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Summit Financial Group Reports First Quarter Results 2011

/ Source: GlobeNewswire

MOOREFIELD, W.V., April 29, 2011 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported a net loss applicable to common shareholders for the 2011 first quarter of $322,000, or ($0.04) per diluted share, compared to 2010 first quarter net income applicable to common shareholders of $46,000, or $0.01 per diluted share.

H. Charles Maddy III, President and Chief Executive Officer of Summit, commented, "Our job one remains to reduce our portfolio of nonperforming assets, which is the principal factor contributing to our lack of earnings performance. We continue to make progress in this regard, having achieved a 16% reduction in nonperforming assets during the past 12 months. In addition, loan delinquencies have declined since year-end 2010, and we are seeing few additions to the problem loan portfolio. We continue to manage our problem assets through a combination of asset sales, loan workouts and charge-offs. However, progress with the disposition of foreclosed real estate has been more difficult to achieve as the return of our real estate markets to more normal activity levels is progressing more slowly than we had hoped."

"We believe we are moving in the right direction. We have lowered our loan portfolio's risk, particularly in regard to construction and development lending which now represents just 11 percent of the portfolio compared to 18 percent two years ago. We have increased our reliance on retail deposits; during Q1 2011, retail deposits increased by $38 million, allowing us to pay down $33 million in higher-priced wholesale funding; more over during the past two years our retail deposits have increased 21 percent, while our use of wholesale funds has decreased 33 percent. Further, our hard work to reduce controllable expenses, to partially offset the higher costs associated with increased levels of problem assets, continues to produce good results as our Q1 2011 total noninterest expense was more than 8% less than in Q1 2010 due to staff reductions, salary freezes, rescission of bonuses and other cost reduction measures."

Results from Operations

For the first quarter of 2011, net interest income was $10.1 million, a decrease of 1.3 percent from the $10.2 million reported in the prior-year first quarter and a decrease of 3.2 percent from the $10.4 million reported in the linked quarter as the underlying dynamics have shifted significantly. During the first quarter, the net interest margin was negatively impacted as funds from reductions in higher yielding loans due to limited loan demand were reinvested in lower yielding securities and interest bearing deposits in other banks. The net interest margin for first quarter was 3.11 percent compared to 2.95 percent for the year-ago quarter, and 3.15 percent for the linked quarter.

Total revenue for the 2011 first quarter, consisting of net interest income and noninterest income, was $9.5 million compared to $12.7 million for the 2010 first quarter. Noninterest income for the 2011 first quarter was a negative $0.6 million compared to income of $2.5 million for the comparable period of 2010. Nonrecurring charges were $3.0 million for first quarter 2011, including a $1.6 million gain on the sale of securities, a $71,000 gain on sale of assets, OTTI charges of $1.2 million on securities, and $3.4 million to write down foreclosed properties to estimated fair value; for first quarter 2010, nonrecurring items totaled a positive $247,000, including OTTI charges of $29,000 on securities, a $12,000 gain on the sale of assets and a $264,000 gain on the sale of securities. Excluding these one-time charges, noninterest income from operations was $2.4 million for first quarter 2011, up $91,000 or 4.0 percent from the $2.3 million reported for first quarter 2010.

Noninterest income consists primarily of insurance commissions from Summit's insurance agency subsidiary and service fee income from banking activities. Summit reported first quarter 2011 negative noninterest income of $612,000 ($2.4 million positive excluding nonrecurring items noted above) compared to a positive $2.5 million for the year-ago quarter ($2.3 million excluding nonrecurring items). Excluding nonrecurring items, noninterest income from operations has remained reasonably stable over the past five quarters, averaging $2.4 million per quarter.

The provision for loan losses was $3.0 million for the first quarter of 2011 compared to $3.0 million and $5.4 million for the linked and year-ago quarters, respectively. At first quarter-end 2011, the allowance for loan losses remained unchanged from the 1.70 percent of total loans at year-end 2010.

Mr. Maddy noted that operating expenses continue to be exceedingly well-controlled, despite the increased costs of OREO administration, which increased 87.1 percent, to $434,000 for first quarter 2011, compared to $232,000 for the comparable period of 2010. In fact, operating expenses actually decreased for the quarter to $7.0 million, down $634,000, or 8.3 percent, from the $7.6 million reported for the first quarter of 2010. Cost-saving initiatives remain in place and their impact continues to grow. First quarter 2011 operating expenses were also lower than the linked quarter by $652,000.

Balance Sheet

At March 31, 2011, total assets were $1.48 billion, an increase of $4.4 million, or 0.3 percent since December 31, 2010. Total loans, net of unearned fees and interest, were $979.4 million at March 31, 2011, down $15.9 million, or 1.6 percent, from the $995.3 million reported at year-end 2010, and $133.1 million or 12.0 percent from the year-ago quarter-end.

All loan categories have declined since year-end 2010, except for commercial real estate ("CRE"), the largest component of Summit's loan portfolio, which increased a modest $1.1 million. The second largest component of Summit's loan portfolio, residential real estate, declined $6.0 million, or 1.7 percent, while construction and development ("C&D") loans declined $5.2 million, or 4.6 percent and commercial ("C&I") loans declined $4.8 million, or 5.0 percent. At 2011 first quarter-end, CRE loans were $424.1 million, or approximately 42.5 percent of total loans, followed by residential real estate loans at $346.4 million, or approximately 34.7 percent of total loans. C&D loans were $107.6 million, accounting for 10.8 percent of total loans, while C&I loans and consumer and other loans represented the remainder of the portfolio at 9.3 and 2.7 percent of total loans, respectively.

During first quarter 2011, retail deposits grew $38.3 million, or 4.7 percent, to $844.9 million, with the majority of growth occurring in savings accounts. The increase in retail deposits provided Summit with an opportunity to further reduce brokered deposits, and relatively higher-cost long-term borrowings by $13.1 million and $20.6 million, respectively, since year-end 2010.

Asset Quality

As of March 31, 2011, nonperforming assets ("NPAs"), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $89.8 million, or 6.06 percent of assets. This compares to $92.2 million, or 6.24 percent of assets, at year-end 2010, and $106.4 million, or 6.92 percent of assets, at March 31, 2010. The $16.6 million year-over-year decline in NPAs masks the significant progress Summit has made in reducing its nonperforming loan portfolio, which declined by $33.0 million during the past twelve months. Nonperforming loans now account for 2.26 percent of total loans, down from 4.90 percent a year ago.

During first quarter 2011, foreclosed real estate decreased by $3.3 million, to $67.0 million, or 4.52 percent of assets and increased $16.4 million, or 32.4 percent from the $50.6 million reported at March 31, 2010. Approximately three-fourths of the total, or $48.9 million, consists of land, development and construction projects.

Loans 30-89 day delinquent decreased $15.6 million this past quarter, after having jumped by nearly this same amount during fourth quarter 2010. Mr. Maddy noted, "We had a $13 million loan relationship past due at year end which was principally secured by a large residence and farm located in one of the most desirable counties in Virginia. Fortunately, this relationship has restored its status to current."

Capital Adequacy

Common shareholders' equity was $89.3 million as of March 31, 2011 compared to $89.2 million December 31, 2010. Summit's depository institution, Summit Community Bank, continues to be well in excess of regulatory requirements for a "well capitalized" institution at March 31, 2011. The Bank's total risk-based capital ratio was 12.6 percent, while its Tier 1 leverage capital ratio was 8.3 percent compared to 12.6 percent and 8.5 percent, respectively, at December 31, 2010. Total common shares outstanding as of March 31, 2011 were 7,425,472.

About the Company

Summit Financial Group, Inc., a financial holding company with total assets of $1.48 billion, operates fifteen banking locations through its wholly-owned community bank, Summit Community Bank, headquartered in Moorefield, West Virginia. Summit also operates Summit Insurance Services, LLC headquartered in Moorefield, West Virginia.

The Summit Financial Group, Inc. logo is available at


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.


This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Specifically, Summit adjusted GAAP performance measures to exclude the effects of realized and unrealized securities gains and losses, unrealized OREO writedowns, and gains/losses on sales of assets included in its Statements of Income. Management deems these items to be unusual in nature and believes presentations of financial measures excluding the impact of these items provide useful supplemental information that is important for a proper understanding of the operating results of Summit's core business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

CONTACT: Robert S. Tissue, Sr. Vice President & CFO Telephone: (304) 530-0552 Email: