U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.
Commission File Number 0-16587
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
West Virginia 55-0672148
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
223 North Main Street
Moorefield, West Virginia 26836
(Address of principal executive offices) (Zip Code)
(304) 538-7233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
1,754,310 shares outstanding as of July 29, 2002
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets
June 30, 2002 (unaudited) and December 31, 2001....................4
Consolidated statements of income for
the three months and six months ended
June 30, 2002 and 2001 (unaudited).................................5
Consolidated statements of shareholders' equity
for the six months ended
June 30, 2002 and 2001 (unaudited).................................6
Consolidated statements of cash flows
for the six months ended
June 30, 2002 and 2001 (unaudited)...............................7-8
Notes to consolidated financial statements (unaudited)..........9-20
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................21-26
Item 3. Quantitative and Qualitative Disclosures about Market Risk........26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................None
Item 2. Changes in Securities and Use of Proceeds.......................None
Item 3. Defaults upon Senior Securities.................................None
Item 4. Submission of Matters to a Vote of Security Holders................27
Item 5. Other Information...............................................None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 11. Statement re: Computation of Earnings per
Share - Information contained in Note 3 to the
Consolidated Financial Statements on page 11 of
this Quarterly Report is incorporated herein by
reference.
Exhibit 99.1 Chief Executive Officer's Certification Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Chief Financial Officer's Certification Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K...............................................27
SIGNATURES..................................................................28
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
June 30, December 31, June 30,
2002 2001 2001
(unaudited) (*) (unaudited)
------------- ------------- -------------
ASSETS
Cash and due from banks $ 9,259,622 $ 11,776,231 $ 10,675,040
Interest bearing deposits with other banks 2,657,807 2,261,826 1,153,609
Federal funds sold 7,290,582 1,848,129 7,638,000
Securities available for sale 199,207,204 206,967,097 175,393,188
Securities held to maturity - 150,280 150,549
Loans, net 375,927,073 344,415,429 297,565,929
Premises and equipment, net 13,202,702 12,911,507 12,461,181
Accrued interest receivable 3,953,766 3,874,002 3,880,353
Intangible assets 3,276,705 3,352,281 3,493,376
Other assets 6,041,915 4,199,975 3,927,005
------------- ------------- -------------
Total assets $ 620,817,376 $ 591,756,757 $ 516,338,230
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest bearing $ 40,995,979 $ 38,685,688 $ 32,570,233
Interest bearing 380,394,974 357,519,290 335,482,088
------------- ------------- -------------
Total deposits 421,390,953 396,204,978 368,052,321
------------- ------------- -------------
Short-term borrowings 13,632,174 24,032,790 11,965,120
Long-term borrowings 134,601,106 123,444,531 90,599,652
Other liabilities 3,110,023 3,787,111 3,300,079
------------- ------------- -------------
Total liabilities 572,734,256 547,469,410 473,917,172
------------- ------------- -------------
Commitments and Contingencies
Shareholders' Equity
Common stock, $2.50 par value; authorized
5,000,000 shares; issued 1,780,780 4,451,950 4,451,950
Capital surplus 8,256,901 8,256,901 8,256,901
Retained earnings 33,425,208 30,803,543 28,359,462
Less cost of shares acquired for the treasury
26,470 shares (532,479) (532,479) (532,479)
Accumulated other comprehensive income 2,481,540 1,307,432 1,885,224
------------- ------------- -------------
Total shareholders' equity 48,083,120 44,287,347 42,421,058
------------- ------------- -------------
Total liabilities and shareholders' equity $ 620,817,376 $ 591,756,757 $ 516,338,230
============= ============= =============
(*) - December 31, 2001 financial information has been extracted from audited
consolidated financial statements
See Notes to Consolidated Financial Statements
4
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest Income
Interest and fees on loans
Taxable $ 7,037,735 $ 6,300,208 $13,751,819 $12,269,591
Tax-exempt 87,522 42,425 169,077 82,341
Interest and dividends on securities
Taxable 2,498,834 2,729,810 5,100,145 5,575,709
Tax-exempt 385,002 227,708 788,458 448,219
Interest on interest bearing deposits with other banks 23,660 5,315 46,510 9,075
Interest on Federal funds sold 10,317 74,924 21,676 121,881
----------- ----------- ----------- -----------
Total interest income 10,043,070 9,380,390 19,877,685 18,506,816
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 2,820,314 3,853,363 5,711,508 7,814,138
Interest on short-term borrowings 94,767 109,133 181,260 280,283
Interest on long-term borrowings 1,774,411 1,237,569 3,452,109 2,409,189
----------- ----------- ----------- -----------
Total interest expense 4,689,492 5,200,065 9,344,877 10,503,610
----------- ----------- ----------- -----------
Net interest income 5,353,578 4,180,325 10,532,808 8,003,206
Provision for loan losses 307,500 180,000 600,000 325,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,046,078 4,000,325 9,932,808 7,678,206
----------- ----------- ----------- -----------
Other income
Insurance commissions 49,813 26,152 75,150 41,310
Service fees 327,924 244,821 623,221 467,094
Securities gains (losses) 12,397 93,125 65,077 177,267
Other 184,777 33,762 173,816 76,792
----------- ----------- ----------- -----------
Total other income 574,911 397,860 937,264 762,463
----------- ----------- ----------- -----------
Other expense
Salaries and employee benefits 1,710,505 1,366,711 3,355,707 2,691,753
Net occupancy expense 198,508 183,893 380,982 378,228
Equipment expense 344,336 283,894 635,115 567,967
Supplies 114,656 83,308 238,435 135,214
Amortization of intangibles 37,788 70,548 75,576 141,096
Other 882,110 775,721 1,579,367 1,371,383
----------- ----------- ----------- -----------
Total other expense 3,287,903 2,764,075 6,265,182 5,285,641
----------- ----------- ----------- -----------
Income before income taxes 2,333,086 1,634,110 4,604,890 3,155,028
Income tax expense 692,900 434,750 1,334,130 946,655
----------- ----------- ----------- -----------
Net income $ 1,640,186 $ 1,199,360 $ 3,270,760 $ 2,208,373
=========== =========== =========== ===========
Basic earnings per common share $ 0.93 $ 0.68 $ 1.86 $ 1.26
=========== =========== =========== ===========
Diluted earnings per common share $ 0.93 $ 0.68 $ 1.85 $ 1.26
=========== =========== =========== ===========
Average common shares outstanding
Basic 1,754,310 1,754,310 1,754,310 1,754,590
=========== =========== =========== ===========
Diluted 1,767,950 1,754,310 1,767,471 1,754,590
=========== =========== =========== ===========
Dividends per common share $ 0.37 $ 0.35 $ 0.37 $ 0.35
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
5
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity (unaudited)
Accumulated
Other Total
Compre- Share-
Common Capital Retained Treasury hensive holders'
Stock Surplus Earnings Stock Income Equity
----------- ----------- ------------ ---------- ----------- ------------
Balance, December 31, 2001 $ 4,451,950 $ 8,256,901 $ 30,803,543 $ (532,479) $ 1,307,432 $ 44,287,347
Six Months Ended June 30, 2002
Comprehensive income:
Net income - - 3,270,760 - - 3,270,760
Other comprehensive income,
net of deferred taxes
of $1,446,314:
Net unrealized gain on
securities of $1,214,456, net
of reclassification adjustment
for gains included in net
income of $40,348 - - - - 1,174,108 1,174,108
------------
Total comprehensive income 4,444,868
------------
Cash dividends declared ($.37 per share) - - (649,095) - - (649,095)
----------- ----------- ------------ ---------- ----------- ------------
Balance, June 30, 2002 $ 4,451,950 $ 8,256,901 $ 33,425,208 $ (532,479) $ 2,481,540 $ 48,083,120
=========== =========== ============ ========== =========== ============
Balance, December 31, 2000 $ 4,451,950 $ 8,256,901 $ 26,765,097 $ (517,725) $ 816,978 $ 39,773,201
Six Months Ended June 30, 2001
Comprehensive income:
Net income - - 2,208,373 - - 2,208,373
Other comprehensive income,
net of deferred taxes
of $1,155,460:
Net unrealized (loss) on
securities of $1,178,152, net
of reclassification adjustment
for gains (losses) included in net
income of $109,906 - - - - 1,068,246 1,068,246
------------
Total comprehensive income 3,276,619
------------
Cash dividends declared ($.35 per share) - - (614,008) - - (614,008)
Purchase of treasury shares - - - (14,754) - (14,754)
----------- ----------- ------------ ---------- ----------- ------------
Balance, June 30, 2001 $ 4,451,950 $ 8,256,901 $ 28,359,462 $ (532,479) $ 1,885,224 $ 42,421,058
=========== =========== ============ ========== =========== ============
See Notes to Consolidated Financial Statements
6
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended
----------------------------
June 30, June 30,
2002 2001
------------ ------------
Cash Flows from Operating Activities
Net income $ 3,270,760 $ 2,208,373
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 504,884 452,539
Provision for loan losses 600,000 325,000
Deferred income tax (benefit) expense (269,570) (55,320)
Securities (gains) losses (65,077) (177,267)
(Gain) loss on disposal of bank premises, equipment and other assets 19,020 106,417
Amortization of securities premiums (accretion of discounts), net 117,390 (217,969)
Amortization of intangibles and purchase accounting adjustments, net 87,159 139,098
(Increase) decrease in accrued interest receivable (79,764) (119,652)
(Increase) decrease in other assets (268,879) (194,962)
Increase (decrease) in other liabilities (824,133) (48,492)
------------ ------------
Net cash provided by operating activities 3,091,790 2,417,765
------------ ------------
Cash Flows from Investing Activities
Net (increase) decrease in interest bearing deposits with other banks (395,981) (680,609)
Proceeds from maturities and calls of securities available for sale 8,246,012 29,148,858
Proceeds from maturities and calls of securities held to maturity 150,000 250,000
Proceeds from sales of securities available for sale 17,740,395 13,591,877
Principal payments received on securities available for sale 19,472,703 10,745,248
Purchases of securities available for sale (35,873,902) (52,442,345)
Net (increase) decrease in Federal funds sold (5,442,453) (5,827,000)
Net loans made to customers (32,174,479) (26,334,094)
Purchases of premises and equipment (825,131) (774,971)
Proceeds from disposal of assets 19,900 39,822
Purchases of life insurance contracts (1,853,018) (74,200)
------------ ------------
Net cash provided by (used in) investing activities (30,935,954) (32,357,414)
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposit, NOW and
savings accounts 15,267,752 9,267,855
Net increase (decrease) in time deposits 9,952,938 12,795,697
Net increase (decrease) in short-term borrowings (10,400,615) 2,574,305
Proceeds from long-term borrowings 11,530,000 9,700,000
Repayment of long-term borrowings (373,425) (186,277)
Dividends paid (649,095) (614,008)
Purchase of treasury shares - (14,754)
------------ ------------
Net cash provided by financing activities 25,327,555 33,522,818
------------ ------------
Increase (decrease) in cash and due from banks (2,516,609) 3,583,169
Cash and due from banks:
Beginning 11,776,231 7,091,871
------------ ------------
Ending $ 9,259,622 $ 10,675,040
============ ============
(Continued)
See Notes to Consolidated Financial Statements
7
Summit Financial Group, Inc. and Subsidiaries
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Consolidated Statements of Cash Flows - continued (unaudited)
Six Months Ended
----------------------------
June 30, June 30,
2002 2001
------------ ------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 9,549,642 $ 10,640,583
============ ============
Income taxes $ 1,555,000 $ 1,025,000
============ ============
Supplemental Schedule of Noncash Investingand Financing Activities
Other assets acquired in settlement of loans $ 59,850 $ 31,817
============ ============
8
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (unaudited)
Note 1. Basis of Presentation
These consolidated financial statements of Summit Financial Group, Inc. and
Subsidiaries ("Summit" or "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with instructions to Form 10-Q and Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by accounting principles generally accepted in the United States of America for
annual year end financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
are of a normal recurring nature.
The presentation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from these estimates.
The results of operations for the six months ended June 30, 2002 are not
necessarily indicative of the results to be expected for the full year. The
consolidated financial statements and notes included herein should be read in
conjunction with the Company's 2001 audited financial statements and Annual
Report on Form 10-K. Certain accounts in the consolidated financial statements
for December 31, 2001 and June 30, 2002, as previously presented, have been
reclassified to conform to current year classifications.
Note 2. Accounting Change
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142"), which addresses the accounting and reporting for acquired goodwill
and other intangible assets. Under the provisions of SFAS 142, goodwill and
certain other intangible assets with indefinite useful lives are no longer
amortized into net income over an estimated life, but rather are tested at least
annually for impairment based on specific guidance provided in the new standard.
However, SFAS 142 did not supercede Statement of Financial Accounting Standards
No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions
("SFAS 72"), and therefore, any goodwill accounted for in accordance with SFAS
72 will continue to be amortized until further guidance is issued from the FASB.
SFAS 142 also requires that intangible assets determined to have definite useful
lives be amortized over their estimated useful lives and also be subject to
impairment testing.
The provisions of SFAS 142 were adopted by Summit as required effective January
1, 2002. During the second quarter of 2002, the Company performed the required
transitional impairment test of goodwill as of January 1, 2002, and did not
record an impairment loss as a result of this test. Due to no longer having to
amortize goodwill against earnings, Summit's net income is expected to increase
by approximately $131,000, or $0.07 per diluted share in 2002.
The following presents the Company's consolidated results of operations adjusted
as though the adoption of SFAS 142 occurred as of January 1, 2001.
9
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Reported net income $ 1,640,186 $ 1,199,360 $ 3,270,760 $ 2,208,373
Add back: goodwill amortization,
net of applicable tax effect - 32,760 - 65,520
------------- ------------- ------------- -------------
Adjusted net income $ 1,640,186 $ 1,232,120 $ 3,270,760 $ 2,273,893
============= ============= ============= =============
Basic earnings per share
Reported net income $ 0.93 $ 0.68 $ 1.86 $ 1.26
Add back: goodwill amortization,
net of applicable tax effect - 0.02 - 0.04
------------- ------------- ------------- -------------
Adjusted net income $ 0.93 $ 0.70 $ 1.86 $ 1.30
============= ============= ============= =============
Diluted earnings per share
Reported net income $ 0.93 $ 0.68 $ 1.85 $ 1.26
Add back: goodwill amortization,
net of applicable tax effect - 0.02 - 0.04
------------- ------------- ------------- -------------
Adjusted net income $ 0.93 $ 0.70 $ 1.85 $ 1.30
============= ============= ============= =============
The carrying amount of goodwill at June 30, 2002 and December 31, 2001 was
$1,488,030. Accordingly, no changes in goodwill were recorded during the six
months ended June 30, 2002.
At June 30, 2002 and December 31, 2001, Summit had $1,788,675 and $1,864,251,
respectively, in unamortized acquired intangible assets consisting entirely of
goodwill recorded in accordance with SFAS 72. Amortization of $75,576 was
recorded for the six months ended June 30, 2002 relative to these intangible
assets. Annual amortization is expected to be approximately $151,000 for each of
the years ending 2002 through 2006.
10
Note 3. Earnings per Share
The computations of basic and diluted earnings per share follow:
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Numerator:
Net Income $1,640,186 $1,199,360 $3,270,760 $2,208,373
========== ========== ========== ==========
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 1,754,310 1,754,310 1,754,310 1,754,590
Effect of dilutive securities:
Stock options 13,640 - 13,161 -
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share - weighted average
common shares outstanding and
assumed conversions 1,767,950 1,754,310 1,767,471 1,754,590
========== ========== ========== ==========
Basic earnings per share $ 0.93 $ 0.68 $ 1.86 $ 1.26
========== ========== ========== ==========
Diluted earnings per share $ 0.93 $ 0.68 $ 1.85 $ 1.26
========== ========== ========== ==========
11
Note 4. Securities
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of securities at June 30, 2002, December 31, 2001, and June 30, 2001 are
summarized as follows:
June 30, 2002
---------------------------------------------------------
Amortized Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Available for Sale
Taxable:
U. S. Government agencies
and corporations $ 33,790,843 $ 994,820 $ 419 $ 34,785,244
Mortgage-backed securities 87,639,606 1,412,093 82,080 88,969,619
State and political subdivisions 5,127,802 29,558 205 5,157,155
Corporate debt securities 26,073,112 1,005,335 43,265 27,035,182
Federal Reserve Bank stock 401,300 - - 401,300
Federal Home Loan Bank stock 7,296,900 - - 7,296,900
Other equity securities 306,625 30,000 - 336,625
------------ ------------ ------------ ------------
Total taxable 160,636,188 3,471,806 125,969 163,982,025
------------ ------------ ------------ ------------
Tax-exempt:
State and political subdivisions 29,571,408 670,268 128,824 30,112,852
Federal Reserve Bank stock 4,100 - - 4,100
Other equity securities 5,067,906 45,101 4,780 5,108,227
------------ ------------ ------------ ------------
Total tax-exempt 34,643,414 715,369 133,604 35,225,179
------------ ------------ ------------ ------------
Total $195,279,602 $ 4,187,175 $ 259,573 $199,207,204
============ ============ ============ ============
12
December 31, 2001
---------------------------------------------------------
Amortized Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Available for Sale
Taxable:
U. S. Government agencies
and corporations $ 36,987,640 $ 1,133,062 $ 37,477 $ 38,083,225
Mortgage-backed securities 103,002,225 999,540 801,923 103,199,842
State and political subdivisions 4,957,792 15,511 20,549 4,952,754
Corporate debt securities 21,690,167 1,028,726 31,948 22,686,945
Federal Reserve Bank stock 341,300 - - 341,300
Federal Home Loan Bank stock 6,946,800 - - 6,946,800
Other equity securities 306,625 - 53,280 253,345
------------ ------------ ------------ ------------
Total taxable 174,232,549 3,176,839 945,177 176,464,211
------------ ------------ ------------ ------------
Tax-exempt:
State and political subdivisions 25,857,242 279,303 445,895 25,690,650
Federal Reserve Bank stock 4,100 - - 4,100
Other equity securities 4,823,109 - 14,973 4,808,136
------------ ------------ ------------ ------------
Total tax-exempt 30,684,451 279,303 460,868 30,502,886
------------ ------------ ------------ ------------
Total $204,917,000 $ 3,456,142 $ 1,406,045 $206,967,097
============ ============ ============ ============
December 31, 2001
---------------------------------------------------------
Amortized Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
----------- ------------ ------------ ------------
Held to Maturity
Tax-exempt:
State and political subdivisions $ 150,280 $ 1,410 $ 157 $ 151,533
=========== ============ ============ ============
13
June 30, 2001
---------------------------------------------------------
Amortized Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Available for Sale
Taxable:
U. S. Government agencies
and corporations $ 48,668,987 $ 1,201,057 $ 4,035 $ 49,866,009
Mortgage-backed securities 70,519,158 1,074,643 200,870 71,392,931
State and political subdivisions 4,637,931 17,897 - 4,655,828
Corporate debt securities 26,763,218 761,741 796 27,524,163
Federal Reserve Bank stock 341,300 - - 341,300
Federal Home Loan Bank stock 5,184,000 - - 5,184,000
Other equity securities 306,625 - 87,000 219,625
------------ ------------ ------------ ------------
Total taxable 156,421,219 3,055,338 292,701 159,183,856
------------ ------------ ------------ ------------
Tax-exempt:
State and political subdivisions 11,412,316 284,416 6,386 11,690,346
Federal Reserve Bank stock 4,100 - - 4,100
Other equity securities 4,514,902 2,403 2,419 4,514,886
------------ ------------ ------------ ------------
Total tax-exempt 15,931,318 286,819 8,805 16,209,332
------------ ------------ ------------ ------------
Total $172,352,537 $ 3,342,157 $ 301,506 $175,393,188
============ ============ ============ ============
June 30, 2001
---------------------------------------------------------
Amortized Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Held to Maturity
Tax-exempt:
State and political subdivisions $ 150,549 $ 2,768 $ 157 $ 153,160
============ ============ ============ ============
The maturities, amortized cost and estimated fair values of securities at June
30, 2002, are summarized as follows:
Available for Sale
---------------------------
Amortized Estimated
Cost Fair Value
------------ ------------
Due in one year or less $ 52,129,959 $ 53,136,235
Due from one to five years 78,481,349 80,554,079
Due from five to ten years 17,513,862 18,177,309
Due after ten years 34,077,444 34,192,272
Equity securities 13,076,831 13,147,152
------------ ------------
$195,279,445 $199,207,047
============ ============
14
Note 5. Loans
Loans are summarized as follows:
June 30, December 31, June 30,
2002 2001 2001
------------ ------------ ------------
Commerical $ 28,843,866 $ 26,464,421 $ 26,904,660
Commercial real estate 145,634,533 121,576,437 92,524,939
Real estate - construction 1,283,675 2,393,754 2,818,227
Real estate - mortgage 156,554,578 149,050,426 135,186,558
Consumer 40,862,626 41,508,960 40,414,736
Other 7,148,009 7,263,448 3,042,717
------------ ------------ ------------
Total loans 380,327,287 348,257,446 300,891,837
Less unearned income 760,008 731,769 627,166
------------ ------------ ------------
Total loans net of unearned income 379,567,279 347,525,677 300,264,671
Less allowance for loan losses 3,640,206 3,110,248 2,698,742
------------ ------------ ------------
Loans, net $375,927,073 $344,415,429 $297,565,929
============ ============ ============
Note 6. Allowance for Loan Losses
An analysis of the allowance for loan losses for the six month periods ended
June 30, 2002 and 2001, and for the year ended December 31, 2001 is as follows:
Six Months Ended Year Ended
June 30, December 31,
-------------------------
2002 2001 2001
---------- ---------- ----------
Balance, beginning of period $3,110,248 $2,570,776 $2,570,776
Losses:
Commercial 25,000 38,624 38,624
Commercial - real estate - 52,556 69,233
Real estate - mortgage 18,618 28,620 46,977
Consumer 73,541 86,792 190,804
Other 23,626 31,209 75,643
---------- ---------- ----------
Total 140,785 237,801 421,281
---------- ---------- ----------
Recoveries:
Commercial 2,393 1,057 2,672
Commercial - real estate - - 7,500
Real estate - mortgage 14,389 728 728
Consumer 43,282 31,674 98,940
Other 10,679 7,308 20,913
---------- ---------- ----------
Total 70,743 40,767 130,753
---------- ---------- ----------
Net losses 70,042 197,034 290,528
Provision for loan losses 600,000 325,000 830,000
---------- ---------- ----------
Balance, end of period $3,640,206 $2,698,742 $3,110,248
========== ========== ==========
15
Note 7. Deposits
The following is a summary of interest bearing deposits by type as of June 30,
2002 and 2001, and December 31, 2001:
June 30, December 31, June 30,
2002 2001 2001
------------ ------------ ------------
Interest bearing demand deposits $ 89,677,471 $ 81,509,961 $ 74,059,088
Savings deposits 48,555,899 43,765,947 39,438,595
Certificates of deposit 219,690,605 211,116,608 201,967,651
Individual retirement accounts 22,470,999 21,126,774 20,016,754
------------ ------------ ------------
Total $380,394,974 $357,519,290 $335,482,088
============ ============ ============
The following is a summary of the maturity distribution of certificates of
deposit and Individual Retirement Accounts in denominations of $100,000 or more
as of June 30, 2002:
Amount Percent
------------ -------
Three months or less $ 9,698,102 16.2%
Three through six months 10,337,485 17.2%
Six through twelve months 15,989,071 26.7%
Over twelve months 24,010,305 40.0%
------------ -----
Total $ 60,034,963 100.1%
============ =====
A summary of the scheduled maturities for all time deposits as of June 30, 2002
is as follows:
Six Month Period Ending December 31, 2002 $ 84,569,903
Year Ending December 31, 2003 82,011,065
Year Ending December 31, 2004 54,996,296
Year Ending December 31, 2005 9,354,509
Year Ending December 31, 2006 4,435,247
Thereafter 6,794,584
--------------
$ 242,161,604
==============
16
Note 8. Borrowed Funds
Short-term borrowings: A summary of short-term borrowings is presented below:
Six Months Ended June 30, 2002
--------------------------------------------
Federal Funds Federal
Purchased Home
and Other Loan Bank
Short-term Repurchase Short-term
Advances Agreements Advances
------------- ------------ -----------
Balance at June 30 $ 550,000 $ 10,082,174 $ 3,000,000
Average balance outstanding for the period 1,227,116 9,504,480 5,971,096
Maximum balance outstanding at
any month end during period 2,370,000 10,778,052 9,344,800
Weighted average interest rate for the period 4.25% 1.72% 2.46%
Weighted average interest rate for balances
outstanding at June 30 4.25% 1.87% 2.44%
Year Ended December 31, 2001
--------------------------------------------
Federal Funds Federal
Purchased Home
and Other Loan Bank
Short-term Repurchase Short-term
Advances Agreements Advances
------------- ----------- ------------
Balance at December 31 $ 1,041,000 $ 8,213,590 $ 14,778,200
Average balance outstanding for the year 1,458,355 7,351,836 3,069,203
Maximum balance outstanding at
any month end 4,298,000 9,080,068 14,778,200
Weighted average interest rate for the year 5.10% 3.30% 4.42%
Weighted average interest rate for balances
outstanding at December 31 4.14% 1.83% 1.99%
17
Six Months Ended June 30, 2001
--------------------------------------------
Federal Funds Federal
Purchased Home
and Other Loan Bank
Short-term Repurchase Short-term
Advances Agreements Advances
------------ ----------- ------------
Balance at June 30 $ 1,000,000 $ 7,460,519 $ 3,504,600
Average balance outstanding for the year 1,321,603 6,808,106 3,558,363
Maximum balance outstanding at
any month end 4,298,000 7,460,519 7,467,100
Weighted average interest rate for the year 6.08% 4.18% 5.50%
Weighted average interest rate for balances
outstanding at June 30 6.50% 3.45% 4.27%
Long-term borrowings: The Company's long-term borrowings of $134,601,106,
$123,444,531 and $90,599,652 at June 30, 2002, December 31, 2001 and June 30,
2001, respectively, consisted primarily of advances from the Federal Home Loan
Bank ("FHLB").
These borrowings bear both fixed and variable rates and mature in varying
amounts through the year 2016.
The average interest rate paid on long-term borrowings for the six month period
ended June 30, 2002 was 5.22% compared to 5.64% for the first six months of
2001.
A summary of the maturities of all long-term borrowings for the next five years
and thereafter is as follows:
Year Ending
December 31, Amount
------------ -------------
2002 $ 1,403,066
2003 5,893,925
2004 18,857,794
2005 23,844,041
2006 7,656,710
Thereafter 76,945,570
-------------
$ 134,601,106
=============
Note 9. Restrictions on Capital
Summit and its 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,
Summit and each of its subsidiaries must meet specific capital guidelines that
involve quantitative measures of Summit's and its subsidiaries' assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Summit and each of its subsidiaries' capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
18
Quantitative measures established by regulation to ensure capital adequacy
require Summit and each of its 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). Management believes, as of June 30, 2002, that Summit and
each of its subsidiaries met all capital adequacy requirements to which they
were subject.
The most recent notifications from the banking regulatory agencies categorized
Summit and each of its subsidiaries as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
Summit and each of its subsidiaries must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table below.
Summit's and its subsidiaries', Summit Community Bank's ("Summit Community", the
entity resulting from the merger of two former Summit bank subsidiaries, South
Branch Valley National Bank and Potomac Valley Bank on January 18, 2002),
Capital State Bank, Inc.'s ("Capital State") and Shenandoah Valley National
Bank's ("Shenandoah") actual capital amounts and ratios are presented in the
following table.
19
(Dollars in thousands)
To be Well Capitalized
Minimum Required under Prompt Corrective
Actual Regulatory Capital Action Provisions
-------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
As of June 30, 2002
Total Capital (to risk weighted assets)
Summit $ 45,984 11.2% $ 32,792 8.0% $ 40,991 10.0%
Summit Community* 24,620 11.4% 17,352 8.0% 21,690 10.0%
Capital State 10,267 11.0% 7,488 8.0% 9,361 10.0%
Shenandoah 11,131 13.1% 6,793 8.0% 8,491 10.0%
Tier I Capital (to risk weighted assets)
Summit 42,325 10.3% 16,396 4.0% 24,594 6.0%
Summit Community* 22,404 10.3% 8,676 4.0% 13,014 6.0%
Capital State 9,497 10.1% 3,744 4.0% 5,616 6.0%
Shenandoah 10,446 12.3% 3,397 4.0% 5,095 6.0%
Tier I Capital (to average assets)
Summit 42,325 7.0% 18,222 3.0% 30,370 5.0%
Summit Community* 22,404 6.9% 9,734 3.0% 16,223 5.0%
Capital State 9,497 6.8% 4,172 3.0% 6,954 5.0%
Shenandoah 10,446 8.3% 3,763 3.0% 6,272 5.0%
As of December 31, 2001
Total Capital (to risk weighted assets)
Summit $ 42,695 11.3% $ 30,173 8.0% $ 29,586 10.0%
South Branch* 14,014 10.4% 10,811 8.0% 13,514 10.0%
Capital State 9,407 10.4% 7,208 8.0% 9,011 10.0%
Shenandoah 10,386 13.7% 6,065 8.0% 7,581 10.0%
Potomac* 9,273 12.1% 6,121 8.0% 7,651 10.0%
Tier I Capital (to risk weighted assets)
Summit 39,585 10.5% 15,080 4.0% 22,620 6.0%
South Branch* 12,564 9.3% 5,404 4.0% 8,106 6.0%
Capital State 8,754 9.7% 3,602 4.0% 5,404 6.0%
Shenandoah 9,978 13.2% 3,033 4.0% 4,549 6.0%
Potomac* 8,674 11.3% 3,062 4.0% 4,593 6.0%
Tier I Capital (to average assets)
Summit 39,585 7.1% 16,797 3.0% 27,995 5.0%
South Branch* 12,564 7.0% 5,369 3.0% 8,949 5.0%
Capital State 8,754 6.7% 3,902 3.0% 6,504 5.0%
Shenandoah 9,978 8.1% 3,709 3.0% 6,182 5.0%
Potomac* 8,674 7.0% 3,739 3.0% 6,231 5.0%
*South Branch and Potomac merged to form Summit Community Bank effective
January 18, 2002.
20
Summit Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTRODUCTION
The following discussion and analysis focuses on significant changes in the
financial condition and results of operations of Summit Financial Group, Inc.
("Company" or "Summit") and its wholly owned subsidiaries, Summit Community Bank
("Summit Community"), Capital State Bank, Inc. ("Capital State"), and Shenandoah
Valley National Bank ("Shenandoah") for the periods indicated. This discussion
and analysis should be read in conjunction with the Company's 2001 audited
financial statements and Annual Report on Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of
forward-looking information is desirable for investors and encourages such
disclosure by providing a safe harbor for forward-looking statements by
management. The following management's discussion and analysis of financial
condition and results of operations contains certain forward-looking statements
that involve risk and uncertainty. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause Summit's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in those forward-looking statements.
RESULTS OF OPERATIONS
Earnings Summary
Summit reported net income of $1,640,000, or $.93 per diluted share for the
second quarter of 2002, as compared to $1,199,000, or $.68 per diluted share for
the second quarter of 2001. Net income for the six months ended June 30, 2002
grew 48.1% to $3,271,000, or $1.85 per diluted share as compared to $2,208,000,
or $1.26 per diluted share for the six months ended June 30, 2001. Returns on
average equity and assets for the first six months of 2002 were 14.59% and
1.09%, respectively, compared with 10.71% and 0.88% for the same period of 2001.
Improved financial performance for the first six months of 2002 resulted
primarily from growth in net interest income.
Net Interest Income
The Company's net interest income on a fully tax-equivalent basis totaled
$20,362,000 for the six month period ended June 30, 2002 compared to $18,747,000
for the same period of 2001, representing an increase of $1,615,000 or 8.61%.
This increase resulted from growth in interest earning assets. Average interest
earning assets grew 21.3% from $469,480,000 during the first six months of 2001
to $569,656,000 for the first six months of 2002.
Summit's net yield on interest earning assets increased to 3.9%, for the six
month period ended June 30, 2002 compared to 3.5% for the same period of 2001.
Consistent with industry trends, the Company's net interest margin has been
narrowing as competition from nontraditional financial service providers and
shifting customer preferences have made it difficult to attract core deposits,
the most significant and lowest cost funding source of commercial banks.
Growth in the Company's net interest income is expected to continue due to
anticipated continued growth in volumes of interest earning assets, principally
loans, over the near term. However, if market interest rates were to rise
significantly over the next 12 months, the spread between interest earning
assets and interest bearing liabilities could begin to narrow due to Summit's
current liability sensitive position, thus negatively impacting net interest
income. Management continually monitors the net interest margin through net
interest income simulation to minimize the potential for any significant
negative impact. See the "Market Risk Management" section for further discussion
of the impact changes in market interest rates could have on Summit. Further
analysis of the Company's yields on interest earning assets and interest bearing
liabilities are presented in Tables I and II below.
21
Table I - Average Balance Sheet and Net Interest Income Analysis
(Dollars in thousands)
For the Six Months Ended June 30,
-----------------------------------------------------------------------
2002 2001
--------------------------------- --------------------------------
Average Earnings/ Yield/ Average Earnings/ Yield/
Balance Expense Rate Balance Expense Rate
--------- --------- ------ --------- ---------- ------
Interest earning assets
Loans, net of unearned income
Taxable $ 356,615 $ 13,752 7.7% $ 284,232 $ 12,269 8.6%
Tax-exempt (1) 6,021 256 8.5% 2,379 126 10.6%
Securities
Taxable 169,429 5,069 6.0% 160,246 5,584 7.0%
Tax-exempt (1) 32,627 1,218 7.5% 16,954 638 7.5%
Federal funds sold and interest
bearing deposits with other banks 4,964 67 2.7% 5,669 130 4.6%
--------- --------- --- --------- --------- ---
Total interest earning assets 569,656 20,362 7.1% 469,480 18,747 8.0%
--------- --- --------- ---
Noninterest earning assets
Cash & due from banks 8,325 8,326
Premises and equipment 13,015 12,358
Other assets 14,528 13,876
Allowance for loan losses (3,392) (2,678)
--------- ---------
Total assets $ 602,132 $ 501,362
========= =========
Interest bearing liabilities
Interest bearing demand deposits $ 85,355 $ 616 1.4% $ 69,753 $ 1,051 3.0%
Savings deposits 45,531 293 1.3% 38,564 500 2.6%
Time deposits 235,420 4,803 4.1% 217,963 6,266 5.7%
Short-term borrowings 16,720 181 2.2% 11,688 279 4.8%
Long-term borrowings 132,370 3,452 5.2% 85,410 2,408 5.6%
--------- --------- --- --------- --------- ---
Total interest bearing liabilities 515,396 9,345 3.6% 423,378 10,504 5.0%
--------- --- --------- ---
Noninterest bearing liabilities
and shareholders' equity
Demand deposits 37,615 32,664
Other liabilities 4,277 4,115
Shareholders' equity 44,844 41,205
--------- ---------
Total liabilities and
shareholders' equity $ 602,132 $ 501,362
========= =========
Net interest earnings $ 11,017 $ 8,243
========= =========
Net yield on interest earning assets 3.9% 3.5%
=== ===
(1) - Interest income on tax-exempt securities and loans has been adjusted
assuming an effective tax rate of 34% for both periods presented. The tax
equivalent adjustment resulted in an increase in interest income of
$484,000 and $240,000 for the periods ended June 30, 2002 and 2001,
respectively.
22
Table II - Changes in Interest Margin Attributable to Rate and Volume
(Dollars in thousands)
For the Six Months Ended
June 30, 2002 versus June 30, 2001
---------------------------------
Increase (Decrease)
Due to Change in:
---------------------------------
Volume Rate Net
------- -------- -------
Interest earned on:
Loans
Taxable $ 2,889 $(1,406) 1,483
Tax-exempt 159 (29) 130
Securities
Taxable 307 (822) (515)
Tax-exempt 585 (5) 580
Federal funds sold and interest
bearing deposits with other banks (14) (49) (63)
------- ------- -------
Total interest earned on
interest earning assets 3,926 (2,311) 1,615
------- ------- -------
Interest paid on:
Interest bearing demand
deposits 198 (633) (435)
Savings deposits 78 (285) (207)
Time deposits 470 (1,933) (1,463)
Short-term borrowings 91 (189) (98)
Long-term borrowings 1,237 (193) 1,044
------- ------- -------
Total interest paid on
interest bearing liabilities 2,074 (3,233) (1,159)
------- ------- -------
Net interest income $ 1,852 $ 922 $ 2,774
======= ======= =======
Credit Experience
The provision for loan losses represents charges to earnings necessary to
maintain an adequate allowance for potential future loan losses. Management's
determination of the appropriate level of the allowance is based on an ongoing
analysis of credit quality and loss potential in the loan portfolio, change in
the composition and risk characteristics of the loan portfolio, and the
anticipated influence of national and local economic conditions. The adequacy of
the allowance for loan losses is reviewed quarterly and adjustments are made as
considered necessary.
The Company recorded a $600,000 provision for loan losses for the first six
months of 2002, compared to $325,000 for the same period in 2001, an increase of
$275,000 or 84.6%. This increase represents continued growth of the loan
portfolio. Net loan charge offs for the first six months of 2002 were $70,000,
as compared to $197,000 over the same period of 2001. At June 30, 2002, the
allowance for loan losses totaled $3,640,000 or 0.98% of loans, net of unearned
income, compared to $3,110,000 or 0.89% of loans, net of unearned income at
December 31, 2001.
23
Summit's asset quality remains sound. As illustrated in Table III below, the
Company's non-performing assets and loans past due 90 days or more and still
accruing interest have decreased during the past 12 months, remaining at a
historically moderate level.
Table III - Summary of Past Due Loans and Non-Performing Assets
(Dollars in thousands)
June 30, December 31,
-------------------
2002 2001 2001
------ ------ ------
Accruing loans past due 90 days or more $ 63 $ 157 $ 328
Nonperforming assets:
Nonaccrual loans 743 1,254 788
Foreclosed properties 119 - 81
Repossessed assets 4 31 -
------ ------ ------
Total $ 929 $1,442 $1,197
====== ====== ======
Percentage of total loans 0.2% 0.5% 0.3%
=== === ===
Noninterest Expense
Total noninterest expense increased approximately $979,000, or 18.5% to
$6,265,000 during the first six months of 2002 as compared to the same period in
2001. Substantially all of this increase resulted primarily from an increase in
salaries and employee benefits expense as a result of the company awarding
general merit raises and the addition of new staff positions required as a
result of Summit's growth.
FINANCIAL CONDITION
Total assets of the Company were $620,817,000 at June 30, 2002, compared to
$591,757,000 at December 31, 2001, representing a 4.9% increase. Table IV below
serves to illustrate significant changes in the Company's financial position
between December 31, 2001 and June 30, 2002.
24
Table IV - Summary of Significant Changes in Financial Position
(Dollars in thousands)
Balance Balance
December 31, Increase (Decrease) June 30,
---------------------
2001 Amount Percentage 2002
-------- -------- ---------- --------
Assets
Federal funds sold $ 1,848 $ 5,443 294.5% $ 7,291
Securities available for sale 206,967 (7,760) -3.7% 199,207
Loans, net of unearned income 344,415 31,512 9.1% 375,927
Liabilities
Interest bearing deposits $357,519 $ 22,876 6.4% $380,395
Short-term borrowings 24,033 (10,401) -43.3% 13,632
Long-term borrowings 123,445 11,156 9.0% 134,601
Loan growth during the first six months of 2002, occurring principally in the
commercial and real estate portfolios, was funded primarily by long-term
borrowings from the FHLB.
Short-term borrowings decreased during the first six months of 2002 as the
company borrowed long-term with the FHLB and paid down the short-term
borrowings.
Refer to Notes 4, 5, 6, 7 and 8 of the notes to the accompanying consolidated
financial statements for additional information with regard to changes in the
composition of the Summit's securities, loans, deposits and borrowing
activity between June 30, 2002 and December 31, 2001.
LIQUIDITY
Liquidity reflects the Company's ability to ensure the availability of adequate
funds to meet loan commitments and deposit withdrawals, as well as provide for
other transactional requirements. Liquidity is provided primarily by funds
invested in cash and due from banks, Federal funds sold, non-pledged securities,
and available lines of credit with the FHLB, the total of which approximated
$000 million or 00% of total assets at June 30, 2002 versus $126 million, or 21%
of total assets at December 31, 2001.
The Company's liquidity position is monitored continuously to ensure that
day-to-day as well as anticipated funding needs are met. Management is not aware
of any trends, commitments, events or uncertainties that have resulted in or are
reasonably likely to result in a material change to the Summit's liquidity.
25
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, exchange rates and
equity prices. Interest rate risk is Summit's primary market risk and results
from timing differences in the repricing of assets, liabilities and off-balance
sheet instruments, changes in relationships between rate indices and the
potential exercise of imbedded options. The principal objective of
asset/liability management is to minimize interest rate risk and the Company's
actions in this regard are taken under the guidance of its Asset/Liability
Management Committee ("ALCO"), which is comprised of members of senior
management and members of the Board of Directors. The ALCO actively formulates
the economic assumptions that the Company uses in its financial planning and
budgeting process and establishes policies which control and monitor the
Company's sources, uses and prices of funds.
Some amount of interest rate risk is inherent and appropriate to the banking
business. Summit's net income is affected by changes in the absolute level of
interest rates. The Company's interest rate risk position is liability
sensitive; that is, liabilities are likely to reprice faster than assets,
resulting in a decrease in net income in a rising rate environment. Conversely,
net income should increase in a falling interest rate environment. Net income is
also subject to changes in the shape of the yield curve. In general, a
flattening yield curve would result in a decline in Company earnings due to the
compression of earning asset yields and funding rates, while a steepening would
result in increased earnings as margins widen.
Several techniques are available to monitor and control the level of interest
rate risk. Summit primarily uses earnings simulations modeling to monitor
interest rate risk. The earnings simulation model forecasts the effects on net
interest income under a variety of interest rate scenarios that incorporate
changes in the absolute level of interest rates and changes in the shape of the
yield curve. Assumptions used to project yields and rates for new loans and
deposits are derived from historical analysis. Securities portfolio maturities
and prepayments are reinvested in like instruments. Mortgage loan prepayment
assumptions are developed from industry estimates of prepayment speeds.
Noncontractual deposit repricings are modeled on historical patterns.
As of June 30, 2002, Summit's earnings simulation model projects net interest
income would decrease by approximately 1.6% if rates rise evenly by 200 basis
points over the next 12 month period, as compared to a projected stable rate net
interest income. Further, the model projects that if rates fall evenly by 200
basis points over the next year, Company net interest income would decrease by
approximately 0.3%, as compared to a projected stable rate net interest income.
These projected changes are well within Summit's ALCO policy limit of +/- 10%.
CAPITAL RESOURCES
Maintenance of a strong capital position is a continuing goal of Company
management. Through management of its capital resources, the Company seeks to
provide an attractive financial return to its shareholders while retaining
sufficient capital to support future growth. Shareholders' equity at June 30,
2002 totaled $48,083,000 compared to $44,287,000 at December 31, 2001,
representing an increase of 8.6% which resulted primarily from net retained
earnings of the Company during the first six months of 2002 and the appreciation
of the Company's available for sale securities portfolio.
Refer to Note 9 of the notes to the accompanying consolidated financial
statements for information regarding regulatory restrictions on the Company's
and its subsidiaries' capital.
26
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 2002, at the annual meeting of the shareholders of Summit Financial
Group, Inc., the matters set forth below were voted upon. The number of votes
cast for or against, as well as the number of abstentions and withheld votes
concerning each matter are indicated in the following tabulations.
1. Election of the following listed individuals to the Company's Board of
Directors for three year terms.
For Withheld
Frank A. Baer, III 1,399,917 5,007
Patrick N. Frye 1,397,819 7,105
Duke A. McDaniel 1,404,924 0
Ronald F. Miller 1,400,720 4,204
George R. Ours 1,404,065 859
The following directors' terms of office continued after the 2002 annual
shareholders' meeting: Oscar M. Bean, Dewey F. Bensenhaver, James M.
Cookman, John W. Crites, James Paul Geary, Thomas J. Hawse, III, Phoebe F.
Heishman, Gary L. Hinkle, Gerald W. Huffman, H. Charles Maddy, III, Harold
K. Michael, and Charles S. Piccirillo.
2. Ratify Arnett & Foster, CPA's to serve as the Company's independent
auditors for 2002.
For Against Abstentions
1,406,329 643 4,187
Item 6. Reports on Form 8-K
On April 26, 2002, Summit and Monroe Financial, Inc. issued a New Release
announcing that the Boards of Directors of Summit and Monroe Financial, Inc. had
approved a plan to affiliate, whereby Summit would acquire Monroe and its wholly
owned subsidiary, Bank of Greenville.
On May 20, 2002, Summit and Monroe Financial, Inc. issued a News Release
announcing that they mutually had agreed to terminate their plan to affiliate.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT FINANCIAL GROUP, INC.
(registrant)
By: /s/ H. Charles Maddy, III
-------------------------------------------
H. Charles Maddy, III,
President and Chief Executive Officer
By: /s/ Robert S. Tissue
-------------------------------------------
Robert S. Tissue,
Sr. Vice President and Chief Financial Officer
Date: August 13, 2002
28
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Summit Financial Group, Inc. ("Summit
") Form 10-Q for the period ending June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, H. Charles Maddy,
III, President and Chief Executive Officer of Summit, certify to the best of my
knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Summit.
/s/ H. Charles Maddy, III
--------------------------------------------
H. Charles Maddy, III,
President and Chief Executive Officer
Date: August 13, 2002
The foregoing certification is being furnished solely pursuant to 18 U.S.C. ss.
1350 and is not being filed as part of the Report or as a separate disclosure
document.
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Summit Financial Group, Inc. ("Summit
") Form 10-Q for the period ending June 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Robert S. Tissue,
Senior Vice President and Chief Financial Officer of Summit, certify to the best
of my knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Summit.
/s/ Robert S. Tissue
--------------------------------------------
Robert S. Tissue,
Senior Vice President and Chief Financial Officer
Date: August 13, 2002
The foregoing certification is being furnished solely pursuant to 18 U.S.C. ss.
1350 and is not being filed as part of the Report or as a separate disclosure
document.