compared to $555,000 in Q3 2020. During Q4 2019, such write downs totaled $497,000 and realized net gains were $312,000.
• Realized $912,000 securities gains in Q4 2020 compared to $1.52 million in the linked quarter and $403,000 in Q4 2019.
• Nonperforming assets as a percentage of total assets increased to 1.16 percent compared to 0.94 percent for the linked quarter and 1.28 percent at year end 2019.
• Completed acquisition of WinFirst Financial Corp. (“WFC”) and its wholly-owned subsidiary, WinFirst Bank, headquartered in Winchester, Kentucky.

Merger & Acquisition Activity

On December 14, 2020, Summit’s bank subsidiary, Summit Community Bank completed its acquisition of WinFirst Corp. and its subsidiary WinFirst Bank, headquartered in Winchester, Kentucky. At consummation, WinFirst had total assets of $143.4 million, loans of $123.8 million and deposits of $103.6 million.

Further, on April 24, 2020, 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. Also, 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. 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 WinFirst, Cornerstone and acquired MVB Bank branches are included in Summit’s consolidated results of operations from the dates of acquisition, and therefore Summit’s 2020 results reflect increased levels of average balances, income and expenses compared to comparable prior year periods.

Results from Operations

Total revenue for fourth quarter 2020, consisting of net interest income and noninterest income, increased 32.0 percent to $32.0 million, which included $912,000 in realized securities gains, compared to $24.2 million for fourth quarter 2019. For full year 2020, total revenue was $115.6 million compared to $96.3 million for 2019, representing a 20.0 percent increase primarily as result of higher net interest income.

For the fourth quarter of 2020, net interest income was $26.2 million, an increase of 32.2 percent from the $19.8 million reported in the prior-year fourth quarter and a 5.8 percent increase compared to the linked quarter. The net interest margin for fourth quarter 2020 was 3.76 percent compared to 3.64 percent for the linked quarter and 3.63 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 3.70 percent for Q4 2020, 3.59 percent for Q3 2020 and 3.60 percent for Q4 2019.

Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for fourth quarter 2020 was $5.78 million compared to $6.21 million for the linked quarter and $4.40 million for the comparable period of 2019, which included realized securities gains of $912,000 in Q4 2020, $1.52 million in the linked quarter and $403,000 in Q4 2019. Excluding realized securities gains, noninterest income was $4.87 million for fourth quarter 2020 and $4.00 million for fourth quarter 2019. Mortgage origination revenue increased to $1.16 million for Q4 2020 compared to $379,000 in Q4 2019 due to higher volumes of secondary market loans driven primarily by historically low interest rates. Also included in Q3 2020 noninterest income is one-time income approximating $475,000 earned in conjunction with the recent investment in $9.3 million of annuities.

We recorded a $3.0 million provision for credit losses during fourth quarter 2020 compared to $3.25 million for the linked quarter and $500,000 in Q4 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.

Q4 2020 total noninterest expense increased 26.2 percent to $16.6 million compared to $13.2 million for the prior-year fourth quarter. This year-over-year increase resulted primarily due to the acquisition of Cornerstone and MVB Bank branches during early 2020. Additionally, other significant factors contributing to the changes in total noninterest expense period over period are as follows: higher FDIC premiums, as we fully utilized in prior periods our FDIC’s Small Bank Assessment Credits, decreased write downs of foreclosed properties to estimated fair values totaling $64,000 in Q4 2020 compared to $555,000 in Q3 2020 and $497,000 in Q4 2019, net losses on sales of foreclosed properties in Q4 2020 of $489,000 compared to net gains during Q3 2020 of $44,000 and Q4 2019 of $312,000 and deferred director compensation expense totaling $612,000 in Q4 2020, compared to $325,000 in Q3 2020 and $281,000 in Q4 2019.

Balance Sheet

At December 31, 2020, total assets were $3.11 billion, an increase of $702.9 million, or 29.2 percent since December 31, 2019. Total loans, net of unearned fees and allowance for loan losses, were $2.38 billion at December 31, 2020, up $479.5 million, or 25.2 percent, from the $1.90 billion reported at year-end 2019. Loans, excluding mortgage warehouse lines of credit and acquired WFC loans, increased $29.8 million during the quarter, or 5.9 percent (annualized). Loans, excluding mortgage warehouse lines of credit, PPP loans and acquired Cornerstone, MVB and WFC loans, have increased $100.4 million, or 5.6 percent since year-end 2019.

At December 31, 2020, core deposits were $2.46 billion, an increase of $774.5 million, or 46.0 percent, since year end 2019. During 2020, checking deposits increased $484.1 million or 54.3 percent, core time deposits grew by $87.3 million or 23.4 percent and savings deposits increased $203.1 million or 48.6 percent. Excluding acquired deposits (of Cornerstone, MVB branches and WFC), core deposits have increased $302.9 million, or 18.0 percent, since year end 2019.

Shareholders’ equity was $281.6 million as of December 31, 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 increased to $17.50 as of December 31, 2020 compared to $17.31 at September 30, 2020, although it decreased from $18.11 at December 31, 2019 as result of the somewhat dilutive impacts of the Cornerstone, MVB Branches and WinFirst acquisitions. Summit had 12,942,004 outstanding common shares at Q4 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 Q4 2020, no shares of our common stock were repurchased under the Plan.

Asset Quality

We incurred net loan charge-offs of $239,000 in fourth quarter 2020 (0.04 percent of average loans annualized), compared to third quarter 2020 net loan charge-offs of $1.01 million, which included an $880,000 charge-off of a commercial real estate relationship which had previously been fully reserved and exhibited weakness prior to the COVID-19 pandemic while $2.34 million and $3.20 million were added to the allowance for loan credit losses through the provision for credit losses during Q4 2020 and Q3 2020, respectively. The allowance for loan credit losses stood at 1.34 percent of total loans as of December 31, 2020, compared to 0.68 percent at year-end 2019.

Similarly, during Q4 2020 and Q3 2020, we also added $665,000 and $48,000, respectively, to the allowance for credit losses on unfunded loan commitments through the provision for credit losses.

As of December 31, 2020, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties and repossessed assets, totaled $35.9 million, or 1.16 percent of assets primarily due to a loan relationship detrimentally impacted by the COVID-19 pandemic totaling $9.68 million that was placed on nonaccrual status. This compares to NPAs of $27.8 million, or 0.94 percent of assets at the linked quarter-end and $30.8 million, or 1.28 percent of assets at the end of 2019.

The following tables summarize the aggregate balances of loans the Company has modified as result of the COVID-19 pandemic as of December 31, 2020 and September 30, 2020 classified by types of loans and impacted borrowers.

About the Company

Summit Financial Group, Inc. is a $3.11 billion financial holding company headquartered in Moorefield, West Virginia. Summit provides community banking services primarily in the Eastern Panhandle, Southern and North Central regions of West Virginia, the Northern, Shenandoah Valley and Southwestern regions of Virginia and the central region of Kentucky, through its bank subsidiary, Summit Community Bank, Inc., which operates 43 banking locations.