Regulatory Matters

12 Months Ended

Dec. 31, 2011

Regulatory Matters [Abstract]

Regulatory Matters

NOTE 16. REGULATORY MATTERS

     The primary source of funds for our dividends paid to our shareholders is dividends received from our subsidiaries. Dividends paid by the subsidiary bank are subject to restrictions by banking law and regulations and require approval by the bank's regulatory agency if dividends declared in any year exceed the bank's current year's net income, as defined, plus its retained net profits of the two preceding years. Presently, as a result of the bank MOU, the bank is restricted from paying any cash dividends unless it has provided 30 days prior notice to its regulatory authorities, and its regulatory authorities did not object.

     We and our subsidiaries are subject to various regulatory capital requirements administered by the banking regulatory agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and each of our subsidiaries must meet specific capital guidelines that involve quantitative measures of our and our subsidiaries' assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our and each of our subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet these minimum capital requirements can result in certain mandatory and possible additional discretionary actions by regulators that could have a material impact on our financial position and results of operations.

     Quantitative measures established by regulation to ensure capital adequacy require us and each of our subsidiaries to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of December 31, 2011, that we and each of our subsidiaries met all capital adequacy requirements to which we were subject.

     The most recent notifications from the banking regulatory agencies categorized us and each of our subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we and each of our subsidiaries must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.

     Our subsidiary banks are required to maintain reserve balances with the Federal Reserve Bank. The required reserve balance was $50,000 at December 31, 2011.

     Summit's and its subsidiary bank, Summit Community Bank's ("SCB") actual capital amounts and ratios are also presented in the following table.

										To be Well Capitalized
						Minimum Required				under Prompt Corrective
		Actual				Regulatory Capital				Action Provisions
Dollars in thousands		Amount	Ratio			Amount	Ratio			Amount	Ratio
As of December 31, 2011
Total Capital (to risk-weighted assets)
Summit	$	136,060	13.0	%	$	83,617	8.0	%	$	104,522	10.0	%
Summit Community		142,329	13.6	%		83,604	8.0	%		104,505	10.0	%
Tier 1 Capital (to risk-weighted assets)
Summit		109,989	10.5	%		41,809	4.0	%		62,713	6.0	%
Summit Community		129,058	12.3	%		41,802	4.0	%		62,703	6.0	%
Tier 1 Capital (to average assets)
Summit		109,989	7.6	%		58,031	4.0	%		72,538	5.0	%
Summit Community		129,058	8.9	%		57,995	4.0	%		72,493	5.0	%
As of December 31, 2010
Total Capital (to risk-weighted assets)
Summit	$	129,610	11.8	%	$	87,543	8.0	%	$	109,428	10.0	%
Summit Community		138,164	12.6	%		87,558	8.0	%		109,447	10.0	%
Tier 1 Capital (to risk-weighted assets)
Summit		100,840	9.2	%		43,771	4.0	%		65,657	6.0	%
Summit Community		124,192	11.3	%		43,779	4.0	%		65,668	6.0	%
Tier 1 Capital (to average assets)
Summit		100,840	6.9	%		58,492	4.0	%		73,116	5.0	%
Summit Community		124,192	8.5	%		58,468	4.0	%		73,085	5.0	%

     Summit Financial Group, Inc. ("Summit") and its bank subsidiary, Summit Community Bank, Inc. (the "Bank"), have entered into informal Memoranda of Understanding ("MOU's") with their respective regulatory authorities. A memorandum of understanding is characterized by the regulatory authorities as an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. Among other things, under the MOU's, Summit's management team has agreed to:

• The Bank achieving and maintaining a minimum Tier 1 leverage capital ratio of at least 8% and a total risk-based capital ratio of at least 11%;
• The Bank providing 30 days prior notice of any declaration of intent to pay cash dividends to provide the Bank's regulatory authorities an opportunity to object;
• Summit suspending all cash dividends on its common stock until further notice. Dividends on all preferred stock, as well as interest payments on subordinated notes underlying Summit's trust preferred securities, continue to be permissible; and,
• Summit not incurring any additional debt, other than trade payables, without the prior written consent of the principal banking regulators.