SEC Filing | Summit Financial Group, Inc.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 March 31, 2003. 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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes |_| No |X| 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 3,504,320 shares outstanding as of May 9, 2003

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Table of Contents Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets March 31, 2003 (unaudited), December 31, 2002, and March 31, 2002...4 Consolidated statements of income for the three months ended March 31, 2003 and 2002 (unaudited)................................................5 Consolidated statements of shareholders' equity for the three months ended March 31, 2003 and 2002 (unaudited).................................6 Consolidated statements of cash flows for the three months ended March 31, 2003 and 2002 (unaudited)...............................7-8 Notes to consolidated financial statements (unaudited)...........9-18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................19-26 Item 3. Quantitative and Qualitative Disclosures about Market Risk.........25 Item 4. Controls and Procedures............................................26 2

PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................27 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..............None Item 5. Other Information................................................None Item 6. Exhibits and Reports on Form 8-K Exhibits Exhibit 10. Amended and Restated Summit Financial Group, Inc. 1998 Officer Stock Option Plan Exhibit 11. Statement re: Computation of Earnings per Share - Information contained in Note 2 to the Consolidated Financial Statements on page 8 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...............................................None SIGNATURES....................................................................28 CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002.......29-30 3

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheets March 31, December 31, March 31, 2003 2002 2002 (unaudited) (*) (unaudited) ------------- ------------- ------------- ASSETS Cash and due from banks $ 11,816,307 $ 11,470,311 $ 7,667,319 Interest bearing deposits with other banks 3,820,145 2,185,369 2,309,456 Federal funds sold 51,223 3,390,135 208,070 Securities available for sale 231,559,929 212,597,975 206,295,842 Securities held to maturity - - 150,157 Loans held for sale 2,083,065 906,900 531,300 Loans, net 433,937,306 414,245,082 358,435,577 Property held for sale 1,393,798 1,859,650 81,000 Premises and equipment, net 11,285,970 11,199,037 12,942,917 Accrued interest receivable 4,095,971 4,025,167 4,288,987 Intangible assets 3,163,340 3,201,128 3,314,493 Other assets 7,556,365 6,703,636 7,063,967 ------------- ------------- ------------- Total assets $ 710,763,419 $ 671,784,390 $ 603,289,085 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Non interest bearing $ 44,806,740 $ 46,312,596 $ 38,337,889 Interest bearing 424,035,131 412,334,977 361,414,256 ------------- ------------- ------------- Total deposits 468,841,871 458,647,573 399,752,145 ------------- ------------- ------------- Short-term borrowings 28,029,455 20,191,103 18,861,192 Long-term borrowings 152,713,067 133,787,020 133,813,139 Company-obligated mandatorily redeemable capital securities of subsidiary trust holding solely subordinated debentures of the Company 3,500,000 3,500,000 - Other liabilities 4,300,023 3,578,898 5,839,663 ------------- ------------- ------------- Total liabilities 657,384,416 619,704,594 558,266,139 ------------- ------------- ------------- Commitments and Contingencies Shareholders' Equity Preferred stock, $1.00 par value; authorized 250,000 shares; no shares issued - - - Common stock, $2.50 par value; authorized 5,000,000 shares; issued 2003 - 3,562,260 shares ; December 2002 - 3,561,660 shares; March 2002 - 3,561,560 shares 8,905,650 8,904,150 8,903,900 Capital surplus 3,811,531 3,805,891 3,804,951 Retained earnings 38,590,570 36,726,583 32,434,117 Less cost of shares acquired for the treasury, 2003 - 57,940 shares; December 2002 - 57,940 shares; (627,659) (619,711) (532,479) March 2002 - 52,940 shares Accumulated other comprehensive income 2,698,911 3,262,883 412,457 ------------- ------------- ------------- Total shareholders' equity 53,379,003 52,079,796 45,022,946 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 710,763,419 $ 671,784,390 $ 603,289,085 ============= ============= ============= (*) - December 31, 2002 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 ------------------------- March 31, March 31, 2003 2002 ----------- ----------- Interest income Interest and fees on loans Taxable $ 7,412,062 $ 6,714,084 Tax-exempt 83,668 81,555 Interest and dividends on securities Taxable 2,113,879 2,601,311 Tax-exempt 474,714 403,456 Interest on interest bearing deposits with other banks 35,509 22,850 Interest on Federal funds sold 9,760 11,359 ----------- ----------- Total interest income 10,129,592 9,834,615 ----------- ----------- Interest expense Interest on deposits 2,625,468 2,891,194 Interest on short-term borrowings 80,196 86,493 Interest on long-term borrowings 1,755,557 1,677,698 ----------- ----------- Total interest expense 4,461,221 4,655,385 ----------- ----------- Net interest income 5,668,371 5,179,230 Provision for loan losses 217,500 292,500 ----------- ----------- Net interest income after provision for loan losses 5,450,871 4,886,730 ----------- ----------- Other income Insurance commissions 20,232 25,337 Service fees 339,387 295,297 Mortgage origination revenue 139,000 43,184 Securities gains 40,892 52,680 Other 33,872 (54,145) ----------- ----------- Total other income 573,383 362,353 ----------- ----------- Other expense Salaries and employee benefits 1,918,620 1,645,202 Net occupancy expense 194,741 182,474 Equipment expense 300,245 290,779 Supplies 105,924 123,779 Professional fees 128,754 92,321 Amortization of intangibles 37,788 37,788 Other 654,320 604,936 ----------- ----------- Total other expense 3,340,392 2,977,279 ----------- ----------- Income before income taxes 2,683,862 2,271,804 Income tax expense 819,875 641,230 ----------- ----------- Net income $ 1,863,987 $ 1,630,574 =========== =========== Basic earnings per common share $ 0.53 $ 0.46 =========== =========== Diluted earnings per common share $ 0.53 $ 0.46 =========== =========== Average common shares outstanding Basic 3,503,930 3,508,620 =========== =========== Diluted 3,529,886 3,532,402 =========== =========== Dividends per common share $ - $ - =========== =========== 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, 2002 $ 8,904,150 $ 3,805,891 $ 36,726,583 $ (619,711) $ 3,262,883 $ 52,079,796 Three Months Ended March 31, 2003 Comprehensive income: Net income - - 1,863,987 - - 1,863,987 Other comprehensive income, net of deferred taxes of $1,390,348: Net unrealized (loss) on securities of ($589,325), net of reclassification adjustment for gains included in net income of $25,353 - - - - (563,972) (563,972) ------------ Total comprehensive income 1,300,015 ------------ Exercise of stock options 1,500 5,640 - - - 7,140 Purchase of treasury shares - - - (7,948) - (7,948) ----------- ----------- ------------ --------- ----------- ------------ Balance, March 31, 2003 $ 8,905,650 $ 3,811,531 $ 38,590,570 $ (627,659) $ 2,698,911 $ 53,379,003 === ==== =========== =========== ============ ========== =========== ============ Balance, December 31, 2002 $ 8,903,900 $ 3,804,951 $ 30,803,543 $ (532,479) $ 1,307,432 $ 44,287,347 Three Months Ended March 31, 2002 Comprehensive income: Net income - - 1,630,574 - - 1,630,574 Other comprehensive income, net of deferred taxes of $548,533: Net unrealized (loss) on securities of ($862,313), net of reclassification adjustment for gains included in net income of $32,662 - - - - (894,975) (894,975) ------------ Total comprehensive income - - - - - 735,599 ----------- ----------- ------------ ---------- ----------- ------------ Balance, March 31, 2002 $ 8,903,900 $ 3,804,951 $ 32,434,117 $ (532,479) $ 412,457 $ 45,022,946 =========== =========== ============ ========== =========== ============ See Notes to Consolidated Financial Statements 6

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows (unaudited) Three Months Ended ---------------------------- March 31, March 31, 2003 2002 ------------ ------------ Cash Flows from Operating Activities Net income $ 1,863,987 $ 1,630,574 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 252,433 250,869 Provision for loan losses 217,500 292,500 Deferred income tax (benefit) expense (68,000) (149,270) Loans originated for sale (7,644,790) (2,138,600) Proceeds from loans sold 6,468,625 2,954,300 Securities (gains) losses (40,892) (52,680) (Gain) loss on disposal of other assets 19,558 15,797 Amortization of securities premiums (accretion of discounts) net 306,650 56,020 Amortization of goodwill and purchase accounting adjustments, net 43,086 45,072 (Increase) decrease in accrued interest receivable (70,804) (414,985) (Increase) decrease in other assets (663,774) (462,883) Increase (decrease) in other liabilities 919,631 2,052,552 ------------ ------------ Net cash provided by operating activities 1,603,210 4,079,266 ------------ ------------ Cash Flows from Investing Activities Net (increase) decrease in interest bearing deposits with other banks (1,634,776) (47,630) Proceeds from maturities and calls of securities available for sale 11,995,000 3,000,000 Proceeds from sales of securities available for sale 1,394,555 4,814,367 Principal payments received on securities available for sale 21,629,654 10,120,896 Purchases of securities available for sale (55,146,213) (18,678,877) Net (increase) decrease in Federal funds sold 3,338,912 1,640,059 Net loans made to customers (20,533,164) (15,680,083) Purchases of premises and equipment (298,488) (311,011) Proceeds from sales of other assets 1,023,695 8,900 Purchases of life insurance contracts - (1,853,018) ------------ ------------ Net cash provided by (used in) investing activities (38,230,825) (16,986,397) ------------ ------------ Cash Flows from Financing Activities Net increase (decrease) in demand deposit, NOW and savings accounts (2,388,533) 4,308,805 Net increase (decrease) in time deposits 12,620,347 (707,595) Net increase (decrease) in short-term borrowings 7,838,352 (5,171,599) Proceeds from long-term borrowings 19,250,000 10,530,000 Repayment of long-term borrowings (345,747) (161,392) Exercise of stock options 7,140 - Purchase of treasury stock (7,948) - ------------ ------------ Net cash provided by financing activities 36,973,611 8,798,219 ------------ ------------ Increase (decrease) in cash and due from banks 345,996 (4,108,912) Cash and due from banks: Beginning 11,470,311 11,776,231 ------------ ------------ Ending $ 11,816,307 $ 7,667,319 ============ ============ (Continued) 7

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (unaudited) Note 1. Basis of Presentation We, Summit Financial Group, Inc. and subsidiaries, prepare our consolidated financial statements 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 our opinion, 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 us 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 three months ended March 31, 2003 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 our 2002 audited financial statements and Annual Report on Form 10-K. Certain accounts in the consolidated financial statements for December 31, 2002 and March 31, 2002, as previously presented, have been reclassified to conform to current year classifications. Note 2. Earnings per Share The computations of basic and diluted earnings per share follow: Three Months Ended March 31, ---------------------------- 2003 2002 ---------- ---------- Numerator: Net Income $1,863,987 $1,630,574 ========== ========== Denominator: Denominator for basic earnings per share - weighted average common shares outstanding 3,503,930 3,508,620 Effect of dilutive securities: Stock options 25,956 23,782 ---------- ---------- Denominator for diluted earnings per share - weighted average common shares outstanding and assumed conversions 3,529,886 3,532,402 ========== ========== Basic earnings per share $ 0.53 $ 0.46 ========== ========== Diluted earnings per share $ 0.53 $ 0.46 ========== ========== 9

Note 3. Securities The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at March 31, 2003 and December 31, 2002, and March 31, 2002 are summarized as follows: March 31, 2003 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 26,769,001 $ 943,685 $ - $ 27,712,686 Mortgage-backed securities 115,746,226 1,679,106 555,378 116,869,954 State and political subdivisions 5,119,239 40,581 - 5,159,820 Corporate debt securities 29,416,044 1,176,470 24,326 30,568,188 Federal Reserve Bank stock 418,000 - - 418,000 Federal Home Loan Bank stock 9,051,100 - - 9,051,100 Other equity securities 102,452 - - 102,452 ------------ ------------ ------------ ------------ Total taxable 186,622,062 3,839,842 579,704 189,882,200 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 34,103,877 1,074,465 15,749 35,162,593 Federal Reserve Bank stock 8,400 - - 8,400 Other equity securities 6,561,822 89,577 144,663 6,506,736 ------------ ------------ ------------ ------------ Total tax-exempt 40,674,099 1,164,042 160,412 41,677,729 ------------ ------------ ------------ ------------ Total $227,296,161 $ 5,003,884 $ 740,116 $231,559,929 ============ ============ ============ ============ December 31, 2002 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 32,699,059 $ 1,121,860 $ - $ 33,820,919 Mortgage-backed securities 94,022,894 1,925,599 168,040 95,780,453 State and political subdivisions 5,450,901 94,315 - 5,545,216 Corporate debt securities 27,961,831 1,163,744 7,352 29,118,223 Federal Reserve Bank stock 397,000 - - 397,000 Federal Home Loan Bank stock 7,738,200 - - 7,738,200 Other equity securities 88,348 - - 88,348 ------------ ------------ ------------ ------------ Total taxable 168,358,233 4,305,518 175,392 172,488,359 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 34,003,131 1,166,600 101,629 35,068,102 Federal Reserve Bank stock 8,400 - - 8,400 Other equity securities 5,065,152 106,169 138,207 5,033,114 ------------ ------------ ------------ ------------ Total tax-exempt 39,076,683 1,272,769 239,836 40,109,616 ------------ ------------ ------------ ------------ Total $207,434,916 $ 5,578,287 $ 415,228 $212,597,975 ============ ============ ============ ============ 10

March 31, 2002 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 37,402,163 $ 728,766 $ 151,107 $ 37,979,822 Mortgage-backed securities 94,229,027 741,039 856,336 94,113,730 State and political subdivisions 5,992,027 16,480 53,367 5,955,140 Corporate debt securities 27,241,860 679,349 205,963 27,715,246 Federal Reserve Bank stock 401,300 - - 401,300 Federal Home Loan Bank stock 7,328,900 - - 7,328,900 Other equity securities 306,625 - 6,000 300,625 ------------ ------------ ------------ ------------ Total taxable 172,901,902 2,165,634 1,272,773 173,794,763 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 27,929,146 274,955 557,494 27,646,607 Federal Reserve Bank stock 4,100 - - 4,100 Other equity securities 4,822,095 32,111 3,834 4,850,372 ------------ ------------ ------------ ------------ Total tax-exempt 32,755,341 307,066 561,328 32,501,079 ------------ ------------ ------------ ------------ Total $205,657,243 $ 2,472,700 $ 1,834,101 $206,295,842 ============ ============ ============ ============ Held to Maturity Tax-exempt: State and political subdivisions $ 150,157 $ 293 $ 157 $ 150,293 ============ ============ ============ ============ The maturites, amortized cost and estimated fair values of securities at March 31, 2003, are summarized as follows: Available for Sale -------------------------------- Amortized Estimated Cost Fair Value ------------ ------------ Due in one year or less $127,713,273 $129,950,092 Due from one to five years 70,913,585 72,193,050 Due from five to ten years 10,007,167 10,355,150 Due after ten years 13,199,284 13,582,156 Equity securities 5,462,852 5,479,481 ------------ ------------ $227,296,161 $231,559,929 ============ ============ 11

Note 4. Loans Loans are summarized as follows: March 31, December 31, March 31, 2003 2002 2002 ------------ ------------ ------------ Commerical $ 38,837,124 $ 34,745,430 $ 28,012,043 Commercial real estate 182,146,228 171,822,280 134,612,059 Real estate - construction 3,980,003 4,493,569 1,361,508 Real estate - mortgage 168,273,675 161,005,744 151,582,561 Consumer 39,628,271 40,655,422 40,698,188 Other 6,041,761 6,389,812 6,292,221 ------------ ------------ ------------ Total loans 438,907,062 419,112,257 363,089,880 Less unearned income 841,220 814,044 731,487 ------------ ------------ ------------ Total loans net of unearned income 438,065,842 418,298,213 362,358,393 Less allowance for loan losses 4,128,536 4,053,131 3,391,516 ------------ ------------ ------------ Loans, net $433,937,306 $414,245,082 $358,435,577 ============ ============ ============ Note 5. Allowance for Loan Losses An analysis of the allowance for loan losses for the three month periods ended March 31, 2003 and 2002, and for the year ended December 31, 2002 is as follows: Three Months Ended Year Ended March 31, December 31, -------------------------- 2003 2002 2002 ---------- ---------- ---------- Balance, beginning of period $4,052,949 $3,110,248 $3,110,248 Losses: Commercial - - 105,650 Commercial real estate 96,640 - 31,500 Real estate - mortgage 33,653 1,817 30,400 Consumer 35,118 28,570 173,430 Other 7,642 15,786 74,899 ---------- ---------- ---------- Total 173,053 46,173 415,879 ---------- ---------- ---------- Recoveries: Commercial 954 347 39,251 Commercial real estate - - - Real estate - mortgage 300 16,004 16,489 Consumer 22,513 14,545 70,568 Other 7,373 4,045 17,454 ---------- ---------- ---------- Total 31,140 34,941 143,762 ---------- ---------- ---------- Net losses 141,913 11,232 272,117 Provision for loan losses 217,500 292,500 1,215,000 ---------- ---------- ---------- Balance, end of period $4,128,536 $3,391,516 $4,053,131 ========== ========== ========== 12

Note 6. Deposits The following is a summary of interest bearing deposits by type as of March 31, 2003 and 2002 and December 31, 2002: March 31, December 31, March 31, 2003 2002 2002 ------------ ------------ ------------ Interest bearing demand deposits $ 97,850,089 $ 99,752,155 $ 84,772,287 Savings deposits 47,751,642 46,732,252 45,160,225 Certificates of deposit 253,475,978 241,439,194 209,928,542 Individual retirement accounts 24,957,422 24,411,376 21,553,202 ------------ ------------ ------------ Total $424,035,131 $412,334,977 $361,414,256 ============ ============ ============ 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 March 31, 2003: Amount Percent ----------- ------- Three months or less $10,856,026 14.1% Three through six months 14,169,840 18.3% Six through twelve months 21,392,600 27.7% Over twelve months 30,809,326 39.9% ----------- ----- Total $77,227,792 100.0% =========== ===== A summary of the scheduled maturities for all time deposits as of March 31, 2003 is as follows: Nine month period ending December 31, 2003 $ 123,824,875 Year Ending December 31, 2004 103,573,058 Year Ending December 31, 2005 26,675,129 Year Ending December 31, 2006 5,648,232 Year Ending December 31, 2007 14,978,425 Thereafter 3,733,681 ------------- $ 278,433,400 ============= 13

Note 7. Borrowed Funds Short-term borrowings: A summary of short-term borrowings is presented below: Quarter Ended March 31, 2003 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ----------- ------------ ------------ Balance at March 31 $ 490,000 $ 8,979,955 $ 18,559,500 Average balance outstanding for the quarter 338,300 8,385,866 12,645,338 Maximum balance outstanding at any month end during quarter 490,000 8,979,955 18,559,500 Weighted average interest rate for the quarter 2.32% 1.56% 1.44% Weighted average interest rate for balances outstanding at March 31 2.99% 1.59% 1.48% Year Ended December 31, 2002 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ----------- ------------ ------------ Balance at December 31 $ - $ 8,596,103 $ 11,595,000 Average balance outstanding for the year 934,768 8,960,391 6,057,233 Maximum balance outstanding at any month end 2,370,000 10,778,052 11,595,000 Weighted average interest rate for the year 4.19% 1.71% 2.21% Weighted average interest rate for balances outstanding at December 31 - 1.57% 1.48% 14

Quarter Ended March 31, 2002 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ----------- ------------ ------------ Balance at March 31 $ 1,513,000 $ 8,948,192 $ 8,400,000 Average balance outstanding for the quarter 1,295,178 8,624,953 7,009,534 Maximum balance outstanding at any month end during quarter 1,513,000 8,995,934 8,400,000 Weighted average interest rate for the quarter 3.96% 1.73% 2.12% Weighted average interest rate for balances outstanding at March 31 3.52% 1.79% 2.25% Long-term borrowings: Our long-term borrowings of $152,713,067, $133,787,020 and $133,813,000 at March 31, 2003, December 31, 2002, and March 31, 2002 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 three month period ended March 31, 2003 was 4.96% compared to 5.13% for the first three months of 2002. 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 ------------ ------------- 2003 $ 5,777,209 2004 20,353,916 2005 9,509,278 2006 9,345,157 2007 5,434,877 Thereafter 102,292,630 ------------- $ 152,713,067 ------------- Note 8. Stock Option Plan In accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, we have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for our employee stock options. The Officer Stock Option Plan, which provides for the granting of stock options for up to 480,000 shares of common stock to our key officers, was adopted in 1998 and expires in 2008. Each option granted under the plan vests according to a schedule designated at the grant date and shall have a term of no more than 10 years following the vesting date. Also, the option price per share shall not be less than the fair market value of our common stock on the date of grant. Accordingly, no compensation expense is recognized for options granted under the Plan. 15

The following pro forma disclosures present for the quarters ended March 31, 2003 and 2002, our reported net income and basic and diluted earnings per share had we recognized compensation expense for our Officer Stock Option Plan based on the grant date fair values of the options (the fair value method described in Statement of Financial Accounting Standards No. 123). Quarter Ended March 31, - -------------------------------------------------------- 2003 2002 - -------------------------------------------------------- (in thousands, except per share data) Net income: As reported $ 1,864 $ 1,631 Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (10) (8) - -------------------------------------------------------- Pro forma $ 1,854 $ 1,623 ======================================================== Basic earnings per share: As reported $ 0.53 $ 0.46 ======================================================== Pro forma $ 0.53 $ 0.46 ======================================================== Diluted earnings per share: As reported $ 0.53 $ 0.46 ======================================================== Pro forma $ 0.53 $ 0.46 ======================================================== For purposes of computing the above pro forma amounts, we estimated the fair value of the options at the date of grant using a Black-Scholes option pricing model. There were no option grants during the first quarter of 2003. For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. 16

Note 9. Stock Split On February 21, 2003, our Board of Directors authorized a 2-for-1 split of our common stock to be effected in the form of a 100% stock dividend that was distributed on March 14, 2003 to shareholders of record as of March 3, 2003. All share and per share amounts included in the consolidated financial statements and the accompanying notes have been restated to give effect to the stock split. Note 10. Restrictions on Capital We and our subsidiaries are subject to various regulatory capital requirements administered by the banking regulatory agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and each of our subsidiaries must meet specific capital guidelines that involve quantitative measures of our and our subsidiaries' assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and each of our subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us and each of our subsidiaries to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of March 31, 2003, that we and each of our subsidiaries met all capital adequacy requirements to which they were subject. The most recent notifications from the banking regulatory agencies categorized us and each of our subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we and each of our subsidiaries must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. Our actual capital amounts and ratios as well as our subsidiaries', Summit Community Bank's ("Summit Community"), Capital State Bank, Inc.'s ("Capital State") and Shenandoah Valley National Bank's ("Shenandoah") are presented in the following table. 17

(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 March 31, 2003 Total Capital (to risk weighted assets) Summit $ 55,091 11.4% 38,515 8.0% 48,144 10.0% Summit Community 27,160 11.2% 19,353 8.0% 24,191 10.0% Capital State 11,452 10.3% 8,923 8.0% 11,154 10.0% Shenandoah 13,826 10.9% 10,105 8.0% 12,631 10.0% Tier I Capital (to risk weighted assets) Summit 50,963 10.6% 19,258 4.0% 28,886 6.0% Summit Community 24,937 10.3% 9,677 4.0% 14,515 6.0% Capital State 10,573 9.5% 4,461 4.0% 6,692 6.0% Shenandoah 12,785 10.1% 5,053 4.0% 7,579 6.0% Tier I Capital (to average assets) Summit 50,963 7.5% 20,512 3.0% 34,187 5.0% Summit Community 24,937 7.2% 10,427 3.0% 17,379 5.0% Capital State 10,573 6.9% 4,599 3.0% 7,665 5.0% Shenandoah 12,785 7.0% 5,454 3.0% 9,090 5.0% As of December 31, 2002 Total Capital (to risk weighted assets) Summit $ 53,114 11.7% $ 36,310 8.0% $ 45,388 10.0% Summit Community 25,916 11.1% 18,661 8.0% 23,327 10.0% Capital State 11,041 10.7% 8,247 8.0% 10,309 10.0% Shenandoah 12,816 11.0% 9,304 8.0% 11,630 10.0% Tier I Capital (to risk weighted assets) Summit 49,043 10.8% 18,155 4.0% 27,233 6.0% Summit Community 23,708 10.2% 9,334 4.0% 14,001 6.0% Capital State 10,146 9.8% 4,124 4.0% 6,187 6.0% Shenandoah 11,848 10.2% 4,651 4.0% 6,976 6.0% Tier I Capital (to average assets) Summit 49,043 7.4% 20,012 3.0% 33,353 5.0% Summit Community 23,708 7.0% 10,161 3.0% 16,934 5.0% Capital State 10,146 6.8% 4,457 3.0% 7,428 5.0% Shenandoah 11,848 6.7% 5,289 3.0% 8,815 5.0% 18

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 our financial condition and results of operations of Summit Financial Group, Inc. ("Company" or "Summit") and our 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 our 2002 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 us. Our following 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, we note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in those forward-looking statements. CRITICAL ACCOUNTING POLICIES Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Our most significant accounting policies are presented in Note 1 to the consolidated financial statements of our 2002 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, we have identified the determination of the allowance for loan losses and the valuation of goodwill to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. The allowance for loan losses represents our estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on our consolidated balance sheet. To the extent actual outcomes differ from our estimates, additional provisions for loan losses may be required that would negatively impact earnings in future periods. Note 1 to the consolidated financial statements of our 2002 Annual Report on Form 10-K describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the Asset Quality section of the financial review of the 2002 Annual Report on Form 10-K. 19

With the adoption of SFAS No. 142 on January 1, 2002, we discontinued the amortization of goodwill resulting from acquisitions. Goodwill is now subject to impairment testing at least annually to determine whether write-downs of the recorded balances are necessary. A fair value is determined based on at least one of three various market valuation methodologies. If the fair value equals or exceeds the book value, no write-down of recorded goodwill is necessary. If the fair value is less than the book value, an expense may be required on our books to write down the goodwill to the proper carrying value. During the third quarter, we will complete the required annual impairment test for 2003. We cannot assure you that future goodwill impairment tests will not result in a charge to earnings. See Notes 1 and 9 of the consolidated financial statements of our Annual Report on Form 10-K for further discussion of our intangible assets, which include goodwill. RESULTS OF OPERATIONS Earnings Summary Net income for the quarter ended March 31, 2003 grew 14.3% to $1,864,000, or $0.53 per diluted share as compared to $1,631,000, or $0.46 per diluted share for the quarter ended March 31, 2002. Returns on average equity and assets for the first quarter of 2003 were 14.33% and 1.09%, respectively, compared with 14.75% and 1.10% for the same period of 2002. Net Interest Income Net interest income is the principal component of our earnings and represents the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can materially impact net interest income. Our net interest income on a fully tax-equivalent basis totaled $5,947,000 for the three month period ended March 31, 2003 compared to $5,417,000 for the same period of 2002, representing an increase of $530,000 or 9.8%. This increase resulted from growth in interest earning assets, primarily loans, which served to more than offset the 10 basis points decline in the net yield on interest earning assets during the same period. Average interest earning assets grew 15.7% from $561,526,000 during the first quarter of 2002 to $649,572,000 for the first quarter of 2003. Average interest bearing liabilities grew 15.1% from $508,362,000 at March 31, 2002 to $584,923,000 at March 31, 2003, at an average yield for the first three months of 2003 of 3.1% compared to 3.7% for the same period of 2002. Our net yield on interest earning assets decreased to 3.7% for the three month period ended March 31, 2003, compared to 3.9% for the same period in 2002, as the yields on taxable securities and loans declined 130 and 70 basis points, respectively, during the same period. Consistent with the experience of many other financial institutions, this margin compression is the result of earning assets repricing at historically low yields, while at the same time, we have limited ability to decrease correspondingly the rates paid on interest bearing liabilities. Further contributing to this situation are historically high prepayments of loans and mortgage-backed securities which necessitate the reinvestment of significant cash flows at rates well below each respective portfolio's overall yield. We anticipate modest growth in our net interest income to continue over the near term as the growth in the volume of interest earning assets will more than offset the expected continued decline in our net interest margin. However, if market interest rates remain significantly unchanged, or go lower over the next 12 to 18 months, the spread between interest earning assets and interest bearing liabilities could narrow such that its impact could not be offset by growth in earning assets. See the "Market Risk Management" section for further discussion of the impact changes in market interest rates could have on us. Further analysis of our yields on interest earning assets and interest bearing liabilities are presented in Tables I and II below. 20

Table I - Average Balance Sheet and Net Interest Income Analysis (Dollars in thousands) For the Quarter Ended ----------------------------------------------------------------------------------------- March 31, 2003 March 31, 2002 December 31, 2002 --------------------------- ---------------------------- ----------------------------- Average Earnings/ Yield/ Average Earnings/ Yield/ Average Earnings/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate --------- ------- ---- --------- ------- ---- --------- -------- ---- Interest earning assets Loans, net of unearned income Taxable $ 422,953 $ 7,412 7.0% $ 346,877 $ 6,714 7.7% $ 407,562 $ 7,551 7.4% Tax-exempt (1) 6,208 127 8.2% 5,775 124 8.6% 6,569 138 8.4% Securities Taxable 174,478 2,114 4.8% 171,374 2,601 6.1% 171,980 2,333 5.4% Tax-exempt (1) 39,209 710 7.2% 32,325 599 7.4% 38,297 681 7.1% Federal funds sold and interest bearing deposits with other banks 6,724 45 2.7% 5,175 34 2.6% 7,119 35 2.0% --------- ------- --- -------- ------- --- --------- ------- --- Total interest earning assets 649,572 10,408 6.4% 561,526 10,072 7.2% 631,527 10,738 6.8% ------- --- ------- --- ------- --- Noninterest earning assets Cash & due from banks 8,168 8,174 9,512 Premises and equipment 12,765 12,975 13,049 Other assets 19,895 13,870 20,197 Allowance for loan losses (4,091) (3,233) (4,029) --------- --------- --------- Total assets $ 686,309 $ 593,312 $ 670,256 ========= ========= ========= Interest bearing liabilities Interest bearing demand deposits $ 99,283 $ 229 0.9% $ 82,414 $ 296 1.4% $ 102,317 $ 295 1.2% Savings deposits 46,098 73 0.6% 44,612 141 1.3% 45,367 103 0.9% Time deposits 273,566 2,323 3.4% 233,648 2,454 4.2% 265,542 2,456 3.7% Short-term borrowings 21,337 80 1.5% 16,930 87 2.1% 19,088 80 1.7% Long-term borrowings and capital trust securities 144,639 1,756 4.9% 130,758 1,677 5.1% 137,550 1,760 5.1% --------- ------- --- -------- ------- --- --------- ------- --- Total interest bearing liabilities 584,923 4,461 3.1% 508,362 4,655 3.7% 569,864 4,694 3.3% ------- --- ------- --- ------- --- Noninterest bearing liabilities and shareholders' equity Demand deposits 44,217 36,237 42,838 Other liabilities 5,152 4,488 5,611 Shareholders' equity 52,017 44,225 51,943 --------- --------- --------- Total liabilities and shareholders' equity $ 686,309 $ 593,312 $ 670,256 ========= ========= ========= Net interest earnings $ 5,947 $ 5,417 $ 6,044 ======= ======= ======= Net yield on interest earning assets 3.7% 3.9% 3.8% === === === (1) - Interest income on tax-exempt securities 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 $278,000, $237,000 and $272,000 for the quarters ended March 31, 2003 and 2002, and December 31, 2002 respectively. 21

Table II - Changes in Interest Margin Attributable to Rate and Volume (Dollars in thousands) For the Quarter Ended For the Quarter Ended March 31, 2003 versus March 31, 2002 March 31, 2003 versus December 31, 2002 ------------------------------------ --------------------------------------- Increase (Decrease) Increase (Decrease) Due to Change in: Due to Change in: ---------------------------- ------------------------------ Volume Rate Net Volume Rate Net ------- -------- ------- ------- -------- ------- Interest earned on: Loans Taxable $ 1,375 $ (677) $ 698 $ 279 $ (418) $ (139) Tax-exempt 9 (6) 3 (8) (3) (11) Securities Taxable 46 (533) (487) 34 (253) (219) Tax-exempt 125 (14) 111 16 13 29 Federal funds sold and interest bearing deposits with other banks 10 1 11 (2) 12 10 ------- ------- ------- ------- ------- ------- Total interest earned on interest earning assets 1,565 (1,229) 336 319 (649) (330) ------- ------- ------- ------- ------- ------- Interest paid on: Interest bearing demand deposits 53 (120) (67) (9) (57) (66) Savings deposits 5 (73) (68) 2 (32) (30) Time deposits 381 (512) (131) 72 (205) (133) Short-term borrowings 20 (27) (7) 8 (8) - Long-term borrowings and capital trust securities 173 (94) 79 89 (93) (4) ------- ------- ------- ------- ------- ------- Total interest paid on interest bearing liabilities 632 (826) (194) 162 (395) (233) ------- ------- ------- ------- ------- ------- Net interest income $ 933 $ (403) $ 530 $ 157 $ (254) $ (97) ======= ======= ======= ======= ======= ======= Credit Experience The provision for loan losses represents charges to earnings necessary to maintain an adequate allowance for potential future loan losses. Our 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. We recorded a $218,000 provision for loan losses for the first three months of 2003, compared to $293,000 for the same period in 2002. Net loan charge offs for the first quarter of 2003 were $142,000, as compared to $11,000 over the same period of 2002. At March 31, 2003, the allowance for loan losses totaled $4,129,000 or 0.94% of loans, net of unearned income, compared to $4,053,000 or 0.97% of loans, net of unearned income at December 31, 2002. 22

Our asset quality remains sound. As illustrated in Table III below, our non-performing assets and loans past due 90 days or more and still accruing interest have increased during the past 12 months, but still remain at a historically moderate level. Table III - Summary of Past Due Loans and Non-Performing Assets (Dollars in thousands) March 31, December 31, ------------------ 2003 2002 2002 ------ ------ ------ Accruing loans past due 90 days or more $ 247 $ 80 $ 574 Nonperforming assets: Nonaccrual loans 468 784 917 Nonaccrual securities 412 - 421 Foreclosed properties 677 81 81 Repossessed assets 19 9 14 ------ ------ ------ Total $1,823 $ 954 $2,007 ====== ====== ====== Total nonperforming loans as a percentage of total loans 0.3% 0.3% 0.4% === === === Total nonperforming assets as a percentage of total assets 0.3% 0.2% 0.3% === === === Noninterest Expense Total noninterest expense increased approximately $363,000, or 12.2% to $3,340,000 during the first quarter of 2003 as compared to the same period in 2002. Substantially all of this increase resulted primarily from an increase in salaries and employee benefits as we awarded general merit raises and also, the addition of new staff positions required as a result of our growth. FINANCIAL CONDITION Our total assets were $710,763,000 at March 31, 2003, compared to $671,784,000 at December 31, 2002, representing a 5.8% increase. Table IV below serves to illustrate significant changes in the our financial position between December 31, 2002 and March 31, 2003. 23

Table IV - Summary of Significant Changes in Financial Position (Dollars in thousands) Balance Balance December 31, Increase (Decrease) March 31, -------------------- 2002 Amount Percentage 2003 --------- -------- ------ --------- Assets Federal funds sold $ 3,390 $ (3,339) -98.5% $ 51 Securities available for sale 212,598 18,962 8.9% 231,560 Loans, net of unearned income 415,152 20,868 5.0% 436,020 Liabilities Interest bearing deposits $ 412,335 $ 11,700 2.8% $ 424,035 Short-term borrowings 20,191 7,838 38.8% 28,029 Long-term borrowings 133,787 18,926 14.1% 152,713 Loan growth during the first three months of 2003, occurring principally in the commercial and real estate portfolios, was funded primarily by both long-term and short-term borrowings from the FHLB. Refer to Notes 3, 4, 6 and 7 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between March 31, 2003 and December 31, 2002. LIQUIDITY Liquidity reflects our 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 $109 million, or 18% of total assets at March 31, 2002 versus $116 million, or 17% of total assets at December 31, 2002. Our liquidity position is monitored continuously to ensure that day-to-day as well as anticipated funding needs are met. We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity. CAPITAL RESOURCES One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders' equity at March 31, 2003 totaled $53,379,000 compared to $52,080,000 at December 31, 2002, representing an increase of 2.5%. Refer to Note 10 of the notes to the accompanying consolidated financial statements for information regarding regulatory restrictions on our capital as well as our subsidiaries' capital. 24

CONTRACTUAL CASH OBLIGATIONS During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at March 31, 2003. Long Capital Term Trust Debt Securities - ------------------------------------------------------- 2003 $ 5,777,209 $ - 2004 20,353,916 - 2005 9,509,278 - 2006 9,345,157 - 2007 5,434,877 - Thereafter 102,292,630 3,500,000 - ------------------------------------------------------- Total $ 152,713,067 $ 3,500,000 ======================================================= OFF-BALANCE SHEET ARRANGEMENTS We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at March 31, 2003 are presented in the following table. March 31, - ------------------------------------------- 2003 - ------------------------------------------- Commitments to extend credit: Revolving home equity and credit card lines $ 16,038,129 Construction loans 21,554,948 Other loans 21,443,807 Standby letters of credit 3,010,341 - ------------------------------------------- Total $ 62,047,225 =========================================== 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 our 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 our actions in this regard are taken under the guidance of our 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 we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds. 25

Some amount of interest rate risk is inherent and appropriate to the banking business. Our net income is affected by changes in the absolute level of interest rates. Our 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 our 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. We primarily use 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 March 31, 2003, our earnings simulation model projects net interest income would decrease by approximately 0.7% if rates rise evenly by 200 basis points over the next year, as compared to projected stable rate net interest income. The model projects that if rates fall evenly by 200 basis points over the next year, our net interest income would remain unchanged, as compared to projected stable rate net interest income. These projected changes are well within our ALCO policy limit of +/- 10%. CONTROLS AND PROCEDURES Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted within 90 days of the filing of this Form 10-Q an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures (i) enable us to record, process, summarize and report in a timely manner the information that we are required to disclose in our Exchange Act reports, and (ii) are designed with the objective of ensuring that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. 26

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Part II. Other Information Item 1. Legal Proceedings We are involved in various pending legal actions, all of which are regarded as litigation arising in the ordinary course of business and are not expected to have a materially adverse effect on our business or financial condition. 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, Senior Vice President and Chief Financial Officer Date: May 9, 2003 28

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, H. Charles Maddy, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Summit Financial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ H. Charles Maddy, III --------------------------------------- H. Charles Maddy, III President and Chief Executive Officer 29

CERTIFICATION I, Robert S. Tissue, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Summit Financial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 /s/ Robert S. Tissue --------------------------------------------- Robert S. Tissue Sr. Vice President and Chief Financial Officer 30

AMENDED AND RESTATED SUMMIT FINANCIAL GROUP, INC. 1998 OFFICER STOCK OPTION PLAN Witnesseth this 1998 OFFICER STOCK OPTION PLAN dated as of the _____ day of _______, 2003, by SUMMIT FINANCIAL GROUP, INC. ("Corporation"), a West Virginia corporation: 1. PURPOSE OF PLAN. The purpose of this 1998 Officer Stock Option Plan ("Plan") is to further the success of the Corporation and its subsidiaries by making stock of the Corporation available for purchase by officers of the Corporation or its subsidiaries through stock option grants. The Plan provides an additional incentive to such officers to continue in the Corporation's service and give them a greater interest as stockholders in the success of the Corporation. 2. REFERENCE, CONSTRUCTION, AND DEFINITIONS. Unless otherwise indicated, all references made in this Plan shall be to articles, sections and subsections of this Plan. This Plan shall be construed in accordance with the laws of the state of West Virginia. The headings and subheadings in this Plan have been inserted for convenience of reference only and are to be ignored in construction of the provision of this Plan. In the construction of this Plan, the masculine shall include the feminine and singular the plural, wherever appropriate. The following terms shall have the meanings set forth opposite such terms: (a) "Board" means the Board of Directors of the Corporation. (b) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday on which the Corporation's Common Stock is available for purchase or sale. (c) "Change of Control" means (a) a report is filed with the Securities and Exchange Commission (the "SEC") on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any "person", as such term is used in section 13(d) and Section 14(d)(2) of the Exchange Act, other than the company or any company employee benefit plan, is or has become a beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; (b) the Company files a report or proxy statement with the SEC pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(e) of Schedule 14A thereunder that a Change of Control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (c) the Company is merged or consolidated with another corporation and, as a result thereof, securities representing less than fifty percent (50%) of the combined voting power of the surviving or resulting corporation's securities (or of the securities of a parent corporation in case of a merger in which the surviving or resulting corporation becomes a wholly owned subsidiary of the parent corporation) are owned in the aggregate by holders of the Company's securities immediately prior to such merger or consolidation; (d) all or substantially all of the assets of the Company are sold in a single transaction or a series of related transactions to a single purchaser or a group of affiliated purchasers; or (e) during any period of twenty-four (24) consecutive months, individuals who were Directors of the Company at the beginning of such period cease to constitute at least a majority of the Company's board unless the election, or nomination for election by the Company's shareholders, of more than one-half of any new Directors of the Company was approved by a vote of at least two-thirds of the Directors of the Company then still in office who were Directors of the Company at the beginning of such twenty-four (24) month period, either actually or by prior operation of this clause (e). A Change of Control shall not include any transaction described in the definition of Change of Control in connection with which the Corporation executes a letter of intent or similar agreement with another company within one year from the effective date of the Plan. The date of a Change of Control shall be deemed to be the date of the earlier of the date of (i) consummation of the transaction involving the Change of Control, or (ii) the execution of a definitive agreement by the Corporation involving a transaction deemed to be a Change of Control; .

(d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the Committee of the Board appointed by the Board to administer the Plan as constituted from time to time in accordance with Section 4(a); provided, however, that if the Committee shall not be in existence, the term "Committee" shall mean the Board. (f) "Common Stock" means the common stock ($2.50 par value) of the Corporation. (g) "Corporation" means Summit Financial Group, Inc., a West Virginia banking corporation. (h) "Date of Grant" means the date on which an option is granted under the Plan. (i) "Effective Date" means the date on which the Plan is approved and adopted by the shareholders of the Corporation. (j) "Fair Market Value" means the value of Common Stock (i) if listed on an established stock exchange, based on its price on such exchange at the close of business on the date in question; (ii) if traded on a reasonably active basis but not listed on an established stock exchange, based on its price as reflected on the NASDAQ Inter-dealer Quotation System of the National Association of Securities Dealers, Inc. at the close of business on the date in question; (iii) if the Common Stock is not traded on any United States securities exchange but is traded on any formal over-the-counter quotation system in general use in the United States, the value per share shall be the mean of the closing prices reported on the last five (5) Business Days on which the common stock traded prior to the date of grant. (k) "Non Qualified Stock Option" means an Option which is not of the type described in Section 422(b) or 423(b) of the Code. (l) "Option" means an option to purchase a share or shares of the Corporation's par value Common Stock. (m) "Option Agreement" means the written agreement to be entered into by the Corporation and the Participant, as provided in Section 6 hereof. 2

(n) "Participant" means any officer of the Corporation or its subsidiaries designated by the Committee and approved by the Board to receive a stock option grant pursuant to this Plan. (o) "Plan" means this 1998 Officer Stock Option Plan. (p) "Retirement" shall mean termination of employment by the Participant (i) at the age of 65 or more, or (ii) after twenty-five years of service with the Corporation. (q) "Term" means the period during which a particular Option may be exercised in accordance with Section 8(b) hereof. (r) "Vest" or "Vesting" means the date, event, or act prior to which an Option, in whole or in part, is not exercisable, and as a consequence of which the Option, in whole or in part, becomes exercisable for the first time. 3. STOCK SUBJECT TO PLAN. Subject to the provisions of Sections 6, 7, and 8, there shall be reserved for issuance or transfer upon the exercise of Options to be granted from time to time under the Plan an aggregate of one hundred twenty thousand (120,000) shares of Common Stock, which shares may be in whole or in part, as the Board shall from time to time determine, authorized and unissued shares of Common Stock, or issued shares of Common Stock which shall have been reacquired by the Corporation. If any Option granted under the Plan shall expire, terminate, or be canceled for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purpose of the Plan. 4. ADMINISTRATION. (a) The Plan shall be administered by the Committee. Actions by the Committee for purposes of this Plan shall be by not less than a majority of its members. Any decision or determination reduced to writing and signed by all Committee members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee shall report all action taken by it to the Board. (b) The Board may authorize the Committee to administer the Plan. In the event the Board elects to administer the Plan, the Board shall have the power and authority otherwise delegated to the Committee in the Plan documents and all acts performed by the Committee under the Plan shall be performed by the Board. (c) The Committee shall have authority in its discretion, but subject to the express provisions of the Plan: (1) to determine Participants to whom Option may be granted; (2) to determine the time or times when Option may be granted; (3) to determine the purchase price of the Common Stock covered by each Option grant; (4) to determine the number of shares of Common Stock to be subject to each Option; 3

(5) to determine when an Option can be exercised and whether in whole or in installments as the result of a Vesting schedule triggered by the passage of time or the attainment of performance goals set by the Committee and approved by the Board; (6) to prescribe, amend, or rescind rules and regulations relating to the Plan; (7) to determine any other terms and provisions and any related amendments to the individual Option Agreements, which need not be identical for each Participant, including such terms and provisions and amendments as shall be required in the judgment of the Committee to conform to any change in any law or regulation applicable thereto, and with particular regard to any changes in or effect of the Code and the regulations thereunder; and (8) to make all other determinations deemed necessary or advisable for the administration of the Plan. 5. PARTICIPATION. Options may be granted to officers employed by the Corporation or its subsidiaries. In determining the officers to whom Options may be granted and the number of shares to be covered by each grant, the Committee may take into account the nature of the services rendered by the respective officers, their present and potential contributions to the Corporation's success, and such other factors as the Committee in its discretion shall deem relevant. Options may be granted to officers who currently hold Corporate stock or who hold or have held Options under this Plan. 6. OPTION GRANTS AND LIMITS. (a) Nothing contained in this Plan or in any resolution adopted or to be adopted by the Board shall constitute the granting of any Option hereunder. The granting of an Option pursuant to the Plan shall take place only when a written Option Agreement shall have been duly executed and delivered by or on behalf of the Corporation and the officer (or his duly authorized attorney-in-fact) in whom such Option is to be granted. (b) During the Participant's lifetime, any Option granted under this Plan shall be exercisable only by the Participant or any guardian or legal representative of the Participant, and the Option shall not be transferable except, in case of the death of the Participant, by will or the laws of descent and distribution ,nor shall the Option be subject to attachment, execution, or other similar process. In the event of (i) any attempt by the Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option, except as provided in this Plan, or (ii) the levy of any attachment, execution, or similar process upon the rights or interests conferred by the Option, the Corporation may terminate the Option by notice to the Participant and upon such notice the Option shall become null and void. (c) Each Option Agreement shall include a Vesting schedule describing the date, event, or act upon which an Option shall Vest, in whole or in part, with respect to all or a specified portion of the shares covered by such Option. This condition shall not impose upon the Corporation any obligation to retain the Participant in its employ for any period. (d) Options shall be limited to Non Qualified Stock Options. 4

7. OPTION PRICES. The Option price to be paid by the Participants to the Corporation for each share purchased upon the exercise of the Option shall be not less than the Fair Market Value of the share on the date the Option is granted. In no event may an Option be granted under the Plan if the Option price per share is less than the par value of a share. 8. EXERCISE OF OPTIONS. (a) A Participant may exercise any Option granted under this Plan with respect to all or any part of the number of shares then exercisable under the terms of the written Option Agreement by giving the Committee written notice of intent to exercise. The notice of exercise shall specify the number of shares to be purchased under the Option and the date of exercise. (b) Each Option granted under the Plan shall be exercisable only during a Term established by the Committee as set forth in the applicable Option Agreement. (c) Full payment of the option price for the shares purchased shall be made by the Participant on or before the exercise date specified in the notice of exercise. Payment of the purchase price of any shares with respect to which the Option is being exercised shall be (i) cash, (ii) certified check to the order of the Corporation, or (iii) shares of Common Stock of the Corporation valued at the Fair Market Value on such Business Day as the Option or portion thereof is exercised. (d) The Corporation shall not be required to deliver certificates for such shares until full payment of the Option price has been made. On or as soon as is practicable after the exercise date specified in the Participant's notice and upon full payment of the Option price, the Corporation shall cause to be delivered to the Participant a certificate or certificates for the shares then being purchased (out of previously unissued Common Stock or reacquired Common Stock, as the Corporation may elect). The exercise of the Option and the resulting obligation of the Corporation to deliver Common Stock shall, however, be subject to the condition that the listing, registration, or qualification of the Option or the shares upon any securities exchange or under any state or federal law, or the consent, or approval of any governmental regulatory body shall have been effected or obtained free of any conditions not acceptable to the Committee. (e) If the Participant fails to pay for any of the shares specified in such notice or fails to accept delivery of the shares, his right to purchase such shares may be terminated by the Corporation. The date specified in the Participant's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the shares to be purchased upon such exercise shall have been received by such date. (f) The holder of an Option shall not have any of the rights of a stockholder with respect to the shares subject to the Option until such shares shall be issued or transferred to him upon the exercise of his Option. (g) Notwithstanding the foregoing, any shares that may be purchased as of the Effective Date, pursuant to the terms of any Option granted prior to the Effective Date, shall continue thereafter to be purchasable pursuant to the exercise of such Option. 5

9. TERMINATION, DISABILITY, OR DEATH OF OPTION HOLDER. The ability to exercise Options under this Plan shall be conditioned as follows: (a) Exercise During and After Employment. Unless otherwise provided in the terms of an Option, an Option may be exercised by the Participant while he is an employee if it is vested and if he has maintained since the date of the grant of the Option continuous status as an employee. In the event of termination of the employment of a Participant by either the Participant or the Corporation to whom an Option has been granted under the Plan, other than a termination by reason of Retirement, permanent disability, or death (all as more fully described below), the Participant may (unless otherwise provided in his or her Option Agreement) exercise his or her Option at any time within six months after such termination, or such other time as the Committee may authorize, but in no event after ten years from the date of the granting thereof, with respect to, the number of shares covered by his or her Option which were Vested at the date of termination of employment. (b) Exercise Upon Retirement. Unless otherwise provided in the terms of an Option, if a Participant's continuous employment shall terminate by reason of his Retirement, at a retirement date authorized by the Committee, from the Corporation or its subsidiaries, a retired Participant shall be come one hundred percent (100%) Vested in any Option he has been granted under the Plan as of that date, and he may exercise the otherwise exercisable Option anytime within one year of his retirement date. (c) Exercise Upon Permanent Disability. Unless otherwise provided in the terms of an Option, if a Participant's continuous employment shall terminate by reason of a permanent disability (as determined by the Participant establishing to the Committee his disability as defined in Code Section 22(e))(3) of the Code, as amended from time to time), then such Option of the disabled Participant may be exercised with respect to the number of shares covered by the Participant's Option that were Vested immediately prior to that disability. Such Option of the permanently disabled Participant may be exercised during the period the Option would have been exercisable if the permanently disabled Participant had not been permanently disabled and had remained in employment. (d) Exercise Upon Death. Unless otherwise provided in the terms of an Option, if a Participant's continuous employment shall terminate by reason of his death, then to the extent that the Participant would have been entitled to exercise the Option immediately prior to his death, such Option of the deceased Participant may be exercised during the period the Option would have been exercisable if the deceased Participant had not died and had remained in employment, by the person or persons (including his estate) to whom his rights under such Option shall have passed by will or by laws of descent and distribution. 10. ADJUSTMENTS. (a) In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Corporation or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for which Options may be granted under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the Option shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Option price per share. 6

(b) In the event of a Change of Control, any Option under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than ninety (90) days' written notice of the date so fixed shall be given to each Participant, and each such Participant shall have the right during such period to exercise any of his or her Options as to all or any part of the shares covered thereby including shares as to which such Options would not otherwise be exercisable by reason of any insufficient lapse of time. (c) Adjustment and determinations under this Section 10 shall be made by the Committee, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding, and conclusive. 11. CHANGE OF CONTROL. Notwithstanding any other Plan provisions or grant term, in the event of a Change of Control, all Options granted hereunder shall become Vested and exercisable regardless of the number of years that have passed since the Date of Grant and regardless of any vesting provisions in the Option Agreements. 12. AMENDMENT AND TERMINATION. Unless the Plan shall theretofore have been terminated as hereinafter provided, no Option shall be granted thereunder after the tenth (10th) anniversary of the Effective Date. All other Plan provisions shall remain in effect with respect to Options granted prior to the tenth (10th) anniversary of the Effective Date. The Board may terminate the Plan or make such modifications or amendments thereof as it shall deem advisable, or to conform to any change in any law or regulation applicable thereto, including without limitation (a) increasing the maximum number of shares to which Options may be granted under the Plan, subject to shareholder approval, (b) changing the class of employees eligible to be granted Options, subject to shareholder approval, (c) increasing the periods during which Options may be granted or Options may be exercised, or (d) providing for the administration of the Plan in a manner which may avoid, without the consent of the Participant to whom any Option shall theretofore have been granted, adversely affecting the rights of such Participant under such grant. 13. RESTRICTIONS ON ISSUING SHARES. The transfer of a share of Common Stock upon the exercise of each Option shall be subject to the condition that if at any time the Corporation shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration or qualification of any shares otherwise deliverable upon any securities exchange or under any state or federal law, or that the consent or approval of such regulatory body, is necessary or desirable as a condition, of, or in connection with, such transfer of shares pursuant thereto, then in any such event, such transfer shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained under conditions acceptable to the Corporation. 14. USE OF PROCEEDS. The proceeds received from the sale of Common Stock pursuant to the exercise of Options granted under the Plan shall be added to the Corporation's general funds and used for general corporate purposes. 7

15. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of indemnification as they may have as members of the Board or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against all costs and expenses reasonable incurred by them in connection with any action, suit, or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan, or any Option and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of bad faith. Upon the institution of any such action, suit, or proceeding, a Committee member shall notify the Corporation in writing, giving an opportunity, at its own expense, to handle and defend the same before such Committee member undertakes to handle it on his own behalf. 16. EFFECTIVENESS OF THE PLAN. The Plan shall become effective as of the Effective Date. 17. MISCELLANEOUS. (a) Employment Not Affected. Neither the granting of an Option nor ----------------------- its exercise shall be construed as granting to the Participant any right with respect to continuance of his employment with the Corporation or its subsidiaries. Except as may otherwise be limited by a written agreement between the Corporation or its subsidiaries and the Participant, the right of the Corporation or its subsidiaries to terminate at will the Participant's employment with it at any time (whether by dismissal, discharge, retirement, or otherwise) is specifically reserved by the Corporation or its subsidiaries as the employer or on behalf of the employer (whichever the case may be) and acknowledged by the Participant. (b) Binding on Successors and Assigns. This Plan shall be binding --------------------------------- on the Corporation, its successors and assigns. (c) Notice. Any notice to the Corporation provided for in this ------ instrument shall be addressed to it in care of its President at its principal office in West Virginia, and any notice to the Participant shall be addressed to the Participant at the current address shown on the payroll records of the Corporation. Any notice shall be deemed to be duly given if and when properly addressed and posed by registered or certified mail, postage prepaid. (d) Construction. If any provision of the Plan or any Option ------------ Agreement is held to be illegal or void, such illegality or invalidity shall not affect the remaining provisions of the Plan or Option Agreement, but shall be fully severable, and the Plan or Option Agreement shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. For all purposes of the Plan, where the context permits, the singular shall include the plural, and the plural shall include the singular. Headings of Articles and Sections herein are inserted only for convenience of reference and are not to be considered in the construction of the Plan. The laws of the State of West Virginia shall govern, control and determine all questions of law arising with respect to the Plan and the interpretation and validity of its respective provisions. 8

SUMMIT FINANCIAL GROUP, INC. By: _________________________________ H. Charles Maddy, III President Attest: _______________________ Teresa Sherman Title: Assistant Secretary 9

                                                                 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
") on Form 10-Q for the period ending March 31, 2003 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
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
          Summit.


                                         /s/ H. Charles Maddy, III
                                         -------------------------------------
                                         H. Charles Maddy, III,
                                         President and Chief Executive Officer

Date:  May 9, 2003



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
") on Form 10-Q for the period ending March 31, 2003 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
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
          Summit.


                                 /s/ Robert S. Tissue
                                 ----------------------------------------------
                                 Robert S. Tissue,
                                 Sr. Vice President and Chief Financial Officer


Date:  May 9, 2003




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.