SEC Filing | Summit Financial Group, Inc.

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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 - -------------------------------------------------------------------------------- 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.