EX-99 2 form8kearnings.htm SFG SECOND QUARTER EARNINGS PRESS RELEASE SFG Second Quarter Earnings Press Release
Exhibit 99

 

 
 
FOR RELEASE 6:00 AM EDT, FRIDAY, JULY 21, 2006
 

Contact:
Robert S. Tissue, Sr. Vice President & CFO
Telephone:
(304) 530-0552
Email:
rtissue@SummitFGI.com

SUMMIT FINANCIAL GROUP REPORTS SECOND QUARTER 2006 EARNINGS
 
 
MOOREFIELD, W.Va.--(BUSINESS WIRE)--July 21, 2006--Summit Financial Group, Inc. (NASDAQ: SMMF) today reported second quarter 2006 net income of $2.6 million, a decline of 15.5 percent from the $3.1 million reported for the second quarter of 2005. Diluted earnings per share were $0.37 compared with $0.43 for the prior-year quarter, down 14.0 percent. For the second quarter of 2006, the returns on average shareholders' equity and average assets were 13.53 percent and 0.91 percent, respectively, compared with prior-year period ratios of 18.21 percent and 1.34 percent. Results reflect continued strong loan growth from community banking operations, offset by a competitive market for deposits and a significant decline in mortgage originations.
 
 
For the six months ended June 30, 2006, Summit reported net income of $5.6 million, an increase of 1.4 percent from the $5.5 million reported for the first six months of 2005. Diluted earnings per share were $0.78 compared with $0.77 for the prior-year period, up 1.3 percent. Returns on average shareholders' equity and average assets for the first half of 2006 were 14.53 percent and 0.98 percent, respectively, compared with 2005 half-year ratios of 16.41 percent and 1.21 percent.
 
 
H. Charles Maddy, III, President and Chief Executive Officer, commented, “As we recently announced, a sharp decline in mortgage origination revenue lowered earnings for the second quarter. We have taken steps to realign related expenses, and we believe that mortgage origination volume may improve as the year progresses. We continue to pursue the many high-quality lending opportunities we see in our community banks, where asset quality remains exceptional. It is our intent to capitalize on our community banking strengths for the benefit of our shareholders, while we evaluate our strategic options for mortgage banking.”
 
 
SECOND QUARTER 2006 CONSOLIDATED RESULTS
 
 
Total revenue for the second quarter of 2006, consisting of net interest income plus non-interest income, was $15.9 million, an increase of 0.4 percent over the $15.8 million reported for the second quarter of 2005. Net interest income for the quarter increased 16.1 percent above the prior-year second quarter, to $8.8 million, reflecting 25.3 percent growth in average earning assets, partially offset by a 29 basis point drop in the net interest margin to 3.32 percent. Compared with the first quarter, the net interest margin declined 7 basis points.
 
Non-interest income for the second quarter of 2005 was $7.1 million compared with $8.2 million for the prior-year period, a decrease of 14.1 percent, reflecting a 16.4 percent decline in mortgage origination revenue from the Company's mortgage banking unit, Summit Mortgage, which is discussed below. Service fee income increased to $726,000 from $651,000 in last year’s second quarter, an increase of 11.5 percent.
 
 
Non-interest expense was well-controlled. For the second quarter of 2006, non-interest expense was $11.6 million, a 6.4 percent increase over the $10.9 million reported for the second quarter of 2005. Mr. Maddy added, “We are working diligently to downsize our expenses base to reflect the decline in revenue this quarter. The 10.0 percent improvement in salaries and benefits is a step in that direction.” The efficiency ratio was 70.69 percent for the second quarter of 2006 compared with 66.98 percent for the prior-year period. (The efficiency ratio for the Company's Community Banking Segment, shown below, is a more accurate indicator of its performance compared with other community banks.)
 
 
Asset quality has been consistent and strong throughout a period of high loan growth. Nonperforming assets were $2.0 million or 0.17 percent of assets at June 30, 2006, down from $2.3 million or 0.20 percent of assets for the first quarter of 2006, and $2.2 million or 0.23 percent at June 30, 2005. Net charge-offs for the second quarter of 2006 were $171,000, equivalent to 0.08 percent of average loans on an annualized basis, compared with $62,000 and 0.03 percent of loans for the preceding quarter, and $44,000 or 0.03 percent for the year-ago quarter. At period-end, loan loss reserves were 0.77 percent of loans. Mr. Maddy stated, “We have a strong credit culture at our organization, with decision-making for larger or more complex loans centralized at our headquarters. This helps up to sustain the rigorous lending standards that define our organization’s credit culture.”
 
 
Assets at June 30, 2006 were $1.18 billion, an increase of $233.2 million, or 24.6 percent over the last twelve months. Portfolio loans, net of unearned income, were $873.5 million at June 30, 2006, up $208.0 million or 31.3 percent year over year, and $73.6 million or 9.2 percent since year-end 2005. Commercial real estate and construction/development loans accounted for the largest increase, up $30.5 million or 11.4 percent and $40.8 million or 28.9 percent, respectively, since December 31, 2005. Together, these two categories comprised 54.7 percent of the loan portfolio, with residential mortgages accounting for and additional 33.0 percent of the total.
 
 
Deposits at June 30, 2006 were $761.6 million, an increase of $196.4 million, or 34.8 percent above prior-year second quarter levels. Mr. Maddy commented, “As reported throughout the industry, the market for low-cost deposits is increasingly competitive, and we are no exception. To the extent possible, we have expanded our deposit-gathering network of banking offices into communities with the strongest demographics in the country, and we’ve developed attractive deposit products to earn their business.” Of the $570.7 million in retail accounts, interest-bearing transaction accounts demonstrated the strongest growth, up $68.7 million or 47.1 percent from year-ago levels. Over the same time frame, brokered deposits increased $113.6 million.
 
 
Shareholders' equity at June 30, 2006 was $76.6 million, an increase of 9.6 percent over the last twelve months. Common shares outstanding totaled 7,135,120 at quarter-end.
 
 
OPERATING SEGMENT RESULTS
 
 
Community Banking Financial Performance
 
 
Net income for the second quarter of 2006 increased 18.0 percent over the prior-year period, to $3.0 million. Total revenue increased 17.2 percent to $10.0 million, while non-interest expense increased 17.8 percent to $5.2 million. The Company’s efficiency ratio, excluding mortgage banking, was 54.33 percent for the second quarter of 2006 compared with 54.15 percent for the prior-year second quarter.
 
 
Mortgage Banking Financial Performance
 
 
For the second quarter of 2006, the net loss from mortgage banking activities was $8,000 compared with net income of $755,000 for the second quarter of 2005, a swing of $763,000. Mortgage banking revenue generated from loan sales were $5.9 million, down 16.4 percent from the $7.1 million reported in the prior-year period, reflecting a 14.9 percent decrease in loan sales to $69.3 million. Revenue per loan sold decreased 0.8 percent, to $4,559 while the average loan size increased 1.1 percent to $53,100.
 
 
Loan originations in the second quarter of 2006 were $67.1 million, a decline of 8.0 percent from the linked quarter and 19.7 percent from the prior-year second quarter. Non-interest expense, primarily associated with loan originations, remained stable at $6.0 million, compared to $6.1 million incurred in the prior-year period. Expenses per loan originated increased 27.4 percent in first quarter 2006 compared to first quarter 2005. 
 
 
Mr. Maddy commented, “Although we cannot be sure, we believe that several factors have contributed to this business segment’s poor performance, including changes in the legal environment within the industry, increased competition in the overall market for the types of mortgage products offered by Summit Mortgage, and the payment of legal expenses arising from legal compliance reviews and litigation defense.”
 
 
In addition, Summit Mortgage suspended its direct mailings during the second quarter of 2006, to residents of Indiana, Illinois and Wisconsin, one of its strongest performing markets. Mailings were also briefly suspended in all other states, from late May until early June, 2006. Suspension of these mailings enabled Summit Mortgage to assess several recent federal court decisions concerning the Fair Credit Reporting Act (FCRA), a federal law which prescribes the legal requirements its prescreened offers of credit must meet, and two lawsuits which were filed against the company. Management believes, based on advice from legal counsel, that its mailings fully complied with all applicable legal requirements, including those of the FCRA. Summit Mortgage has also developed a new uniform mailer that it believes complies with the evolving standards in all jurisdictions where it does business. While initial response to the revised mailer was poor, recent indications are that its response rate has improved significantly following further modification.
 
 
ABOUT THE COMPANY
 
 
Summit Financial Group, Inc., a financial holding company with total assets of $1.2 billion, operates fifteen banking locations through its two wholly-owned community banks: Summit Community Bank, headquartered in Moorefield, West Virginia; and Shenandoah Valley National Bank in Winchester, Virginia. Summit also operates Summit Mortgage, a residential mortgage loan originator located in Chesapeake, Virginia and Summit Insurance Services, LLC in Moorefield, West Virginia.
 
 
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 economy. We undertake no obligation to revise these statements following the date of this press release.
 


SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
          
Quarterly Performance Summary -- Q2 2006 vs Q2 2005
            
           
 
  
For the Quarter Ended  
  
Percent
 
Dollars in thousands, except per share amounts
   
6/30/2006
    
6/30/2005
    
Change
 
                     
Condensed Statements of Income
                   
Interest income
                   
Loans, including fees
 
$
16,787
  
$
11,205
    
49.8
%
Securities
   
2,787
   
2,291
   
21.6
%
Other
   
13
   
28
   
-53.6
%
Total interest income
   
19,587
   
13,524
   
44.8
%
Interest expense
                   
Deposits
   
6,408
   
2,926
   
119.0
%
Borrowings
   
4,348
   
2,994
   
45.2
%
Total interest expense
   
10,756
   
5,920
   
81.7
%
Net interest income
   
8,831
   
7,604
   
16.1
%
Provision for loan losses
   
480
   
425
   
12.9
%
Net interest income after provision
                   
for loan losses
   
8,351
   
7,179
   
16.3
%
Noninterest income
                   
Insurance commissions
   
247
   
235
   
5.1
%
Service fee income
   
726
   
651
   
11.5
%
Mortgage origination revenue
   
5,945
   
7,113
   
-16.4
%
Securities gains (losses)
   
-
   
5
   
-100.0
%
Other income
   
136
   
211
   
-35.5
%
Total noninterest income
    
7,054
   
8,215
   
-14.1
%
Noninterest expense
                   
Salaries and employee benefits
    
4,855
   
5,394
   
-10.0
%
Net occupancy expense
    
570
   
463
   
23.1
%
Equipment expense
    
575
   
483
   
19.0
%
Professional fees
    
489
   
242
   
102.1
%
Postage expense
    
1,750
   
1,458
   
20.0
%
Advertising
    
1,314
   
1,222
   
7.5
%
Other expenses
    
2,018
   
1,613
   
25.1
%
Total noninterest expense
    
11,571
   
10,875
   
6.4
%
Income before income taxes
   
3,834
   
4,519
   
-15.2
%
Income taxes
   
1,200
   
1,403
   
-14.5
%
Net income
 
$
2,634
  
$
3,116
    
-15.5
%
                     
Per Share Data
                   
Basic earnings
 
$
0.37
  
$
0.44
    
-15.9
%
Diluted earnings
 
$
0.37
  
$
0.43
    
-14.0
%
Average shares outstanding
                   
Basic
   
7,135,107
   
7,081,044
   
0.8
%
Diluted
   
7,193,407
   
7,205,377
   
-0.2
%
Performance Ratios
                   
Return on average equity
   
13.53
%
  
18.21
%
  
-25.7
%
Return on average assets
   
0.91
%
  
1.34
%
  
-32.1
%
Net yield on earning assets - taxable equivalent
   
3.32
%
  
3.61
%
  
-8.0
%
Efficiency ratio consolidated(A)
   
70.69
%
  
66.98
%
  
5.5
%
Efficiency ratio excluding mortgage banking (A)
   
54.33
%
  
54.15
%
  
0.3
%

 
NOTE: (A) - 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 -- 2006 vs 2005
          
           
   
For the Six Months Ended
 
Percent
 
Dollars in thousands, except per share amounts
 
6/30/2006
  
6/30/2005
  
Change
 
               
Condensed Statements of Income
                   
Interest income
                   
Loans, including fees
 
$
32,279
  
$
21,215
    
52.2
%
Securities
   
5,433
   
4,549
   
19.4
%
Other
   
37
   
53
   
-30.2
%
Total interest income
   
37,749
   
25,817
   
46.2
%
Interest expense
                   
Deposits
   
11,561
   
5,443
   
112.4
%
Borrowings
   
8,726
   
5,615
   
55.4
%
Total interest expense
   
20,287
   
11,058
   
83.5
%
Net interest income
   
17,462
   
14,759
   
18.3
%
Provision for loan losses
   
875
   
755
   
15.9
%
Net interest income after provision
                   
for loan losses
   
16,587
   
14,004
   
18.4
%
Noninterest income
                   
Insurance commissions
   
477
   
383
   
24.5
%
Service fee income
   
1,356
   
1,198
   
13.2
%
Mortgage origination revenue
   
12,529
   
12,969
   
-3.4
%
Securities gains (losses)
   
-
   
5
   
-100.0
%
Other income
   
279
   
327
   
-14.7
%
Total noninterest income
    
14,641
   
14,882
   
-1.6
%
Noninterest expense
                   
Salaries and employee benefits
    
10,013
   
9,936
   
0.8
%
Net occupancy expense
    
1,141
   
892
   
27.9
%
Equipment expense
    
1,095
   
976
   
12.2
%
Professional fees
    
774
   
469
   
65.0
%
Postage expense
    
3,541
   
3,025
   
17.1
%
Advertising
    
2,653
   
2,547
   
4.2
%
Other expenses
    
3,872
   
3,085
   
25.5
%
Total noninterest expense
    
23,089
   
20,930
   
10.3
%
Income before income taxes
   
8,139
   
7,956
   
2.3
%
Income taxes
   
2,534
   
2,429
   
4.3
%
Net income
 
$
5,605
  
$
5,527
    
1.4
%
                     
Per Share Data
                   
Basic earnings
 
$
0.79
  
$
0.78
    
1.3
%
Diluted earnings
 
$
0.78
  
$
0.77
    
1.3
%
Average shares outstanding
                   
Basic
   
7,131,611
   
7,060,529
   
1.0
%
Diluted
   
7,193,199
   
7,206,181
   
-0.2
%
Performance Ratios
                   
Return on average equity
   
14.53
%
  
16.41
%
  
-11.5
%
Return on average assets
   
0.98
%
  
1.21
%
  
-19.0
%
Net yield on earning assets - taxable equivalent
   
3.35
%
  
3.60
%
  
-6.9
%
Efficiency ratio consolidated(A)
   
69.92
%
  
68.51
%
  
2.1
%
Efficiency ratio excluding mortgage banking (A)
   
54.05
%
  
53.55
%
  
0.9
%

 
NOTE: (A) - Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles.
 
 
 
 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Five Quarter Performance Summary
                      
                   
   
For the Quarter Ended
 
Dollars in thousands, except per share amounts
 
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Condensed Statements of Income
                               
Interest income
                               
Loans, including fees
 
$
16,787
  
$
15,492
  
$
14,260
  
$
12,527
  
$
11,205
  
Securities
   
2,787
   
2,647
   
2,368
   
2,283
   
2,291
 
Other
   
13
   
24
   
30
   
27
   
28
 
Total interest income
   
19,587
   
18,163
   
16,658
   
14,837
   
13,524
 
Interest expense
                               
Deposits
   
6,408
   
5,153
   
4,450
   
3,509
   
2,926
 
Borrowings
   
4,348
   
4,379
   
3,971
   
3,518
   
2,994
 
Total interest expense
   
10,756
   
9,532
   
8,421
   
7,027
   
5,920
 
Net interest income
   
8,831
   
8,631
   
8,237
   
7,810
   
7,604
 
Provision for loan losses
   
480
   
395
   
300
   
424
   
425
 
Net interest income after provision
                               
for loan losses
   
8,351
   
8,236
   
7,937
   
7,386
   
7,179
 
Noninterest income
                               
Insurance commissions
   
247
   
230
   
247
   
222
   
235
 
Service fee income
   
726
   
631
   
680
   
711
   
651
 
Mortgage origination revenue
   
5,945
   
6,584
   
6,098
   
7,304
   
7,113
 
Securities gains (losses)
   
-
   
-
   
(1,434
)
  
39
   
5
 
Other income
   
136
   
142
   
(65
)
  
189
   
211
 
Total noninterest income
    
7,054
   
7,587
   
5,526
   
8,465
   
8,215
 
Noninterest expense
                               
Salaries and employee benefits
    
4,855
   
5,158
   
4,944
   
5,435
   
5,394
 
Net occupancy expense
    
570
   
571
   
510
   
479
   
463
 
Equipment expense
    
575
   
520
   
470
   
465
   
483
 
Professional fees
    
489
   
285
   
271
   
230
   
242
 
Postage expense
    
1,750
   
1,791
   
1,387
   
1,451
   
1,458
 
Advertising
    
1,314
   
1,339
   
1,168
   
1,164
   
1,222
 
Other expenses
    
2,018
   
1,854
   
1,689
   
1,654
   
1,613
 
Total noninterest expense
    
11,571
   
11,518
   
10,439
   
10,878
   
10,875
 
Income before income taxes
   
3,834
   
4,305
   
3,024
   
4,973
   
4,519
 
Income taxes
   
1,200
   
1,334
   
582
   
1,700
   
1,403
 
Net income
 
$
2,634
  
$
2,971
  
$
2,442
  
$
3,273
  
$
3,116
  
                                 
Per Share Data
                               
Basic earnings
 
$
0.37
  
$
0.42
  
$
0.34
  
$
0.46
  
$
0.44
  
Diluted earnings
 
$
0.37
  
$
0.41
  
$
0.34
  
$
0.45
  
$
0.43
  
Average shares outstanding
                               
Basic
   
7,135,107
   
7,128,076
   
7,125,994
   
7,125,483
   
7,081,044
 
Diluted
   
7,193,407
   
7,192,924
   
7,198,068
   
7,211,331
   
7,205,377
 
Performance Ratios
                               
Return on average equity
   
13.53
%
  
15.60
%
  
13.15
%
  
18.24
%
  
18.21
%
Return on average assets
   
0.91
%
  
1.05
%
  
0.92
%
  
1.33
%
  
1.34
%
Net interest margin - taxable equivalent
   
3.32
%
  
3.39
%
  
3.39
%
  
3.47
%
  
3.61
%
Efficiency ratio consolidated (A)
   
70.69
%
  
69.16
%
  
65.50
%
  
65.40
%
  
66.98
%
Efficiency ratio excluding mortgage banking (A)
   
54.33
%
  
53.76
%
  
50.73
%
  
53.75
%
  
54.15
%
 
NOTE: (A) - Computed on a tax equivalent basis excluding nonrecurring income and expense items and amortization of intangibles.
 
 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Segment Information
                      
For the Quarter Ended June 30, 2006
                      
                       
   
Community
 
Mortgage
 
Parent
         
Dollars in thousands
 
Banking
  
Banking
  
and Other
  
Eliminations
  
Total
  
                       
Condensed Statements of Income
                               
Interest income
 
$
19,399
  
$
412
  
$
11
  
$
(235
)
$
19,587
  
Interest expense
   
10,347
   
234
   
410
   
(235
)
  
10,756
 
Net interest income
   
9,052
   
178
   
(399
)
  
-
   
8,831
 
Provision for loan losses
   
330
   
150
   
-
   
-
   
480
 
Net interest income after provision
                               
for loan losses
   
8,722
   
28
   
(399
)
  
-
   
8,351
 
Noninterest income
   
923
   
5,945
   
1,651
   
(1,465
)
  
7,054
 
Noninterest expense
   
5,153
   
5,974
   
1,909
   
(1,465
)
  
11,571
 
Income before income taxes
   
4,492
   
(1
)
  
(657
)
  
-
   
3,834
 
Income taxes
   
1,462
   
7
   
(269
)
  
-
   
1,200
 
Net income
 
$
3,030
  
$
(8
)
$
(388
)
$
-
  
$
2,634
  
Intersegment revenue (expense)
 
$
(1,148
)
$
(309
)
$
1,457
  
$
-
  
$
-
  
Average assets
 
$
1,150,170
  
$
17,998
  
$
100,416
  
$
(106,829
)
$
1,161,755
  
 
 
SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Segment Information
                      
For the Quarter Ended June 30, 2005
                      
                       
   
Community
 
Mortgage
 
Parent
         
Dollars in thousands
 
Banking
  
Banking
  
and Other
  
Eliminations
  
Total
  
                       
Condensed Statements of Income
                               
Interest income
 
$
13,328
  
$
485
  
$
6
  
$
(295
)
$
13,524
  
Interest expense
   
5,725
   
294
   
196
   
(295
)
  
5,920
 
Net interest income
   
7,603
   
191
   
(190
)
  
-
   
7,604
 
Provision for loan losses
   
345
   
80
   
-
   
-
   
425
 
Net interest income after provision
                               
for loan losses
   
7,258
   
111
   
(190
)
  
-
   
7,179
 
Noninterest income
   
905
   
7,113
   
1,380
   
(1,183
)
  
8,215
 
Noninterest expense
   
4,374
   
6,055
   
1,629
   
(1,183
)
  
10,875
 
Income before income taxes
   
3,789
   
1,169
   
(439
)
  
-
   
4,519
 
Income taxes
   
1,221
   
414
   
(232
)
  
-
   
1,403
 
Net income
 
$
2,568
  
$
755
  
$
(207
)
$
-
  
$
3,116
  
Intersegment revenue (expense)
 
$
(820
)
$
(355
)
$
1,175
  
$
-
  
$
-
  
Average assets
 
$
921,770
  
$
23,838
  
$
82,103
  
$
(95,937
)
$
931,774
  




SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Segment Information
                      
For the Six Months Ended June 30, 2006
                      
                       
   
Community
 
Mortgage
 
Parent
         
Dollars in thousands
 
Banking
  
Banking
  
and Other
  
Eliminations
  
Total
  
                       
Condensed Statements of Income
                               
Interest income
 
$
37,298
  
$
974
  
$
23
  
$
(546
)
$
37,749
  
Interest expense
   
19,509
   
545
   
779
   
(546
)
  
20,287
 
Net interest income
   
17,789
   
429
   
(756
)
  
-
   
17,462
 
Provision for loan losses
   
655
   
220
   
-
   
-
   
875
 
Net interest income after provision
                               
for loan losses
   
17,134
   
209
   
(756
)
  
-
   
16,587
 
Noninterest income
   
1,733
   
12,529
   
3,342
   
(2,963
)
  
14,641
 
Noninterest expense
   
10,145
   
12,206
   
3,701
   
(2,963
)
  
23,089
 
Income before income taxes
   
8,722
   
532
   
(1,115
)
  
-
   
8,139
 
Income taxes
   
2,776
   
208
   
(450
)
  
-
   
2,534
 
Net income
 
$
5,946
  
$
324
  
$
(665
)
$
-
  
$
5,605
  
Intersegment revenue (expense)
 
$
(2,251
)
$
(695
)
$
2,946
  
$
-
  
$
-
  
Average assets
 
$
1,133,212
  
$
20,286
  
$
99,289
  
$
(108,322
)
$
1,144,465
  

 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Segment Information
                      
For the Six Months Ended June 30, 2005
                      
                       
   
Community
 
Mortgage
 
Parent
         
Dollars in thousands
 
Banking
  
Banking
  
and Other
  
Eliminations
  
Total
  
                       
Condensed Statements of Income
                               
Interest income
 
$
25,532
  
$
788
  
$
12
  
$
(515
)
$
25,817
  
Interest expense
   
10,695
   
513
   
365
   
(515
)
  
11,058
 
Net interest income
   
14,837
   
275
   
(353
)
  
-
   
14,759
 
Provision for loan losses
   
675
   
80
   
-
   
-
   
755
 
Net interest income after provision
                               
for loan losses
   
14,162
   
195
   
(353
)
  
-
   
14,004
 
Noninterest income
   
1,593
   
12,969
   
2,679
   
(2,359
)
  
14,882
 
Noninterest expense
   
8,571
   
11,652
   
3,066
   
(2,359
)
  
20,930
 
Income before income taxes
   
7,184
   
1,512
   
(740
)
  
-
   
7,956
 
Income taxes
   
2,250
   
530
   
(351
)
  
-
   
2,429
 
Net income
 
$
4,934
  
$
982
  
$
(389
)
$
-
  
$
5,527
  
Intersegment revenue (expense)
 
$
(1,726
)
$
(618
)
$
2,344
  
$
-
  
$
-
  
Average assets
 
$
902,753
  
$
21,625
  
$
80,699
  
$
(92,887
)
$
912,190
  





SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Selected Balance Sheet Data
                      
                       
                       
   
For the Quarter Ended
 
Dollars in thousands, except per share amounts
 
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Assets
 
$
1,179,648
  
$
1,137,692
  
$
1,109,532
  
$
1,029,103
  
$
946,487
  
Securities
   
238,382
   
233,805
   
223,772
   
215,757
   
209,561
 
Loans held for sale, net
   
9,702
   
12,343
   
16,585
   
12,695
   
16,994
 
Loans, net
   
866,680
   
825,022
   
793,767
   
729,431
   
659,792
 
Intangible assets
   
3,272
   
3,310
   
3,348
   
3,385
   
3,423
 
Retail deposits
   
570,731
   
560,551
   
545,104
   
521,503
   
487,885
 
Brokered time deposits
   
190,832
   
170,185
   
128,797
   
107,416
   
77,282
 
Short-term borrowings
   
164,185
   
136,483
   
182,028
   
139,681
   
127,974
 
Long-term borrowings and
                               
subordinated debentures
    
167,168
   
183,136
   
170,501
   
179,383
   
176,796
 
Shareholders' equity
   
76,559
   
75,816
   
73,803
   
72,429
   
69,838
 
                                 
Book value per share
  
$
10.73
  
$
10.63
  
$
10.36
  
$
10.16
  
$
9.80
  



 

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
                  
Loan Composition
                      
                       
Dollars in thousands
  
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Commercial
  
$
64,342
  
$
66,564
  
$
63,206
  
$
60,723
  
$
59,067
  
Commercial real estate
    
296,680
   
275,896
   
266,228
   
*
   
*
 
Construction and development
    
182,000
   
165,026
   
141,207
   
*
   
*
 
Residential real estate
    
288,991
   
282,013
   
285,597
   
*
   
*
 
Consumer
    
37,040
   
37,357
   
36,863
   
37,431
   
36,993
 
Other
    
6,188
   
6,382
   
8,598
   
8,824
   
9,233
 
Total loans
    
875,241
   
833,238
   
801,699
   
736,992
   
666,948
 
Less unearned fees and interest
    
1,767
   
1,731
   
1,780
   
1,640
   
1,459
 
Total loans net of unearned fees and interest
    
873,474
   
831,507
   
799,919
   
735,352
   
665,489
 
Less allowance for loan losses
    
6,794
   
6,485
   
6,152
   
5,921
   
5,697
 
Loans, net
  
$
866,680
  
$
825,022
  
$
793,767
  
$
729,431
  
$
659,792
  
                                 

       * - Due to reclassification of real estate loans to include construction and development category, real estate loan balances prior to 12/31/05 conforming to the new classifications is not available.



SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
              
Retail Deposit Composition
                      
                       
Dollars in thousands
  
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Non interest bearing checking
  
$
66,071
  
$
62,860
  
$
62,631
  
$
69,346
  
$
63,207
  
Interest bearing checking
    
214,279
   
214,572
   
200,638
   
169,893
   
145,626
 
Savings
    
38,737
   
39,474
   
44,681
   
45,868
   
47,407
 
Time deposits
    
251,644
   
243,645
   
237,154
   
236,396
   
231,645
 
Total retail deposits
  
$
570,731
  
$
560,551
  
$
545,104
  
$
521,503
  
$
487,885
  

 
 

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
              
Mortgage Banking Segment Loan Activity
              
                       
   
For the Quarter Ended
 
Dollars in thousands
  
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Loans originated
                                
Amount
  
$
67,130
  
$
72,967
  
$
78,297
  
$
83,860
  
$
83,616
  
Number
    
1,222
   
1,386
   
1,443
   
1,567
   
1,578
 
                                 
Loans sold
                                
Amount
  
$
69,315
  
$
76,375
  
$
73,903
  
$
87,071
  
$
81,422
  
Number
    
1,304
   
1,421
   
1,376
   
1,566
   
1,549
 
 
 
 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                  
Asset Quality Information
                      
                       
   
For the Quarter Ended
 
Dollars in thousands
 
6/30/2006
  
3/31/2006
  
12/31/2005
  
9/30/2005
  
6/30/2005
  
                       
Net loan charge-off's
  
$
171
  
$
62
  
$
70
  
$
200
  
$
44
  
Net loan charge-off's to average loans (annualized)
    
0.08
%
  
0.03
%
  
0.04
%
  
0.11
%
  
0.03
%
Allowance for loan losses
  
$
6,794
  
$
6,485
  
$
6,152
  
$
5,921
  
$
5,697
  
Allowance for loan losses as a percentage
                                
of period end loans
    
0.77
%
  
0.77
%
  
0.75
%
  
0.79
%
  
0.83
%
Nonperforming assets:
                                
Nonperforming loans
  
$
1,593
  
$
1,972
  
$
1,382
  
$
1,017
  
$
911
  
Foreclosed properties and
                                
other repossessed assets
    
373
   
346
   
395
   
862
   
949
 
Nonaccrual securities
    
-
   
-
   
-
   
-
   
326
 
Total
  
$
1,966
  
$
2,318
  
$
1,777
  
$
1,879
  
$
2,186
  
                                 
Nonperforming loans to period end loans
    
0.18
%
  
0.23
%
  
0.17
%
  
0.14
%
  
0.13
%
Nonperforming assets to period end assets
    
0.17
%
  
0.20
%
  
0.16
%
  
0.18
%
  
0.23
%
 
 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                      
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
              
Q2 2006 vs Q2 2005
                          
   
Q2 2006
  
Q2 2005
  
   
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
  
$
858,645
  
$
16,685
    
7.79
%
$
659,150
  
$
11,096
    
6.75
%
Tax-exempt
    
8,240
   
155
   
7.54
%
  
8,976
   
164
   
7.33
%
Securities
                                      
Taxable
    
190,214
   
2,250
   
4.74
%
  
161,831
   
1,749
   
4.33
%
Tax-exempt
    
45,890
   
801
   
7.00
%
  
48,326
   
811
   
6.73
%
Interest bearing deposits other banks
                                      
and Federal funds sold
    
986
   
14
   
5.70
%
  
2,846
   
27
   
3.81
%
Total interest earning assets
    
1,103,975
   
19,905
   
7.23
%
  
881,129
   
13,847
   
6.30
%
                                       
Noninterest earning assets
                                      
Cash & due from banks
    
14,059
               
16,058
             
Premises & equipment
    
23,586
               
20,686
             
Other assets
    
26,846
               
19,412
             
Allowance for loan losses
    
(6,711
)
              
(5,511
)
            
Total assets
  
$
1,161,755
              
$
931,774
              
                                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                              
                                       
Liabilities
                                      
Interest bearing liabilities
                                      
Interest bearing
                                     
demand deposits
  
$
214,908
  
$
1,823
    
3.40
%
$
141,902
  
$
600
    
1.70
%
Savings deposits
    
37,381
   
74
   
0.79
%
  
49,191
   
79
   
0.64
%
Time deposits
    
430,360
   
4,511
   
4.20
%
  
305,538
   
2,247
   
2.95
%
Short-term borrowings
    
144,502
   
1,831
   
5.08
%
  
135,016
   
1,055
   
3.13
%
Long-term borrowings and
                                      
subordinated debentures
    
179,913
   
2,518
   
5.61
%
  
165,157
   
1,939
   
4.71
%
     
1,007,064
   
10,757
   
4.28
%
  
796,804
   
5,920
   
2.98
%
Noninterest bearing liabilities
                                      
Demand deposits
    
66,496
               
59,073
             
Other liabilities
    
10,298
               
7,451
             
Total liabilities
    
1,083,858
               
863,328
             
                                       
Shareholders' equity
    
77,897
               
68,446
             
Total liabilities and
                                  
shareholders' equity
  
$
1,161,755
              
$
931,774
              
                                   
NET INTEREST EARNINGS
        
$
9,148
              
$
7,927
        
                                   
NET INTEREST YIELD ON EARNING ASSETS
        
3.32
%
              
3.61
%

 
 

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
                      
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
              
YTD 2006 vs YTD 2005
                          
   
For the Six Months Ended June 30,
  
For the Six Months Ended June 30,
  
   
2006
  
2005
  
   
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
  
$
844,093
  
$
32,077
    
7.66
%
$
641,631
  
$
20,998
    
6.60
%
Tax-exempt
    
8,242
   
305
   
7.46
%
  
9,041
   
328
   
7.32
%
Securities
                                      
Taxable
    
188,414
   
4,385
   
4.69
%
  
162,072
   
3,478
   
4.33
%
Tax-exempt
    
44,988
   
1,568
   
7.03
%
  
48,102
   
1,604
   
6.72
%
Interest bearing deposits other banks
                                      
and Federal funds sold
    
1,629
   
37
   
4.58
%
  
2,788
   
53
   
3.83
%
Total interest earning assets
    
1,087,366
   
38,372
   
7.12
%
  
863,634
   
26,461
   
6.18
%
                                       
Noninterest earning assets
                                      
Cash & due from banks
    
14,259
               
15,294
             
Premises & equipment
    
23,475
               
20,714
             
Other assets
    
25,890
               
17,883
             
Allowance for loan losses
    
(6,525
)
              
(5,335
)
            
Total assets
  
$
1,144,465
              
$
912,190
              
                                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                              
                                       
Liabilities
                                      
Interest bearing liabilities
                                      
Interest bearing
                                     
demand deposits
  
$
209,565
  
$
3,366
    
3.24
%
$
134,987
  
$
1,025
    
1.53
%
Savings deposits
    
40,209
   
147
   
0.74
%
  
49,954
   
158
   
0.64
%
Time deposits
    
402,422
   
8,048
   
4.03
%
  
302,046
   
4,260
   
2.84
%
Short-term borrowings
    
158,365
   
3,795
   
4.83
%
  
126,006
   
1,809
   
2.90
%
Long-term borrowings and
                                      
subordinated debentures
    
181,971
   
4,932
   
5.47
%
  
167,814
   
3,806
   
4.57
%
     
992,532
   
20,288
   
4.12
%
  
780,807
   
11,058
   
2.86
%
Noninterest bearing liabilities
                                      
Demand deposits
    
64,906
               
57,610
             
Other liabilities
    
9,850
               
6,393
             
Total liabilities
    
1,067,288
               
844,810
             
                                       
Shareholders' equity
    
77,177
               
67,380
             
Total liabilities and
                                  
shareholders' equity
  
$
1,144,465
              
$
912,190
              
                                   
NET INTEREST EARNINGS
        
$
18,084
              
$
15,403
        
                                   
NET INTEREST YIELD ON EARNING ASSETS
        
3.35
%
              
3.60
%