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Summit Financial Group Reports Q3 2009 Results

(October 29, 2009)

MOOREFIELD, W.Va., Oct. 29, 2009 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported third quarter 2009 net income of $1.4 million, or $0.19 per diluted share, compared with a net loss of $7.7 million, or ($1.03) per diluted share, for the third quarter of 2008. Third quarter 2009 results reflect a decreased provision for loan losses, increased net interest income and continued control of overhead expenses.

Nonrecurring items for the third quarter of 2009 include $428,000 ($270,000 after-tax or $0.04 per diluted share) of securities gains; for the prior-year third quarter, nonrecurring items included an other-than-temporary-impairment ("OTTI") charge of $4.5 million ($2.8 million after-tax, or $0.38 per diluted share) related to the write-down of Fannie Mae and Freddie Mac preferred stock investments. Excluding nonrecurring items from both quarters, pro forma third quarter 2009 earnings were $1.1 million, or $0.15 per diluted share, compared to a 2008 third quarter net loss of $4.8 million, or ($0.64) per diluted share.

For the nine months ended September 30, 2009, Summit reported a net loss of $282,000, or ($0.04) per diluted share, compared with a net loss of $1.3 million, or ($0.17) per diluted share for the 2008 nine-month period. Excluding nonrecurring charges totaling $5.1 million pretax ($3.2 million after-tax) recorded for both nine-month periods, pro forma earnings for the first nine months of 2009 were $2.9 million, or $0.39 per diluted share, compared to $2.0 million, or $0.27 per diluted share, for the 2008 nine-month period.

Nonrecurring pretax items resulted in a net charge of $5.1 million for the 2009 nine-month period including the FDIC special assessment of $735,000, OTTI write-downs of $4.8 million on residential mortgage-backed securities and $215,000 relating to an equity investment, a $723,000 gain on sale of securities, and a $115,000 loss on sales of various assets; for the 2008 nine-month period, net charges totaling $5.1 million related to nonrecurring pretax items included an OTTI write-down of $6.0 million on Freddie Mac and Fannie Mae preferred stock, gains on the fair value of interest rate swaps of $705,000 ($444,000 after-tax), and a $137,000 gain on sales of various assets. H. Charles Maddy III, President and Chief Executive Officer of Summit Financial Group, Inc., commented, "Our banking business remains healthy, although pressures continue from the impact of the weak real estate market and ongoing recession. We are taking every precaution to strengthen our financial condition and improve efficiencies to position Summit for the longer haul. We are managing our business to control discretionary expenses, expand our net interest margin, grow local deposits, and add capital as needed to remain comfortably in excess of 'well-capitalized' status in accordance with regulatory capital guidelines."


Mr. Maddy continued, "Summit Community Bank is located in some of the most dynamic job and real estate markets in the country. Strong population growth and growing household income in Northern Virginia had created extraordinary demand, but even this market finally succumbed to the impact of the recession. The majority of our problem loans have surfaced in Northern Virginia, where demographics still remain more attractive than most areas of the country. However, the market needs time to adjust. We are beginning to see signs of returning health, with firmer housing prices and lower inventories in certain markets. We continue to work with our borrowers to achieve positive outcomes, but final resolution is dependent on improved real estate demand and additional job creation.

"West Virginia, by comparison, has been a much more stable market -- lower population growth and lower loan growth. In West Virginia, we have very few problem assets and appear to be gaining deposit market share, thanks to some of our recently introduced savings products."

Highlights of the Third Quarter Include:


* Rising problem loans are taking their toll on earnings by virtue of larger loan loss provisions as well as higher credit administration costs, regulatory costs and foregone interest income. Nonperforming assets grew by $28 million, or 45 percent, year over year. * Apart from problem assets, community banking activities remain healthy. Net interest income and fee income have been remarkably stable over the past five quarters, while controllable overhead expenses have declined, albeit modestly, over the past twelve months. * Summit has shifted its deposit mix significantly toward retail deposits, specifically savings accounts, while reducing brokered deposits by $29 million, or 10 percent, since year-end 2008. * Summit completed a two capital raises this past quarter, generating $4.5 million of additional capital as preferred stock and subordinated debt. The Bank and holding company are both currently "well-capitalized" by regulatory standards; furthermore, the cash dividend to common shareholders is being eliminated to preserve capital while options for additional capital continue to be evaluated.

Results from Operations

Total revenue, consisting of net interest income and noninterest income, was $13.7 million for the third quarter of 2009, an increase of 67.2 percent from the $8.2 million reported for the year-ago period. Excluding one-time items of $437,000 and $4.6 million, respectively, from the third quarters of 2009 and 2008, total revenue for third quarter of 2009 increased $482,000, or 3.8 percent, over the prior-year third quarter. Net interest income was $10.9 million, up 4.9 percent from the $10.4 million reported in the year-ago quarter from the combined impact of a ten basis point improvement in the net interest margin to 2.99 percent, up 3.5 percent year-over-year, and a 1.3 percent increase in average earning assets.

Noninterest income for the third quarter of 2009 was $2.8 million compared to a negative $2.2 million for the year-ago quarter. Excluding the 2009 gain on sale of securities of $428,000 and asset sales gains and the $4.5 million OTTI charge and loss on asset sales in 2008, noninterest income for the current quarter decreased $29,000, or 1.2 percent, from the 2008 third quarter.

The Company's loan loss provision has been the primary factor impacting earnings. Summit recorded a $4.0 million provision in the third quarter of 2009 and $13.5 million year-to-date; this compares to net charge-offs of $4.5 million and $16.6 million for the 2009 third quarter and nine month period, respectively. As of September 30, 2009, the allowance for loan losses stood at $13.8 million, or 1.18 percent of total loans compared to 1.21 percent and 1.87 percent at June 30, 2009 and September 30, 2008, respectively.

Noninterest expense for the third quarter of 2009 was $7.9 million, an increase of $582,000, or 8.0 percent, from the third quarter of 2008. The primary factors contributing to increased noninterest expense were increased FDIC insurance premiums and costs associated with the administration and resolution of problem credits, namely, legal fees and expense associated with foreclosed properties. Increased regulatory and problem credit administration costs were partially offset by disciplined control of overhead expenses; salaries/employee benefits and occupancy/equipment expense together declined by $266,000 from third quarter 2008 levels, or 5.2 percent.

Balance Sheet

Total assets as of September 30, 2009 were $1.58 billion, down $49.3 million, or 3.0 percent, since year-end 2008. Total loans, net of unearned interest and fees, were $1.17 billion, down $38.8 million, or 3.2 percent, since year-end 2008. The $38.7 million, or 18.0 percent, decline in construction and development ("C&D") loans was the primary factor contributing to the loan portfolio decline, while commercial real estate ("CRE") loans grew modestly over the past nine-months (up $5.4 million, or 1.2 percent).

CRE and residential real estate represent the majority of the Company's loan portfolio, accounting for 39.0 percent and 32.1 percent of total loans, respectively. C&D loans accounted for 15.1 percent, down from 17.8 percent at December 31, 2008, while non real estate-related commercial ("C&I") loans accounted for the remaining 10.7 percent of loans.

Consistent with the modest decline in assets since year-end, deposit levels have remained virtually unchanged since December 31, 2008. Mr. Maddy noted, "The mix has changed substantially in favor of higher levels of retail deposits. Brokered deposits declined dramatically, and within the retail deposit portfolio, local time deposits reduced in favor of savings accounts." Total deposits at September 30, 2009 were $970.0 million, up $4.2 million, or 0.4 percent from $965.8 million at year-end 2008. Retail deposits increased $33.5 million, or 5.0 percent, over the period, and now account for 72.5 percent of total deposits, compared to 69.3 percent of total deposits at 2008 year-end. Strong retail deposit growth was driven by the introduction of new savings account products; savings accounts increased by $54.1 million over the past nine months, or 87.7 percent, enabling Summit to reduce both time deposits and brokered deposits, by $17.4 million (-4.6 percent) and $29.4 million (-9.9 percent), respectively, since year-end 2008.

Asset Quality

Nonperforming assets at September 30, 2009 were $90.0 million, or 5.7 percent of total assets, compared to $82.1 million (5.2 percent of total assets) and $62.1 million (4.0 percent of total assets) at June 30, 2009 and September 30, 2008, respectively.

Nonperforming loans were $58.9 million in the third quarter, a decline of $2.8 million from the linked quarter; CRE loans and C&D loans declined by $603,000 and $2.4 million, respectively. OREO totaled $31.2 million at third quarter-end, up $10.8 million from the second quarter; nearly all of the increase consisted of C&D properties.

Net loan charge-offs during the third quarter of 2009 totaled $4.5 million, or an annualized 1.51 percent of average loans, compared with $13.2 million (4.37 percent of average loans) and $0.9 million (0.32 percent of average loans) for linked quarter and year-ago quarters, respectively. For the nine-month periods, net loan charge-offs were $16.6 million for 2009, or 1.80 percent of average loans annualized, compared to $2.5 million for 2008, or 0.30 percent annualized.

Mr. Maddy added, "Virtually all workout activity is taking place in the Northern Shenandoah Valley region of Virginia and in Berkeley County, West Virginia, where the real estate downturn has been much more severe. Our goal has been to take title to the collateral underlying our problem loans wherever possible, since we are strong believers in the strength of this market and in the properties we financed, as well as expertise of our workout team to maximize recoveries as the economy improves." In excess of 90 percent of Summit's nonperforming assets are located in these market areas.

Nonperforming C&D assets totaled $52.4 million as of September 30, 2009, divided between $27.1 million of nonperforming loans and $25.3 million of OREO. This compares with total nonperforming C&D assets of $44.4 million at June 30, 2009. Net C&D charge-offs were $3.3 million for the third quarter and $13.7 million year-to-date.

Total nonperforming CRE assets were $27.6 million as of September 30, 2009, relatively unchanged from second quarter. All nonperforming CRE assets are non-owner occupied properties, which includes a hotel, conference center and golf course credit accounting for $21.3 million of this total. Year-to-date, only $349,000 of CRE loans were charged-off.

Nonperforming residential mortgage loans and OREO totaled $9.6 million at September 30, 2009, up from $9.1 million at June 30, 2009. Year-to-date, $1.5 million has been charged-off. Nonperforming C&I loans were virtually zero: $0.4 million at September 30, 2009 compared with $0.7 million at June 30, 2009.

Capital Adequacy

On September 30, 2009, Summit announced the completion of two capital raises with an aggregate value of $4.5 million. Proceeds were used to bolster the Bank's capital reserves. Of the $4.5 million issued, $3.7 million was raised through a private placement of convertible preferred stock and $800,000 through an issue of subordinated debt to an unaffiliated investor. At the holding company level, the convertible preferred stock issue qualifies as Tier I capital for regulatory purposes, whereas the newly-issued subordinated debt will be treated as Tier 2 capital.

Shareholders' equity at September 30, 2009 was $91.9 million, compared to $83.8 million and $80.5 million, respectively, for the linked and year-ago quarters. Capital ratios remain in excess of regulatory requirements for "well-capitalized" for both Summit and its banking subsidiary, Summit Community Bank. As of third quarter-end 2009, common shares outstanding totaled 7,425,472. Mr. Maddy added that Summit continues to evaluate capital raising alternatives to provide additional strength and flexibility to its banking activities.

ABOUT THE COMPANY

Summit Financial Group, Inc., a financial holding company with total assets of $1.6 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 http://www.globenewswire.com/newsroom/prs/?pkgid=2990

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 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.

NON-GAAP FINANCIAL MEASURES

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 several GAAP performance measures to exclude the effects of realized securities gains and losses, other-than-temporary impairment charge on securities, gains and losses on the sales of other assets, the FDIC's special assessment and non-cash changes in fair value of interest rate swaps included in its Statements of Income. Management 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.


SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Quarterly Performance Summary -- Q3 2009 vs Q3 2008 For the Quarter Ended -------------------- Percent Dollars in thousands 9/30/2009 9/30/2008 Change --------------------------------------------------------------------- Condensed Statements of Income Interest income Loans, including fees $ 18,061 $ 18,527 -2.5% Securities 4,351 4,108 5.9% Other 5 2 150.0% --------- --------- Total interest income 22,417 22,637 -1.0% Interest expense Deposits 6,094 6,704 -9.1% Borrowings 5,427 5,549 -2.2% --------- --------- Total interest expense 11,521 12,253 -6.0% --------- --------- Net interest income 10,896 10,384 4.9% Provision for loan losses 4,000 12,000 -66.7% --------- --------- Net interest income after provision for loan losses 6,896 (1,616) -526.7% --------- --------- Noninterest income Insurance commissions 1,254 1,337 -6.2% Service fee income 859 828 3.7% Realized securities gains (losses) 428 (6) n/a Other-than-temporary impairment of securities -- (4,495) 100.0% Other income 291 161 80.7% --------- --------- Total noninterest income 2,832 (2,175) -230.2% --------- --------- Noninterest expense Salaries and employee benefits 3,862 4,113 -6.1% Net occupancy expense 484 489 -1.0% Equipment expense 527 538 -2.0% Professional fees 330 173 90.8% FDIC premiums 660 180 266.7% Other expenses 2,004 1,792 11.8% --------- --------- Total noninterest expense 7,867 7,285 8.0% --------- --------- Income (loss) before income taxes 1,861 (11,076) 116.8% Income taxes 458 (3,402) 113.5% --------- --------- Net income (loss) $ 1,403 (7,674) 118.3% --------- --------- SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Quarterly Performance Summary -- Q3 2009 vs Q3 2008 For the Quarter Ended -------------------- Percent 9/30/2009 9/30/2008 Change --------------------------------------------------------------------- Per Share Data Earnings per share from continuing operations Basic $ 0.19 $ (1.04) 118.3% Diluted $ 0.19 $ (1.03) 118.4% Average shares outstanding Basic 7,425,472 7,410,791 0.2% Diluted 7,432,584 7,445,242 -0.2% Performance Ratios Return on average equity 6.49% -34.71% 118.7% Return on average assets 0.35% -1.99% 117.6% Net interest margin 2.99% 2.89% 3.5% Efficiency ratio - continuing operations (A) 56.27% 54.52% 3.2% NOTE: (A) - Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles. SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Nine Month Performance Summary -- 2009 vs 2008 For the Nine Months Ended -------------------- Percent Dollars in thousands 9/30/2009 9/30/2008 Change --------------------------------------------------------------------- Condensed Statements of Income Interest income Loans, including fees $ 54,364 $ 58,173 -6.5% Securities 13,798 11,655 18.4% Other 6 8 -25.0% --------- --------- Total interest income 68,168 69,836 -2.4% --------- --------- Interest expense Deposits 19,073 20,263 -5.9% Borrowings 15,757 16,876 -6.6% --------- --------- Total interest expense 34,830 37,139 -6.2% --------- --------- Net interest income 33,338 32,697 2.0% Provision for loan losses 13,500 14,750 -8.5% --------- --------- Net interest income after provision for loan losses 19,838 17,947 10.5% --------- --------- Noninterest income Insurance commissions 3,881 3,939 -1.5% Service fee income 2,452 2,395 2.4% Net cash settlement on interest rate swaps -- (171) 100.0% Change in fair value of interest rate swaps -- 705 -100.0% Realized securities gains (losses) 723 (6) n/a Other-than-temporary impairment of securities (4,983) (6,036) 17.4% Other income 858 975 -12.0% --------- --------- Total noninterest income 2,931 1,801 62.7% --------- --------- Noninterest expense Salaries and employee benefits 12,449 12,695 -1.9% Net occupancy expense 1,548 1,407 10.0% Equipment expense 1,622 1,606 1.0% Professional fees 1,067 473 125.6% FDIC premiums 2,288 534 328.5% Other expenses 5,353 4,807 11.4% --------- --------- Total noninterest expense 24,327 21,522 13.0% --------- --------- Income (loss) before income taxes (1,558) (1,774) 12.2% Income taxes (1,276) (518) -146.3% --------- --------- Net income (loss) $(282) $(1,256) 77.5% --------- --------- SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Nine Month Performance Summary -- 2009 vs 2008 For the Nine Months Ended -------------------- Percent 9/30/2009 9/30/2008 Change --------------------------------------------------------------------- Per Share Data Earnings per share Basic (0.04) (0.17) 76.5% Diluted (0.04) (0.17) 76.5% Average shares outstanding Basic 7,420,271 7,409,986 0.1% Diluted 7,433,911 7,447,313 -0.2% Performance Ratios Return on average equity -0.43% -1.82% 76.4% Return on average assets -0.02% -0.11% 81.8% Net interest margin 3.01% 3.16% -4.7% Efficiency ratio (A) 55.80% 52.11% 7.1% NOTE: (A) - Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles. SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Five Quarter Performance Summary For the Quarter Ended -------------------------------------------------- Dollars in thousands 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Condensed Statements of Income Interest income Loans, including fees $ 18,061 $ 18,050 $ 18,254 $ 19,343 $ 18,527 Securities 4,351 4,710 4,737 4,305 4,108 Other 5 1 -- 1 2 --------- --------- --------- ---------- --------- Total interest income 22,417 22,761 22,991 23,649 22,637 --------- --------- --------- ---------- --------- Interest expense Deposits 6,094 6,358 6,620 7,081 6,704 Borrowings 5,427 5,296 5,035 5,190 5,549 --------- --------- --------- ---------- --------- Total interest expense 11,521 11,654 11,655 12,271 12,253 --------- --------- --------- ---------- --------- Net interest income 10,896 11,107 11,336 11,378 10,384 Provision for loan losses 4,000 5,500 4,000 750 12,000 --------- --------- --------- ---------- --------- Net interest income after provision for loan losses 6,896 5,607 7,336 10,628 (1,616) --------- --------- --------- ---------- --------- Noninterest income Insurance commissions 1,254 1,283 1,344 1,200 1,337 Service fee income 859 857 736 851 828 Realized securities gains (losses) 428 39 256 -- (6) Other-than- temporary impairment of securities -- (4,768) (215) (1,024) (4,495) Other income 291 247 319 40 161 --------- --------- --------- ---------- --------- Total noninterest income 2,832 (2,342) 2,440 1,067 (2,175) --------- --------- --------- ---------- --------- Noninterest expense Salaries and employee benefits 3,862 4,308 4,279 4,047 4,113 Net occupancy expense 484 466 597 463 489 Equipment expense 527 527 568 567 538 Professional fees 330 403 334 250 173 FDIC premiums 660 1,245 383 210 180 Other expenses 2,004 1,760 1,590 2,324 1,792 --------- --------- --------- ---------- --------- Total noninterest expense 7,867 8,709 7,751 7,861 7,285 --------- --------- --------- ---------- --------- Income (loss) before income taxes 1,861 (5,444) 2,025 3,834 (11,076) Income taxes 458 (1,994) 260 277 (3,402) --------- --------- --------- ---------- --------- Net income (loss) $ 1,403 $ (3,450) $ 1,765 $ 3,557 $ (7,674) --------- --------- --------- ---------- --------- SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Five Quarter Performance Summary For the Quarter Ended ------------------------------------------------------ 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Per Share Data Earnings per share Basic 0.19 $ (0.47) $ 0.24 $ 0.48 $ (1.04) Diluted 0.19 $ (0.46) $ 0.24 $ 0.48 $ (1.03) Average shares outstanding Basic 7,425,472 7,419,974 7,415,310 7,411,577 7,410,791 Diluted 7,432,584 7,431,969 7,435,510 7,434,643 7,445,242 Performance Ratios Return on average equity 6.49% -16.13% 7.94% 17.08% -34.71% Return on average assets 0.35% -0.86% 0.43% 0.89% -1.99% Net interest margin 2.99% 3.00% 3.04% 3.04% 2.89% Efficiency ratio - continuing operations (A) 56.27% 56.50% 54.63% 51.14% 54.52% NOTE: (A) - Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles. SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Selected Balance Sheet Data For the Quarter Ended ----------------------------------------------------- Dollars in thousands, except per share amounts 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Assets $1,577,793 $1,583,910 $1,598,968 $1,627,066 $1,567,325 Securities 285,156 289,267 295,706 350,622 327,648 Loans, net 1,156,432 1,165,653 1,186,042 1,192,157 1,145,606 Intangible assets 9,441 9,529 9,617 9,704 9,792 Retail deposits 702,785 705,953 699,065 669,261 663,569 Brokered time deposits 267,237 248,271 256,293 296,589 281,655 Short-term borrowings 73,733 104,718 120,480 153,100 98,316 Long-term borrowings and subordinated debentures 433,037 432,391 430,687 412,337 434,016 Shareholders' equity 91,937 83,753 83,604 87,244 80,510 Book value per common share $ 12.38 $ 11.28 $ 11.27 $ 11.77 $ 10.86 Tangible book value per common share $ 11.11 $ 10.00 $ 9.98 $ 10.46 $ 9.54 Tangible equity / Tangible assets 5.3% 4.7% 4.7% 4.8% 4.5% Tier 1 leverage ratio 6.4% 6.1% 6.2% 6.2% 6.2% SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF) Loan Composition Dollars in thousands 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Commercial $ 125,743 $ 126,661 $ 128,707 $ 130,106 $ 115,106 Commercial real estate 457,669 459,671 452,987 452,264 423,982 Construction and development 176,783 183,733 211,849 215,465 225,582 Residential real estate 376,440 376,019 380,351 376,026 366,989 Consumer 29,555 30,179 30,201 31,519 31,433 Other 6,087 5,760 6,133 6,061 6,240 ---------- ---------- ---------- ---------- ---------- Total loans 1,172,277 1,182,023 1,210,228 1,211,441 1,169,332 Less unearned fees and interest 1,997 2,065 2,190 2,351 2,293 ---------- ---------- ---------- ---------- ---------- Total loans net of unearned fees and interest 1,170,280 1,179,958 1,208,038 1,209,090 1,167,039 Less allowance for loan losses 13,848 14,305 21,996 16,933 21,433 ---------- ---------- ---------- ---------- ---------- Loans, net $1,156,432 $1,165,653 $1,186,042 $1,192,157 $1,145,606 ========== ========== ========== ========== ========== SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF) Retail Deposit Composition Dollars in thousands 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Non interest bearing checking $ 68,929 $ 69,878 $ 70,483 $ 69,808 $ 70,353 Interest bearing checking 154,683 152,498 155,157 156,990 182,383 Savings 115,767 105,828 94,294 61,688 58,678 Time deposits 363,406 377,749 379,131 380,775 352,155 ---------- ---------- ---------- ---------- ---------- Total retail deposits $ 702,785 $ 705,953 $ 699,065 $ 669,261 $ 663,569 ========== ========== ========== ========== ========== SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Asset Quality Information For the Quarter Ended ------------------------------------------------------ Dollars in thousands 9/30/2009 6/30/2009 3/31/2009 12/31/2008 9/30/2008 --------------------------------------------------------------------- Gross loan charge-offs $ 4,586 $ 13,288 $ 522 $ 5,351 $ 969 Gross loan recoveries (127) (98) (1,585) (102) (52) -------- -------- -------- -------- -------- Net loan charge-offs $ 4,459 $ 13,190 $ (1,063) $ 5,249 $ 917 ======== ======== ======== ======== ======== Net loan charge-offs to average loans (annualized) 1.51% 4.37% -0.35% 1.75% 0.32% Allowance for loan losses $ 13,848 $ 14,305 $ 21,996 $ 16,933 $ 21,433 Allowance for loan losses as a percentage of period end loans 1.18% 1.21% 1.82% 1.40% 1.87% Nonperforming assets: Nonperforming loans Commercial $ 431 $ 680 $ 637 $ 199 $ 140 Commercial real estate 22,684 23,287 25,788 24,323 27,347 Construction and development 27,084 29,508 45,194 18,382 29,127 Residential real estate 8,578 8,116 7,933 4,986 2,799 Consumer 75 107 31 79 432 -------- -------- -------- -------- -------- Total nonperform- ing loans 58,852 61,698 79,583 47,969 59,845 -------- -------- -------- -------- -------- Foreclosed properties Commercial real estate 4,873 4,561 961 875 1,375 Construction and development 25,278 14,904 6,726 6,755 180 Residential real estate 1,042 970 120 480 677 -------- -------- -------- -------- -------- Total foreclosed properties 31,193 20,435 7,807 8,110 2,232 -------- -------- -------- -------- -------- Other repossessed assets 1 11 17 3 52 -------- -------- -------- -------- -------- Total $ 90,046 $ 82,144 $ 87,407 $ 56,082 $ 62,129 ======== ======== ======== ======== ======== Nonperforming loans to period end loans 5.02% 5.22% 6.58% 3.97% 5.13% Nonperforming assets to period end assets 5.71% 5.19% 5.47% 3.45% 3.96% SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Average Balance Sheet, Interest Earnings & Expenses and Average Rates Q3 2009 vs Q3 2008 Q3 2009 Q3 2008 -------------------------- -------------------------- Dollars in Average Earnings/ Yield/ Average Earnings/ Yield/ thousands Balances Expense Rate Balances Expense Rate ------------------------------------------ -------------------------- ASSETS Interest earning assets Loans, net of unearned interest Taxable $1,174,120 $ 17,952 6.07% $1,144,923 $ 18,413 6.40% Tax-exempt 8,068 168 8.26% 8,365 173 8.23% Securities Taxable 261,382 3,808 5.78% 269,735 3,563 5.25% Tax-exempt 48,434 823 6.74% 50,484 820 6.46% Interest bearing deposits other banks and Federal funds sold 819 5 2.42% 295 2 2.70% ---------- -------- ------ ---------- -------- ------ Total interest earning assets 1,492,823 22,756 6.05% 1,473,802 22,971 6.20% Noninterest earning assets Cash & due from banks 26,284 20,936 Premises & equipment 23,955 22,047 Other assets 66,611 38,782 Allowance for loan losses (15,654) (11,053) ---------- ---------- Total assets $1,594,019 $1,544,514 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Interest bearing liabilities Interest bearing demand deposits $ 153,941 $ 194 0.50% $ 187,442 $ 586 1.24% Savings deposits 111,570 403 1.43% 60,584 261 1.71% Time deposits 632,660 5,497 3.45% 585,197 5,857 3.98% Short-term borrowings 82,352 128 0.62% 119,769 671 2.23% Long-term borrowings and subordinated debentures 437,102 5,299 4.81% 418,093 4,878 4.64% ---------- -------- ------ ---------- -------- ------ 1,417,625 11,521 3.22% 1,371,085 12,253 3.56% Noninterest bearing liabilities Demand deposits 81,774 78,012 Other liabilities 8,189 6,991 ---------- ---------- Total liabilities 1,507,588 1,456,088 Shareholders' equity 86,431 88,426 ---------- ---------- Total liabilities and share- holders' equity $1,594,019 $1,544,514 ========== ========== NET INTEREST EARNINGS $ 11,235 $ 10,718 -------- -------- NET INTEREST YIELD ON EARNING ASSETS 2.99% 2.89% ====== ====== SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Average Balance Sheet, Interest Earnings & Expenses and Average Rates YTD 2009 vs YTD 2008 For the Nine Months Ended For the Nine Months Ended September 30, September 30, -------------------------- -------------------------- 2009 2008 -------------------------- -------------------------- Dollars in Average Earnings/ Yield/ Average Earnings/ Yield/ thousands Balances Expense Rate Balances Expense Rate ------------------------------------------ -------------------------- ASSETS Interest earning assets Loans, net of unearned interest Taxable $1,191,692 $ 54,033 6.06% $1,107,474 $ 57,824 6.97% Tax-exempt 8,112 502 8.27% 8,647 529 8.17% Securities Taxable 277,558 12,226 5.89% 256,914 9,921 5.16% Tax-exempt 46,988 2,382 6.78% 50,923 2,594 6.80% Interest bearing deposits other banks and Federal funds sold 1,022 6 0.78% 391 7 2.39% ---------- -------- ------ ---------- -------- ------ Total interest earning assets 1,525,372 69,149 6.06% 1,424,349 70,875 6.65% Noninterest earning assets Cash & due from banks 21,873 18,118 Premises & equipment 23,446 22,058 Other assets 54,881 37,579 Allowance for loan losses (19,377) (10,176) ---------- ---------- Total assets $1,606,195 $1,491,928 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Interest bearing liabilities Interest bearing demand deposits $ 154,945 $ 586 0.51% $ 198,246 $ 2,134 1.44% Savings deposits 96,011 1,173 1.63% 54,583 668 1.63% Time deposits 636,569 17,314 3.64% 536,493 17,461 4.35% Short-term borrowings 113,896 487 0.57% 110,228 2,161 2.62% Long-term borrowings and subordinated debentures 430,947 15,270 4.74% 418,265 14,715 4.70% ---------- -------- ------ ---------- -------- ------ 1,432,368 34,830 3.25% 1,317,815 37,139 3.76% Noninterest bearing liabilities Demand deposits 79,122 74,153 Other liabilities 8,083 8,085 ---------- ---------- Total liabilities 1,519,573 1,400,053 Shareholders' equity 86,622 91,875 ---------- ---------- Total liabilities and shareholders' equity $1,606,195 $1,491,928 ---------- ---------- NET INTEREST EARNINGS $ 34,319 $ 33,736 ======== ======== NET INTEREST YIELD ON EARNING ASSETS 3.01% 3.16% ----- ------ SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures For the For the Quarter Ended Nine Months Ended ------------------ ------------------ Dollars in thousands 9/30/2009 9/30/2008 9/30/2009 9/30/2008 --------------------------------------------------------------------- Net income - excluding realized securities gains/losses, other-than- temporary impairment of securities, gains/losses on sales of assets, FDIC special assessment and change in fair value of interest rate swaps $ 1,128 $ (4,776) $ 2,937 $ 2,020 Realized securities gains/(losses) 428 (6) 723 (6) Applicable income tax effect (158) 2 (268) 2 Other-than-temporary impairment of securities -- (4,495) (4,983) (6,036) Applicable income tax effect -- 1,663 1,844 2,233 Gains/(losses) on sales of assets 9 (99) (115) 137 Applicable income tax effect (3) 37 43 (51) FDIC special assessment -- -- (735) -- Applicable income tax effect -- -- 272 -- Change in fair value of interest rate swaps -- -- -- 705 Applicable income tax effect -- -- -- (261) -------- -------- -------- -------- 275 (2,898) (3,219) (3,276) -------- -------- -------- -------- GAAP net income $ 1,403 $ (7,674) $ (282) $ (1,256) ======== ======== ======== ======== Diluted earnings per share - excluding realized securities gains/losses, other-than- temporary impairment of securities, gains/losses on sales of assets, FDIC special assessment and change in fair value of interest rate swaps $ 0.15 $ (0.64) $ 0.39 $ 0.27 Realized securities gains/(losses) 0.06 -- 0.10 -- Applicable income tax effect (0.02) -- (0.04) -- Other-than-temporary impairment of securities -- (0.60) (0.67) (0.81) Applicable income tax effect -- 0.22 0.25 0.30 Gains/(losses) on sales of assets -- (0.01) (0.02) 0.02 Applicable income tax effect -- 0.00 0.01 (0.01) FDIC special assessment -- -- (0.10) -- Applicable income tax effect -- -- 0.04 -- Change in fair value of interest rate swaps -- -- -- 0.09 Applicable income tax effect -- -- -- (0.03) -------- -------- -------- -------- 0.04 (0.39) (0.43) (0.44) -------- -------- -------- -------- GAAP diluted earnings per share $ 0.19 $ (1.03) $ (0.04) $ (0.17) ======== ======== ======== ======== SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (con't) For the For the Quarter Ended Nine Months Ended -------------------------------------- Dollars in thousands 9/30/2009 9/30/2008 9/30/2009 9/30/2008 --------------------------------------------------------------------- Total revenue - excluding realized securities gains/ (losses) other-than-temporary impairment of securities and change in fair value of interest rate swaps $ 13,291 $ 12,809 $ 40,644 $ 39,698 Realized securities gains/ (losses) 428 (6) 723 (6) Other-than-temporary impairment of securities -- (4,495) (4,983) (6,036) Gains/(losses) on sales of assets 9 (99) (115) 137 Change in fair value of interest rate swaps -- -- -- 705 -------- -------- -------- -------- 437 (4,600) (4,375) (5,200) -------- -------- -------- -------- GAAP total revenue $ 13,728 $ 8,209 $ 36,269 $ 34,498 ======== ======== ======== ======== Total noninterest income - excluding realized securities gains/(losses), other-than- temporary impairment of securities and change in fair value of interest rate swaps $ 2,396 $ 2,425 $ 7,306 $ 7,001 Realized securities gains/(losses) 428 (6) 723 (6) Other-than-temporary impairment of securities -- (4,495) (4,983) (6,036) Gains/(losses) on sales of assets 9 (99) (115) 137 Change in fair value of interest rate swaps -- -- -- 705 -------- -------- -------- -------- 437 (4,600) (4,375) (5,200) -------- -------- -------- -------- GAAP total noninterest income $ 2,833 $ (2,175) $ 2,931 $ 1,801 ======== ======== ======== ========
CONTACT: Summit Financial Group, Inc. Robert S. Tissue, Sr. Vice President & CFO (304) 530-0552 rtissue@SummitFGI.com

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