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GlobeNewswire (Europe)
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Summit Financial Group, Inc.: Summit Financial Group Reports Strong Revenue Growth, Improved Net Interest Margin, Strategic Balance Sheet Expansion, and Earnings of $0.54 Per Share for Second Quarter 2023

MOOREFIELD, W. Va., July 27, 2023 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (NASDAQ: SMMF) today reported financial results for the second quarter of 2023, showcasing strong core operating performance marked by notable strength in its net interest margin. The Company's continued success underscores its position as a reliable partner in the financial services industry, reflecting a sound strategy and solid operational execution.

The Company, which serves commercial and individual clients across West Virginia, the Washington D.C. metropolitan area, Virginia, Kentucky, the Eastern Shore of Maryland and Delaware through Summit Community Bank, Inc., reported net income applicable to common shares of $7.98 million, or $0.54 per diluted share, for the second quarter of 2023, as compared to $13.9 million, or $1.08 per diluted share, for the first quarter of 2023 and $11.8 million, or $0.92 per diluted share, for the second quarter of 2022. Lower earnings in Q2 2023 were driven primarily by significant acquisition-related expenses attributable to the acquisition of PSB Holding Corp. and its bank subsidiary, Provident State Bank, Inc. ("PSB") and by higher provision for credit losses recorded on purchased non-credit deteriorated ("non-PCD") loans from PSB and on a nonperforming commercial real estate participation loan.

"We are pleased to report strong core performance in second quarter of 2023, characterized by significant revenue growth, an improved net interest margin and strategic balance sheet expansion," noted H. Charles Maddy III, President, and Chief Executive Officer of Summit Financial Group. "The completion of our acquisition of PSB Holding Corp. and Provident State Bank, Inc. is an important milestone for Summit, as it expanded our footprint to the Eastern Shore of Maryland and Delaware, providing exciting growth opportunities in new markets," continued Mr. Maddy.

"Our net interest margin (NIM) increased by 6 basis points from the linked quarter, driven by higher yields on interest-earning assets and effective management of funding costs," said Mr. Maddy. Furthermore, our loan portfolio showed positive momentum, with total core loan portfolio, excluding acquired loans, increasing 6 percent on an annualized basis during the quarter, and over 9 percent since June 30, 2022" noted Mr. Maddy.

"Despite the recent acquisition, our efficiency ratio remains below 48 percent, near its all-time record low, affirming our long tradition of optimizing operational performance," continued Mr. Maddy. "As we move forward, Summit remains steadfast in our growth strategy and optimistic about our future. Our solid financial foundation, coupled with a talented team, positions us well to create long-term value for our shareholders through organic growth and strategic initiatives," concluded Mr. Maddy.

Key Highlights for the Second Quarter of 2023

  • The Company completed its acquisition, effective April 1, 2023, of PSB headquartered in Preston, Maryland, expanding its footprint in the Eastern Shore of Maryland and Delaware.
  • Net interest margin ("NIM") increased 6 basis points to 3.89 percent from the linked quarter and by 23 basis points from the prior-year quarter. This increase was primarily driven by increased yields on interest-earning assets. However, it was partially offset by higher costs of deposits and other funding sources.
  • Summit's core deposits grew 12.9 percent during the second quarter of 2023 as result of the PSB acquisition. Excluding acquired deposits, Summit's core deposits decreased 2.6 percent during Q2 2023.
  • Total loans, excluding acquired loans, mortgage warehouse lines of credit, and PPP lending, increased 1.53 percent (6.12 percent annualized) during the second quarter of 2023 and 9.2 percent since June 30, 2022.
  • The Company's provision for credit losses totaled $8.00 million in the second quarter of 2023 compared to $1.5 million in the linked quarter. Included in the Company's Q2 2023 provision for credit losses was $3.01 million to establish an allowance on non-PCD loans acquired from PSB in accordance with the Current Expected Credit Loss ("CECL") accounting standard and $3.66 million to recognize an allowance on a nonperforming commercial real estate loan participation.
  • Total non-interest expense increased by 55.2 percent to $27.3 million. This increase is largely attributed to the acquisition of PSB including $4.16 million of acquisition-related expenses. Consequently, our annualized non-interest expense ratio increased to 2.41 percent of average assets from 1.97 percent in the previous quarter and 1.91 percent in the same quarter last year. Excluding acquisition-related expenses, annualized non-interest expense would have been 2.05 percent of average assets for Q2 2023.
  • The Company achieved an efficiency ratio of 47.90 percent compared to 48.00 percent in the linked quarter and 47.45 percent in the prior-year quarter.
  • Nonperforming assets ("NPAs") increased to 0.35 percent of total assets at period end, up 4 basis points during the quarter but down 8 basis points from the prior-year quarter.

PSB Acquisition

On April 1, 2023, Summit completed its acquisition of PSB. Accordingly, PSB's results of operations are included in Summit's consolidated results of operation from the date of acquisition, and therefore Summit's second quarter and first half 2023 results reflect increased levels of average balances, income and expense compared to its second quarter and first half 2022 results.

Upon acquisition, PSB had total assets of $568.3 million, loans amounting to $381.5 million, and deposits totaling $498.0 million. Through the first half of 2023, the acquisition-related expenses totaled $4.49 million, with $4.16 million of the costs being incurred in the second quarter.

Results from Operations

Net interest income totaled $40.3 million in the second quarter of 2023, marking an increase of 30.2 percent from the prior-year second quarter and 17.9 percent from the linked quarter. NIM for the first quarter 2023 was 3.89 percent compared to 3.83 percent for the linked quarter and 3.66 percent for the prior-year quarter.

Summit recorded an $8.0 million provision for credit losses in the second quarter of 2023, which includes $3.01 million to establish an allowance on non-PCD loans acquired from PSB in accordance with the CECL accounting standard and $3.66 million to provide an allowance to reflect a nonperforming loan participation with a regional bank secured by a shopping complex at the fair value of its collateral. The provision for credit losses was $1.5 million for the linked quarter and $2.0 million in the second quarter of 2022.

Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for second quarter 2023 was $5.42 million compared to $4.39 million for the linked quarter and $3.86 million for the comparable period of 2022. The Company recorded realized securities losses on debt securities of $211,000 in the second quarter of 2023 and $59,000 in the linked quarter. In addition, the Company recognized net gains on equity investments of $150,000 in the second quarter 2023 compared to $45,000 in the linked quarter.

Mortgage origination revenue decreased to $169,000 in the second quarter of 2023 compared to $171,000 in the linked quarter and $317,000 for the year-ago period reflecting continuing negative impact of higher interest rates on demand for new mortgage loans.

Excluding gains and losses from debt securities and equity investments, the combined revenue from net interest income and non-interest income for Q2 2023 rose to $45.8 million. This represents an increase of 18.7 percent from $38.6 million in the linked quarter and a substantial 28.0 percent growth from $35.8 million recorded in the second quarter of 2022.

Total noninterest expense increased to $27.3 million in the second quarter of 2023, up 40.9 percent from $19.4 million in the linked quarter and up 55.2 percent from $17.6 million for the prior-year second quarter. These increases are primarily due to the operational costs of the recently acquired PSB and acquisition-related expenses of $4.16 million in Q2 2023.

Salary and benefit expenses of $12.2 million in the second quarter of 2023 increased from $10.8 million for the linked quarter and $10.0 million from the prior-year second quarter. This increase was primarily due to the PSB acquisition and higher group health insurance premiums.

Acquisition-related expenses consisting of contract termination costs, executive and employee severance benefits and legal and consulting fees, were $4.16 million for Q2 2023 compared to $331,000 for the linked quarter and $4,000 for Q2 2022.

Other expenses were $3.64 million for Q2 2023 were higher compared to $2.97 million for the linked quarter and $2.36 million in the year-ago period, principally as result of the PSB acquisition.

Summit's efficiency ratio was 47.90 percent in the second quarter of 2023, marginally higher than the 47.45 percent for the second quarter of 2022 and down compared to 48.00 percent in the linked quarter. Non-interest expense to average assets was 2.41 percent in the second quarter of 2023 compared to 1.97 percent in the linked quarter and 1.91 percent in the year-ago quarter.

Balance Sheet

As of June 30, 2023, total assets were $4.6 billion, an increase of $635.6 million, or 16.2 percent since December 31, 2022. Excluding acquired PSB assets, total assets increased by $71.1 million, or 1.8 percent since December 31, 2022.

Total loans net of unearned fees increased to $3.6 billion as of June 30, 2023, from $3.1 billion at December 31, 2022, and increased 19.3 percent from the second quarter of 2022. Total loans, excluding those related to mortgage warehouse lending, PPP lending and acquired loans, reached $3.1 billion on June 30, 2023. This represents an increase of 1.53 percent (or 6.12 percent when annualized) during the quarter just ended.

Total commercial loans, including commercial and industrial (C&I) and commercial real estate (CRE) but excluding PPP lending, increased 13.3 percent (26.6 percent annualized) during second quarter to $2.3 billion as of June 30, 2023.

Residential real estate and consumer lending totaled $731.9 million on June 30, 2023, reflecting an increase of 19.3 percent (38.6 percent annualized) during the second quarter.

As of June 30, 2023, PPP balances were paid down to zero and mortgage warehouse lines of credit, sourced solely from a participation arrangement with a large regional bank, totaled $118.8 million compared to $130.4 million as of December 31, 2022, and $171.4 million at the year-ago period end.

Deposits totaled $3.7 billion on June 30, 2023, a 13.2 percent increase during the second quarter. Core deposits increased 12.9 percent during the second quarter 2023 to $3.6 billion. Excluding acquired deposits, core deposits decreased $82.7 million, or 2.6 percent during the second quarter 2023. Adjusted uninsured deposits (excluding uninsured public deposits otherwise secured or collateralized as required by law) were 31.9 percent of total deposits at June 30, 2023 compared to 29.8 percent at year-end 2022 and 25.6 percent at the year-ago period end.

Total shareholders' equity was $413.2 million as of June 30, 2023, compared to $354.5 million at December 31, 2022. During the second quarter 2023, Summit issued 1,880,732 common shares at a fair value of $39.0 million as consideration in conjunction with the PSB acquisition. Summit paid a quarterly common dividend of $0.20 per share in the second quarter of 2023.

Tangible Book Value Per Share ("TBVPS") decreased by $0.97 to $21.93 during the second quarter of 2023, representing a 4.3 percent decrease. This decline was primarily influenced by the acquisition of PSB, which represented TBVPS dilution of $1.52 resulting from the transaction's issuance of 1,880,732 common shares and its creation of intangible assets of $15.6 million. Summit had 14,672,147 outstanding common shares at June 30, 2023, compared to 12,783,646 at year-end 2022.

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, of which 323,577 shares have been repurchased to date. The timing and quantity of stock purchases under this repurchase plan are at the discretion of management. During the second quarter of 2023, no shares of Summit's common stock were repurchased under the Plan.

Asset Quality

The Company recorded net loan charge-offs ("NCOs") of $3.8 million during the second quarter 2023, representing 0.50 percent of average loans annualized, compared to net loan recoveries of $63,000, representing (0.01) percent of average loans annualized, in the first quarter of 2023. NCOs of $159,000 represented 0.02 percent of average loans annualized in the year-ago period.

Summit's allowance for loan credit losses was $45.7 million on June 30, 2023, $40.8 million at the end of the linked quarter, and $35.1 million on June 30, 2022. As of June 30, 2023, the allowance for loan credit losses stood at 1.29 percent of total loans, reflecting a slight increase compared to the rate of 1.26 percent recorded as of December 31, 2022. The allowance for loan credit losses was increased by $1.50 million in Q2 2023 as result of purchased credit deteriorated loans from PSB. In terms of the allowance's coverage, it represented 402.8 percent of nonperforming loans at June 30, 2023, in contrast to the figure of 497.2 percent at the prior year-end, December 31, 2022.

Summit's allowance for credit losses on unfunded loan commitments was $7.33 million as of June 30, 2023, compared to $6.57 million at the end of the linked quarter. The allowance for credit losses on unfunded loan commitments increased $760,000 during the most recent quarter. The acquisition of PSB resulted in an increase to the allowance for credit losses on unfunded loan commitments of $235,000, while the remaining increase was principally the result of a change in the mix of our unfunded commitments. Construction loan commitments, which on average have a higher historical loss ratio than do other loans, increased, while our mortgage warehouse unfunded lines of credit, which carry a lower loss factor, decreased.

As of March 31, 2023, nonperforming assets ("NPAs"), consisting of nonperforming loans, foreclosed properties, and repossessed assets, totaled $16.1 million, or 0.32 percent of assets, compared to NPAs of $12.9 million, or 0.33 percent of assets at year-end 2022.

About the Company

Summit Financial Group, Inc. is the $4.6 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, Kentucky, Eastern Shore of Maryland and Delaware. 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 MySummitBank.com and 53 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.

Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with Generally Accepted Accounting Principles (GAAP), Summit's management uses, and this press release contains or references, certain non-GAAP financial measures, such as tangible common equity/tangible assets; efficiency ratio; return on average tangible equity and return on average tangible common equity. Summit believes these financial measures provide information useful to investors in understanding our operational performance and business and performance trends which facilitate comparisons with the performance of others in the financial services industry. Although Summit believes that these non-GAAP financial measures enhance investors' understanding of Summit's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

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.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q2 2023 vs Q2 2022
For the Quarter EndedPercent
Dollars in thousands6/30/20236/30/2022Change
Statements of Income
Interest income
Loans, including fees$54,413 $32,766 66.1%
Securities 6,247 2,752 127.0%
Other 203 45 351.1%
Total interest income 60,863 35,563 71.1%
Interest expense
Deposits 17,851 2,622 580.8%
Borrowings 2,699 1,976 36.6%
Total interest expense 20,550 4,598 346.9%
Net interest income 40,313 30,965 30.2%
Provision for credit losses 8,000 2,000 300.0%
Net interest income after provision
for credit losses 32,313 28,965 11.6%
Noninterest income
Trust and wealth management fees 854 745 14.6%
Mortgage origination revenue 169 317 -46.7%
Service charges on deposit accounts 1,943 1,674 16.1%
Bank card revenue 1,987 1,618 22.8%
Net gains/(losses) on equity investments 150 (669)-122.4%
Net realized losses on debt securities (211) (289)-27.0%
Bank owned life insurance and annuity income 431 331 30.2%
Other income 100 129 -22.5%
Total noninterest income 5,423 3,856 40.6%
Noninterest expense
Salaries and employee benefits 12,156 10,030 21.2%
Net occupancy expense 1,528 1,258 21.5%
Equipment expense 2,361 1,791 31.8%
Professional fees 471 507 -7.1%
Advertising and public relations 264 165 60.0%
Amortization of intangibles 999 355 181.4%
FDIC premiums 742 190 290.5%
Bank card expense 951 810 17.4%
Foreclosed properties expense, net of (gains)/losses 48 141 -66.0%
Acquisition-related expense 4,163 4 n/m
Other expenses 3,641 2,358 54.4%
Total noninterest expense 27,324 17,609 55.2%
Income before income taxes 10,412 15,212 -31.6%
Income taxes 2,203 3,198 -31.1%
Net income 8,209 12,014 -31.7%
Preferred stock dividends 225 225 n/a
Net income applicable to common shares$ 7,984 $ 11,789 -32.3%
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q2 2023 vs Q2 2022
For the Quarter EndedPercent
6/30/20236/30/2022Change
Per Share Data
Earnings per common share
Basic$0.54 $0.92 -41.3%
Diluted$0.54 $0.92 -41.3%
Cash dividends per common share$0.20 $0.18 11.1%
Common stock dividend payout ratio 35.7% 19.5%83.1%
Average common shares outstanding
Basic 14,668,923 12,754,724 15.0%
Diluted 14,703,636 12,810,174 14.8%
Common shares outstanding at period end 14,672,147 12,763,422 15.0%
Performance Ratios
Return on average equity 7.99% 14.48%-44.8%
Return on average tangible equity (C)(E) 10.86% 18.28%-40.6%
Return on average tangible common equity (D)(E) 11.37% 19.35%-41.2%
Return on average assets 0.73% 1.30%-43.8%
Net interest margin (A) 3.89% 3.66%6.3%
Efficiency ratio (B) 47.90% 47.45%0.9%

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).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary (unaudited)
2023 vs 2022
For the Six Months EndedPercent
Dollars in thousands6/30/20236/30/2022Change
Statements of Income
Interest income
Loans, including fees$99,897 $62,991 58.6%
Securities 11,066 5,374 105.9%
Other 375 91 312.1%
Total interest income 111,338 68,456 62.6%
Interest expense
Deposits 31,851 4,349 632.4%
Borrowings 4,984 3,587 38.9%
Total interest expense 36,835 7,936 364.2%
Net interest income 74,503 60,520 23.1%
Provision for credit losses 9,500 3,950 140.5%
Net interest income after provision
for credit losses 65,003 56,570 14.9%
Noninterest income
Trust and wealth management fees 1,665 1,503 10.8%
Mortgage origination revenue 340 656 -48.2%
Service charges on deposit accounts 3,335 3,074 8.5%
Bank card revenue 3,555 3,109 14.3%
Net gains/(losses) on equity investments 195 (297)n/a
Net realized losses on debt securities, net (270) (442)-38.9%
Bank owned life insurance and annuity income 767 615 24.7%
Other income 222 183 21.3%
Total noninterest income 9,809 8,401 16.8%
Noninterest expense
Salaries and employee benefits 22,963 19,731 16.4%
Net occupancy expense 2,861 2,499 14.5%
Equipment expense 4,391 3,634 20.8%
Professional fees 847 869 -2.5%
Advertising and public relations 434 337 28.8%
Amortization of intangibles 1,342 734 82.8%
FDIC premiums 1,072 580 84.8%
Bank card expense 1,648 1,524 8.1%
Foreclosed properties expense, net of (gains)/losses 62 51 21.6%
Acquisition-related expense 4,494 33 n/m
Other expenses 6,609 4,817 37.2%
Total noninterest expense 46,723 34,809 34.2%
Income before income taxes 28,089 30,162 -6.9%
Income taxes 5,779 6,455 -10.5%
Net income 22,310 23,707 -5.9%
Preferred stock dividends 450 450 0.0%
Net income applicable to common shares$ 21,860 $ 23,257 -6.0%
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary (unaudited)
2023 vs 2022
For the Six Months EndedPercent
6/30/20236/30/2022Change
Per Share Data
Earnings per common share
Basic$1.59 $1.82 -12.6%
Diluted$1.59 $1.82 -12.6%
Cash dividends per common share$0.40 $0.36 11.1%
Common stock dividend payout ratio 25.1% 19.8%27.1%
Average common shares outstanding
Basic 13,731,594 12,750,037 7.7%
Diluted 13,772,592 12,805,873 7.5%
Common shares outstanding at period end 14,672,147 12,763,422 15.0%
Performance Ratios
Return on average equity 11.53% 14.34%-19.6%
Return on average tangible equity (C) (E) 14.78% 18.15%-18.6%
Return on average tangible common equity (D) (E) 15.52% 18.87%-17.8%
Return on average assets 1.05% 1.30%-19.2%
Net interest margin (A) 3.86% 3.64%6.0%
Efficiency ratio (B) 47.95% 48.42%-1.0%

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 applicable to common shares + Amortization of intangibles [after-tax]) / (Average common shareholders' equity - Average intangible assets).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)
For the Quarter Ended
Dollars in thousands6/30/20233/31/202312/31/20229/30/20226/30/2022
Statements of Income
Interest income
Loans, including fees$54,413 $45,485 $43,589 $38,784 $32,766
Securities 6,247 4,819 4,181 3,497 2,752
Other 203 171 70 170 45
Total interest income 60,863 50,475 47,840 42,451 35,563
Interest expense
Deposits 17,851 14,000 10,194 6,140 2,622
Borrowings 2,699 2,286 3,293 2,198 1,976
Total interest expense 20,550 16,286 13,487 8,338 4,598
Net interest income 40,313 34,189 34,353 34,113 30,965
Provision for credit losses 8,000 1,500 1,500 1,500 2,000
Net interest income after provision
for credit losses 32,313 32,689 32,853 32,613 28,965
Noninterest income
Trust and wealth management fees 854 811 750 725 745
Mortgage origination revenue 169 171 286 538 317
Service charges on deposit accounts 1,943 1,392 1,526 1,550 1,674
Bank card revenue 1,987 1,568 1,513 1,639 1,618
Net gains/(losses) on equity investments 150 45 280 283 (669)
Net realized losses on debt securities (211) (59) (24) (242) (289)
Bank owned life insurance and annuity income 431 336 367 229 331
Other income 100 122 167 165 129
Total noninterest income 5,423 4,386 4,865 4,887 3,856
Noninterest expense
Salaries and employee benefits 12,156 10,807 10,532 10,189 10,030
Net occupancy expense 1,528 1,333 1,328 1,301 1,258
Equipment expense 2,361 2,030 1,769 1,851 1,791
Professional fees 471 376 386 372 507
Advertising and public relations 264 170 280 276 165
Amortization of intangibles 999 343 351 354 355
FDIC premiums 742 330 352 292 190
Bank card expense 951 696 679 726 810
Foreclosed properties expense, net of (gains)/losses 48 15 159 26 141
Acquisition-related expenses 4,163 331 81 - 4
Other expenses 3,641 2,968 2,932 3,834 2,358
Total noninterest expense 27,324 19,399 18,849 19,221 17,609
Income before income taxes 10,412 17,676 18,869 18,279 15,212
Income tax expense 2,203 3,575 3,783 3,856 3,198
Net income 8,209 14,101 15,086 14,423 12,014
Preferred stock dividends 225 225 225 225 225
Net income applicable to common shares$ 7,984 $ 13,876 $ 14,861 $ 14,198 $ 11,789
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)
For the Quarter Ended
6/30/20233/31/202312/31/20229/30/20226/30/2022
Per Share Data
Earnings per common share
Basic$0.54 $1.09 $1.16 $1.11 $0.92
Diluted$0.54 $1.08 $1.16 $1.11 $0.92
Cash dividends per common share$0.20 $0.20 $0.20 $0.20 $0.18
Common stock dividend payout ratio 36.7% 18.1% 16.9% 17.7% 19.1%
Average common shares outstanding
Basic 14,668,923 12,783,851 12,775,703 12,766,473 12,754,724
Diluted 14,703,636 12,830,102 12,837,637 12,835,670 12,810,174
Common shares outstanding at period end 14,672,147 12,786,404 12,783,646 12,774,645 12,763,422
Performance Ratios
Return on average equity 7.99% 15.55% 17.50% 17.05% 14.48%
Return on average tangible equity (C)(E) 10.86% 19.10% 21.75% 21.33% 18.28%
Return on average tangible common equity (D)(E) 11.37% 20.10% 22.96% 22.20% 19.00%
Return on average assets 0.73% 1.43% 1.54% 1.51% 1.30%
Net interest margin (A) 3.89% 3.83% 3.80% 3.84% 3.66%
Efficiency ratio (B) 47.90% 48.00% 46.40% 47.95% 47.45%

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).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Selected Balance Sheet Data (unaudited)
Dollars in thousands, except per share amounts6/30/20233/31/202312/31/20229/30/20226/30/2022
Assets
Cash and due from banks$23,341 $16,488 $16,469 $16,141 $17,921
Interest bearing deposits other banks 39,902 54,328 28,248 29,510 31,680
Debt securities, available for sale 512,038 431,933 405,201 383,965 368,049
Debt securities, held to maturity 95,200 95,682 96,163 96,640 97,116
Equity investments 30,818 29,867 29,494 20,314 19,905
Other investments 16,014 12,696 16,029 18,105 18,329
Loans, net 3,506,880 3,059,099 3,043,919 3,038,377 2,941,813
Property held for sale 4,742 5,128 5,067 5,193 5,319
Premises and equipment, net 60,967 54,491 53,981 54,628 55,034
Goodwill and other intangible assets, net 76,423 61,807 62,150 62,502 62,856
Cash surrender value of life insurance policies and annuities 84,790 72,019 71,640 71,216 71,073
Derivative financial instruments 39,951 34,758 40,506 42,179 31,452
Other assets 61,204 49,111 47,825 48,529 42,252
Total assets$ 4,552,270 $ 3,977,407 $ 3,916,692 $ 3,887,299 $ 3,762,799
Liabilities and Shareholders' Equity
Deposits$3,735,034 $3,299,846 $3,169,879 $3,108,072 $2,975,304
Short-term borrowings 232,150 140,150 225,999 273,148 291,447
Long-term borrowings and
subordinated debentures, net 123,776 123,660 123,543 123,427 123,311
Other liabilities 48,136 44,205 42,741 40,978 38,846
Total liabilities 4,139,096 3,607,861 3,562,162 3,545,625 3,428,908
Preferred stock and related surplus 14,920 14,920 14,920 14,920 14,920
Common stock and related surplus 130,227 90,939 90,696 90,345 90,008
Retained earnings 276,762 271,712 260,393 248,084 236,438
Accumulated other comprehensive income (loss) (8,735) (8,025) (11,479) (11,675) (7,475)
Total shareholders' equity 413,174 369,546 354,530 341,674 333,891
Total liabilities and shareholders' equity$ 4,552,270 $ 3,977,407 $ 3,916,692 $ 3,887,299 $ 3,762,799
Book value per common share$27.14 $27.73 $26.57 $25.58 $24.99
Tangible book value per common share (A)(C)$21.93 $22.90 $21.70 $20.69 $20.07
Tangible common equity to tangible assets (B)(C) 7.2% 7.5% 7.2% 6.9% 6.9%

NOTES

(A) - Tangible book value per share = (Common stock and related surplus plus Retained earnings plus Accumulated other comprehensive income/loss - Intangible assets) / Common shares outstanding.

(B) - Tangible common equity to tangible assets = (Common stock and related surplus plus Retained earnings plus Accumulated other comprehensive income/loss - Intangible assets) / (Total assets - Intangible assets).

(C) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition (unaudited)
Dollars in thousands6/30/20233/31/202312/31/20229/30/20226/30/2022
Commercial $511,457$498,268$501,844$512,771$455,202
Mortgage warehouse lines 118,785 86,240 130,390 194,740 171,399
Commercial real estate
Owner occupied 566,447 469,560 467,050 473,298 502,152
Non-owner occupied 1,193,927 1,036,358 1,004,368 960,627 963,646
Construction and development
Land and development 117,371 102,351 106,362 104,437 106,840
Construction 309,709 290,556 282,935 248,564 211,955
Residential real estate
Conventional 483,998 395,312 386,874 382,203 377,980
Jumbo 117,219 111,475 92,103 87,449 79,803
Home equity 86,050 70,167 71,986 72,756 71,136
Consumer 44,429 36,531 35,372 35,116 33,816
Other 3,169 3,117 3,534 3,166 2,947
Total loans, net of unearned fees 3,552,561 3,099,935 3,082,818 3,075,127 2,976,876
Less allowance for loan credit losses 45,681 40,836 38,899 36,750 35,063
Loans, net$ 3,506,880$ 3,059,099$ 3,043,919$ 3,038,377$ 2,941,813
Unfunded loan commitments$ 957,278$ 907,757$ 925,657$ 889,854$ 876,157
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Deposit Composition (unaudited)
Dollars in thousands 6/30/20233/31/202312/31/20229/30/20226/30/2022
Core deposits
Non-interest bearing checking$679,139$552,716$553,616$619,067$600,791
Interest bearing checking 2,024,341 1,886,011 1,743,299 1,475,643 1,238,368
Savings 512,129 462,631 496,751 582,922 645,099
Time deposits 375,860 278,410 294,630 338,668 386,562
Total core deposits 3,591,469 3,179,768 3,088,296 3,016,300 2,870,820
Brokered time deposits 54,399 71,451 32,790 32,778 32,767
Other non-core time deposits 89,166 48,627 48,793 58,994 71,717
Total deposits$ 3,735,034$ 3,299,846$ 3,169,879$ 3,108,072$ 2,975,304
Estimated uninsured deposits (A)$ 1,189,908$ 933,703$ 946,188$ 757,038$ 762,466
(A) - Excludes uninsured public funds otherwise secured or collateralized as required by law
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Regulatory Capital Ratios (unaudited)
6/30/20233/31/202312/31/20229/30/20226/30/2022
Summit Financial Group, Inc.
CET1 Risk-based Capital8.7%8.9%8.6%8.2%8.2%
Tier 1 Risk-based Capital9.5%9.8%9.5%9.2%9.2%
Total Risk-based Capital13.3%14.0%13.5%13.1%13.3%
Tier 1 Leverage8.4%8.7%8.5%8.4%8.4%
Summit Community Bank, Inc.
CET1 Risk-based Capital11.3%11.9%11.6%11.3%11.4%
Tier 1 Risk-based Capital11.3%11.9%11.6%11.3%11.4%
Total Risk-based Capital12.5%13.1%12.6%12.2%12.4%
Tier 1 Leverage9.9%10.6%10.4%10.3%10.4%
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information (unaudited)
For the Quarter Ended
Dollars in thousands6/30/20233/31/202312/31/20229/30/20226/30/2022
Gross loan charge-offs$4,174 $164 $250 $265 $306
Gross loan recoveries (346) (227) (249) (257) (147)
Net loan charge-offs$ 3,828 $ (63)$ 1 $ 8 $ 159
Net loan charge-offs to average loans (annualized) 0.50% -0.01% 0.00% 0.00% 0.02%
Allowance for loan credit losses$45,681 $40,836 $38,899 $36,750 $35,063
Allowance for loan credit losses as a percentage
of period end loans 1.29% 1.32% 1.26% 1.19% 1.18%
Allowance for credit losses on
unfunded loan commitments ("ULC")$7,332 $6,572 $6,947 $7,597 $7,792
Allowance for credit losses on ULC
as a percentage of period end ULC 0.81% 0.72% 0.75% 0.85% 0.89%
Nonperforming assets:
Nonperforming loans
Commercial$254 $402 $93 $347 $345
Commercial real estate 5,970 1,700 1,750 1,860 2,703
Residential construction and development 772 813 851 902 1,053
Residential real estate 4,298 4,322 5,117 6,083 6,799
Consumer 46 65 12 8 37
Total nonperforming loans 11,340 7,302 7,823 9,200 10,937
Foreclosed properties
Commercial real estate 297 297 297 297 440
Commercial construction and development 2,187 2,187 2,187 2,332 2,332
Residential construction and development 2,161 2,293 2,293 2,293 2,293
Residential real estate 97 351 290 271 254
Total foreclosed properties 4,742 5,128 5,067 5,193 5,319
Other repossessed assets - - - - -
Total nonperforming assets$ 16,082 $ 12,430 $ 12,890 $ 14,393 $ 16,256
Nonperforming loans to period end loans 0.32% 0.24% 0.25% 0.30% 0.37%
Nonperforming assets to period end assets 0.35% 0.31% 0.33% 0.37% 0.43%
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Loans Past Due 30-89 Days (unaudited)
Dollars in thousands6/30/20233/31/202312/31/20229/30/20226/30/2022
Commercial$1,006$463$3,168$1,329$989
Commercial real estate 513 1,000 641 1,550 4,084
Construction and development 161 3,459 317 236 821
Residential real estate 4,933 2,311 6,231 2,824 3,452
Consumer 389 252 253 216 196
Other 17 13 22 4 14
Total$ 7,019$ 7,498$ 10,632$ 6,159$ 9,556
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q2 2023 vs Q1 2023 vs Q2 2022 (unaudited)
Q2 2023 Q1 2023 Q2 2022
AverageEarnings /Yield / AverageEarnings /Yield / AverageEarnings /Yield /
Dollars in thousandsBalancesExpenseRate BalancesExpenseRate BalancesExpenseRate
ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable$3,516,306 $54,3746.20% $3,087,068 $45,4215.97% $2,902,370 $32,7214.52%
Tax-exempt (2) 4,144 494.74% 6,086 815.40% 5,127 574.46%
Securities
Taxable 428,039 4,9004.59% 314,004 3,4124.41% 297,701 1,7652.38%
Tax-exempt (2) 209,931 1,7053.26% 216,430 1,7813.34% 178,043 1,2492.81%
Interest bearing deposits other banks
and Federal funds sold 35,218 2032.31% 34,330 1712.02% 37,757 450.48%
Total interest earning assets 4,193,638 61,2315.86% 3,657,918 50,8665.64% 3,420,998 35,8374.20%
Noninterest earning assets
Cash & due from banks 23,588 17,387 16,351
Premises & equipment 60,872 54,112 55,449
Intangible assets 80,445 62,024 63,058
Other assets 212,104 190,533 165,788
Allowance for loan credit losses (44,312) (39,507) (33,232)
Total assets$ 4,526,335 $ 3,942,467 $ 3,688,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits 1,985,134 13,4232.71% 1,819,505 10,7962.41% $1,189,324 $1,2740.43%
Savings deposits 528,694 2,0001.52% 480,207 1,9171.62% 672,353 6890.41%
Time deposits 513,236 2,4281.90% 389,252 1,2871.34% 517,360 6590.51%
Short-term borrowings 207,418 1,2122.34% 166,365 8242.01% 207,227 6961.35%
Long-term borrowings and
subordinated debentures 123,843 1,4874.82% 123,599 1,4624.80% 123,263 1,2804.17%
Total interest bearing liabilities 3,358,325 20,5502.45% 2,978,928 16,2862.22% 2,709,527 4,5980.68%
Noninterest bearing liabilities
Demand deposits 706,391 557,209 605,724
Other liabilities 50,863 43,508 41,307
Total liabilities 4,115,579 3,579,645 3,356,558
Shareholders' equity - preferred 14,920 14,920 14,920
Shareholders' equity - common 395,836 347,902 316,934
Total liabilities and
shareholders' equity$ 4,526,335 $ 3,942,467 $ 3,688,412
NET INTEREST EARNINGS $ 40,681 $ 34,580 $ 31,239
NET INTEREST MARGIN 3.89% 3.83% 3.66%
(1) -For purposes of this table, nonaccrual loans are included in average loan balances.
(2) - Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented.
The tax equivalent adjustment resulted in an increase in interest income of $368,000, $391,000, and $274,000 for Q2 2023,
Q1 2023 and Q2 2022, respectively.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
YTD 2023 vs YTD 2022 (unaudited)
YTD 2023 YTD 2022
AverageEarnings /Yield / AverageEarnings /Yield /
Dollars in thousandsBalancesExpenseRate BalancesExpenseRate
ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable$3,302,776 $99,7946.09% $2,837,467 $62,9004.47%
Tax-exempt (2) 5,109 1305.13% 5,248 1154.42%
Securities
Taxable 371,330 8,3124.51% 308,872 3,4202.23%
Tax-exempt (2) 213,162 3,4863.30% 179,252 2,4732.78%
Interest bearing deposits other banks
and Federal funds sold 34,641 3752.18% 55,222 910.33%
Total interest earning assets 3,927,018 112,0975.76% 3,386,061 68,9994.11%
Noninterest earning assets
Cash & due from banks 20,231 17,781
Premises & equipment 57,511 55,746
Intangible assets 71,285 63,242
Other assets 201,267 154,200
Allowance for loan losses (41,925) (32,849)
Total assets$ 4,235,387 $ 3,644,181
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits$1,903,945 $24,2192.57% $1,162,346 $1,7390.30%
Savings deposits 504,392 3,9171.57% 686,157 1,2620.37%
Time deposits 451,774 3,7151.66% 529,791 1,3480.51%
Short-term borrowings 187,159 2,0362.19% 173,914 1,0681.24%
Long-term borrowings and
subordinated debentures 123,656 2,9484.81% 123,234 2,5194.12%
3,170,926 36,8352.34% 2,675,442 7,9360.60%
Noninterest bearing liabilities
Demand deposits 630,390 596,365
Other liabilities 47,150 41,779
Total liabilities 3,848,466 3,313,586
Shareholders' equity - preferred 14,920 14,920
Shareholders' equity - common 372,001 315,675
Total liabilities and
shareholders' equity$ 4,235,387 $ 3,644,181
NET INTEREST EARNINGS $ 75,262 $ 61,063
NET INTEREST MARGIN 3.86% 3.64%
(1) -For purposes of this table, nonaccrual loans are included in average loan balances.
(2) - Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented.
The tax equivalent adjustment resulted in an increase in interest income of $759,000 and $543,000 for the
YTD 2023 and YTD 2022 periods, respectively.


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