ex99earningsrelease.htm

MOOREFIELD, WV – April 30, 2009 -- Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported first quarter 2009 net income of $1.8 million, or $0.24 per diluted share, compared with earnings of $3.8 million, or $0.51 per diluted share, in the 2008 first quarter. Results for first quarter 2009 were impacted primarily by a higher provision for loan losses due to an increased level of nonperforming construction and development loans.

Excluding from first quarter 2009, a gain of $256,000 from the sales of securities almost completely offset by an other-than-temporary impairment ("OTTI") charge of $215,000 relating to an equity investment, and from first quarter 2008, a $705,000 change in the fair value of interest rate swaps, pro forma earnings for the 2009 quarter were $1.7 million, or $0.23 per diluted share, compared with pro forma earnings of $3.4 million, or $0.45 per diluted share for the year-ago first quarter

H. Charles Maddy III, president and chief executive officer of Summit, commented, “The economy, and more specifically, the condition of real estate in our local markets, has dictated that we shift gears, focusing less on growth and more on bottom-line profitability. Since year-end 2008, we’ve been in a zero-growth mode, although we’ve experienced several shifts among balance sheet categories. Construction and development loans are modestly lower, offset by parallel growth in less risky residential 1-4 family mortgages. Core deposits increased quite significantly – from our highly successful Summit Advantage checking and savings products, allowing us to pay down higher-priced brokered deposits and other wholesale funds. These initiatives have enabled us to maintain our net interest income at a level comparable with that of recent prior quarters, despite the growing impact of nonaccrual loans.

“We continue to devote the lion’s share of our resources to credit administration. Regardless of our vigilance, nonperforming loans increased sharply from the previous quarter. We are developing workout strategies relative to each of the new additions to our nonperforming portfolio. Since we are well-capitalized and well-reserved, we have the flexibility to manage these loans to maximize recoveries.”

Total revenue, consisting of net interest income and noninterest income, was $13.8 million for first quarter 2009, unchanged from the prior-year first quarter. Excluding securities related gains of $41,000 net on first quarter 2009 and $705,000 change in fair value of interest rate swaps during first quarter 2008, operating revenue was $13.7 million for the current period, up 5.0 percent from the first quarter of 2008. Net interest income was $11.3 million, a 3.6 percent increase above the $10.9 million reported in the year-ago period; the 12.3 percent increase in average earning assets over the past twelve months was partially offset by a 24 basis point decline in the net interest margin, which was 3.04 percent for the first quarter of 2009. Mr. Maddy remarked, “If we were to add back the interest income on the nearly $80 million of nonperforming loans, in addition to interest we reversed on the $32 million of new nonperforming loans, our net interest margin would have remained almost unchanged from the 3.28 percent we reported for the year-ago quarter.

Noninterest income, reported on a GAAP basis, was $2.4 million for first quarter 2009 compared with $2.8 million for the year-ago period. Excluding from first quarter one-time gains of $41,000 related to securities in 2009 and $705,000 related to interest rate swaps in 2008, noninterest income from operations was $2.4 million for first quarter 2009 and $2.1 million for the comparable period of 2008. Over 85 percent of noninterest income was derived from $1.3 million of insurance commissions and $0.7 million of service fee income.

The Company ended the 2009 first quarter with an allowance for loan losses of $22.0 million, equivalent to 1.82 percent of total loans, up from 1.40 percent of loans at year-end 2008. During the course of 2008, Summit provided generously to build its loan loss reserve, in particular with a third quarter provision of $12 million and charged off aggressively, notably recording fourth quarter net charge-offs of $5.2 million. In the first quarter of 2009, the jump in nonperforming loans once again necessitated additions to reserves while Summit develops a workout strategy customized for each major nonperforming credit.

Noninterest expense grew by $0.7 million, or 9.3 percent, to $7.8 million in the first quarter of 2009. Controllable expenses, primarily salaries and employee benefits, which account for 55 percent of total noninterest expense, have been the subject of increased corporate scrutiny; they actually declined by 2.6 percent year-over-year as a result of reduced incentive compensation payments in light of weaker corporate earnings compared with prior years’. Savings were more than offset by increased professional fees and other costs related to credit administration and FDIC insurance premium assessments, which more than doubled year-over-year. Summit’s first quarter 2009 efficiency ratio, excluding one-time items, was 54.63 percent compared to 52.11 percent in the year-ago period, reflecting a higher level of noninterest expenses.

Assets at March 31, 2009 were $1.6 billion, up $133.9 million, or 9.1 percent, since first quarter-end 2008. Total loans were $1.2 billion at March 31, 2009, up $119.5 million, or 11.0 percent over the past twelve months; however, loan growth has been sharply curtailed since year-end 2008. Over the past twelve months, loan growth was derived largely from commercial real estate lending, up $58.4 million, or 14.8 percent, and residential real estate, up $43.4 million; construction and development (C&D) was the only loan category to remain flat year-over-year. Over the past quarter, there was virtually no loan growth in any category, except for modest gains in residential real estate.

Commercial real estate (CRE) and 1-4 family residential mortgages currently represent 37.4 percent and 31.4 percent of total loans, respectively, at March 31, 2009. Non real estate-related commercial loans accounted for 10.6 percent of total outstandings, while C&D loans account for a steadily diminishing share of the portfolio: 17.5 percent of the total loans at March 31, 2009, down from 17.8 percent at December 31, 2008.

Total deposits at March 31, 2009 were $955.4 million, down $10.5 million since December 31, 2008 and $118.4 million, or 14.1 percent, greater than year-ago levels. Retail deposits were $699.1 million at March 31, 2009 compared with $652.1 million for the year-ago quarter, a gain of $46.9 million; retail deposits account for approximately 73 percent of total deposits in the current quarter compared with 78 percent in the year-ago quarter. Summit's variable funding needs are met through the national broker market and the FHLB borrowings, whichever is less expensive.

The Company recorded gross loan charge-offs of $0.5 million in the current quarter, but recovered $1.6 million of previously charged off loans, such that the net for the quarter was a $1.1 million recovery, or 0.35 percent of average loans annualized, compared with net charge-offs of $5.2 million, or 1.75 percent of average loans (annualized) for the previous quarter, and $7.8 million, or 0.68 percent of average loans, for the twelve months of 2008. The $4.0 million provision for loan losses taken in the current quarter increased the allowance for loan losses to 1.82 percent, up from 1.40 percent following the fourth quarter 2008 net charge-offs of $5.2 million.

Shareholders' equity at March 31, 2009 was $83.6 million, a decrease of 9.1 percent over the last twelve months. Capital ratios for Summit and its banking subsidiary, Summit Community Bank, remain in excess of regulatory requirements for "well-capitalized," the highest regulatory capital requirement under Federal regulation. As of first quarter-end 2009, common shares outstanding totaled 7,415,310 compared with 7,408,941 for the 2008 first quarter.

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.

This press release contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Specifically, Summit adjusted several GAAP performance measures to exclude the effects of realized and unrealized securities gains and losses and to exclude the effects of the non-cash changes in fair value of interest rate swaps 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 2009 vs Q1 2008


	For the Quarter Ended						Percent
Dollars in thousands	3/31/2009			3/31/2008			Change
Condensed Statements of Income
Interest income
Loans, including fees	$	18,254		$	20,069			-9.0	%
Securities		4,737			3,786			25.1	%
Other		-			4			-100.0	%
Total interest income		22,991			23,859			-3.6	%
Interest expense
Deposits		6,620			7,124			-7.1	%
Borrowings		5,035			5,796			-13.1	%
Total interest expense		11,655			12,920			-9.8	%
Net interest income		11,336			10,939			3.6	%
Provision for loan losses		4,000			1,000			300.0	%
Net interest income after provision
for loan losses		7,336			9,939			-26.2	%
Noninterest income
Insurance commissions		1,344			1,327			1.3	%
Service fee income		736			743			-0.9	%
Realized securities gains (losses)		256			-			n/a
Other-than-temporary impairment of securities		(215	)		-			n/a
Net cash settlement on interest rate swaps		-			(170	)		n/a
Change in fair value of interest rate swaps		-			705			n/a
Other income		319			243			31.3	%
Total noninterest income		2,440			2,848			-14.3	%
Noninterest expense
Salaries and employee benefits		4,279			4,395			-2.6	%
Net occupancy expense		597			476			25.4	%
Equipment expense		568			534			6.4	%
Professional fees		334			118			183.1	%
FDIC premiums		383			174			120.1	%
Other expenses		1,590			1,392			14.2	%
Total noninterest expense		7,751			7,089			9.3	%
Income before income taxes		2,025			5,698			-64.5	%
Income taxes		260			1,874			-86.1	%
Net Income	$	1,765		$	3,824			-53.8	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary -- Q1 2009 vs Q1 2008

	For the Quarter Ended						Percent
	3/31/2009			3/31/2008			Change
Per Share Data
Earnings per share from continuing operations
Basic	$	0.24		$	0.52			-53.8	%
Diluted	$	0.24		$	0.51			-52.9	%

Average shares outstanding
Basic		7,415,310			7,408,941			0.1	%
Diluted		7,435,510			7,449,105			-0.2	%

Performance Ratios
Return on average equity		7.94	%		16.55	%		-52.0	%
Return on average assets		0.43	%		1.06	%		-59.4	%
Net interest margin		3.04	%		3.28	%		-7.3	%
Efficiency ratio - continuing operations (A)		54.63	%		52.11	%		4.8	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary

	For the Quarter Ended
Dollars in thousands	3/31/2009			12/31/2008			9/30/2008			6/30/2008			3/31/2008
Condensed Statements of Income
Interest income
Loans, including fees	$	18,254		$	19,343		$	18,527		$	19,576		$	20,069
Securities		4,737			4,305			4,108			3,761			3,786
Other		-			1			2			3			4
Total interest income		22,991			23,649			22,637			23,340			23,859
Interest expense
Deposits		6,620			7,081			6,704			6,435			7,124
Borrowings		5,035			5,190			5,549			5,530			5,796
Total interest expense		11,655			12,271			12,253			11,965			12,920
Net interest income		11,336			11,378			10,384			11,375			10,939
Provision for loan losses		4,000			750			12,000			1,750			1,000
Net interest income after provision
for loan losses		7,336			10,628			(1,616	)		9,625			9,939
Noninterest income
Insurance commissions		1,344			1,200			1,337			1,275			1,327
Service fee income		736			851			828			824			743
Realized securities gains (losses)		256			-			-			-			-
Other-than-temporary impairment of securities		(215	)		(1,024	)		(4,495	)		(1,541	)		-
Net cash settlement on interest rate swaps		-			-			-			-			(170	)
Change in fair value of interest rate swaps		-			-			-			-			705
Other income		319			40			155			570			243
Total noninterest income		2,440			1,067			(2,175	)		1,128			2,848
Noninterest expense
Salaries and employee benefits		4,279			4,047			4,113			4,187			4,395
Net occupancy expense		597			463			489			443			476
Equipment expense		568			567			538			533			534
Professional fees		334			250			173			182			118
FDIC premiums		383			210			180			120			174
Other expenses		1,590			2,324			1,792			1,684			1,392
Total noninterest expense		7,751			7,861			7,285			7,149			7,089
Income before income taxes		2,025			3,834			(11,076	)		3,604			5,698
Income taxes		260			277			(3,402	)		1,010			1,874
Net income (loss)	$	1,765		$	3,557		$	(7,674	)	$	2,594		$	3,824

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary

	For the Quarter Ended
	3/31/2009			12/31/2008			9/30/2008			6/30/2008			3/31/2008
Per Share Data
Earnings per share
Basic	$	0.24		$	0.48		$	(1.04	)	$	0.35		$	0.52
Diluted	$	0.24		$	0.48		$	(1.03	)	$	0.35		$	0.51

Average shares outstanding
Basic		7,415,310			7,411,577			7,410,791			7,410,217			7,408,941
Diluted		7,435,510			7,434,643			7,445,242			7,448,170			7,449,105

Performance Ratios
Return on average equity		7.94	%		17.08	%		-34.71	%		11.16	%		16.55	%
Return on average assets		0.43	%		0.89	%		-1.99	%		0.70	%		1.06	%
Net interest margin		3.04	%		3.04	%		2.89	%		3.33	%		3.28	%
Efficiency ratio - continuing operations (A)		54.63	%		51.14	%		54.52	%		49.87	%		52.11	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Selected Balance Sheet Data

	For the Quarter Ended
Dollars in thousands, except per share amounts	3/31/2009			12/31/2008			9/30/2008			6/30/2008			3/31/2008

Assets	$	1,598,968		$	1,627,066		$	1,567,325		$	1,525,978		$	1,465,110
Securities		295,706			350,622			327,648			307,232			302,029
Loans, net		1,186,042			1,192,157			1,145,606			1,130,483			1,079,223
Intangible assets		9,617			9,704			9,792			9,880			9,968
Retail deposits		699,065			669,261			663,569			634,007			652,148
Brokered time deposits		256,293			296,589			281,655			223,742			184,796
Short-term borrowings		120,480			153,100			98,316			147,900			93,950
Long-term borrowings and
subordinated debentures		430,687			412,337			434,016			419,775			431,918
Shareholders' equity		83,604			87,244			80,510			91,466			91,955

Book value per share	$	11.27		$	11.77		$	10.86		$	12.34		$	12.41
Tangible book value per share	$	9.98		$	10.46		$	9.54		$	11.01		$	11.07
Tangible equity / Tangible assets		4.7	%		4.8	%		4.5	%		5.4	%		5.6	%
Tier 1 leverage ratio		6.3	%		6.2	%		6.2	%		7.0	%		7.8	%

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition

Dollars in thousands	3/31/2009		12/31/2008		9/30/2008		6/30/2008		3/31/2008

Commercial	$	128,707	$	130,106	$	115,106	$	112,793	$	111,442
Commercial real estate		452,987		452,264		423,982		415,187		394,619
Construction and development		211,849		215,465		225,582		217,623		211,052
Residential real estate		380,351		376,026		366,989		361,009		336,985
Consumer		30,201		31,519		31,433		30,361		30,206
Other		6,133		6,061		6,240		6,206		6,395
Total loans		1,210,228		1,211,441		1,169,332		1,143,179		1,090,699
Less unearned fees and interest		2,190		2,351		2,293		2,347		1,878
Total loans net of unearned fees and interest		1,208,038		1,209,090		1,167,039		1,140,832		1,088,821
Less allowance for loan losses		21,996		16,933		21,433		10,349		9,598
Loans, net	$	1,186,042	$	1,192,157	$	1,145,606	$	1,130,483	$	1,079,223

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Retail Deposit Composition

Dollars in thousands	3/31/2009		12/31/2008		9/30/2008		6/30/2008		3/31/2008

Non interest bearing checking	$	70,483	$	69,808	$	70,353	$	68,912	$	64,111
Interest bearing checking		155,157		156,990		182,383		194,255		201,820
Savings		94,294		61,688		58,678		60,245		53,427
Time deposits		379,131		380,775		352,155		310,595		332,790
Total retail deposits	$	699,065	$	669,261	$	663,569	$	634,007	$	652,148

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information
	For the Quarter Ended
Dollars in thousands	3/31/2009			12/31/2008			9/30/2008			6/30/2008			3/31/2008

Gross loan charge-offs	$	522		$	5,351		$	969		$	1,079		$	646
Gross loan recoveries		(1,585	)		(102	)		(52	)		(80	)		(52	)
Net loan charge-offs	$	(1,063	)	$	5,249		$	917		$	999		$	594

Net loan charge-offs to average loans (annualized)		-0.35	%		1.75	%		0.32	%		0.36	%		0.22	%
Allowance for loan losses	$	21,996		$	16,933		$	21,433		$	10,349		$	9,598
Allowance for loan losses as a percentage
of period end loans		1.82	%		1.40	%		1.87	%		0.91	%		0.88	%
Nonperforming assets:
Nonperforming loans	$	79,583		$	47,969		$	59,845		$	15,614		$	13,957
Foreclosed properties and
other repossessed assets		7,824			8,113			2,284			2,546			2,205
Total	$	87,407		$	56,082		$	62,129		$	18,160		$	16,162

Nonperforming loans to period end loans		6.58	%		3.97	%		5.13	%		1.37	%		1.28	%
Nonperforming assets to period end assets		5.47	%		3.45	%		3.96	%		1.19	%		1.11	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Nonperforming Loans

	For the Quarter Ended
Dollars in thousands	3/31/2009		12/31/2008		9/30/2008		6/30/2008		3/31/2008

Commercial	$	637	$	199	$	140	$	81	$	695
Commercial real estate		25,788		24,323		27,347		3,184		5,095
Construction and development		45,194		18,382		29,127		6,460		3,694
Residential real estate		7,933		4,986		2,799		5,521		4,247
Consumer		31		79		432		368		226
Total	$	79,583	$	47,969	$	59,845	$	15,614	$	13,957

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Loans Past Due 30-89 Days

	For the Quarter Ended
Dollars in thousands	3/31/2009		12/31/2008		9/30/2008		6/30/2008		3/31/2008

Commercial	$	144	$	114	$	706	$	1,089	$	321
Commercial real estate		3,985		195		1,407		24,606		1,249
Construction and development		5,559		2,722		1,996		9,919		1,059
Residential real estate		10,291		5,009		8,537		2,962		3,792
Consumer		646		824		1,140		979		946
Total	$	20,625	$	8,864	$	13,786	$	39,555	$	7,367

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q1 2009 vs Q1 2008
	Q1 2009			Q1 2008
	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	$1,202,666	$18,146	6.12%	$1,073,218	$19,949	7.48%
Tax-exempt	7,954	162	8.26%	8,949	183	8.22%
Securities
Taxable	298,157	4,224	5.75%	251,767	3,196	5.11%
Tax-exempt	46,040	777	6.84%	50,426	879	7.01%
Interest bearing deposits other banks
and Federal funds sold	292	-	0.00%	456	3	2.65%
Total interest earning assets	1,555,109	23,309	6.08%	1,384,816	24,210	7.03%

Noninterest earning assets
Cash & due from banks	17,376			12,613
Premises & equipment	22,720			22,110
Other assets	47,453			35,585
Allowance for loan losses	(19,367)			(9,533)
Total assets	$1,623,291			$1,445,591

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
Interest bearing liabilities
Interest bearing
demand deposits	$153,938	$195	0.51%	$207,661	$930	1.80%
Savings deposits	75,096	341	1.84%	46,551	195	1.68%
Time deposits	646,913	6,084	3.81%	506,036	5,999	4.77%
Short-term borrowings	152,181	211	0.56%	108,898	919	3.39%
Long-term borrowings and
subordinated debentures	423,764	4,824	4.62%	409,938	4,877	4.78%
	1,451,892	11,655	3.26%	1,279,084	12,920	4.06%
Noninterest bearing liabilities
Demand deposits	74,492			64,472
Other liabilities	8,017			9,604
Total liabilities	1,534,401			1,353,160

Shareholders' equity	88,890			92,431
Total liabilities and
shareholders' equity	$1,623,291			$1,445,591

NET INTEREST EARNINGS		$11,654			$11,290

NET INTEREST YIELD ON EARNING ASSETS			3.04%			3.28%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

	For the Quarter Ended
Dollars in thousands	3/31/2009			3/31/2008

Net income - excluding securities gains/losses
and change in fair value of interest rate swaps	$	1,739		$	3,380

Securites gains/losses		41			-
Applicable income tax effect		(15	)		-
		26			-
Change in fair value of interest rate swaps		-			705
Applicable income tax effect		-			(261	)
		-			444
GAAP net income	$	1,765		$	3,824

Diluted earnings per share-
excluding securities gains/losses and
change in fair value of interest rate swaps	$	0.23		$	0.45

Securities gains/losses		0.01			-
Applicable income tax effect		-			-
Change in fair value of interest rate swaps		-			0.09
Applicable income tax effect		-			(0.03	)
		0.01			0.06
GAAP diluted earnings per share	$	0.24		$	0.51

Total revenue - excluding securities gains/losses
and change in fair of interest rate swaps	$	13,735		$	13,082

Securities gains/losses		41			-
Change in fair value of interest rate swaps		-			705
		41			705
GAAP total revenue	$	13,776		$	13,787

Total noninterest income - excluding securities
gains/losses and change in fair of interest rate swaps	$	2,399		$	2,143

Securities gains/losses		41			-
Change in fair value of interest rate swaps		-			705
		41			705
GAAP total noninterest income	$	2,440		$	2,848