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Summit Financial Group Reports 2010 Fourth Quarter and Full Year Results

MOOREFIELD, W.V., Jan. 31, 2011 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported net income applicable to common shareholders for the 2010 fourth quarter of $836,000, or $0.11 per diluted share, compared to a 2009 fourth quarter net loss of $508,000 applicable to common shareholders, or ($0.07) per diluted share, and a net loss of $202,000 to common shareholders, or ($0.03) per diluted share, for the third quarter of 2010. The Company reported a full-year 2010 net loss applicable to common shareholders of $2.3 million, or ($0.31) per diluted share, compared to a net loss of $790,000 applicable to common shareholders, or ($0.11) per diluted share, for the 2009 full-year.
/ Source: GlobeNewswire

MOOREFIELD, W.V., Jan. 31, 2011 (GLOBE NEWSWIRE) -- Summit Financial Group, Inc. ("Company" or "Summit") (Nasdaq:SMMF) today reported net income applicable to common shareholders for the 2010 fourth quarter of $836,000, or $0.11 per diluted share, compared to a 2009 fourth quarter net loss of $508,000 applicable to common shareholders, or ($0.07) per diluted share, and a net loss of $202,000 to common shareholders, or ($0.03) per diluted share, for the third quarter of 2010. The Company reported a full-year 2010 net loss applicable to common shareholders of $2.3 million, or ($0.31) per diluted share, compared to a net loss of $790,000 applicable to common shareholders, or ($0.11) per diluted share, for the 2009 full-year.

H. Charles Maddy III, President and Chief Executive Officer of Summit, commented, "Our primary focus remains to reduce our portfolio of nonperforming assets, which has been the principal factor contributing to lower earnings performance. We made good progress this year, highlighted by the 14.2% reduction in our nonperforming assets. However, disposition of foreclosed real estate remains difficult to achieve as the return of our real estate markets to normal activity levels has been slower than we anticipated."

"We will continue to manage our problem assets through a combination of asset sales, loan workouts and charge-offs. We believe we are moving in the right direction; although the costs of credit administration have escalated, we have maintained operating expenses at a stable level through staff reductions, salary freezes and the rescission of bonuses until our profitability normalizes. On the revenue side, nonaccruals have negatively affected interest income, but we have been fairly successful managing our funding costs to partially offset the impact. We saw significant net interest margin improvement during the most recent quarter, increasing 37 basis points compared to Q3 2010, following recent maturities and repricings of over $100 million of higher-cost wholesale funding. Given the improving operational trends we've established, we are hopeful that the profit we reported this quarter will serve as a baseline for profitability as we move into 2011."

Results from Operations

For the fourth quarter of 2010, net interest income was $10.4 million, an increase of 2.3 percent from the $10.2 million reported in the prior-year fourth quarter. However, the underlying dynamics have shifted significantly. The net interest margin for fourth quarter was 3.19 percent compared to 2.83 percent for the year-ago quarter, and 2.82 percent for the linked quarter. Borrowing costs in the fourth quarter were lower by $1.0 million compared to the linked quarter, and net interest income improved 9.3 percent above the linked quarter. Compared to the year-ago fourth quarter, however, average earning assets declined by 8.7 percent, partially offsetting the positive impact of this margin improvement.

Total revenue for the 2010 full-year, consisting of net interest income and noninterest income, was $47.4 million compared to $49.3 million for the 2009 full year. Noninterest income for the 2010 full-year was $7.2 million compared to $5.8 million for 2009. Nonrecurring charges were $2.2 million for 2010, including a $2.1 million gain on the sale of securities, a $142,000 gain on sale of assets, OTTI charges of $1.0 million on securities, and $3.4 million in writedowns of foreclosed properties; for 2009, nonrecurring items totaled $4.0 million, including OTTI charges of $5.4 million on securities, a $112,000 loss on the sale of assets and a $1.5 million gain on the sale of securities. Excluding these one-time charges, noninterest income from operations was $9.4 million in 2010, down $364,000 or 3.7 percent from the $9.8 million reported for 2009.

Excluding nonrecurring items, noninterest income from operations was reasonably stable over the past five quarters, averaging $2.4 million per quarter. Noninterest income consists primarily of insurance commissions from Summit's insurance agency subsidiary and service fee income from banking activities. Summit reported fourth quarter 2010 noninterest income of $737,000 compared to $2.9 million for the year-ago quarter. Net nonrecurring charges were $1.6 million in the 2010 quarter, including a $463,000 gain on the sale of securities, OTTI charges of $0.9 million on securities, a $31,000 gain on the sale of assets, and writedowns of $1.2 million on foreclosed properties. For the 2009 quarter, net nonrecurring income totaled $393,000, including $773,000 in realized securities gains and OTTI charges of $383,000 on securities. Excluding one-time items from their respective fourth quarters, noninterest income from operations was $2.3 million in 2010 and $2.5 million for the year-ago quarter.

The provision for loan losses was $3.0 million for the fourth quarter of 2010 compared to $4.5 million and $6.8 million for the linked and year-ago quarters, respectively. For 2010, Summit provided $21.4 million for loan losses, a $1.0 million or 5.0 percent increase from the $20.3 million provided during 2009. At year-end 2010, the allowance for loan losses was 1.70 percent of total loans compared to 1.47 percent at year-end 2009.

Mr. Maddy noted that operating expenses continue to be exceedingly well-controlled, despite the increased costs of OREO administration, which increased 229.9 percent, to $1.6 million for 2010, compared to $478,000 in 2009. In fact, operating expenses actually decreased for the year to $31.0 million, down $0.9 million, or 3.0 percent, from the $31.9 million reported for 2009. Cost-saving initiatives remain in place and their impact continues to grow. Fourth quarter 2010 operating expenses of $7.6 million were unchanged compared to the year-ago fourth quarter.

Balance Sheet

At December 31, 2010, total assets were $1.48 billion, a decline of $106.8 million, or 6.7 percent since year-end 2009. Total loans, net of unearned fees and interest, were $1.01 billion at December 31, 2010, down $142 million, or 12.3 percent, over the same twelve-month period. Compared to the linked quarter, assets declined by $18.6 million, or 1.2 percent; loans declined by $24.5 million, or 2.4 percent, while investment securities and cash equivalents increased $7.9 million, or 2.5 percent.

All loan categories have declined since year-end 2009, most notably construction and development ("C&D") loans, down $49.2 million or 30.4 percent. The two largest components of Summit's loan portfolio, commercial real estate ("CRE") and residential real estate declined $42.0 million (down 9.0 percent) and $20.5 million (down 5.5 percent), respectively, while commercial ("C&I") loans declined $25.2 million, or 20.6 percent. At 2010 year-end, CRE loans were $423.0 million, or approximately 41.7 percent of total loans, followed by residential real estate loans at $352.3 million, or approximately 34.7 percent of total loans. C&D loans were $112.8 million, accounting for 11.1 percent of total loans, while C&I loans and consumer and other loans represented the remainder of the portfolio at 9.6 and 2.8 percent of total loans, respectively.

During 2010, retail deposits grew $31.2 million, or 4.0 percent, to $806.7 million, with the majority of growth occurring in the 2010 fourth quarter when retail time deposits jumped $29 million; retail deposit growth was partially offset by an $11 million decrease in savings accounts over the past year. The $107 million decline in total assets since December 31, 2009 provided Summit with an opportunity to reduce broker deposits, and relatively higher-cost short- and long-term borrowings by $11.5 million, $48.2 million and $77.4 million, respectively, during 2010.

Asset Quality

As of December 31, 2010, nonperforming assets ("NPAs"), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $92.2 million, or 6.24 percent of assets. This compares to $107.5 million, or 6.78 percent of assets, at year-end 2009, and $98.0 million, or 6.55 percent of assets, at September 30, 2010. The $15.3 million year-over-year decline in NPAs masks the significant progress Summit has made in reducing its nonperforming loan portfolio, which declined by $45.2 million during 2010. Nonperforming loans now account for 2.14 percent of total loans, down from 5.79 percent at year-end 2009.

During 2010, foreclosed real estate increased by $29.9 million, to $70.2 million, or 4.75 percent of assets. Approximately three-fourths of the total, or $51 million, consists of land, development and construction projects.

Loans 30-89 day delinquent increased $16 million this past quarter, after having shown consistent improvement each previous quarter of 2010. In this regard, Mr. Maddy added, "We had a $13 million loan relationship past due at year end which is principally secured by a large residence and farm located in one of the most desirable counties in Virginia." 

Capital Adequacy

Common shareholders' equity was $86.0 million as of December 31, 2010 compared to $87.2 million December 31, 2009. Summit's depository institution, Summit Community Bank, continues to be well in excess of regulatory requirements for a "well capitalized" institution at December 31, 2010. The Bank's total risk-based capital ratio was 12.6 percent, while its Tier 1 leverage capital ratio was 8.5 percent compared to 11.4 percent and 7.6 percent, respectively, at December 31, 2009. Total common shares outstanding as of December 31, 2010 were 7,425,472.

In conclusion, Mr. Maddy commented, "We end the year on a more hopeful note than we have at any time during this economic downturn. However, community banks, like Summit, will still experience uncertainty until economic activity returns to a level where people feel confident that they will find jobs, and real estate sales rebound. We have been fortunate in the past that our markets have been attractive enough to sustain population and job growth. We are hopeful that these dynamics will return in the not-too-distant future. We all are hoping for a better year in 2011."

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


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

CONTACT: Robert S. Tissue, Sr. Vice President & CFO (304) 530-0552