UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantx
Filed by a Party other than the Registranto
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| o | Definitive Proxy Statement |
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| x | Soliciting Material Pursuant to Sec. 240.14a-12 |
SUMMIT FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
____________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Set forth below is the 2004 Condensed Annual Report delivered by Summit Financial Corporation to shareholders starting on or about May 2, 2005.
2004
ANNUAL REPORT
\
CORPORATE PROFILE
Summit Financial Corporation (the “Company”) is a financial holding company headquartered in Greenville, South Carolina.Subsidiaries of the Company are Summit National Bank (the “Bank”), a national bank organized in 1990, and Freedom Finance, Inc.(the “Finance Company”), a consumer finance company organized in 1994. The Bank provides a full range of banking services toindividuals and businesses, including the taking of time and demand deposits and making loans. Through its wholly-ownedsubsidiary, Summit Investment Services, Inc., the Bank offers nondeposit products and financial management services. The Bankoperates four full-service branches in Greenville and Spartanburg, South Carolina. The Finance Company makes and servicesinstallment loans to individuals with loan principal amounts generally not exceeding $2,000 and with maturities ranging from threeto 18 months. The Finance Company has 11 locations throughout South Carolina.
ABOUT THE ANNUAL REPORT
The 2004 Annual Report is presented in a summary format and is intended to provide information in a concise and readable mannerthat will be meaningful and useful to the widest range of readers. The audited financial statements and detailed analytical schedulesare contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the Securities andExchange Commission (“SEC”).
PROXY STATEMENT
The Company intends to file a proxy statement with the SEC in connection with the proposed merger of the Company andthe Bank with and into First Citizens Bank & Trust Company, Inc. (“First Citizens”).INVESTORS AND SECURITYHOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLEBECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY, FIRST CITIZENS, AND THEMERGER. The proxy statement and other relevant materials (when they become available), and any other documents filedwith the SEC by the Company or First Citizens, may be obtained free of charge at the SEC’s web site atwww.sec.gov. Inaddition, investors and security holders may obtain free copies of the documents filed with the SEC by the Company bydirecting a written request to: Summit Financial Corporation, Post Office Box 1087, Greenville, South Carolina, 29602,Attention: Ms. Blaise B. Bettendorf, CFO. Investors and security holders are urged to read the proxy statement and the otherrelevant materials when they become available before making any voting or investment decision with respect to the merger.
The Company and its executive officers and directors may be deemed to be participants in the solicitation of proxies from theshareholders of the Company in connection with the merger. Investors and security holders may obtain additional informationregarding the Company’s executive officers and directors and their interests in the Company from the 2004 Annual Reporton Form 10-K/A for the year ended December 31, 2004, and from the reports filed with the SEC by the Company’s executiveofficers and directors under Section 16 of the Securities Exchange Act of 1934, and additional information regarding theinterests of such potential participants will be included in the proxy statement and other relevant materials filed with the SECwhen they become available.
CONTENTS
| Financial Highlights | 1 |
| To Our Shareholders | 2 |
| Selected Financial Data | 3 |
| Report of Independent Registered Public Accounting Firm | 4 |
| Condensed Consolidated Balance Sheets | 5 |
| Condensed Consolidated Statements of Income | 6 |
| Financial Review | 7 |
| Leadership Group | 8 |
| Summit National Bank Officers | 9 |
| Shareholder Information | 9 |
Summit Financial Corporation
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data) | 2004 | 2003 | % Change | |||||||
FOR THE YEAR | ||||||||||
| Net income | $ | 4,439 | $ | 3,807 | 17 | % | ||||
| Net income per common share - basic | $ | 1.00 | $ | 0.89 | 12 | % | ||||
| Net income per common share - diluted | $ | 0.90 | $ | 0.79 | 14 | % | ||||
AT YEAR END | ||||||||||
| Total assets | $ | 320,938 | $ | 343,921 | -7 | % | ||||
| Investment securities | 59,838 | 90,887 | -34 | % | ||||||
| Loans, net of unearned income | 242,460 | 231,802 | 5 | % | ||||||
| Deposits | 231,718 | 257,012 | -10 | % | ||||||
| Shareholders’ equity | 37,265 | 32,205 | 16 | % | ||||||
| Book value per share | $ | 8.25 | $ | 7.47 | 10 | % | ||||
FINANCIAL RATIOS | ||||||||||
| Return on average assets | 1.36 | % | 1.18 | % | 15 | % | ||||
| Return on average equity | 12.81 | % | 12.46 | % | 3 | % | ||||
| Net interest margin, tax-equivalent basis | 4.33 | % | 4.14 | % | 5 | % | ||||
| Total risk-based capital | 15.27 | % | 13.75 | % | 11 | % | ||||
ASSET QUALITY RATIOS | ||||||||||
| Allowance for loan losses to loans, year end | 1.51 | % | 1.48 | % | 2 | % | ||||
| Net charge-offs to average loans | 0.10 | % | 0.32 | % | -69 | % | ||||
STOCK PERFORMANCE & STATISTICS, At Year End | ||||||||||
| Closing market price | $ | 21.35 | $ | 18.00 | 19 | % | ||||
| Annual shares traded | 246,198 | 463,061 | -47 | % | ||||||
| Shares traded as a percent of average shares outstanding | 5.60 | % | 10.90 | % | -50 | % | ||||
| Price/book ratio | 2.59x | 2.41x | 7 | % | ||||||
| Price/earnings ratio (based on diluted earnings per share) | 23.7x | 22.8x | 4 | % | ||||||
| Market capitalization | $ | 96,407 | $ | 77,633 | 24 | % | ||||
| Shares outstanding | 4,515,553 | 4,312,925 | 5 | % | ||||||
| Cash dividends per share | $ | 0.15 | $ | 0.10 | 50 | % | ||||
| Dividend payout ratio (based on diluted earnings per share) | 16.70 | % | 12.70 | % | 31 | % |
1
Summit Financial Corporation
TO OUR SHAREHOLDERS
April 25, 2005
Dear Fellow Shareholders:
As I am sure you know, your Company has entered into an agreement to merge with First Citizens Bank andTrust Company, Inc. Upon shareholder and regulatory approval of the transaction, our shareholders will receive $22.00per share in cash. After much deliberation, your Board felt that an all cash offer was particularly attractive in light ofthe relatively low 15% capital gain tax rate and the certainty of price to be received by our shareholders. This transactionis the culmination of a journey we began together in March 1990, and I am pleased that we reached this point with thisparticular partner. First Citizens is committed to community banking, deeply rooted in South Carolina, very stable, andable to provide a great number of our Summit people with the opportunity to continue to enhance their careers. Pleasecontinue to support our great employees and First Citizens as you have so steadfastly stood by us in the past.
From day one, Summit has been operated as we were taught by our dearly departed friends and mentors, SamHunt and Nap Vandiver. Major attention has been given to credit quality; customers and employees have been treatedwith respect. All operations have been open and honest; we have had fun and developed many wonderful relationshipsalong the way. Most importantly, our main focus has been on increasing the wealth of our shareholders. For those ofyou who have been with us since our Initial Public Offering, that increase has been approximately eight fold. Thanksfor being part of this Company.
2004 was another stellar year for the Company, representing the ninth consecutive year of record earnings. Netincome for the year ended December 31, 2004 was $4.4 million compared to $3.8 million for 2003, an increase of 17%.Fully diluted earnings per share increased 14% to $0.90 per share. 2004 was also a period of excellent credit quality forus. Consolidated net charge-offs were very low at 0.10% of average loans, and Summit National Bank ended the yearin a net recovery position.
Summit has been blessed with bright and dedicated employees who have placed the Company’s success in frontof their own. I must single out the co-founders who took the risk of associating with an unproven start-up enterprise, andare the linchpins of its success. JB Schwiers, Blaise Bettendorf, Jimmy Gulledge and Gena Scully have my eternalgratitude for their dedication to Summit. Likewise, to the members of our Board of Directors who invested their timeand money, demonstrated their faith in our team and gave direction to this Company, I will remain forever grateful.
As the transaction proceeds, you will receive a Proxy Statement for the Annual Meeting of Shareholders whichwill include detailed information about the merger. It is important that your shares be represented at the Annual Meeting.We encourage you to carefully read the information contained in the Proxy Statement and to consider and vote on allproposals presented. We invite your questions and comments.
For the Board of Directors,
J. Randolph Potter
President and CEO
2
Summit Financial Corporation
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||
SUMMARY OF OPERATIONS | ||||||||||||||||
| Net interest income | $ | 12,952 | $ | 12,289 | $ | 11,647 | $ | 10,398 | $ | 10,023 | ||||||
| Provision for loan losses | 436 | 786 | 847 | 725 | 654 | |||||||||||
| Noninterest income | 2,316 | 2,930 | 2,671 | 2,582 | 1,846 | |||||||||||
| Noninterest expense | 8,434 | 8,872 | 8,444 | 8,259 | 7,356 | |||||||||||
| Income taxes | 1,959 | 1,754 | 1,585 | 1,280 | 1,204 | |||||||||||
| Net income | 4,439 | 3,807 | 3,442 | 2,716 | 2,655 | |||||||||||
| Per common share — basic | 1.00 | 0.89 | 0.82 | 0.66 | 0.65 | |||||||||||
| Per common share — diluted | 0.9 | 0.79 | 0.73 | 0.60 | 0.59 | |||||||||||
YEAR END BALANCE SHEETS | ||||||||||||||||
| Investment securities | $ | 59,838 | $ | 90,887 | $ | 63,464 | $ | 47,400 | $ | 32,445 | ||||||
| Loans, net of unearned income | 242,460 | 231,802 | 218,800 | 207,041 | 180,521 | |||||||||||
| Allowance for loan losses | 3,649 | 3,437 | 3,369 | 2,937 | 2,560 | |||||||||||
| Total assets | 320,938 | 343,921 | 302,206 | 273,097 | 249,835 | |||||||||||
| Noninterest-bearing deposits | 36,897 | 37,037 | 33,342 | 29,372 | 35,468 | |||||||||||
| Interest-bearing deposits | 194,821 | 219,975 | 197,173 | 189,406 | 173,723 | |||||||||||
| FHLB advances | 50,134 | 52,317 | 40,600 | 26,900 | 16,000 | |||||||||||
| Shareholders’ equity | 37,265 | 32,205 | 28,742 | 24,601 | 21,528 | |||||||||||
| Book value per share | 8.25 | 7.47 | 6.82 | 5.89 | 5.17 | |||||||||||
AVERAGE BALANCE SHEETS | ||||||||||||||||
| Investment securities | $ | 68,467 | $ | 74,661 | $ | 52,157 | $ | 40,232 | $ | 28,681 | ||||||
| Loans, net of unearned income | 232,301 | 223,365 | 211,704 | 195,573 | 159,711 | |||||||||||
| Total assets | 326,519 | 322,766 | 288,887 | 263,695 | 212,177 | |||||||||||
| Noninterest-bearing deposits | 35,969 | 32,132 | 29,678 | 26,549 | 21,746 | |||||||||||
| Interest-bearing deposits | 202,879 | 212,048 | 197,631 | 190,713 | 153,624 | |||||||||||
| Shareholders’ equity | 34,651 | 30,558 | 26,427 | 23,193 | 19,562 | |||||||||||
RATIOS AND OTHER DATA | ||||||||||||||||
| Return on average assets | 1.36 | % | 1.18 | % | 1.19 | % | 1.03 | % | 1.25 | % | ||||||
| Return on average equity | 12.81 | % | 12.46 | % | 13.02 | % | 11.71 | % | 13.57 | % | ||||||
| Net interest margin, tax-equivalent basis | 4.33 | % | 4.14 | % | 4.38 | % | 4.29 | % | 5.11 | % | ||||||
| Efficiency ratio | 58.10 | % | 63.46 | % | 64.89 | % | 69.21 | % | 67.49 | % | ||||||
| Noninterest income ratio | 11.66 | % | 14.38 | % | 13.03 | % | 11.33 | % | 8.68 | % | ||||||
| Total risk-based capital | 15.27 | % | 13.75 | % | 13.20 | % | 12.41 | % | 12.21 | % | ||||||
| Leverage capital | 11.39 | % | 9.92 | % | 9.70 | % | 9.25 | % | 10.13 | % | ||||||
| Net charge-offs to average loans | 0.10 | % | 0.32 | % | 0.20 | % | 0.18 | % | 0.16 | % | ||||||
| Nonperforming assets to loans plus OREO, year end | 0.37 | % | 0.38 | % | 0.22 | % | 0.64 | % | 0.19 | % | ||||||
| Allowance for loan losses to loans, year end | 1.51 | % | 1.48 | % | 1.54 | % | 1.42 | % | 1.42 | % | ||||||
| Closing market price per share | $ | 21.35 | $ | 18.00 | $ | 14.62 | $ | 9.07 | $ | 7.99 | ||||||
| Price/earnings ratio, year end | 23.7x | 22.8x | 20.3x | 15.1x | 13.5x |
3
Summit Financial Corporation
REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM
The Board of Directors
Summit Financial Corporation
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),the consolidated balance sheets of Summit Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the relatedconsolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004 (not presented herein); and in our report dated February 22, 2005, we expressed an unqualifiedopinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed consolidated balance sheets and statements ofincome is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.
Greenville, South Carolina
February 22, 2005 /s/ KPMG LLP
Summit Financial Corporation
MANAGEMENT’S REPORT
Primary responsibility forthe integrity and objectivity of the Company’s consolidated financial statements rests withmanagement. The accompanying condensed consolidated balance sheets and statements of income, and the consolidated financialstatements included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year endedDecember 31, 2004 are prepared in conformity with U.S. generally accepted accounting principles and accordingly, include amountsthat are based on management’s best estimates and judgments.
To assure that financial information is reliable and data is presented fairly in the financial statements, management hasestablished and maintains an internal control structure which is supplemented by a program of internal audits. The internal controlstructure is designed to provide reasonable assurance that assets are safeguarded and transactions are executed, recorded, and reportedin accordance with management intentions and authorizations. The internal control structure includes disclosure controls andprocedures and internal controls over financial reporting.
To assure the effective administration of the system of internal controls, the Company develops and widely disseminateswritten policies and procedures, provides adequate communication channels, and fosters an environment conducive to the effectivefunctioning of internal controls. All employees of the Company are informed of the need to conduct our business affairs in accordancewith the highest ethical standards. The Company has set forth a written code of business conduct and ethics and communicated it toall employees.
The Audit Committee, composed entirely of outside directors, meets periodically (separately and jointly) with Companymanagement, the internal auditor, and the independent auditors, KPMG LLP, to review matters relative to the quality of financialreporting, internal control, and the nature, timing, extent and results of the audit efforts. KPMG LLP, has audited the Company’sconsolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States),as described in their report.
| |  |
| J. Randolph Potter | Blaise B. Bettendorf |
President and Chief Executive Officer | Senior Vice President and Chief Financial Officer |
4
Summit Financial Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31, | |||||||
2004 | 2003 | ||||||
ASSETS | |||||||
| Cash and due from banks | $ | 6,548 | $ | 9,854 | |||
| Interest-bearing bank balances | 147 | 341 | |||||
| Federal funds sold | 218 | 201 | |||||
| Investment securities available for sale | 59,838 | 90,887 | |||||
| Investment in Federal Home Loan Bank and other stock | 3,326 | 3,004 | |||||
| Loans, net of unearned income and net of allowance | |||||||
| for loan losses of $3,649 and $3,437 | 238,811 | 228,365 | |||||
| Premises and equipment, net | 4,805 | 4,070 | |||||
| Accrued interest receivable | 1,430 | 1,505 | |||||
| Other assets | 5,815 | 5,694 | |||||
| $ | 320,938 | $ | 343,921 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Deposits: | |||||||
| Noninterest-bearing demand | $ | 36,897 | $ | 37,037 | |||
| Interest-bearing demand | 32,478 | 23,542 | |||||
| Savings and money market | 81,896 | 73,245 | |||||
| Time deposits, $100,000 and over | 38,925 | 65,200 | |||||
| Other time deposits | 41,522 | 57,988 | |||||
| 231,718 | 257,012 | ||||||
| Federal Home Loan Bank advances | 50,134 | 52,317 | |||||
| Accrued interest payable | 581 | 841 | |||||
| Other liabilities | 1,240 | 1,546 | |||||
| Total liabilities | 283,673 | 311,716 | |||||
| Shareholders' equity: | |||||||
| Common stock, $1.00 par value; 20,000,000 shares | |||||||
| authorized; 4,515,553 and 4,312,925 shares | |||||||
| issued and outstanding | 4,516 | 4,313 | |||||
| Additional paid-in capital | 26,993 | 25,791 | |||||
| Retained earnings | 5,868 | 2,102 | |||||
| Accumulated other comprehensive income, net of tax | 98 | 28 | |||||
| Nonvested restricted stock | (210 | ) | (29 | ) | |||
| Total shareholders' equity | 37,265 | 32,205 | |||||
| $ | 320,938 | $ | 343,921 | ||||
5
Summit Financial Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
For the year ended December 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||
| Interest Income: | ||||||||||
| Loans | $ | 14,377 | $ | 13,996 | $ | 14,914 | ||||
| Taxable securities | 2,055 | 2,459 | 1,934 | |||||||
| Nontaxable securities | 922 | 816 | 725 | |||||||
| Federal funds sold | 50 | 40 | 80 | |||||||
| Other | 138 | 134 | 168 | |||||||
| 17,542 | 17,445 | 17,821 | ||||||||
| Interest Expense: | ||||||||||
| Deposits | 3,007 | 3,550 | 4,598 | |||||||
| Federal Home Loan Bank advances | 1,576 | 1,590 | 1,563 | |||||||
| Federal funds purchased | 7 | 16 | 5 | |||||||
| Other short-term borrowings | - | - | 8 | |||||||
| 4,590 | 5,156 | 6,174 | ||||||||
| Net interest income | 12,952 | �� | 12,289 | 11,647 | ||||||
| Provision for loan losses | 436 | 786 | 847 | |||||||
| Net interest income after provision for loan losses | 12,516 | 11,503 | 10,800 | |||||||
| Noninterest Income: | ||||||||||
| Service charges and fees on deposit accounts | 480 | 550 | 553 | |||||||
| Insurance commission fee income | 588 | 438 | 587 | |||||||
| Gain on sale of investment securities | 83 | 367 | 117 | |||||||
| Other income | 1,165 | 1,575 | 1,414 | |||||||
| 2,316 | 2,930 | 2,671 | ||||||||
| Noninterest Expense: | ||||||||||
| Salaries, wages and benefits | 5,370 | 5,213 | 5,060 | |||||||
| Occupancy | 682 | 666 | 644 | |||||||
| Furniture, fixtures and equipment | 608 | 647 | 673 | |||||||
| Other expenses | 1,774 | 2,346 | 2,067 | |||||||
| 8,434 | 8,872 | 8,444 | ||||||||
| Income before income taxes | 6,398 | 5,561 | 5,027 | |||||||
| Income taxes | 1,959 | 1,754 | 1,585 | |||||||
| Net income | $ | 4,439 | $ | 3,807 | $ | 3,442 | ||||
| Net income per common share: | ||||||||||
| Basic | $ | 1.00 | $ | 0.89 | $ | 0.82 | ||||
| Diluted | $ | 0.90 | $ | 0.79 | $ | 0.73 | ||||
| Average shares outstanding: | ||||||||||
| Basic | 4,419,000 | 4,256,000 | 4,176,000 | |||||||
| Diluted | 4,924,000 | 4,842,000 | 4,744,000 | |||||||
6
Summit Financial Corporation
FINANCIAL REVIEW
The following review is a discussion of the factors and trends that affected Summit Financial Corporation and its subsidiaries for the year endedDecember 31, 2004. Please refer to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the yearended December 31, 2004 (“2004 10-K”) for a complete discussion and analysis of financial condition and results of operations. Certaininformation in this Annual Report contains forward-looking statements that involve risk and uncertainty. A variety of factors could cause theCompany’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The Company disclaims any obligation to update any forward-looking statements. Reference should be made to a morecomplete discussion of forward-looking statements and risk factors that may cause such forward-looking statements to differ materially from theCompany’s actual results in the Company’s 2004 10-K.
Financial Condition
The Company ended 2004 with total assets of $320.9 million compared to $343.9 million for the prior year end. The decreaseof 7% was directly related to the reduction in investment securities of 34% from $90.9 million at December 31, 2003 to $59.8 millionat December 31, 2004. The Company’s strategic decision to realign the balance sheet during 2004 in anticipation of rising ratesresulted in the $31.1 million reduction in securities which had increased during 2003 from the investment of excess liquidity in higheryielding, cash flowing securities. The level of investment securities as of December 31, 2004 is back in line with historical levelsof investments as a percent of total assets.
The cash flow generated from liquidating securities was utilized to accomplish another of the Company’s strategic objectivesand reduce higher priced, out-of-market deposits. Total deposits decreased $25.3 million during the year to total $231.7 million.The decrease occurred in the certificates of deposit category as management allowed maturing deposits, primarily public funds andout-of-market CDs, to roll out of the Bank while concentrating on local market core deposits. The result was increases in bothinterest-bearing demand deposits and money market deposits. This balance sheet realignment has decreased the Company’s exposureto interest rate risk, reduced both price and extension risk in the investment portfolio, and contributed to the reduction in cost of fundsand increase in net interest income for 2004.
Total loans grew 5% or $10.7 million to total $242.5 million at December 31, 2004. Over the last two years, customers of theBank have felt the impact of the slow economy and management continues to maintain a focus on asset quality. Procedures to ensureearly detection of weak credits and strong underwriting criteria, as well as an emphasis on collection of potential problem loans hasresulted in a manageable level of watch list and classified loans which have decreased from 7.6% of gross loans at December 31, 2003to 4.9% at the current year end based on internal grading systems. This focus in 2004 contributed to a reduction of loans throughthe majority of the year as weaker credits were collected or not renewed. Lower loan demand also contributed to the slight decreasein net loan growth through the third quarter of 2004. As the economy has improved throughout the year, loan demand has increasedwith the fourth quarter reporting net originations of $13.7 million.
Shareholders’ equity totaled $37.3 million at December 31, 2004 compared to $32.2 million for the prior year. This increasewas primarily a result of retained net income of $4.4 million, proceeds from stock option exercises of $1.2 million, and an increasein the unrealized gain on available for sale securities during 2004. Increases in equity were partially offset by the payment of a cashdividend totaling $673,000. As of year end, the Company’s total risk-based capital ratio was 15.3% and the leverage ratio was 11.4%.
Results of Operations
The Company reported another year of record earnings in 2004, up 17% from 2003. Net income totaled $4.4 million, or $0.90diluted earnings per share, in 2004 compared with $3.8 million, or $0.79 diluted earnings per share, in 2003 and $3.4 million, or$0.73 diluted earnings per share, for 2002. The improvement in net income and earnings per share in 2004 resulted primarily fromthe increase in net interest income related to lower cost of funds, due principally to the low interest rate environment. The low short-term interest rate environment started to turn in mid-2004 and the prime interest rate increased 125 basis points during the last sixmonths of the year. However, the yield on loans was actually flat between 2003 and 2004 as the increase in short-term rates was offsetby a lower weighted average rate on the fixed rate portion of the portfolio due to new and renewing loans having been added at lowercurrent market rates. The decline in cost of funds was thus the primary contributor to the higher net interest income and the 19 basispoint increase in net interest margin for 2004.
Lower provision for loan losses also contributed to the increase in net income for 2004 and was due primarily to theimprovement in credit quality of the portfolio, reduction in net charge-offs from 0.32% of gross loans for 2003 to 0.10% for 2004,and lower net originations in 2004 as compared to 2003. Decreases in other income, primarily gain in sales of investment securitiesand mortgage referral fees due to changes in market conditions and lower volume of transactions, were substantial offset by decreasesin overhead expenses. Overhead declined primarily related to there being no FHLB prepayment penalty as had been incurred in 2003,lower advertising expense due to fewer promotional campaigns and newspaper advertising in 2004, and reduced consultant and otherprofessional fees related to fewer contracted services and projects in 2004 as compared to the prior year.
7
Summit Financial Corporation
LEADERSHIP GROUP
BOARD OF DIRECTORS
C. VINCENT BROWN | IVAN E. BLOCK | LARRY A. McKINNEY |
President, Brown, Massey, Evans, McLeod & Haynsworth, Attorneys at Law, P.A. | President & CEO, Diversified Coatings Systems, Inc. | Chief Executive Officer, ElDeCo, Inc. |
Chairman, Summit Financial Corporation | ||
J. EARLE FURMAN, JR. | J. RANDOLPH POTTER | |
DAVID C. POOLE | President, NAI Earle Furman, LLC | President & CEO, Summit Financial Corporation, |
President, David C. Poole Co., Inc. | Summit National Bank and Freedom Finance, Inc. | |
Secretary, Summit Financial Corporation | JOHN W. HOUSER | |
President, Piedmont Management of Fairforest, Inc. | JAMES B. SCHWIERS | |
JAMES G. BAGNAL, III | Executive Vice President & COO, Summit National Bank | |
Regional President, Summit National Bank Spartanburg | T. WAYNE McDONALD, MD | |
Physician, Highlands Center for Women | ||
ALLEN H. McINTYRE | ||
President, ChemPro, Inc. |
EXECUTIVE OFFICERS
JAMES G. BAGNAL, III | JAMES G. GULLEDGE, JR. | JAMES B. SCHWIERS |
Regional President, Summit National Bank Spartanburg | Senior Vice President, Commercial Banking Manager | Executive Vice President, Chief Operating Officer |
Summit National Bank | Summit National Bank | |
BLAISE B. BETTENDORF | ||
Senior Vice President, Chief Financial Officer | J. RANDOLPH POTTER | C. JEROME SENN, JR. |
President and Chief Executive Officer | Senior Vice President, Investment Manager | |
WILLIAM E. COVINGTON, JR. | Summit Investment Services, Inc. | |
Senior Vice President, Chief Operating Officer | JAMES STEPHEN RUSH | |
Freedom Finance, Inc. | Senior Vice President, Commercial Banking Manager | |
Summit National Bank Spartanburg |
SUMMIT NATIONAL BANK ADVISORY BOARD
Scott M. Christopher | Ruth B. Looper | Carlos D. Rhys |
President, Christopher Truck Sales, Inc. | President, Action Mortgage & Financial Services | President, Axon Products, Inc. |
John W. Collins | David H. McCauley | M. Wade Scott, Jr. |
President, Collins Direct | Sales Manager, Builders First Source, Inc. | Co-owner, Ballew & Scott Custom Clothiers |
Charlie E. Cromer | J. Edward Mixon | Ann A. Sparkman |
Sales Manager, International Paper | President, Janed Enterprises, Inc. | Co-owner, Martin Nursery, Inc. |
F. Douglas P. Evans | Lloyd E. Morris | Bradley B. Steele, Sr. |
Attorney, Brown, Massey, Evans, McLeod & Haynsworth, P.A. | Owner, Morris Marketing Group, Inc. | President, B.B. Steele, Inc. |
Michael A. Hawkins | Charles H. Muse | John J. Steenhausen |
President, Benefit Controls of S.C., Inc. | President, Universal Packaging, Inc. | President, Spartan Computer Services, Inc. |
Ryan D. Hendley | Samuel W. Outten | David R. Stone |
President, I H Services, Inc. | Attorney, Womble, Carlyle, Standridge & Rice | President, Stone Properties, Inc. |
Anthony P. Johnson, MD | John T. Pazdan | Thomas R. Strange, Sr. |
Physician, Jervey Eye Group, P.A. | Vice President, Roy Metal Finishing Co., Inc. | President, Strange Brothers Grading Co. |
Fletcher L. Kirkland, Jr. | Richard H. Quinn, Jr. | Benjamin G. Team, Jr. |
Private Investor, Kirkland Investments, LLC | Co-owner, Quinn & Satterfield Builders | Chairman, Carolina Belting Company, Inc. |
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Summit Financial Corporation
BANK OFFICERS & SHAREHOLDER INFORMATION
SUMMIT NATIONAL BANK OFFICERS
TIMOTHY R. CALVERT | MARK R. ELEY | PATRICK W. MARTIN |
Assistant Vice President, Investment Officer | Vice President, Account Officer | Vice President, Account Officer |
R. ERL CAMPBELL | BLAKE M. GOLDMAN | SANDY L. MEISTER |
Vice President, Internal Auditor | Vice President, Loan Administration and Deposit Services | Vice President, Controller |
GERALD T. CAVAN | RICHARD F. HARRINGTON, JR. | GENA B. SCULLY |
Vice President, Account Officer | Vice President, Senior Credit Analyst | Vice President, Operations/EDP |
MARY JANE DAVIDSON | TERESA A. HIX | JOHN B. WOOD, JR. |
Vice President, Account Officer | Assistant Vice President, Operations | Senior Vice President, Account Officer |
SHAREHOLDER INFORMATION
Stock Listing | Financial Information |
| Summit Financial Corporation common stock is traded on the NASDAQ SmallCap Market under the symbol SUMM. At December 31, 2004, there were 372 shareholders of record. The number of shareholders does not reflect the number of persons or entities who hold the stock in nominee or “street” name through various brokerage firms. | Analysts, investors, and others seeking financial information, including the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, should contact: |
| Blaise B. Bettendorf | |
Market Makers | Senior Vice President & Chief Financial Officer |
| Archipelago Exchange | Summit Financial Corporation |
| BB&T Investment Services | Post Office Box 1087 |
| Knight Equity Markets, L.P. | Greenville, South Carolina 29602 |
| Sandler O’Neill & Partners | www.summit-bank.com |
| USB Capital Markets, L.P. | |
Shareholder Services | Legal Counsel |
| Shareholders seeking information regarding stock transfers, lost certificates, dividends and address changes should contact the Company’s Transfer Agent: | Brown, Massey, Evans, McLeod & Haynsworth, Attorneys at Law, P.A. Greenville, South Carolina |
| American Stock Transfer & Trust Company | |
| 6201 15th Avenue - 1st Floor | McNair Law Firm, P.A. |
| Brooklyn, New York 10019 | Columbia, South Carolina |
| 1-800-937-5449 | |
| www.amstock.com | |
Independent Registered Public Accounting Firm | |
| KPMG LLP | |
| Greenville, South Carolina |
Quarterly Common Stock Summary
2004 | 2003 | ||||||||||||||||||||||||
4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | ||||||||||||||||||
| Stock Price ranges: | |||||||||||||||||||||||||
| High | $ | 22.95 | $ | 19.49 | $ | 21.05 | $ | 19.00 | $ | 21.42 | $ | 19.05 | $ | 17.24 | $ | 15.54 | |||||||||
| Low | $ | 18.11 | $ | 17.50 | $ | 17.77 | $ | 17.61 | $ | 17.73 | $ | 15.71 | $ | 14.76 | $ | 14.16 | |||||||||
| Close | $ | 21.35 | $ | 18.50 | $ | 18.31 | $ | 18.41 | $ | 18.00 | $ | 18.74 | $ | 16.14 | $ | 14.87 | |||||||||
| Volume traded | 102,413 | 44,886 | 48,729 | 50,170 | 66,440 | 97,107 | 127,542 | 171,972 | |||||||||||||||||
| Cash dividend declared | $ | 0.08 | - | $ | 0.07 | - | $ | 0.10 | - | - | - | ||||||||||||||
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