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Summit Financial Group Reports 2010 Third Quarter Results

MOOREFIELD, W.V., Oct. 28, 2010 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported a third quarter net loss applicable to common shares of $0.2 million, or ($0.03) per diluted share, compared to a net loss of $3.0 million applicable to common shares, or ($0.40) per diluted share, for the linked quarter, and net income of $1.4 million, or $0.19 per diluted share, for the 2009 third quarter. For the first nine months of 2010, the Company reported a net loss applicable to common shares of $3.1 million, or ($0.42) per diluted share, compared to a net loss of $0.3 million, or ($0.04) per diluted share for the 2009 nine months year-to-date period.

H. Charles Maddy III, President and Chief Executive Officer of Summit, commented, "Our primary focus has been to reduce our portfolio of nonperforming assets, which has been the principal factor contributing to lower earnings performance. We made significant progress this past quarter, highlighted by the sale of a foreclosed hotel property for $11 million, the second hotel sale of the year. Nonperforming loans and delinquencies have both declined since year-end 2009, and we are seeing fewer additions to the problem loan portfolio. However, progress with the disposition of foreclosed real estate has been more difficult to achieve.

"We continue to manage our problem assets through a combination of asset sales, loan workouts and charge-offs. While we have made progress, the return of our real estate markets to normal activity levels has been slower than we anticipated. We believe we are moving in the right direction; we have been aggressively charging-off our problem assets and establishing adequate reserves to address current and potential problem loans. Although the costs of credit administration have escalated, we have maintained operating expenses at a fairly stable level through staff reductions, salary freezes and the rescission of executive bonuses until profitability normalizes. On the revenue side, nonaccruals have negatively affected interest income, but we have been fairly successful managing our funding costs to partially offset the impact. We look forward to a significant fourth quarter margin improvement following the recent maturity or repricing of $103.9 million of high-cost wholesale borrowings."

Results from Operations

Total revenue for the 2010 third quarter, consisting of net interest income and noninterest income, was $11.8 million compared to $11.6 million and $13.7 million reported for the linked and year-ago third quarter. Net interest income was $9.5 million, a decline of 12.4 percent from the $10.9 million earned in the year-ago quarter. Year-over-year, the quarterly net interest margin declined 5.7 percent, or 17 basis points, to 2.82 percent for the third quarter of 2010, compounded by an 8.3 percent decline in average earning assets over the same five quarter period. Mr. Maddy added, "Late in the third quarter and into the fourth, we reduced our higher-rate long-term borrowings by $56.0 million, and repriced an additional $47.9 million at significantly lower rates. Beginning in the fourth quarter, we anticipate these transactions will have a favorable impact on our net interest margin."

Noninterest income for the 2010 third quarter was $2.3 million compared to $2.8 million for the year-ago quarter, and $1.7 million for the June 2010 quarter. Excluding nonrecurring items, noninterest income from operations was reasonably stable over the past five quarters, averaging $2.5 million per quarter, and consisting primarily of insurance commissions from Summit's insurance subsidiary and service fee income from banking activities. Excluding a net nonrecurring charge of $0.13 million in the 2010 third quarter, consisting of a $0.07 million gain on the sale of securities, an $0.08 million loss on the sale of assets, and a $0.11 million other-than-temporary impairment ("OTTI") charge on securities, and excluding a $0.43 million gain on the sale of securities and assets for the 2009 third quarter, noninterest income from operations was unchanged from the year-ago quarter at $2.4 million for both periods.

The provision for loan losses was $4.5 million for the third quarter of 2010 compared to $8.5 million and $4.0 million for the linked and year-ago quarters, respectively. Year-to-date, Summit has provided $18.4 million for loan losses, a $4.85 million or 35.9 percent increase from the $13.5 million provided for the 2009 nine-month period.

Mr. Maddy noted that operating expenses have been exceedingly well controlled. Over the past nine-months, they declined 4.1 percent, to $23.3 million, while for the 2010 third quarter, noninterest expense was $8.1 million, up $0.19 million, or 2.5 percent, from the $7.9 million recorded in the third quarter of 2009. The discipline imposed in all discretionary categories of operating expense, but primarily salaries and employee benefits, offset the $0.85 million year-to-date increase in OREO costs associated with the administration of foreclosed real estate; these costs totaled $1.1 million year-to-date compared to $0.3 million for the 2009 nine-month period. For the same nine-month period, salaries and benefits declined by $1.0 million, or 8.2 percent, to $11.4 million.

Balance Sheet

As of September 30, 2010, total assets were $1.5 billion, a decline of $88.2 million, or 5.6 percent since year-end 2009. Total loans, net of unearned fees and interest, were $1.04 billion at September 30, 2010, down $117 million, or 10.2 percent, over the same nine-month period. Compared to the linked quarter, assets declined by $23.2 million, or 1.5 percent; loans declined by $48.8 million, or 4.5 percent, while investment securities and cash equivalents increased $25 million, or 8.8 percent, since June 30, 2010.

All loan categories have declined since year-end 2009, most notably construction and development ("C&D") loans, down $39.6 million or 24.4 percent, and commercial ("C&I") loans, down $26.6 million or 21.7 percent. The two largest components of Summit's loan portfolio, commercial real estate ("CRE") and residential real estate declined $35.0 million (7.5 percent) and $12.7 million (3.4 percent), respectively. At third quarter-end, CRE loans were $430.0 million, or approximately 41.4 percent of total loans, followed by residential real estate loans at $360.1 million, or approximately 34.7 percent of total loans. C&D loans were $122.5 million, accounting for 11.8 percent of total loans, while C&I loans and consumer and other loans represented the remainder of the portfolio at 9.2 and 2.9 percent of total loans, respectively. 

Mr. Maddy noted that Summit has improved its funding mix significantly over the past twelve months. Following a substantial deposit inflow during the fourth quarter of 2009, when retail deposits grew $72.7 million, or 10.4 percent, 2010 retail deposit growth has been more moderate, up $11.5 million, or 1.5 percent over the past nine months. At September 30, 2010, retail deposits totaled $787 million, while brokered deposits were $243 million. Over the past twelve months, retail deposits increased by $84.2 million, primarily from $66.5 million growth in savings deposit accounts. During the same twelve-month period, brokered deposits declined by $24.2 million. The $81.4 million decline in total assets from September 30, 2009 also allowed Summit to reduce short-and long-term borrowings by $72.1 million and $67.0 million, respectively.

Asset Quality

As of September 30, 2010, nonperforming assets ("NPAs"), consisting of nonperforming loans and foreclosed and repossessed assets, were $98.0 million, or 6.55 percent of total assets; this compares to $107.5 million (6.78 percent of total assets) at year-end 2009, representing a reduction of $9.5 million. Much of the year-to-date decline relates to the sale in the second and third quarters of two nonperforming loans secured by hotel properties; the $22 million of proceeds from the sale of these properties contributed significantly to the $29.8 million reduction in nonperforming CRE loans year-to-date. Since year-end 2009, Summit reduced nonperforming loans ("NPLs") by $37.6 million, or 56.2 percent, to $29.3 million. During this same nine-month period, foreclosed real estate ("OREO") increased by $28.1 million, or 69.6 percent, to $68.4 million. Approximately three-fourths of this total, or $51.9 million, consists of land, development and construction projects.

Total C&D loans outstanding declined by $39.6 million year-to-date, or 24.4 percent. This includes an $11.9 million reduction in nonperforming C&D loans, partially offset by the transition of $19.6 million of C&D assets into foreclosed properties. Total CRE loans outstanding declined $35.0 million since year-end 2009, while problem CRE assets declined $21.5 million. At September 30, 2010, problem CRE assets totaled $18.5 million, of which $13.1 million, or 70.9 percent, was in foreclosure. Residential real estate and commercial ("C&I") assets accounted for the remainder of the nonperforming asset portfolio. As of September 30, 2010, nonperforming residential real estate totaled $11.9 million, while C&I nonperforming loans were $0.89 million.

Third quarter 2010 net loan charge-offs were $6.4 million, or 2.42 percent of average loans annualized; year-to-date, Summit charged-off $16.5 million in loans while adding $18.4 million to the allowance for loan losses. The allowance for loan losses stood at $18.9 million, or 1.82 percent of total loans at September 30, 2010, compared to 1.47 percent at the 2009 year-end.

Capital Adequacy

Shareholders' equity was $90.2 million as of September 30, 2010, compared to $91.9 million at September 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 requirements at September 30, 2010. Its total risk-based capital ratio was 12.2 percent, while its Tier 1 leverage capital ratio was 8.3 percent compared to 11.2 percent and 7.7 percent, respectively, at September 30, 2009. Total common shares outstanding as of September 30, 2010 were 7,425,472.

In conclusion, Mr. Maddy commented, "Until economic activity returns to a level where people feel confident that they will find jobs, real estate sales will continue to languish. We have been fortunate in the past that our markets have been attractive enough to sustain population and job growth. We are hopeful that these dynamics will return in the not-too-distant future. However, sustained progress towards these goals has been elusive."

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, gains/losses on sales of assets, 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 -- Q3 2010 vs Q3 2009      
       
   For the Quarter Ended   Percent 
 Dollars in thousands  9/30/2010 9/30/2009  Change 
Condensed Statements of Income       
Interest income       
Loans, including fees   $ 16,239  $ 18,061 -10.1%
Securities   3,308  4,351 -24.0%
Other   7  5 NM
Total interest income   19,554  22,417 -12.8%
Interest expense       
Deposits   5,160  6,094 -15.3%
Borrowings   4,846  5,427 -10.7%
Total interest expense   10,006  11,521 -13.1%
Net interest income   9,548  10,896 -12.4%
Provision for loan losses   4,500  4,000 12.5%
Net interest income after provision  for loan losses   5,048  6,896 -26.8%
Noninterest income       
Insurance commissions   1,227  1,254 -2.2%
Service fee income   763  859 -11.2%
Realized securities gains (losses)   67  428 NM
Other-than-temporary impairment of securities   (109)  -- NM
OREO writedowns   --  -- NM
Other income   338  291 16.2%
Total noninterest income  2,286  2,832 -19.3%
Noninterest expense       
Salaries and employee benefits  3,866  3,862 0.1%
Net occupancy expense  498  484 2.9%
Equipment expense  620  527 17.6%
Professional fees  223  330 -32.4%
FDIC premiums  715  660 8.3%
Other expenses  2,138  2,004 6.7%
Total noninterest expense  8,060  7,867 2.5%
Income (loss) before income taxes   (726)  1,861 -139.0%
Income taxes   (598)  458 -230.6%
Net income (loss)   (128)  1,403 -109.1%
Preferred stock dividends   74  -- NM
       
Net income (loss) applicable to common shares  $ (202)  $ 1,403 -114.4%
       
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)      
Quarterly Performance Summary -- Q3 2010 vs Q3 2009      
     
   For the Quarter Ended   Percent 
  9/30/2010 9/30/2009  Change 
Per Share Data       
Earnings per share from continuing operations       
Basic   $ (0.03)  $ 0.19 NM
Diluted   $ (0.03)  $ 0.19 NM
       
Average shares outstanding       
Basic   7,425,472  7,425,472 0.0%
Diluted   7,427,955  7,432,584 -0.1%
       
 Performance Ratios       
 Return on average equity (A)  -0.59% 6.49% NM
 Return on average assets  -0.03% 0.35% NM
 Net interest margin  2.82% 2.99% -5.7%
 Efficiency ratio (B)  65.35% 56.27% 16.1%

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)      
Nine Month Performance Summary -- 2010 vs 2009      
       
   For the Nine Months Ended   Percent 
Dollars in thousands  9/30/2010 9/30/2009  Change 
Condensed Statements of Income       
Interest income       
Loans, including fees   $ 49,893  $ 54,364 -8.2%
Securities   10,493  13,798 -24.0%
Other   21  6 NM
Total interest income   60,407  68,168 -11.4%
Interest expense       
Deposits   16,037  19,073 -15.9%
Borrowings   14,655  15,757 -7.0%
Total interest expense   30,692  34,830 -11.9%
Net interest income   29,715  33,338 -10.9%
Provision for loan losses   18,350  13,500 35.9%
Net interest income after provision for loan losses   11,365  19,838 -42.7%
Noninterest income       
Insurance commissions   3,659  3,881 -5.7%
Service fee income   2,298  2,452 -6.3%
Realized securities gains (losses)   1,587  723 119.5%
Other-than-temporary impairment of securities   (138)  (4,983) NM
OREO writedowns   (2,194)  -- NM
Other income   1,272  858 48.3%
Total noninterest income  6,484  2,931 121.2%
Noninterest expense       
Salaries and employee benefits  11,428  12,449 -8.2%
Net occupancy expense  1,529  1,548 -1.2%
Equipment expense  1,883  1,622 16.1%
Professional fees  759  1,067 -28.9%
FDIC premiums  2,165  2,288 -5.4%
Other expenses  5,561  5,353 3.9%
Total noninterest expense  23,325  24,327 -4.1%
Income (loss) before income taxes   (5,476)  (1,558) -251.5%
Income taxes   (2,591)  (1,276) -103.1%
Net income (loss)   (2,885)  (282) -923.0%
Preferred stock dividends   223  -- NM
       
Net income (loss) applicable to common shares  $ (3,108)  $ (282) -1002.1%
     
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)    
Nine Month Performance Summary --- 2010 vs 2009    
     
   For the Nine Months Ended   Percent 
  9/30/2010 9/30/2009  Change 
Per Share Data       
Earnings per share       
Basic   (0.42)  (0.04) 950.0%
Diluted   (0.42)  (0.04) 950.0%
       
Average shares outstanding       
Basic   7,425,472  7,420,271 0.1%
Diluted   7,426,422  7,433,911 -0.1%
       
Performance Ratios       
Return on average equity (A)  -4.41% -0.43% 925.6%
Return on average assets  -0.25% -0.02% 1150.0%
Net interest margin  2.90% 3.01% -3.7%
Efficiency ratio (B)  60.67% 55.80% 8.7%

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)        
Five Quarter Performance Summary          
         
   For the Quarter Ended 
Dollars in thousands  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Condensed Statements of Income           
Interest income           
Loans, including fees   $ 16,239  $ 16,614  $ 17,040  $ 17,480  $ 18,061
Securities   3,308  3,592  3,594  3,882  4,351
Other   7  2  11  6  5
Total interest income   19,554  20,208  20,645  21,368  22,417
Interest expense           
Deposits   5,160  5,378  5,498  5,878  6,094
Borrowings   4,846  4,894  4,915  5,286  5,427
Total interest expense   10,006  10,272  10,413  11,164  11,521
Net interest income   9,548  9,936  10,232  10,204  10,896
Provision for loan losses   4,500  8,500  5,350  6,825  4,000
Net interest income after provision for loan losses   5,048  1,436  4,882  3,379  6,896
Noninterest income           
Insurance commissions   1,227  1,223  1,209  1,164  1,254
Service fee income   763  828  707  878  859
Realized securities gains (losses)   67  1,256  264  773  428
Other-than-temporary impairment of securities   (109)  --  (29)  (383)  --
OREO writedowns   --  (2,194)  --  --  --
Other income   338  568  365  437  291
Total noninterest income  2,286  1,681  2,516  2,869  2,832
Noninterest expense           
Salaries and employee benefits  3,866  3,839  3,723  3,459  3,862
Net occupancy expense  498  509  521  484  484
Equipment expense  620  634  629  529  527
Professional fees  223  262  274  342  330
FDIC premiums  715  625  825  935  660
Other expenses  2,138  1,787  1,638  1,822  2,004
Total noninterest expense  8,060  7,656  7,610  7,571  7,867
Income (loss) before income taxes   (726)  (4,539)  (212)  (1,323)  1,861
Income taxes   (598)  (1,661)  (332)  (889)  458
Net income (loss)   (128)  (2,878)  120  (434)  1,403
Preferred stock dividends   74  74  74  74  --
Net income (loss) applicable to common shares  $ (202)  $ (2,952)  $ 46  $ (508)  $ 1,403
           
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)          
Five Quarter Performance Summary          
         
   For the Quarter Ended 
  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Per Share Data           
Earnings per share           
Basic   $ (0.03)  $ (0.40)  $ 0.01  $ (0.07)  $ 0.19
Diluted   $ (0.03)  $ (0.40)  $ 0.01  $ (0.07)  $ 0.19
           
Average shares outstanding           
Basic   7,425,472  7,425,472  7,425,472  7,425,472  7,425,472
Diluted   7,427,955  7,425,472  7,425,472  7,425,472  7,432,584
           
Performance Ratios           
Return on average equity (A)  -0.59% -13.16% 0.20% -2.21% 6.49%
Return on average assets  -0.03% -0.75% 0.01% -0.13% 0.35%
Net interest margin  2.82% 2.92% 3.00% 2.83% 2.99%
Efficiency ratio - (B)  65.35% 59.14% 57.78% 57.33% 56.27%

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  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Assets           
Cash and due from banks  $ 4,598  $ 4,190  $ 5,163  $ 6,813  $ 4,415
Interest bearing deposits other banks  40,691  24,810  9,032  34,247  6,195
Securities  267,856  258,971  262,566  271,654  285,156
Loans, net  1,018,169  1,065,118  1,112,526  1,137,336  1,156,432
Property held for sale  68,353  69,478  50,562  40,293  31,193
Intangible assets  9,090  9,178  9,265  9,353  9,441
Other assets  87,655  87,861  87,382  84,929  84,961
Total assets  $ 1,496,412  $ 1,519,606  $ 1,536,496  $ 1,584,625  $ 1,577,793
           
Liabilities and Shareholders' Equity           
Retail deposits  $ 786,992  $ 780,809  $ 776,251  $ 775,524  $ 702,785
Brokered time deposits  243,040  240,329  234,785  241,814  267,237
Short-term borrowings  1,610  2,739  27,456  49,739  73,733
Long-term borrowings and subordinated debentures  366,037  397,564  397,724  417,881  433,037
Other liabilities  8,499  9,311  9,746  9,007  9,064
Shareholders' equity  90,234  88,854  90,534  90,660  91,937
Total liabilities and shareholders' equity  $ 1,496,412  $ 1,519,606  $ 1,536,496  $ 1,584,625  $ 1,577,793
           
Book value per common share (A)  $ 11.14  $ 10.97  $ 11.18  $ 11.19  $ 11.35
Tangible book value per common share (A)  $ 10.02  $ 9.84  $ 10.03  $ 10.04  $ 10.18
Tangible equity / Tangible assets 5.5% 5.3% 5.3% 5.2% 5.3%

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

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)          
Regulatory Capital Ratios          
           
  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Summit Financial Group, Inc.          
Total Risk Based Capital 11.6% 11.5% 11.4% 11.3% 11.0%
Tier 1 Risk Based Capital 8.8% 8.7% 8.7% 8.6% 8.5%
Tier 1 Leverage Ratio 6.7% 6.5% 6.6% 6.5% 6.5%
           
Summit Community Bank, Inc.          
Total Risk Based Capital 12.2% 12.0% 11.9% 11.4% 11.2%
Tier 1 Risk Based Capital 10.9% 10.8% 10.6% 10.1% 10.1%
Tier 1 Leverage Ratio 8.3% 8.1% 8.1% 7.6% 7.7%
           
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)          
Loan Composition          
           
Dollars in thousands 9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Commercial  $ 95,939  $ 117,334  $ 121,514  $ 122,508  $ 125,743
Commercial real estate  430,003  432,321  456,120  465,037  457,669
Construction and development  122,455  143,907  151,281  162,080  176,783
Residential real estate  360,142  362,649  370,713  372,867  376,440
Consumer  25,006  25,968  26,974  28,203  29,555
Other  5,227  5,540  5,685  5,652  6,087
Total loans  1,038,772  1,087,719  1,132,287  1,156,347  1,172,277
Less unearned fees and interest  1,734  1,833  1,918  2,011  1,997
Total loans net of unearned fees and interest  1,037,038  1,085,886  1,130,369  1,154,336  1,170,280
Less allowance for loan losses  18,869  20,768  17,843  17,000  13,848
Loans, net  $ 1,018,169  $ 1,065,118  $ 1,112,526  $ 1,137,336  $ 1,156,432
           
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)          
Retail Deposit Composition          
           
Dollars in thousands 9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Non interest bearing checking  $ 76,362  $ 73,519  $ 71,100  $ 74,119  $ 68,929
Interest bearing checking  152,393  142,771  148,657  148,587  154,683
Savings  182,284  196,224  198,303  188,419  115,767
Time deposits  375,953  368,295  358,191  364,399  363,406
Total retail deposits  $ 786,992  $ 780,809  $ 776,251  $ 775,524  $ 702,785
           
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)          
Asset Quality Information          
   For the Quarter Ended 
Dollars in thousands  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
           
Gross loan charge-offs  $ 6,477  $ 5,907  $ 4,606  $ 3,864  $ 4,586
Gross loan recoveries  (78)  (332)  (99)  (192)  (127)
Net loan charge-offs  $ 6,399  $ 5,575  $ 4,507  $ 3,672  $ 4,459
           
Net loan charge-offs to average loans (annualized) 2.42% 1.94% 1.57% 1.25% 1.51%
Allowance for loan losses  $ 18,869  $ 20,768  $ 17,843  $ 17,000  $ 13,848
Allowance for loan losses as a percentage of period end loans 1.82% 1.91% 1.58% 1.47% 1.18%
Nonperforming assets:          
Nonperforming loans          
Commercial  $ 891  $ 1,347  $ 511  $ 431  $ 431
Commercial real estate  5,386  15,387  33,907  35,217  22,684
Commercial construction and development  --  812  9,668  11,553  10,354
Residential construction and development  14,419  18,307  7,018  14,775  16,730
Residential real estate  8,542  6,125  4,220  4,563  8,578
Consumer  75  23  209  403  75
Total nonperforming loans  29,313  42,001  55,533  66,942  58,852
Foreclosed properties          
Commercial real estate  13,091  15,011  5,086  4,788  4,873
Commercial construction and development  16,691  16,213  4,814  2,028  1,903
Residential construction and development  35,197  34,506  36,447  30,230  23,375
Residential real estate  3,374  3,748  4,215  3,247  1,042
Total foreclosed properties  68,353  69,478  50,562  40,293  31,193
Other repossessed assets  314  333  291  269  1
Total nonperforming assets  $ 97,980  $ 111,812  $ 106,386  $ 107,504  $ 90,046
           
Nonperforming loans to period end loans 2.82% 3.86% 4.90% 5.79% 5.02%
Nonperforming assets to period end assets 6.55% 7.36% 6.92% 6.78% 5.71%
         
Loans Past Due 30-89 Days        
   For the Quarter Ended 
In thousands  9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
           
Commercial  $ 817  $ 516  $ 1,209  $ 1,585  $ 177
Commercial real estate  1,933  9,246  9,497  3,861  5,064
Construction and development  1,711  819  11,654  1,161  9,362
Residential real estate  7,050  10,846  8,638  8,250  8,381
Consumer  691  536  419  835  810
Total  $ 12,202  $ 21,963  $ 31,417  $ 15,692  $ 23,794
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q3 2010 vs Q3 2009
  Q3 2010 Q3 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  $ 1,052,668  $ 16,029 6.04%  $ 1,174,120  $ 17,952 6.07%
Tax-exempt  5,786  118 8.09%  8,068  168 8.26%
Securities            
Taxable  251,640  2,941 4.64%  261,382  3,808 5.78%
Tax-exempt  39,408  656 6.60%  48,434  823 6.74%
Interest bearing deposits other banks and Federal funds sold  20,069  7 0.14%  819  5 2.42%
Total interest earning assets  1,369,571  19,751 5.72%  1,492,823  22,756 6.05%
             
Noninterest earning assets            
Cash & due from banks  4,233      26,284    
Premises & equipment  23,619      23,955    
Other assets  117,326      66,611    
Allowance for loan losses  (20,427)      (15,654)    
Total assets  $ 1,494,322      $ 1,594,019    
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
Liabilities            
Interest bearing liabilities            
Interest bearing demand deposits  $ 145,800  $ 133 0.36%  $ 153,941  $ 194 0.50%
Savings deposits  189,879  555 1.16%  111,570  403 1.43%
Time deposits  605,357  4,472 2.93%  632,660  5,497 3.45%
Short-term borrowings  2,268  2 0.35%  82,352  128 0.62%
Long-term borrowings and subordinated debentures  378,004  4,844 5.08%  437,102  5,299 4.81%
   1,321,308  10,006 3.00%  1,417,625  11,521 3.22%
Noninterest bearing liabilities            
Demand deposits  74,444      81,774    
Other liabilities  8,577      8,189    
Total liabilities  1,404,329      1,507,588    
             
Shareholders' equity - preferred  3,519          
Shareholders' equity - common  86,474      86,431    
Total liabilities and shareholders' equity  $ 1,494,322      $1,594,019    
             
NET INTEREST EARNINGS    $ 9,745      $ 11,235  
             
NET INTEREST YIELD ON EARNING ASSETS     2.82%      2.99%
 
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  $ 1,104,611  $ 49,519 5.99%  $ 1,191,692  $ 54,033 6.06%
Tax-exempt  6,177  367 7.94%  8,112  502 8.27%
Securities            
Taxable  250,511  9,494 5.07%  277,558  12,226 5.89%
Tax-exempt  40,778  2,032 6.66%  46,988  2,382 6.78%
Interest bearing deposits other banks and Federal funds sold  14,021  21 0.20%  1,022  6 0.78%
Total interest earning assets  1,416,098  61,433 5.80%  1,525,372  69,149 6.06%
             
Noninterest earning assets            
Cash & due from banks  4,280      21,873    
Premises & equipment  23,896      23,446    
Other assets  100,597      54,881    
Allowance for loan losses  (19,243)      (19,377)    
Total assets  $ 1,525,628      $ 1,606,195    
             
LIABILITIES AND SHAREHOLDERS' EQUITY          
             
Liabilities            
Interest bearing liabilities            
Interest bearing demand deposits  $ 146,152  $ 463 0.42%  $ 154,945  $ 586 0.51%
Savings deposits  193,769  1,883 1.30%  96,011  1,173 1.63%
Time deposits  600,976  13,691 3.05%  636,569  17,314 3.64%
Short-term borrowings  20,998  79 0.50%  113,896  487 0.57%
Long-term borrowings and subordinated debentures  392,027  14,575 4.97%  430,947  15,270 4.74%
   1,353,922  30,691 3.03%  1,432,368  34,830 3.25%
Noninterest bearing liabilities            
Demand deposits  72,329      79,122    
Other liabilities  8,609      8,083    
Total liabilities  1,434,860      1,519,573    
             
Shareholders' equity - preferred  3,519          
Shareholders' equity - common  87,249      86,622    
Total liabilities and shareholders' equity  $ 1,525,628      $ 1,606,195    
             
NET INTEREST EARNINGS    $ 30,742      $ 34,319  
             
NET INTEREST YIELD ON EARNING ASSETS   2.90%     3.01%
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
         
  For the Quarter Ended  For the Nine Months Ended 
Dollars in thousands  9/30/2010 9/30/2009 9/30/2010 9/30/2009
         
       
Net income - excluding realized securities gains, other-than- temporary impairment of securities, gains/losses on sales of assets, unrealized OREO writedown, and FDIC special assessment   $ (48)  $ 1,127  $ (2,486)  $ 2,937
         
Realized securities gains   67  428  1,587  723
Applicable income tax effect   (25)  (158)  (587)  (268)
Other-than-temporary impairment of securities   (109)  --  (138)  (4,983)
Applicable income tax effect   40  --  51  1,844
Gains/(losses) on sales of assets   (84)  9  111  (115)
Applicable income tax effect   31  (3)  (41)  43
Unrealized OREO writedown   --  --  (2,194)  --
Applicable income tax effect   --  --  812  --
FDIC special assessment   --  --  --  (735)
Applicable income tax effect   --  --  --  272
   (80)  276  (399)  (3,219)
GAAP net income   $ (128)  $ 1,403  $ (2,885)  $ (282)
         
       
Diluted earnings per share - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, unrealized OREO writedown, and FDIC special assessment   $ (0.04)  $ 0.15  $ (0.36)  $ 0.39
         
Realized securities gains   0.01  0.06  0.21  0.10
Applicable income tax effect   --   (0.02)  (0.08)  (0.04)
Other-than-temporary impairment of securities   (0.01)  --   (0.02)  (0.67)
Applicable income tax effect   --   --   0.01  0.25
Gains/(losses) on sales of assets   0.01  --   0.01  (0.02)
Applicable income tax effect   --   --   --   0.01
Unrealized OREO writedown   --   --   (0.30)  -- 
Applicable income tax effect   --   --   0.11  -- 
FDIC special assessment   --   --   --   (0.10)
Applicable income tax effect   --   --   --   0.04
   0.01  0.04  (0.06)  (0.43)
GAAP diluted earnings per share   $ (0.03)  $ 0.19  $ (0.42)  $ (0.04)
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
         
   For the Quarter Ended   For the Nine Months Ended 
Dollars in thousands  9/30/2010 9/30/2009 9/30/2010 9/30/2009
         
Total revenue - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedown   $ 11,960  $ 13,291  $ 36,833  $ 40,644
         
Realized securities gains  67  428  1,587  723
Other-than-temporary impairment of securities   (109)  --  (138)  (4,983)
Gains/(losses) on sales of assets   (84)  9  111  (115)
Unrealized OREO writedown   --  --  (2,194)  --
   (126)  437  (634)  (4,375)
GAAP total revenue   $ 11,834  $ 13,728  $ 36,199  $ 36,269
         
         
Total noninterest income - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedown   $ 2,412  $ 2,396  $ 7,118  $ 7,306
         
Realized securities gains  67  428  1,587  723
Other-than-temporary impairment of securities   (109)  --  (138)  (4,983)
Gains/(losses) on sales of assets   (84)  9  111  (115)
Unrealized OREO writedown   --  --  (2,194)  --
   (126)  437  (634)  (4,375)
GAAP total noninterest income   $ 2,286  $ 2,833  $ 6,484  $ 2,931
CONTACT:  Summit Financial Group, Inc.
          Robert S. Tissue, Sr. Vice President & CFO
          (304) 530-0552
          rtissue@SummitFGI.com

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