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Summit Financial Group Reports First Quarter Results 2011

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

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

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

Results from Operations

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

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

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

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

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

Balance Sheet

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

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

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

Asset Quality

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

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

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

Capital Adequacy

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

About the Company

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

The Summit Financial Group, Inc. logo is available at 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 gains/losses on sales of assets included in its Statements of Income. Management deems these items to be unusual in nature and believes presentations of financial measures excluding the impact of these items provide useful supplemental information that is important for a proper understanding of the operating results of Summit's core business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

       
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary -- Q1 2011 vs Q1 2010
       
   For the Quarter Ended   Percent 
 Dollars in thousands  3/31/2011 3/31/2010  Change 
 Condensed Statements of Income       
 Interest income       
 Loans, including fees   $ 15,140  $ 17,040 -11.2%
 Securities   3,043  3,594 -15.3%
 Other   17  11 54.5%
 Total interest income   18,200  20,645 -11.8%
 Interest expense       
 Deposits   4,743  5,498 -13.7%
 Borrowings   3,355  4,915 -31.7%
 Total interest expense   8,098  10,413 -22.2%
 Net interest income   10,102  10,232 -1.3%
 Provision for loan losses   3,000  5,350 -43.9%
 Net interest income after provision for loan losses   7,102  4,882 45.5%
 Noninterest income       
 Insurance commissions   1,242  1,209 2.7%
 Service fee income   621  707 -12.2%
 Realized securities gains (losses)   1,628  264 516.7%
 Other-than-temporary impairment of securities   (1,228)  (29) NM
 OREO writedowns   (3,443)  -- NM
 Other income   568  365 55.6%
Total noninterest income  (612)  2,516 -124.3%
 Noninterest expense       
 Salaries and employee benefits  3,842  3,723 3.2%
 Net occupancy expense  509  521 -2.3%
 Equipment expense  580  629 -7.8%
 Professional fees  196  274 -28.5%
 FDIC premiums  693  825 -16.0%
 OREO expense  434  232 87.1%
 Other expenses  722  1,406 -48.6%
Total noninterest expense  6,976  7,610 -8.3%
 Income (loss) before income taxes   (486)  (212) 129.2%
 Income taxes   (238)  (332) 28.3%
 Net income (loss)   (248)  120 -306.7%
 Preferred stock dividends   74  74 0.0%
       
Net income (loss) applicable to common shares  $ (322)  $ 46 -800.0%
       
Quarterly Performance Summary --- Q1 2011 vs Q1 2010
     
   For the Quarter Ended   Percent 
  3/31/2011 3/31/2010  Change 
 Per Share Data       
 Earnings per share from continuing operations       
 Basic   $ (0.04)  $ 0.01 NM
 Diluted   $ (0.04)  $ 0.01 NM
       
 Average shares outstanding       
 Basic   7,425,472  7,425,472 0.0%
 Diluted   7,425,472  7,425,472 0.0%
       
 Performance Ratios       
 Return on average equity (A)  -1.14% 0.20% -670.0%
 Return on average assets  -0.07% 0.01% -800.0%
 Net interest margin  3.11% 2.95% 5.4%
 Efficiency ratio (B)  58.38% 58.64% -0.4%
       
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  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
 Condensed Statements of Income           
 Interest income           
 Loans, including fees   $ 15,140  $ 16,064  $ 16,239  $ 16,614  $ 17,040
 Securities   3,043  3,191  3,308  3,592  3,594
 Other   17  11  7  2  11
 Total interest income   18,200  19,266  19,554  20,208  20,645
 Interest expense           
 Deposits   4,743  5,000  5,160  5,378  5,498
 Borrowings   3,355  3,829  4,846  4,894  4,915
 Total interest expense   8,098  8,829  10,006  10,272  10,413
 Net interest income   10,102  10,437  9,548  9,936  10,232
 Provision for loan losses   3,000  3,000  4,500  8,500  5,350
 Net interest income after provision for loan losses   7,102  7,437  5,048  1,436  4,882
 Noninterest income           
 Insurance commissions   1,242  1,086  1,227  1,223  1,209
 Service fee income   621  741  763  828  707
 Realized securities gains (losses)   1,628  463  67  1,256  264
 Other-than-temporary impairment of securities   (1,228)  (850)  (109)  --  (29)
 OREO writedowns   (3,443)  (1,206)  --  (2,194)  --
 Other income   568  503  338  568  365
Total noninterest income  (612)  737  2,286  1,681  2,516
 Noninterest expense           
 Salaries and employee benefits  3,842  3,705  3,866  3,839  3,723
 Net occupancy expense  509  480  498  509  521
 Equipment expense  580  574  620  634  629
 Professional fees  196  256  223  262  274
 FDIC premiums  693  705  715  625  825
 OREO expense  434  430  671  244  232
 Other expenses  722  1,478  1,467  1,543  1,406
Total noninterest expense  6,976  7,628  8,060  7,656  7,610
 Income (loss) before income taxes   (486)  546  (726)  (4,539)  (212)
 Income taxes   (238)  (364)  (598)  (1,661)  (332)
 Net income (loss)   (248)  910  (128)  (2,878)  120
 Preferred stock dividends   74  74  74  74  74
Net income (loss) applicable to common shares  $ (322)  $ 836  $ (202)  $ (2,952)  $ 46
           
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary
         
   For the Quarter Ended 
  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
 Per Share Data           
 Earnings per share           
 Basic   $ (0.04)  $ 0.11  $ (0.03)  $ (0.40)  $ 0.01
 Diluted   $ (0.04)  $ 0.11  $ (0.03)  $ (0.40)  $ 0.01
           
 Average shares outstanding           
 Basic   7,425,472  7,425,472  7,425,472  7,425,472  7,425,472
 Diluted   7,425,472  7,425,822  7,427,955  7,425,472  7,425,472
           
 Performance Ratios           
 Return on average equity (A)  -1.14% 4.17% -0.59% -13.16% 0.20%
 Return on average assets  -0.07% 0.25% -0.03% -0.75% 0.01%
 Net interest margin  3.11% 3.15% 2.84% 2.90% 2.95%
 Efficiency ratio - (B)  58.38% 58.05% 65.00% 59.54% 58.64%
           
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  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
 Assets           
Cash and due from banks  $ 4,263  $ 4,652  $ 4,598  $ 4,190  $ 5,163
Interest bearing deposits other banks  46,448  45,696  40,691  24,810  9,032
Securities  293,240  270,658  267,856  258,971  262,566
Loans, net  979,387  995,319  1,018,169  1,065,118  1,112,526
Property held for sale  66,961  70,235  68,353  69,478  50,562
Intangible assets  8,914  9,002  9,090  9,178  9,265
Other assets  82,982  82,243  87,655  87,861  87,382
 Total assets  $ 1,482,195  $ 1,477,805  $ 1,496,412  $ 1,519,606  $ 1,536,496
           
 Liabilities and Shareholders' Equity           
Retail deposits  $ 844,914  $ 806,652  $ 786,992  $ 780,809  $ 776,251
Brokered time deposits  217,205  230,287  243,040  240,329  234,785
Short-term borrowings  1,879  1,582  1,610  2,739  27,456
Long-term borrowings and subordinated debentures  319,905  340,498  366,037  397,564  397,724
Other liabilities  8,964  9,630  8,499  9,311  9,746
Shareholders' equity  89,328  89,156  90,234  88,854  90,534
 Total liabilities and shareholders' equity  $ 1,482,195  $ 1,477,805  $ 1,496,412  $ 1,519,606  $ 1,536,496
           
Book value per common share (A)  $ 11.03  $ 11.01  $ 11.14  $ 10.97  $ 11.18
Tangible book value per common share (A)  $ 9.93  $ 9.90  $ 10.02  $ 9.84  $ 10.03
Tangible equity / Tangible assets 5.5% 5.5% 5.5% 5.3% 5.3%
           
NOTE: (A) – Assumes conversion of convertible preferred stock
           
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Regulatory Capital Ratios
           
  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
Summit Financial Group, Inc.        
Total Risk Based Capital 11.7% 11.8% 11.6% 11.5% 11.4%
Tier 1 Risk Based Capital 9.1% 9.1% 8.8% 8.7% 8.7%
Tier 1 Leverage Ratio 6.6% 6.9% 6.7% 6.5% 6.6%
           
Summit Community Bank, Inc.        
Total Risk Based Capital 12.6% 12.6% 12.2% 12.0% 11.9%
Tier 1 Risk Based Capital 11.3% 11.4% 10.9% 10.8% 10.6%
Tier 1 Leverage Ratio 8.3% 8.5% 8.3% 8.1% 8.1%
           
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition
           
Dollars in thousands 3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
Commercial  $ 92,437  $ 97,261  $ 95,939  $ 117,334  $ 121,514
Commercial real estate  424,120  423,011  430,003  432,321  456,120
Construction and development  107,607  112,840  122,455  143,907  151,281
Residential real estate  346,361  352,328  360,142  362,649  370,713
Consumer  23,028  23,886  25,006  25,968  26,974
Other  4,330  4,840  5,227  5,540  5,685
Total loans  997,883  1,014,166  1,038,772  1,087,719  1,132,287
Less unearned fees and interest  1,563  1,623  1,734  1,833  1,918
Total loans net of unearned fees and interest  996,320  1,012,543  1,037,038  1,085,886  1,130,369
Less allowance for loan losses  16,933  17,224  18,869  20,768  17,843
Loans, net  $ 979,387  $ 995,319  $ 1,018,169  $ 1,065,118  $ 1,112,526
           
SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Retail Deposit Composition
           
Dollars in thousands 3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
Non interest bearing checking  $ 86,735  $ 74,604  $ 76,362  $ 73,519  $ 71,100
Interest bearing checking  153,283  150,291  152,393  142,771  148,657
Savings  212,502  177,053  182,284  196,224  198,303
Time deposits  392,394  404,704  375,953  368,295  358,191
Total retail deposits  $ 844,914  $ 806,652  $ 786,992  $ 780,809  $ 776,251
           
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information
           
   For the Quarter Ended 
 Dollars in thousands  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
           
Gross loan charge-offs  $ 3,396  $ 5,135  $ 6,477  $ 5,907  $ 4,606
Gross loan recoveries  (105)  (490)  (78)  (332)  (99)
 Net loan charge-offs  $ 3,291  $ 4,645  $ 6,399  $ 5,575  $ 4,507
           
Net loan charge-offs to average loans (annualized) 1.31% 1.76% 2.42% 1.94% 1.57%
Allowance for loan losses  $ 16,933  $ 17,224  $ 18,869  $ 20,768  $ 17,843
Allowance for loan losses as a percentage of period end loans 1.70% 1.70% 1.82% 1.91% 1.58%
Nonperforming assets:          
 Nonperforming loans          
 Commercial  $ 2,186  $ 1,318  $ 891  $ 1,347  $ 511
 Commercial real estate  5,284  2,686  5,386  15,387  33,907
 Commercial construction and development  131  --  --  812  9,668
 Residential construction and development  8,428  10,048  14,419  18,307  7,018
 Residential real estate  6,343  7,517  8,542  6,125  4,220
 Consumer  206  142  75  23  209
Total nonperforming loans  22,578  21,711  29,313  42,001  55,533
 Foreclosed properties          
 Commercial  $ 597  $ 597  $ --  $ --  $ --
 Commercial real estate  13,738  14,745  13,091  15,011  5,086
 Commercial construction and development  16,919  17,021  16,691  16,213  4,814
 Residential construction and development  32,002  34,377  35,197  34,506  36,447
 Residential real estate  3,706  3,495  3,374  3,748  4,215
Total foreclosed properties  66,962  70,235  68,353  69,478  50,562
Other repossessed assets  262  289  314  333  291
Total nonperforming assets  $ 89,802  $ 92,235  $ 97,980  $ 111,812  $ 106,386
           
Nonperforming loans to period end loans 2.26% 2.14% 2.82% 3.86% 4.90%
Nonperforming assets to period end assets 6.06% 6.24% 6.55% 7.36% 6.92%
           
Loans Past Due 30-89 Days
           
   For the Quarter Ended 
 In thousands  3/31/2011 12/31/2010 9/30/2010 6/30/2010 3/31/2010
           
Commercial  $ 910  $ 664  $ 817  $ 516  $ 1,209
Commercial real estate  2,515  4,523  1,933  9,246  9,497
Construction and development  1,947  3,156  1,711  819  11,654
Residential real estate  6,561  19,164  7,050  10,846  8,638
Consumer  494  551  691  536  419
 Total  $ 12,427  $ 28,058  $ 12,202  $ 21,963  $ 31,417
             
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q1 2011 vs Q1 2010
             
  Q1 2011 Q1 2010
  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  $ 1,001,347  $ 15,083 6.11%  $ 1,145,202  $ 16,957 6.01%
 Tax-exempt  4,940  98 8.05%  6,685  126 7.64%
 Securities            
 Taxable  269,858  2,609 3.92%  252,500  3,138 5.04%
 Tax-exempt  37,827  658 7.05%  41,797  689 6.69%
 Interest bearing deposits other banks and Federal funds sold  36,366  17 0.19%  339  11 13.16%
Total interest earning assets  1,350,338  18,465 5.55%  1,446,523  20,921 5.87%
             
Noninterest earning assets            
 Cash & due from banks  4,036      15,645    
 Premises & equipment  22,977      24,146    
 Other assets  113,000      84,777    
 Allowance for loan losses  (18,116)      (18,274)    
 Total assets  $ 1,472,235      $ 1,552,817    
             
 LIABILITIES AND SHAREHOLDERS' EQUITY
             
Liabilities            
Interest bearing liabilities            
 Interest bearing demand deposits  $ 148,263  $ 100 0.27%  $ 146,700  $ 173 0.48%
 Savings deposits  197,638  501 1.03%  194,828  691 1.44%
 Time deposits  623,318  4,142 2.69%  595,837  4,634 3.15%
 Short-term borrowings  1,734  1 0.23%  44,966  57 0.51%
 Long-term borrowings and subordinated debentures  323,226  3,354 4.21%  400,687  4,858 4.92%
Total interest bearing liabilities  1,294,179  8,098 2.54%  1,383,018  10,413 3.05%
             
Noninterest bearing liabilities            
 Demand deposits  78,023      70,569    
 Other liabilities  9,634      7,872    
 Total liabilities  1,381,836      1,461,459    
             
Shareholders' equity - preferred  3,519      3,519    
Shareholders' equity - common  86,880      87,839    
 Total liabilities and shareholders' equity  $ 1,472,235      $ 1,552,817    
             
NET INTEREST EARNINGS    $ 10,367      $ 10,508  
             
NET INTEREST YIELD ON EARNING ASSETS   3.11%     2.95%
     
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
     
   For the Quarter Ended 
 Dollars in thousands  3/31/2011 3/31/2010
     
Net income - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedowns   $ 1,550  $ (110)
     
 Realized securities gains   1,628  264
 Applicable income tax effect   (602)  (98)
 Other-than-temporary impairment of securities   (1,228)  (29)
 Applicable income tax effect   454  11
 Gains/(losses) on sales of assets   71  12
 Applicable income tax effect   (26)  (4)
 Unrealized OREO writedown   (3,443)  --
 Applicable income tax effect   1,274  --
   (1,872)  156
 GAAP net income   $ (322)  $ 46
     
Diluted earnings per share - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedowns   $ 0.21  $ (0.02)
     
 Realized securities gains   0.22  0.04
 Applicable income tax effect   (0.08)  (0.01)
 Other-than-temporary impairment of securities   (0.17)  -- 
 Applicable income tax effect   0.06  -- 
 Gains/(losses) on sales of assets   0.01  -- 
 Applicable income tax effect   --   -- 
 Unrealized OREO writedown   (0.46)  -- 
 Applicable income tax effect   0.17  -- 
   (0.25)  0.03
 GAAP diluted earnings per share   $ (0.04)  $ 0.01
     
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
     
   For the Quarter Ended 
 Dollars in thousands  3/31/2011 3/31/2010
     
     
 Total revenue - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedown   $ 12,462  $ 12,501
     
 Realized securities gains  1,628  264
 Other-than-temporary impairment of securities   (1,228)  (29)
 Gains/(losses) on sales of assets   71  12
 Unrealized OREO writedown   (3,443)  --
   (2,972)  247
 GAAP total revenue   $ 9,490  $ 12,748
     
 Total noninterest income - excluding realized securities gains, other-than-temporary impairment of securities, gains/losses on sales of assets, and unrealized OREO writedown   $ 2,360  $ 2,269
     
 Realized securities gains  1,628  264
 Other-than-temporary impairment of securities   (1,228)  (29)
 Gains/(losses) on sales of assets   71  12
 Unrealized OREO writedown   (3,443)  --
   (2,972)  247
 GAAP total noninterest income   $ (612)  $ 2,516
CONTACT: Robert S. Tissue, Sr. Vice President & CFO
         Telephone:  (304) 530-0552
         Email:      rtissue@summitfgi.com

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