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Summit Financial Group Reports 2010 Second Quarter Results

MOOREFIELD, W.Va., Aug. 6, 2010 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported a second quarter net loss applicable to common shares of $2.95 million, or ($0.40) per diluted share, compared to a net loss of $3.45 million, or ($0.46) per diluted share for the second quarter of 2009. For the first six months of 2010, the Company recorded a net loss applicable to common shares of $2.91 million, or ($0.39) per diluted share, compared to a net loss of $1.69 million, or ($0.23) per diluted share for the first six-months of 2009.

H. Charles Maddy III, President and Chief Executive Officer of Summit, commented, "We remain disappointed by our operating results. However, there are some signs of improved real estate sales activity in our northern Virginia markets -- albeit valuations remain depressed. This past quarter, we sold $11 million of our problem assets, and we have another $11 million of nonperforming assets under contract which we expect to dispose of during the current quarter. We continue to aggressively manage our nonperforming assets through a combination of asset sales, loan work-outs and charge-offs.

"Our earnings continue to be reduced by higher provisions for loan losses, foregone interest income on nonperforming assets, and expenses associated with the administration and resolution of our problem asset portfolio. We have managed to offset much of the impact through improved efficiencies and a reduction in funding costs. Our portfolio of local deposits has grown significantly over the past year, allowing us to reduce our reliance on short-term borrowings in absolute dollar terms and as a percent of total deposits, enabling us to maintain a reasonably stable net interest margin over the past year."

Results from Operations

Second quarter 2010 total revenue, consisting of net interest income and noninterest income, was $11.6 million compared to $8.8 million reported for the second quarter of 2009. Net interest income was $9.94 million, down 10.5 percent from the $11.1 million earned in the year-ago quarter; the decline resulted from the combined impact of a lower net interest margin, down eight basis points year over year to 2.92 percent, as well as a 7.7 percent decline in average earnings assets, to $1.41 billion.

Noninterest income for the second quarter of 2010 was $1.68 million compared to a negative $2.34 million for the second quarter of 2009. Excluding one-time net charges of $0.94 million for the 2010 second quarter related to a $2.2 million write-down of foreclosed property, partially offset by a $1.26 million gain on the sale of securities, and for the second quarter of 2009, excluding an other-than-temporary impairment ("OTTI") charge of $4.8 million, second quarter 2010 noninterest income from operations was $2.6 million, up 8.0 percent from the prior-year second quarter noninterest income from operations of $2.4 million.

The provision for loan losses was $8.5 million for the second quarter of 2010, and $13.9 million for 2010 year-to-date; this compares with a 2009 second quarter provision of $5.5 million and $9.5 million for the 2009 six-month period. Summit continues to build its loan loss reserves in addition to recording an aggressive level of charge-offs: $10 million year-to-date. The loan loss reserve now stands at $20.8 million, or 1.91 percent of total loans, compared to 1.21 percent at June 30, 2009.

Second quarter 2010 noninterest expense was $7.7 million, a decrease of $1.0 million, or 12.1 percent, from the $8.7 million recorded in the second quarter of 2009, which included the impact of the FDIC special assessment of $735,000 in Q2 2009. Salaries and employee benefit expense, the largest component of noninterest expense, declined by $0.47 million, or 10.9 percent, from the year-ago quarter due to compensation freezes and staff reductions.

Balance Sheet

Total assets at June 30, 2010 were $1.52 billion, a decline of approximately $64 million, or four percent over the past year, and $17 million, or one percent, from the previous quarter. Total loans, net of unearned interest and fees, were $1.09 billion at June 30, 2010, down $94.1 million from June 30, 2009 and $44.5 million from the linked quarter. Over the past twelve months, all loan categories experienced declines, in particular, construction and development ("C&D") loans declined by $40 million, or 22 percent, and commercial real estate ("CRE") declined by $27 million, or six percent. The majority of decline in CRE loans took place in the most recent quarter -- $23.8 million -- while C&D loans declined consistently throughout the past four quarters. CRE remains Summit's largest loan category, at $432 million, or 40 percent of total loans at June 30, 2010, followed by residential real estate loans, at $363 million, or 33 percent of the total. C&D loans declined from 13.2 percent of the total portfolio at June 30, 2010 to 15.5 percent at June 30, 2009. 

Retail deposits were $781 million at June 30, 2010, up $75 million, or 10.6 percent, over the past twelve months; the majority of this growth occurred in the fourth quarter of 2009, as fourth quarter savings/money market ("Savings") accounts increased by $72.7 million. Over the past four quarters, Savings accounts grew by $90.4 million, enabling Summit to reduce short-term FHLB advances by $102 million. At June 30, 2010, Savings accounted for 25 percent of retail deposits, or $196.2 million, compared with 15 percent for the year-ago quarter.

In addition to the $102 million decline in short-term FHLB advances, Summit reduced the balances of other borrowed funds by $43 million, including repayment of $8 million of brokered deposits (down 3.2 percent) and $35 million of long-term borrowings.

Asset Quality

At June 30, 2010, nonperforming assets ("NPAs"), consisting of nonperforming loans and repossessed assets, were $111.8 million, or 7.4 percent of total assets, compared to $106.4 million (6.9 percent of total assets) for the previous quarter and $82.1 million (5.2 percent of total assets) for June 30, 2009. Approximately 90 percent of Summit's $111.8 million of NPAs consist of C&D (residential and commercial combined) and CRE problem credits: $69.8 million and $30.4 million, respectively, of total NPAs. This compares to C&D and CRE-related problem assets of $44.4 million and $27.8 million, respectively, for the year-ago quarter.

At June 30, 2010, nonperforming loans were $42.0 million, a decline of $13.5 million, or 24.4 percent, while foreclosed and repossessed assets ("OREO") totaled $69.8 million, up $19.0 million, or 37.3 percent, from the linked quarter. Of the total $69.8 million of OREO at June 30, 2010, foreclosed CRE and C&D assets accounted for $15.0 million and $50.7 million, respectively.

Residential real estate and commercial ("C&I") assets accounted for the remainder of the nonperforming asset portfolio. As of June 30, 2010, nonperforming residential real estate assets totaled $9.9 million, while C&I nonaccrual loans were $1.3 million.   

At June 30, 2010, net loan charge-offs were $5.6 million, or 1.94 percent of average loans annualized, compared to $4.5 million (1.57 percent annualized) and $13.2 million (4.37 percent annualized) for March 31, 2010 and June 30, 2009, respectively. Since year-end 2009, Summit has charged-off $10.5 million of loans while growing the allowance for loan losses by $3.8 million. As of June 30, 2010, the allowance for loan losses stood at $20.8 million, or 1.91 percent of total loans, compared to 1.58 percent in the linked-quarter and 1.47 percent at 2009 year-end.

Capital Adequacy

Shareholders' equity at June 30, 2010 was $88.9 million compared to $83.8 million at June 30, 2009. Summit's depository institution, Summit Community Bank, continues to exceed regulatory requirements for a "well capitalized" institution and is in compliance with all regulatory capital requirements; at June 30, 2010, its Total risk-based capital ratio was 12.02 percent, while its Tier 1 leverage capital ratio was 8.05 percent compared to 10.76% and 7.23%, respectively, at June 30, 2009. Total common shares outstanding as of June 30, 2010 were 7,425,472.

In conclusion, Mr. Maddy commented, "We are managing our business to conserve capital while we address a level of problem assets that remains stubbornly high. The hard lessons learned through this downturn should position us for higher performance in future quarters, and our results should reflect these improvements as the economy returns to a more normal state."

About the Company

Summit Financial Group, Inc., a financial holding company with total assets of $1.5 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 GAAP performance measures to exclude the effects of realized and unrealized securities gains and losses, unrealized OREO writedowns, and FDIC special assessment 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.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary -- Q2 2010 vs Q2 2009
     
  For the Quarter Ended  Percent 
 Dollars in thousands  6/30/2010 6/30/2009 Change
Condensed Statements of Income       
Interest income       
Loans, including fees   $ 16,614 $ 18,050 -8.0%
Securities   3,592  4,710 -23.7%
Other   2  1 NM
Total interest income   20,208  22,761 -11.2%
Interest expense       
Deposits   5,378  6,358 -15.4%
Borrowings   4,894  5,296 -7.6%
Total interest expense   10,272  11,654 -11.9%
Net interest income   9,936  11,107 -10.5%
Provision for loan losses   8,500  5,500 54.5%
Net interest income after provision for loan losses   1,436  5,607 -74.4%
Noninterest income       
Insurance commissions   1,223  1,283 -4.7%
Service fee income   828  857 -3.4%
Realized securities gains (losses)   1,256  39 NM
Other-than-temporary impairment of securities   --  (4,768) NM
Unrealized writedown OREO   (2,194)  -- NM
Other income   568  247 130.0%
Total noninterest income  1,681  (2,342) -171.8%
Noninterest expense       
Salaries and employee benefits  3,839  4,308 -10.9%
Net occupancy expense  509  466 9.2%
Equipment expense  634  527 20.3%
Professional fees  262  403 -35.0%
FDIC premiums  625  1,245 -49.8%
Other expenses  1,787  1,760 1.5%
Total noninterest expense  7,656  8,709 -12.1%
Income before income taxes   (4,539)  (5,444) -16.6%
Income taxes   (1,661)  (1,994) -16.7%
Net income (loss)   (2,878)  (3,450) -16.6%
Preferred stock dividends   74  -- NM
       
Net income (loss) applicable to common shares  $ (2,952)  $ (3,450) -14.4%
       
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary -- Q2 2010 vs Q2 2009
     
  For the Quarter Ended  Percent 
  6/30/2010 6/30/2009 Change 
 Per Share Data       
Earnings per share from continuing operations       
Basic   $ (0.40)  $ (0.47) -14.9%
Diluted   $ (0.40)  $ (0.46) -13.0%
       
Average shares outstanding       
Basic   7,425,472  7,419,974 0.1%
Diluted   7,425,472  7,431,969 -0.1%
       
Performance Ratios       
Return on average equity (A)  -13.16% -16.13% -18.4%
Return on average assets  -0.75% -0.86% -12.8%
Net interest margin  2.92% 3.00% -2.7%
Efficiency ratio (B)  59.14% 56.50% 4.7%

NOTE (A) – Net income divided by total shareholders equity less preferred equity.

NOTE (B) – Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary -- 2010 vs 2009
       
  For the Six Months Ended  Percent 
 Dollars in thousands  6/30/2010 6/30/2009 Change 
Condensed Statements of Income       
Interest income       
Loans, including fees   $ 33,654  $ 36,303 -7.3%
Securities   7,185  9,447 -23.9%
Other   13  1 NM
Total interest income   40,852  45,751 -10.7%
Interest expense       
Deposits   10,876  12,979 -16.2%
Borrowings   9,809  10,330 -5.0%
Total interest expense   20,685  23,309 -11.3%
Net interest income   20,167  22,442 -10.1%
Provision for loan losses   13,850  9,500 45.8%
Net interest income after provision for loan losses   6,317  12,942 -51.2%
Noninterest income       
Insurance commissions   2,432  2,627 -7.4%
Service fee income   1,535  1,593 -3.6%
Realized securities gains (losses)   1,520  295 NM
Other-than-temporary impairment of securities   (29)  (4,983) NM
Unrealized writedown OREO   (2,194)  -- NM
Other income   934  567 64.7%
Total noninterest income  4,198  99 NM
Noninterest expense       
Salaries and employee benefits  7,563  8,587 -11.9%
Net occupancy expense  1,031  1,063 -3.0%
Equipment expense  1,264  1,095 15.4%
Professional fees  536  737 -27.3%
FDIC premiums  1,450  1,628 -10.9%
Other expenses  3,422  3,350 2.1%
Total noninterest expense  15,266  16,460 -7.3%
Income (loss) before income taxes   (4,751)  (3,419) 39.0%
Income taxes   (1,993)  (1,734) 14.9%
Net income (loss)   (2,758)  (1,685) 63.7%
Preferred stock dividends   148  -- NM
       
Net income (loss) applicable to common shares  $ (2,906)  $ (1,685) 72.5%
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary -- 2010 vs 2009
     
  For the Six Months Ended  Percent 
  6/30/2010 6/30/2009 Change 
Per Share Data       
Earnings per share       
Basic   (0.39)  (0.23) 69.6%
Diluted   (0.39)  (0.23) 69.6%
       
Average shares outstanding       
Basic   7,425,472  7,417,642 0.1%
Diluted   7,425,472  7,433,494 -0.1%
       
Performance Ratios       
Return on average equity (A)  -6.29% -3.89% 61.7%
Return on average assets  -0.36% -0.21% 71.4%
Net interest margin  2.96% 3.02% -2.0%
Efficiency ratio (B)  58.45% 55.56% 5.2%

NOTE (A) – Net income divided by total shareholders equity less preferred equity.

NOTE (B) – 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  6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
Condensed Statements of Income           
Interest income           
Loans, including fees   $ 16,614  $ 17,040  $ 17,480  $ 18,061  $ 18,050
Securities   3,592  3,594  3,882  4,351  4,710
Other   2  11  6  5  1
Total interest income   20,208  20,645  21,368  22,417  22,761
Interest expense           
Deposits   5,378  5,498  5,878  6,094  6,358
Borrowings   4,894  4,915  5,286  5,427  5,296
Total interest expense   10,272  10,413  11,164  11,521  11,654
Net interest income   9,936  10,232  10,204  10,896  11,107
Provision for loan losses   8,500  5,350  6,825  4,000  5,500
Net interest income after provision for loan losses   1,436  4,882  3,379  6,896  5,607
Noninterest income           
Insurance commissions   1,223  1,209  1,164  1,254  1,283
Service fee income   828  707  878  859  857
Realized securities gains (losses)   1,256  264  773  428  39
Other-than-temporary impairment of securities   --  (29)  (383)  --  (4,768)
Unrealized writedown OREO   (2,194)  --  --  --  --
Other income   568  365  437  291  247
Total noninterest income  1,681  2,516  2,869  2,832  (2,342)
Noninterest expense           
Salaries and employee benefits  3,839  3,723  3,459  3,862  4,308
Net occupancy expense  509  521  484  484  466
Equipment expense  634  629  529  527  527
Professional fees  262  274  342  330  403
FDIC premiums  625  825  935  660  1,245
Other expenses  1,787  1,638  1,822  2,004  1,760
Total noninterest expense  7,656  7,610  7,571  7,867  8,709
Income (loss) before income taxes   (4,539)  (212)  (1,323)  1,861  (5,444)
Income taxes   (1,661)  (332)  (889)  458  (1,994)
Net income (loss)   (2,878)  120  (434)  1,403  (3,450)
Preferred stock dividends   74  74  74  --  --
Net income (loss) applicable to common shares  $ (2,952)  $ 46  $ (508)  $ 1,403  $ (3,450)
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary
         
  For the Quarter Ended 
  6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
Per Share Data           
Earnings per share           
Basic   $ (0.40)  $ 0.01  $ (0.07)  $ 0.19  $ (0.47)
Diluted   $ (0.40)  $ 0.01  $ (0.07)  $ 0.19  $ (0.46)
           
Average shares outstanding           
Basic   7,425,472  7,425,472  7,425,472  7,425,472  7,419,974
Diluted   7,425,472  7,425,472  7,425,472  7,432,584  7,431,969
           
Performance Ratios           
Return on average equity (A)  -13.16% 0.20% -2.21% 6.49% -16.13%
Return on average assets  -0.75% 0.01% -0.13% 0.35% -0.86%
Net interest margin  2.92% 3.00% 2.83% 2.99% 3.00%
Efficiency ratio - (B)  59.14% 57.78% 57.33% 56.27% 56.50%

NOTE (A) – Net income divided by total shareholders equity less preferred equity.

NOTE (B) – 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  6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
Assets           
Cash and due from banks  $ 4,190  $ 5,163  $ 6,813  $ 4,415  $ 4,281
Interest bearing deposits other banks  24,810  9,032  34,247  6,195  10,505
Securities  258,971  262,566  271,654  285,156  289,267
Loans, net  1,065,118  1,112,526  1,137,336  1,156,432  1,165,653
Property held for sale  69,478  50,562  40,293  31,193  20,435
Intangible assets  9,178  9,265  9,353  9,441  9,529
Other assets  87,861  87,382  84,929  84,961  84,240
Total assets  $ 1,519,606  $ 1,536,496  $ 1,584,625  $ 1,577,793  $ 1,583,910
           
Liabilities and Shareholders' Equity           
Retail deposits  $ 780,809  $ 776,251  $ 775,524  $ 702,785  $ 705,953
Brokered time deposits  240,329  234,785  241,814  267,237  248,271
Short-term borrowings  2,739  27,456  49,739  73,733  104,718
Long-term borrowings and subordinated debentures  397,564  397,724  417,881  433,037  432,391
Other liabilities  9,311  9,746  9,007  9,064  8,824
Shareholders' equity  88,854  90,534  90,660  91,937  83,753
Total liabilities and shareholders' equity  $ 1,519,606  $ 1,536,496  $ 1,584,625  $ 1,577,793  $ 1,583,910
           
Book value per common share (A)  $ 10.97  $ 11.18  $ 11.19  $ 11.35  $ 11.28
Tangible book value per common share (A)  $ 9.84  $ 10.03  $ 10.04  $ 10.18  $ 10.00
Tangible equity / Tangible assets 5.3% 5.3% 5.2% 5.3% 4.7%

NOTE: (A) – Assumes conversion of convertible preferred stock

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition
           
Dollars in thousands 6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
Commercial  $ 117,334  $ 121,514  $ 122,508  $ 125,743  $ 126,661
Commercial real estate  432,321  456,120  465,037  457,669  459,671
Construction and development  143,907  151,281  162,080  176,783  183,733
Residential real estate  362,649  370,713  372,867  376,440  376,019
Consumer  25,968  26,974  28,203  29,555  30,179
Other  5,540  5,685  5,652  6,087  5,760
Total loans  1,087,719  1,132,287  1,156,347  1,172,277  1,182,023
Less unearned fees and interest  1,833  1,918  2,011  1,997  2,065
Total loans net of unearned fees and interest  1,085,886  1,130,369  1,154,336  1,170,280  1,179,958
Less allowance for loan losses  20,768  17,843  17,000  13,848  14,305
Loans, net  $ 1,065,118  $ 1,112,526  $ 1,137,336  $ 1,156,432  $ 1,165,653
 
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Retail Deposit Composition
           
Dollars in thousands 6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
Non interest bearing checking  $ 73,519  $ 71,100  $ 74,119  $ 68,929  $ 69,878
Interest bearing checking  142,771  148,657  148,587  154,683  152,498
Savings  196,224  198,303  188,419  115,767  105,828
Time deposits  368,295  358,191  364,399  363,406  377,749
Total retail deposits  $ 780,809  $ 776,251  $ 775,524  $ 702,785  $ 705,953
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information
  For the Quarter Ended 
Dollars in thousands  6/30/2010 3/31/2010 12/31/2009 9/30/2009 6/30/2009
           
Gross loan charge-offs  $ 5,907  $ 4,606  $ 3,864  $ 4,586  $ 13,288
Gross loan recoveries  (332)  (99)  (192)  (127)  (98)
Net loan charge-offs  $ 5,575  $ 4,507  $ 3,672  $ 4,459  $ 13,190
           
Net loan charge-offs to average loans (annualized) 1.94% 1.57% 1.25% 1.51% 4.37%
Allowance for loan losses  $ 20,768  $ 17,843  $ 17,000  $ 13,848  $ 14,305
Allowance for loan losses as a percentage of period end loans 1.91% 1.58% 1.47% 1.18% 1.21%
Nonperforming assets:          
Nonperforming loans          
Commercial  $ 1,347  $ 511  $ 431  $ 431  $ 680
Commercial real estate  15,387  33,907  35,217  22,684  23,287
Commercial construction and development  812  9,668  11,553  10,354  11,156
Residential construction and development  18,307  7,018  14,775  16,730  18,352
Residential real estate  6,125  4,220  4,563  8,578  8,116
Consumer  23  209  403  75  107
Total nonperforming loans  42,001  55,533  66,942  58,852  61,698
Foreclosed properties          
Commercial real estate  15,011  5,086  4,788  4,873  4,561
Commercial construction and development  16,213  4,814  2,028  1,903  903
Residential construction and development  34,506  36,447  30,230  23,375  14,001
Residential real estate  3,748  4,215  3,247  1,042  970
Total foreclosed properties  69,478  50,562  40,293  31,193  20,435
Other repossessed assets  333  291  269  1  11
Total nonperforming assets  $ 111,812  $ 106,386  $ 107,504  $ 90,046  $ 82,144
           
Nonperforming loans to period end loans 3.86% 4.90% 5.79% 5.02% 5.22%
Nonperforming assets to period end assets 7.36% 6.92% 6.78% 5.71% 5.19%
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q2 2010 vs Q2 2009
  Q2 2010 Q2 2009
  Average Earnings / Yield / Average Earnings / Yield /
Dollars in thousands Balances Expense Rate Balances Expense Rate
             
ASSETS            
Interest earning assets            
Loans, net of unearned interest            
Taxable  $ 1,116,980  $ 16,533 5.94%  $ 1,198,606  $ 17,936 6.00%
Tax-exempt  6,070  123 8.13%  8,312  171 8.25%
Securities            
Taxable  247,404  3,226 5.23%  273,515  4,194 6.15%
Tax-exempt  41,156  685 6.75%  46,466  782 6.75%
Interest bearing deposits other banks and Federal funds sold  1,075  2 0.75%  3,454  1 0.12%
Total interest earning assets  1,412,685  20,569 5.84%  1,530,353  23,084 6.05%
             
Noninterest earning assets            
Cash & due from banks  13,454      20,355    
Premises & equipment  23,926      23,649    
Other assets  99,812      51,378    
Allowance for loan losses  (19,003)      (23,151)    
Total assets  $ 1,530,874      $ 1,602,584    
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
Liabilities            
Interest bearing liabilities            
Interest bearing demand deposits  $ 145,966  $ 157 0.43%  $ 156,957  $ 196 0.50%
Savings deposits  196,653  637 1.30%  100,967  430 1.71%
Time deposits  601,629  4,585 3.06%  630,290  5,732 3.65%
Short-term borrowings  16,231  20 0.49%  107,922  146 0.54%
Long-term borrowings and subordinated debentures  397,640  4,874 4.92%  431,828  5,150 4.78%
   1,358,119  10,273 3.03%  1,427,964  11,654 3.27%
Noninterest bearing liabilities            
Demand deposits  71,934      81,022    
Other liabilities  9,855      8,039    
Total liabilities  1,439,908      1,517,025    
             
Shareholders' equity - preferred  3,519      --    
Shareholders' equity - common  87,447      85,559    
Total liabilities and shareholders' equity  $ 1,530,874      $ 1,602,584    
             
NET INTEREST EARNINGS    $ 10,296      $ 11,430  
             
NET INTEREST YIELD ON EARNING ASSETS     2.92%     3.00%
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
YTD 2010 vs YTD 2009
   
  YTD 2010 YTD 2009
  Average Earnings / Yield / Average Earnings / Yield /
Dollars in thousands Balances Expense Rate Balances Expense Rate
             
ASSETS            
Interest earning assets            
Loans, net of unearned interest            
Taxable  $ 1,131,013  $ 33,491 5.97%  $ 1,200,625  $ 36,083 6.06%
Tax-exempt  6,376  247 7.81%  8,134  333 8.26%
Securities            
Taxable  249,937  6,554 5.29%  285,779  8,418 5.94%
Tax-exempt  41,475  1,374 6.68%  46,254  1,559 6.80%
Interest bearing deposits other banks and Federal funds sold  708  13 3.70%  1,882  1 0.11%
Total interest earning assets  1,429,509  41,679 5.88%  1,542,674  46,394 6.06%
             
Noninterest earning assets            
Cash & due from banks  14,543      18,873    
Premises & equipment  24,034      23,188    
Other assets  92,337      48,919    
Allowance for loan losses  (18,641)      (21,270)    
Total assets  $ 1,541,782      $ 1,612,384    
             
LIABILITIES AND SHAREHOLDERS' EQUITY          
             
Liabilities            
Interest bearing liabilities            
Interest bearing demand deposits  $ 146,331  $ 330 0.45%  $ 155,456  $ 392 0.51%
Savings deposits  195,746  1,328 1.37%  88,103  770 1.76%
Time deposits  598,749  9,218 3.10%  638,556  11,817 3.73%
Short-term borrowings  30,519  78 0.52%  129,928  358 0.56%
Long-term borrowings and subordinated debentures  399,155  9,732 4.92%  427,819  9,973 4.70%
   1,370,500  20,686 3.04%  1,439,862  23,310 3.26%
Noninterest bearing liabilities            
Demand deposits  71,255      77,775    
Other liabilities  8,865      8,028    
Total liabilities  1,450,620      1,525,665    
             
Shareholders' equity - preferred  3,519          
Shareholders' equity - common  87,643      86,719    
Total liabilities and shareholders' equity  $ 1,541,782      $ 1,612,384    
             
NET INTEREST EARNINGS    $ 20,993      $ 23,084  
             
NET INTEREST YIELD ON EARNING ASSETS   2.96%     3.02%
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
         
  For the Quarter Ended  For the Six Months Ended 
Dollars in thousands  6/30/2010 6/30/2009 6/30/2010 6/30/2009
         
Net income - excluding realized securities gains, other-than-temporary impairment of securities, unrealized OREO writedown, and FDIC special assessment   $ (2,361)  $ (8)  $ (2,464)  $ 1,731
         
Realized securities gains   1,256  39  1,520  295
Applicable income tax effect   (465)  (14)  (562)  (109)
Other-than-temporary impairment of securities   --  (4,768)  (29)  (4,983)
Applicable income tax effect   --  1,764  11  1,844
Unrealized OREO writedown   (2,194)  --  (2,194)  --
Applicable income tax effect   812  --  812  --
FDIC special assessment   --  (735)  --  (735)
Applicable income tax effect   --  272  --  272
   (591)  (3,442)  (442)  (3,416)
GAAP net income   $ (2,952)  $ (3,450)  $ (2,906)  $ (1,685)
         
Diluted earnings per share - excluding realized securities gains other-than-temporary impairment of securities, unrealized OREO writedown, and FDIC special assessment   $ (0.32)  $ 0.01  $ (0.33)  $ 0.22
         
Realized securities gains   0.17  (0.01)  0.20  0.04
Applicable income tax effect   (0.06)  --   (0.07)  (0.01)
Other-than-temporary impairment of securities   --   (0.64)  --   (0.67)
Applicable income tax effect   --   0.24  --   0.25
Unrealized OREO writedown   (0.30)  --   (0.30)  -- 
Applicable income tax effect   0.11  --   0.11  -- 
FDIC special assessment   --   (0.10)  --   (0.10)
Applicable income tax effect   --   0.04  --   0.04
   (0.08)  (0.47)  (0.06)  (0.45)
GAAP diluted earnings per share   $ (0.40)  $ (0.46)  $ (0.39)  $ (0.23)
         
Total revenue - excluding realized securities gains, other-than-temporary impairment of securities and unrealized OREO writedown   $ 12,555  $ 13,494  $ 25,068  $ 27,229
         
Realized securities gains  1,256  39  1,520  295
Other-than-temporary impairment of securities   --  (4,768)  (29)  (4,983)
Unrealized OREO writedown   (2,194)  --  (2,194)  --
   (938)  (4,729)  (703)  (4,688)
GAAP total revenue   $ 11,617  $ 8,765  $ 24,365  $ 22,541
         
Total noninterest income - excluding realized securities gains, other-than-temporary impairment of securities and unrealized OREO writedown   $ 2,619  $ 2,387  $ 4,901  $ 4,787
         
Realized securities gains  1,256  39  1,520  295
Other-than-temporary impairment of securities   --  (4,768)  (29)  (4,983)
Unrealized OREO writedown   (2,194)  --  (2,194)  --
   (938)  (4,729)  (703)  (4,688)
GAAP total noninterest income   $ 1,681  $ (2,342)  $ 4,198  $ 99
CONTACT:  Summit Financial Group, Inc.
          Robert S. Tissue, Sr. Vice President & CFO
          (304) 530-0552
          rtissue@SummitFGI.com

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