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 June 30, 2004. 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.) 300 North Main Street Moorefield, West Virginia 26836 (Address of principal executive offices) (Zip Code) (304) 530-1000 (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 3,511,070 shares outstanding as of August 5, 2004

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Table of Contents Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets June 30, 2004 (unaudited), December 31, 2003, and June 30, 2003 (unaudited)......................................4 Consolidated statements of income for the three months and six months ended June 30, 2004 and 2003 (unaudited).................................5 Consolidated statements of shareholders' equity for the six months ended June 30, 2004 and 2003 (unaudited)......................6 Consolidated statements of cash flows for the six months ended June 30, 2004 and 2003 (unaudited)...............................7-8 Notes to consolidated financial statements (unaudited)..........9-23 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................24-32 Item 3. Quantitative and Qualitative Disclosures about Market Risk........32 Item 4. Controls and Procedures...........................................32 2

PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................33 Item 2. Changes in Securities and Use of Proceeds......................33-34 Item 3. Defaults upon Senior Securities.................................None Item 4. Submission of Matters to a Vote of Security Holders............34-35 Item 5. Other Information...............................................None Item 6. Exhibits and Reports on Form 8-K Exhibits Exhibit 3. Articles of Incorporation of Summit Financial Group, Inc., as last amended on May 13, 2004 Exhibit 11. Statement re: Computation of Earnings per Share - Information contained in Note 3 to the Consolidated Financial Statements on page 10 of this Quarterly Report is incorporated herein by reference. Exhibit 31.1 Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer Exhibit 31.2 Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer Exhibit 32.1 Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer Exhibit 32.2 Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer Reports on Form 8-K................................................35 SIGNATURES...................................................................36 3

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheets June 30, December 31, June 30, 2004 2003 2003 (unaudited) (*) (unaudited) ------------- ------------- ------------- ASSETS Cash and due from banks $ 17,143,178 $ 14,412,120 $ 11,096,482 Interest bearing deposits with other banks 3,267,577 3,141,092 3,812,279 Federal funds sold - 244,000 - Securities available for sale 213,643,589 235,409,228 217,537,901 Loans held for sale 15,607,459 6,352,836 5,573,175 Loans, net 559,869,306 498,340,211 450,669,473 Property held for sale 724,014 480,000 1,262,798 Premises and equipment, net 20,120,468 17,846,269 12,315,571 Accrued interest receivable 3,592,845 3,778,139 3,648,140 Goodwill 2,088,030 1,488,030 1,488,030 Other intangible assets 1,486,371 1,561,946 1,637,522 Other assets 12,012,510 8,411,333 7,232,761 ------------- ------------- ------------- Total assets $ 849,555,347 $ 791,465,204 $ 716,274,132 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Non interest bearing $ 55,525,469 $ 51,004,403 $ 46,920,873 Interest bearing 481,063,589 460,797,017 426,334,457 ------------- ------------- ------------- Total deposits 536,589,058 511,801,420 473,255,330 ------------- ------------- ------------- Short-term borrowings 71,350,023 49,714,246 24,220,187 Long-term borrowings 164,906,662 164,646,208 155,759,505 Subordinated debentures owed to unconsolidated subsidiary trusts 11,341,000 3,609,000 3,609,000 Other liabilities 6,393,415 4,506,787 3,557,499 ------------- ------------- ------------- Total liabilities 790,580,158 734,277,661 660,401,521 ------------- ------------- ------------- Commitments and Contingencies Shareholders' Equity Preferred stock, $1.00 par value; authorized 250,000 shares, issued 2004 - 33,400 shares 33,400 - - Common stock, $2.50 par value; authorized 20,000,000 shares, issued 2004 -3,569,010 shares ; December 2003 - 3,566,960 shares; June 2003 - 3,562,760 shares 8,922,525 8,917,400 8,906,900 Capital surplus 4,996,186 3,845,906 3,814,906 Retained earnings 47,674,490 43,427,000 39,898,141 Less cost of shares acquired for the treasury - 57,940 shares (627,659) (627,659) (627,659) Accumulated other comprehensive income (2,023,753) 1,624,896 3,880,323 ------------- ------------- ------------- Total shareholders' equity 58,975,189 57,187,543 55,872,611 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 849,555,347 $ 791,465,204 $ 716,274,132 ============= ============= ============= (*) - December 31, 2003 financial information has been extracted from audited consolidated financial statements See Notes to Consolidated Financial Statements 4

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Income (unaudited) Three Months Ended Six Months Ended ---------------------------- ---------------------------- June 30, June 30, June 30, June 30, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Interest income Interest and fees on loans Taxable $ 8,634,445 $ 7,618,307 $ 16,851,331 $ 15,030,369 Tax-exempt 109,394 78,876 206,686 162,544 Interest and dividends on securities Taxable 1,763,333 1,945,227 3,738,272 4,060,542 Tax-exempt 552,564 481,144 1,104,126 955,858 Interest on interest bearing deposits with other banks 31,615 41,822 62,795 77,331 Interest on Federal funds sold 382 3,915 1,303 13,675 ------------ ------------ ------------ ------------ Total interest income 11,091,733 10,169,291 21,964,513 20,300,319 ------------ ------------ ------------ ------------ Interest expense Interest on deposits 2,389,607 2,516,463 4,803,700 5,141,931 Interest on short-term borrowings 202,891 92,613 374,800 172,809 Interest on long-term borrowings and subordinated debentures 1,701,207 1,859,044 3,386,627 3,616,037 ------------ ------------ ------------ ------------ Total interest expense 4,293,705 4,468,120 8,565,127 8,930,777 ------------ ------------ ------------ ------------ Net interest income 6,798,028 5,701,171 13,399,386 11,369,542 Provision for loan losses 232,500 232,500 465,000 450,000 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 6,565,528 5,468,671 12,934,386 10,919,542 ------------ ------------ ------------ ------------ Other income Insurance commissions 137,464 64,637 160,560 84,869 Service fees 562,136 388,562 1,071,545 727,949 Mortgage origination revenue 6,613,961 183,775 10,933,319 322,775 Securities gains (losses) 17,132 65,518 37,060 106,410 Gain (loss) on sale of assets (10,566) 17,917 (12,181) (1,641) Other 111,558 76,269 183,813 129,699 ------------ ------------ ------------ ------------ Total other income 7,431,685 796,678 12,374,116 1,370,061 ------------ ------------ ------------ ------------ Other expense Salaries and employee benefits 4,739,787 1,880,201 8,425,746 3,798,821 Net occupancy expense 386,555 210,395 690,443 405,136 Equipment expense 441,417 310,592 870,444 610,837 Supplies 155,300 125,998 295,662 231,922 Professional fees 210,940 147,402 381,586 276,156 Postage 1,434,795 48,964 2,787,768 100,748 Advertising 1,303,690 63,266 2,265,326 112,317 Amortization of intangibles 37,788 37,788 75,576 75,576 Other 1,458,178 614,784 2,214,757 1,168,269 ------------ ------------ ------------ ------------ Total other expense 10,168,450 3,439,390 18,007,308 6,779,782 ------------ ------------ ------------ ------------ Income before income taxes 3,828,763 2,825,959 7,301,194 5,509,821 Income tax expense 1,154,700 817,525 2,175,950 1,637,400 ------------ ------------ ------------ ------------ Net income $ 2,674,063 $ 2,008,434 $ 5,125,244 $ 3,872,421 ============ ============ ============ ============ Basic earnings per common share $ 0.76 $ 0.57 $ 1.46 $ 1.11 ============ ============ ============ ============ Diluted earnings per common share $ 0.75 $ 0.57 $ 1.44 $ 1.10 ============ ============ ============ ============ Average common shares outstanding Basic 3,510,784 3,504,358 3,510,423 3,504,145 ============ ============ ============ ============ Diluted 3,563,410 3,534,643 3,551,566 3,530,236 ============ ============ ============ ============ Dividends per common share $ 0.25 $ 0.20 $ 0.25 $ 0.20 ============ ============ ============ ============ See Notes to Consolidated Financial Statements 5

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Shareholders' Equity (unaudited) Accumulated Other Total Compre- Share- Preferred Common Capital Retained Treasury hensive holders' Stock Stock Surplus Earnings Stock Income Equity Balance, December 31, 2003 $ - $ 8,917,400 $ 3,845,906 $ 43,427,000 $ (627,659) $ 1,624,896 $ 57,187,543 Six Months Ended June 30, 2004 Comprehensive income: Net income - - - 5,125,244 - - 5,125,244 Other comprehensive income, net of deferred tax benefit of ($2,236,269): Net unrealized (loss) on securities of ($3,659,271), net of reclassification adjustment for gains included in net income of $10,622 - - - - - (3,648,649) (3,648,649) ------------ Total comprehensive income 1,476,595 ------------ Exercise of stock options - 5,125 25,209 - - - 30,334 Issuance of preferred shares 33,400 - 1,125,071 - - - 1,158,471 Cash dividends declared ($.25 per share) - - - (877,754) - - (877,754) -------- ----------- ----------- ------------ ---------- ----------- ------------ Balance, June 30, 2004 $ 33,400 $ 8,922,525 $ 4,996,186 $ 47,674,490 $ (627,659) $ (2,023,753) $ 58,975,189 ======== =========== =========== ============ ========== ============ ============ Balance, December 31, 2002 $ - $ 8,904,150 $ 3,805,891 $ 36,726,583 $ (619,711) $ 3,262,883 $ 52,079,796 Six Months Ended June 30, 2003 Comprehensive income: Net income - - - 3,872,421 - - 3,872,421 Other comprehensive income, net of deferred taxes of $378,431: Net unrealized gain on securities of $683,414, net of reclassification adjustment for gains included in net income of $65,974 - - - - - 617,440 617,440 ------------ Total comprehensive income 4,489,861 ------------ Exercise of stock options - 2,750 9,015 - - - 11,765 Purchase of treasury shares - - - - (7,948) - (7,948) Cash dividends declared ($.20 per share) - - - (700,863) - - (700,863) -------- ----------- ----------- ------------ ---------- ------------ ------------ Balance, June 30, 2003 $ - $ 8,906,900 $ 3,814,906 $ 39,898,141 $ (627,659) $ 3,880,323 $ 55,872,611 ======== =========== =========== ============ ========== ============ ============ See Notes to Consolidated Financial Statements 6

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows (unaudited) Six Months Ended ------------------------------ June 30, June 30, 2004 2003 ------------- ------------- Cash Flows from Operating Activities Net income $ 5,125,244 $ 3,872,421 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 709,921 506,993 Provision for loan losses 465,000 450,000 Deferred income tax (benefit) (344,550) (132,600) Loans originated for sale (118,974,272) (18,648,775) Proceeds from loans sold 109,719,649 13,982,500 Securities (gains) (37,060) (106,410) Loss on disposal of other assets 12,181 1,640 Amortization of securities premiums, net 417,177 750,316 Amortization of goodwill and purchase accounting adjustments, net 92,166 84,756 Increase in accrued interest receivable 185,294 348,311 (Increase) in other assets (876,689) (488,072) Increase (decrease) in other liabilities 629,321 (53,995) ------------- ------------- Net cash provided by (used in) operating activities (2,876,618) 567,085 ------------- ------------- Cash Flows from Investing Activities Net (increase) in interest bearing deposits with other banks (126,485) (1,626,911) Proceeds from maturities and calls of securities available for sale 14,732,885 16,582,000 Proceeds from sales of securities available for sale 37,642,019 6,485,830 Principal payments received on securities available for sale 22,408,545 51,084,775 Purchases of securities available for sale (59,189,844) (78,768,670) Net decrease in Federal funds sold 244,000 3,390,135 Net loans made to customers (62,022,637) (37,533,960) Purchases of premises and equipment (2,997,647) (1,582,649) Proceeds from sales of other assets 34,200 1,206,784 Net cash paid in acquisition of Sager Insurance Agency (850,000) - ------------- ------------- Net cash provided by (used in) investing activities (50,124,964) (40,762,666) ------------- ------------- Cash Flows from Financing Activities Net increase (decrease) in demand deposit, NOW and savings accounts 18,246,500 (1,102,853) Net increase in time deposits 6,541,137 15,772,827 Net increase in short-term borrowings 21,635,777 4,029,084 Proceeds from long-term borrowings 13,660,000 22,750,000 Repayment of long-term borrowings (12,068,075) (930,260) Exercise of stock options 30,334 11,765 Dividends paid (877,754) (700,863) Purchase of treasury stock - (7,948) Net proceeds from issuance of trust preferred securities 7,406,250 - Net proceeds from issuance of preferred stock 1,158,471 - ------------- ------------- Net cash provided by financing activities 55,732,640 39,821,752 ------------- ------------- Increase (decrease) in cash and due from banks 2,731,058 (373,829) Cash and due from banks: Beginning 14,412,120 11,470,311 ------------- ------------- Ending $ 17,143,178 $ 11,096,482 ============= ============= (Continued) See Notes to Consolidated Financial Statements 7

Summit Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (unaudited) Note 1. Basis of Presentation 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 affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. The results of operations for the six months ended June 30, 2004 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 2003 audited financial statements and Annual Report on Form 10-K. Certain accounts in the consolidated financial statements for December 31, 2003 and June 30, 2003, as previously presented, have been reclassified to conform to current year classifications. Note 2. Significant New Accounting Pronouncements Variable interest entities: In December 2003 the Financial Accounting Standards Board (FASB) issued revised Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46-R"). In accordance with FIN 46-R, business enterprises that represent the primary beneficiary of another entity by retaining a controlling interest in that entity's assets, liabilities and results of operations must consolidate that entity in its financial statements. Prior to the issuance of FIN 46-R, consolidation generally occurred when an enterprise controlled another entity through voting interests. If applicable, transition rules allow the restatement of financial statements or prospective application with a cumulative effect adjustment. We have determined that the provisions of FIN 46-R require deconsolidation of subsidiary trusts which issued guaranteed preferred beneficial interests in subordinated debentures (Trust Preferred Securities). Prior to the adoption of FIN 46-R, we consolidated the trust and the balance sheet included the guaranteed beneficial interests in the subordinated debentures of the trust. Upon adoption of FIN 46-R at December 31, 2003, the trust has been deconsolidated and the junior subordinated debentures of the Company owned by the trust are being disclosed. The Trust Preferred Securities continue to qualify as Tier 1 capital for regulatory purposes. The banking regulatory agencies have not issued any guidance which would change the regulatory capital treatment for the Trust Preferred Securities based on the adoption of FIN 46-R. The adoption of the provisions of FIN 46-R has had no material impact on our results of operations, financial condition, or liquidity. See Note 9 of our Notes to Consolidated Financial Statements for a discussion of our subordinated debentures. Loan commitments: During 2003, we adopted the provisions of Statement of Financial Accounting Standards No. 149 ("SFAS 149"), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability. The adoption of SFAS 149 did not have a material impact on our results of operations, financial position, or liquidity. 9

Note 3. Earnings per Share The computations of basic and diluted earnings per share follow: Three Months Ended June 30, Six Months Ended June 30, ---------------------------- -------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Numerator: Net Income $2,674,063 $2,008,434 $5,125,244 $3,872,421 ========== ========== ========== ========== Denominator: Denominator for basic earnings per share - weighted average common shares outstanding 3,510,784 3,504,358 3,510,423 3,504,145 Effect of dilutive securities: Convertible preferred stock 18,658 - 9,329 - Stock options 33,968 30,285 31,814 26,091 ---------- ---------- ---------- ---------- 52,626 30,285 41,143 26,091 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - weighted average common shares outstanding and assumed conversions 3,563,410 3,534,643 3,551,566 3,530,236 ========== ========== ========== ========== Basic earnings per share $ 0.76 $ 0.57 $ 1.46 $ 1.11 ========== ========== ========== ========== Diluted earnings per share $ 0.75 $ 0.57 $ 1.44 $ 1.10 ========== ========== ========== ========== 10

Note 4. Securities The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at June 30, 2004 and December 31, 2003, and June 30, 2003 are summarized as follows: June 30, 2004 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 21,814,444 $ 252,473 $ 219,910 $ 21,847,007 Mortgage-backed securities 124,756,909 375,830 3,273,114 121,859,625 State and political subdivisions 3,747,075 13,645 - 3,760,720 Corporate debt securities 6,656,207 286,057 - 6,942,264 Federal Reserve Bank stock 496,000 - - 496,000 Federal Home Loan Bank stock 11,869,100 - - 11,869,100 Other equity securities 175,535 - - 175,535 ------------ ------------ ------------ ------------ Total taxable 169,515,270 928,005 3,493,024 166,950,251 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 39,850,767 766,779 370,469 40,247,077 Federal Reserve Bank stock 8,400 - - 8,400 Other equity securities 7,500,240 - 1,062,379 6,437,861 ------------ ------------ ------------ ------------ Total tax-exempt 47,359,407 766,779 1,432,848 46,693,338 ------------ ------------ ------------ ------------ Total $216,874,677 $ 1,694,784 $ 4,925,872 $213,643,589 ============ ============ ============ ============ 11

December 31, 2003 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 21,323,741 $ 556,785 $ 37,831 $ 21,842,695 Mortgage-backed securities 132,030,288 959,890 532,445 132,457,733 State and political subdivisions 4,008,910 24,685 - 4,033,595 Corporate debt securities 16,516,090 774,306 - 17,290,396 Federal Reserve Bank stock 436,000 - - 436,000 Federal Home Loan Bank stock 10,319,400 - - 10,319,400 Other equity securities 175,535 - - 175,535 ------------ ------------ ------------ ------------ Total taxable 184,809,964 2,315,666 570,276 186,555,354 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 40,510,819 1,448,023 31,757 41,927,085 Federal Reserve Bank stock 8,400 - - 8,400 Other equity securities 7,519,216 - 600,827 6,918,389 ------------ ------------ ------------ ------------ Total tax-exempt 48,038,435 1,448,023 632,584 48,853,874 ------------ ------------ ------------ ------------ Total $232,848,399 $ 3,763,689 $ 1,202,860 $235,409,228 ============ ============ ============ ============ June 30, 2003 --------------------------------------------------------- Amortized Unrealized Estimated --------------------------- Cost Gains Losses Fair Value ------------ ------------ ------------ ------------ Available for Sale Taxable: U. S. Government agencies and corporations $ 26,211,258 $ 1,043,063 $ - $ 27,254,321 Mortgage-backed securities 105,027,864 2,096,591 123,853 107,000,602 State and political subdivisions 5,116,149 47,823 1,042 5,162,930 Corporate debt securities 23,431,639 1,433,697 - 24,865,336 Federal Reserve Bank stock 436,000 - - 436,000 Federal Home Loan Bank stock 9,116,200 - - 9,116,200 Other equity securities 175,535 - - 175,535 ------------ ------------ ------------ ------------ Total taxable 169,514,645 4,621,174 124,895 174,010,924 ------------ ------------ ------------ ------------ Tax-exempt: State and political subdivisions 34,346,137 2,085,896 10,229 36,421,804 Federal Reserve Bank stock 8,400 - - 8,400 Other equity securities 7,537,889 - 441,116 7,096,773 ------------ ------------ ------------ ------------ Total tax-exempt 41,892,426 2,085,896 451,345 43,526,977 ------------ ------------ ------------ ------------ Total $211,407,071 $ 6,707,070 $ 576,240 $217,537,901 ============ ============ ============ ============ 12

The maturities, amortized cost and estimated fair values of securities at June 30, 2004, are summarized as follows: Available for Sale ---------------------------------- Amortized Estimated Cost Fair Value ------------ ------------ Due in one year or less $ 46,678,699 $ 46,218,578 Due from one to five years 90,897,284 89,308,653 Due from five to ten years 30,567,823 30,416,603 Due after ten years 28,681,596 28,712,859 Equity securities 20,049,275 18,986,896 ------------ ------------ $216,874,677 $213,643,589 ============ ============ Note 5. Loans Loans are summarized as follows: June 30, December 31, June 30, 2004 2003 2003 ------------ ------------ ------------ Commerical $ 49,294,033 $ 46,860,481 $ 44,994,867 Commercial real estate 250,562,417 209,391,036 186,864,101 Real estate - construction 2,665,044 2,368,552 4,137,294 Real estate - mortgage 212,370,641 196,134,926 173,782,163 Consumer 41,787,194 41,112,132 39,969,894 Other 9,315,822 8,223,033 6,101,005 ------------ ------------ ------------ Total loans 565,995,151 504,090,160 455,849,324 Less unearned fees and interest 1,173,214 1,069,324 882,327 ------------ ------------ ------------ Total loans net of unearned fees and interest 564,821,937 503,020,836 454,966,997 Less allowance for loan losses 4,952,631 4,680,625 4,297,524 ------------ ------------ ------------ Loans, net $559,869,306 $498,340,211 $450,669,473 ============ ============ ============ Note 6. Allowance for Loan Losses An analysis of the allowance for loan losses for the six month periods ended June 30, 2004 and 2003, and for the year ended December 31, 2003 is as follows: 13

Six Months Ended Year Ended June 30, December 31, -------------------------- 2004 2003 2003 ---------- ---------- ---------- Balance, beginning of period $4,680,625 $4,052,949 $4,053,131 Losses: Commercial 136,765 - 1,308 Commercial real estate 6,862 96,640 96,640 Real estate - mortgage - 33,653 59,952 Consumer 76,396 121,950 178,305 Other 111,971 18,850 72,539 ---------- ---------- ---------- Total 331,994 271,093 408,744 ---------- ---------- ---------- Recoveries: Commercial 18,314 1,300 1,805 Commercial real estate 15,301 - 2,602 Real estate - mortgage 9,413 300 413 Consumer 59,927 48,391 78,515 Other 36,045 15,677 37,903 ---------- ---------- ---------- Total 139,000 65,668 121,238 ---------- ---------- ---------- Net losses 192,994 205,425 287,506 Provision for loan losses 465,000 450,000 915,000 ---------- ---------- ---------- Balance, end of period $4,952,631 $4,297,524 $4,680,625 ========== ========== ========== Note 7. Goodwill and Other Intangible Assets The following tables present our goodwill at June 30, 2004 and other intangible assets at June 30, 2004, December 31, 2003, and June 30, 2003. There was no goodwill activity during 2003. Goodwill Activity by Operating Segment --------------------------------------------------- Community Mortgage Parent and Banking Banking Other Total --------------------------------------------------- Balance, January 1, 2004 $ 1,488,030 $ - $ - $ 1,488,030 Acquired goodwill, net - - 600,000 600,000 --------------------------------------------------- Balance, June 30, 2004 $ 1,488,030 $ - $ 600,000 $ 2,088,030 =================================================== Unidentifiable Intangible Assets --------------------------------------------- June 30, December 31, June 30, 2004 2003 2003 --------------------------------------------- Unidentifiable intangible assets Gross carrying amount $ 2,267,323 $ 2,267,323 $ 2,267,323 Less: accumulated amortization 780,952 705,377 629,801 --------------------------------------------- Net carrying amount $ 1,486,371 $ 1,561,946 $ 1,637,522 ============================================ 14

We recorded amortization expense of approximately $76,000 for the six months ended June 30, 2004 relative to our unidentifiable intangible assets. Annual amortization is expected to be approximately $151,000 for each of the years ending 2004 through 2008. Note 8. Deposits The following is a summary of interest bearing deposits by type as of June 30, 2004 and 2003 and December 31, 2003: June 30, December 31, June 30, 2004 2003 2003 ------------ ------------ ------------ Interest bearing demand deposits $122,414,880 $112,670,844 $ 96,258,376 Savings deposits 51,378,404 47,397,004 48,514,903 Certificates of deposit 281,125,705 274,543,713 255,787,202 Individual retirement accounts 26,144,600 26,185,456 25,773,976 ------------ ------------ ------------ Total $481,063,589 $460,797,017 $426,334,457 ============ ============ ============ The following is a summary of the maturity distribution of certificates of deposit and Individual Retirement Accounts in denominations of $100,000 or more as of June 30, 2004: Amount Percent ------------- ------- Three months or less $ 18,812,174 16.6% Three through six months 23,293,995 20.6% Six through twelve months 30,782,579 27.2% Over twelve months 40,424,230 35.6% ------------- ------ Total $ 113,312,978 100.0% ============= ====== A summary of the scheduled maturities for all time deposits as of June 30, 2004 is as follows: Six month period ending December 31, 2004 $ 122,577,391 Year Ending December 31, 2005 124,743,972 Year Ending December 31, 2006 23,501,334 Year Ending December 31, 2007 15,822,237 Year Ending December 31, 2008 14,232,628 Thereafter 6,392,743 ------------- $ 307,270,305 ============= 15

Note 9. Borrowed Funds Short-term borrowings: A summary of short-term borrowings is presented below: Six Months Ended June 30, 2004 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ------------- ------------ ------------- Balance at June 30 $ 1,173,000 $ 7,624,423 $ 62,552,600 Average balance outstanding for the period 1,216,539 9,621,707 47,452,738 Maximum balance outstanding at any month end during period 1,173,000 10,524,126 62,552,600 Weighted average interest rate for the period 1.91% 1.52% 1.22% Weighted average interest rate for balances outstanding at June 30 1.82% 1.30% 1.60% Year Ended December 31, 2003 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ------------- ------------ ------------- Balance at December 31 $ - $ 10,429,146 $ 39,285,100 Average balance outstanding for the year 1,191,013 8,419,384 22,177,797 Maximum balance outstanding at any month end during year 6,851,000 10,429,146 39,285,100 Weighted average interest rate for the year 2.37% 1.55% 1.27% Weighted average interest rate for balances outstanding at December 31 - 1.59% 1.07% 16

Six Months Ended June 30, 2003 ---------------------------------------------- Federal Funds Federal Purchased Home and Loan Bank Lines of Repurchase Short-term Credit Agreements Advances ------------- ------------ ------------- Balance at June 30 $ 1,923,000 $ 8,092,587 $ 14,204,600 Average balance outstanding for the period 656,243 8,330,355 14,515,676 Maximum balance outstanding at any month end during period 4,165,000 8,979,955 20,164,600 Weighted average interest rate for the period 2.37% 1.54% 1.39% Weighted average interest rate for balances outstanding at June 30 2.77% 1.59% 1.34% Long-term borrowings: Our long-term borrowings of $164,906,662, $164,646,208 and $155,759,505 at June 30, 2004, December 31, 2003, and June 30, 2003 respectively, consisted primarily of advances from the Federal Home Loan Bank ("FHLB"). These borrowings bear both fixed and variable rates and mature in varying amounts through the year 2016. The average interest rate paid on long-term borrowings for the six month period ended June 30, 2004 was 4.02% compared to 4.88% for the first six months of 2003. Subordinated Debentures: We have two statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the "capital securities") for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the "debentures"). The debentures held by the trusts are their sole assets. Our subordinated debentures totaled $11,341,000 at June 30, 2004, and $3,609,000 at both December 31, 2003 and June 30, 2003. In October 2002, we sponsored SFG Capital Trust I, and in March 2004, we sponsored SFG Capital Trust II, of which 100% of the common equity of both trusts is owned by us. SFG Capital Trust I issued $3,500,000 in capital securities and $109,000 in common securities and invested the proceeds in $3,609,000 of debentures. SFG Capital Trust II issued $7,500,000 in capital securities and $232,000 in common securities and invested the proceeds in $7,732,000 of debentures. Distributions on the capital securities issued by the trusts are payable quarterly at a variable interest rate equal to 3 month LIBOR plus 345 basis points for SFG Capital Trust I and 3 month LIBOR plus 280 basis points for SFG Capital Trust II, and equals the interest rate earned on the debentures held by the trusts, and is recorded as interest expense by us. The capital securities are subject to mandatory redemption in whole or in part, upon repayment of the debentures. We have entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of the guarantee. The debentures of SFG Capital Trust I and SFG Capital Trust II are first redeemable by us in November 2007 and March 2009, respectively. In fourth quarter 2003, as a result of applying the provisions of FIN 46-R, which governs when an equity interest should be consolidated, we were required to deconsolidate SFG Capital Trust I from our financial statements. The deconsolidation of the net assets and results of operations of the trust had virtually no impact on our financial statements or liquidity position, since we continue to be obligated to repay the debentures held by the trust and guarantee repayment of the capital securities issued by the trust. The consolidated debt obligation related to the trust increased from $3,500,000 to $3,609,000 upon deconsolidation with the difference representing our common ownership interest in the trust. The accompanying financial statements reflect the deconsolidation for all periods presented. 17

The capital securities held by SFG Capital Trust I and SFG Capital Trust II qualify as Tier 1 capital under Federal Reserve Board guidelines. As a result of the issuance of FIN 46-R, the Federal Reserve Board is currently evaluating whether deconsolidation of the trust will affect the qualification of the capital securities as Tier 1 capital. A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows: Year Ending December 31, Amount ------------- ------------- 2004 $ 14,250,950 2005 28,575,742 2006 11,442,214 2007 12,054,208 2008 14,344,851 Thereafter 95,579,697 ------------- $ 176,247,662 ============= Note 10. 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. The following pro forma disclosures present for the quarters ended and six months ended June 30, 2004 and 2003, 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). 18

Quarter Ended June 30, Six Months Ended June 30, ---------------------- ------------------------- (in thousands, except per share data) 2004 2003 2004 2003 -------- -------- ---------- ---------- Net income: As reported $ 2,674 $ 2,008 $ 5,125 $ 3,872 Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (23) (9) (57) (19) -------- -------- -------- --------- Pro forma $ 2,651 $ 1,999 $ 5,068 $ 3,853 ======== ======== ======== ========= Basic earnings per share: As reported $ 0.76 $ 0.57 $ 1.46 $ 1.11 ======== ======== ======== ========= Pro forma $ 0.76 $ 0.57 $ 1.44 $ 1.10 ======== ======== ======== ========= Diluted earnings per share: As reported $ 0.75 $ 0.57 $ 1.44 $ 1.10 ======== ======== ======== ========= Pro forma $ 0.74 $ 0.57 $ 1.43 $ 1.09 ======== ======== ======== ========= 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 using the following weighted-average assumptions for grants during the first six months of 2004: risk free interest rate of 2.96%; dividend yield of 1.21%; volatility factor of the expected market price of our common stock of 22; and an expected option life of 5 years. The weighted-average grant date fair value of the options granted was $7.68. There were no option grants during the first six months 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. Note 11 . Issuance of Preferred Stock On April 23, 2004, the Board of Directors approved an amendment to our Articles of Incorporation establishing the Rockingham National Bank Series Convertible Preferred Stock ("Preferred Stock") and authorizing up to 40,000 shares of its issuance. On May 17, 2004, we completed the sale of 33,400 shares of Preferred Stock in a private placement. The Preferred Stock was sold to potential investors that we believed would be beneficial to the development and support of the Rockingham National Bank, a division of Summit's subsidiary, Shenandoah Valley National Bank, and to the outside directors of Shenandoah Valley National Bank. The offering price for each share of the Preferred Stock was the mean of the closing prices of Summit's common stock reported on the last five (5) business days on which the stock traded prior to and inclusive of May 10, 2004, which was $35.28 per share, and aggregate offering proceeds were $1,158,471, net of related issuance costs. The shares of Preferred Stock will convert automatically into a maximum of 41,750 shares of our common stock on May 15, 2005 based on the total loans and deposits of the Rockingham National Bank division of Shenandoah Valley National Bank on that date. 19

Note 12. 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 June 30, 2004, 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. 20

(Dollars in thousands) To be Well Capitalized Minimum Required under Prompt Corrective Actual Regulatory Capital Action Provisions ------------------- -------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio ------- ----- -------- ------ -------- ------ As of June 30, 2004 Total Capital (to risk weighted assets) Summit $ 72,652 11.9% $ 48,864 8.0% $ 61,080 10.0% Summit Community 29,509 10.8% 21,836 8.0% 27,295 10.0% Capital State 13,790 10.5% 10,504 8.0% 13,130 10.0% Shenandoah 20,077 10.2% 15,814 8.0% 19,767 10.0% Tier I Capital (to risk weighted assets) Summit 67,700 11.1% 24,432 4.0% 36,648 6.0% Summit Community 27,124 9.9% 10,918 4.0% 16,377 6.0% Capital State 12,604 9.6% 5,252 4.0% 7,878 6.0% Shenandoah 18,696 9.5% 7,907 4.0% 11,860 6.0% Tier I Capital (to average assets) Summit 67,700 8.2% 24,815 3.0% 41,358 5.0% Summit Community 27,124 6.9% 11,756 3.0% 19,593 5.0% Capital State 12,604 7.0% 5,369 3.0% 8,949 5.0% Shenandoah 18,696 7.6% 7,378 3.0% 12,296 5.0% As of December 31, 2003 Total Capital (to risk weighted assets) Summit $ 60,092 11.0% 43,678 8.0% 54,598 10.0% Summit Community 28,449 10.9% 20,791 8.0% 25,989 10.0% Capital State 12,843 10.7% 9,621 8.0% 12,026 10.0% Shenandoah 16,650 10.4% 12,780 8.0% 15,975 10.0% Tier I Capital (to risk weighted assets) Summit 55,411 10.1% 21,839 4.0% 32,759 6.0% Summit Community 26,032 10.0% 10,396 4.0% 15,593 6.0% Capital State 11,830 9.8% 4,810 4.0% 7,216 6.0% Shenandoah 15,399 9.6% 6,390 4.0% 9,585 6.0% Tier I Capital (to average assets) Summit 55,411 7.3% 22,692 3.0% 37,820 5.0% Summit Community 26,032 7.0% 11,184 3.0% 18,639 5.0% Capital State 11,830 7.0% 5,064 3.0% 8,440 5.0% Shenandoah 15,399 7.1% 6,472 3.0% 10,786 5.0% Note 13. Segment Information We operate two business segments: community banking and mortgage banking. These segments are primarily identified by the products or services offered and the channels through which they are offered. The community banking segment consists of our full service banks which offer customers traditional banking products and services through various delivery channels. The mortgage banking segment consists of our mortgage origination facilities that originate and sell mortgage products. Information for each of our segments is included below: 21

For the Quarter Ended June 30, 2004 ------------------------------------------------------------- Community Mortgage Parent and Dollars in thousands Banking Banking Other Eliminations Total - --------------------------------------------------------------------------------------------------------- Condensed Statements of Income Interest income $ 10,941 $ 301 $ 3 $ (153) $ 11,092 Interest expense 4,185 153 109 (153) 4,294 -------- -------- -------- -------- -------- Net interest income 6,756 148 (106) - 6,798 Provision for loan losses 233 - - - 233 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 6,523 148 (106) - 6,565 -------- -------- -------- -------- -------- Noninterest income 743 6,614 995 (920) 7,432 Noninterest expense 3,824 5,953 1,311 (920) 10,168 -------- -------- -------- -------- -------- Income before income taxes 3,442 809 (422) - 3,829 Income taxes 1,050 277 (172) - 1,155 -------- -------- -------- -------- -------- Net income $ 2,392 $ 532 $ (250) $ - $ 2,674 ======== ======== ======== ======== ======== Average assets $804,831 $ 16,512 $ 73,221 $(63,837) $830,727 ======== ======== ======== ======== ======== For the Quarter Ended June 30, 2003 -------------------------------------------------------------- Community Mortgage Parent and Dollars in thousands Banking Banking Other Eliminations Total - --------------------------------------------------------------------------------------------------------- Condensed Statements of Income Interest income $ 10,170 $ - $ 2 $ (3) $ 10,169 Interest expense 4,418 - 53 (3) 4,468 -------- -------- -------- ------- -------- Net interest income 5,752 - (51) - 5,701 Provision for loan losses 233 - - - 233 -------- -------- ------- ------- -------- Net interest income after provision for loan losses 5,519 - (51) - 5,468 -------- -------- ------- ------- -------- Noninterest income 613 184 818 (818) 797 Noninterest expense 3,252 85 920 (818) 3,439 -------- -------- -------- ------- -------- Income before income taxes 2,880 99 (153) - 2,826 Income taxes 849 34 (65) - 818 -------- -------- ------- -------- -------- Net income $ 2,031 $ 65 $ (88) $ - $ 2,008 ======== ======== ======== ======== ======== Average assets $706,915 $ 3,672 $ 59,046 $(55,429) $714,204 ======== ======== ======== ======== ======== 22

For the Six Months Ended June 30, 2004 -------------------------------------------------------------- Community Mortgage Parent and Dollars in thousands Banking Banking Other Eliminations Total - ----------------------------------------------------------------------------------------------------------- Condensed Statements of Income Interest income $ 21,696 $ 508 $ 6 $ (246) $ 21,964 Interest expense 8,355 242 214 (246) 8,565 -------- -------- -------- -------- -------- Net interest income 13,341 266 (208) - 13,399 Provision for loan losses 465 - - - 465 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 12,876 266 (208) - 12,934 -------- -------- -------- -------- -------- Noninterest income 1,366 10,932 1,885 (1,809) 12,374 Noninterest expense 7,418 10,015 2,383 (1,809) 18,007 -------- -------- -------- -------- -------- Income before income taxes 6,824 1,183 (706) - 7,301 Income taxes 2,049 407 (280) - 2,176 -------- -------- -------- -------- -------- Net income $ 4,775 $ 776 $ (426) $ - $ 5,125 ======== ======== ======== ======== ======== Average assets $792,605 $ 12,946 $ 71,112 $(62,591) $814,072 ======== ======== ======== ======== ======== For the Six Months Ended June 30, 2003 -------------------------------------------------------------- Community Mortgage Parent and Dollars in thousands Banking Banking Other Eliminations Total - ----------------------------------------------------------------------------------------------------------- Condensed Statements of Income Interest income $ 20,304 $ - $ 4 $ (8) $ 20,300 Interest expense 8,833 - 106 (8) 8,931 -------- -------- -------- -------- -------- Net interest income 11,471 - (102) - 11,369 Provision for loan losses 450 - - - 450 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 11,021 - (102) - 10,919 -------- -------- -------- -------- -------- Noninterest income 1,067 323 1,600 (1,620) 1,370 Noninterest expense 6,420 168 1,812 (1,620) 6,780 -------- -------- -------- -------- -------- Income before income taxes 5,668 155 (314) - 5,509 Income taxes 1,702 53 (118) - 1,637 -------- -------- -------- -------- -------- Net income $ 3,966 $ 102 $ (196) $ - $ 3,872 ======== ======== ======== ======== ======== Average assets $693,888 $ 3,030 $ 57,691 $(54,416) $700,193 ======== ======== ======== ======== ======== 23

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"),Shenandoah Valley National Bank ("Shenandoah"), Summit Financial, LLC ("SFLLC"), and Summit Insurance Services, LLC for the periods indicated. This discussion and analysis should be read in conjunction with our 2003 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. OVERVIEW Our primary source of income is net interest income from loans and deposits. Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace. Strong growth in our interest earning assets resulted in an increase of 17.84%, or $2,128,000, in our net interest earnings on a tax equivalent basis for the first six months in 2004 compared to the same period of 2003. Further, our mortgage banking segment, SFLLC, which began operations during third quarter 2003, contributed $776,000 to our first six months 2004 earnings. During the first quarter of 2004, we acquired an insurance agency located in Moorefield, West Virginia. This acquisition had no material impact on our results of operations, financial condition, or liquidity. 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 2003 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. 24

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 2003 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 2003 Annual Report on Form 10-K. 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 2004. We cannot assure you that future goodwill impairment tests will not result in a charge to earnings. See Notes 1 and 7 of the consolidated financial statements of our Annual Report on Form 10-K for further discussion of our intangible assets, which include goodwill. BUSINESS SEGMENT RESULTS We are organized and managed along two major business segments, as described in Note 13 of the accompanying consolidated financial statements. The results of each business segment are intended to reflect each segment as if it were a stand alone business. Net income by segment follows: For the Quarter Ended For the Six Months Ended June 30, June 30, ---------------------- ------------------------ in thousands 2004 2003 2004 2003 - -------------------------------------------------- ------------------------ Community Banking $ 2,392 $ 2,031 $ 4,775 $ 3,966 Mortgage Banking 532 65 776 102 Parent and Other (250) (88) (426) (196) ---------------------- ------------------------ Consolidated net income $ 2,674 $ 2,008 $ 5,125 $ 3,872 ====================== ======================== 25

RESULTS OF OPERATIONS Earnings Summary Net income for the quarter ended June 30, 2004 grew 33.17% to $2,674,000, or $0.75 per diluted share as compared to $2,008,000, or $0.57 per diluted share for the quarter ended June 30, 2003. Returns on average equity and assets for the first six months of 2004 were 17.31% and 1.26%, respectively, compared with 14.42% and 1.11% for the same period of 2003. 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 $14,053,000 for the six months period ended June 30, 2004 compared to $11,925,000 for the same period of 2003, representing an increase of $2,128,000 or 17.84%. This increase resulted from growth in interest earning assets, primarily loans, which served to more than offset the 42 basis points decline in the yield on interest earning assets during the same period. Average interest earning assets grew 16.1% from $662,218,000 during the first six months of 2003 to $768,693,000 for the first six months of 2004. Average interest bearing liabilities grew 17.0% from $596,690,000 at June 30, 2003 to $698,333,000 at June 30, 2004, at an average yield for the first six months of 2004 of 2.45% compared to 2.99% for the same period of 2003. Our net yield on interest earning assets increased to 3.66% for the six month period ended June 30, 2004, compared to 3.60% for the same period in 2003. The yields on taxable loans declined 68 basis points during the period ended June 30, 2004, and during the same period, our cost of interest bearing funds also decreased by 54 basis points. 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. 26

Table I - Average Balance Sheet and Net Interest Income Analysis (Dollars in thousands) For the Six Months Ended ---------------------------------------------------------------- June 30, 2004 June 30, 2003 ------------------------------- ----------------------------- Average Earnings/ Yield/ Average Earnings/ Yield/ Balance Expense Rate Balance Expense Rate --------- --------- ------ --------- --------- ------ Interest earning assets Loans, net of unearned income Taxable $ 539,338 $ 16,852 6.25% $ 433,533 $ 15,030 6.93% Tax-exempt (1) 8,202 313 7.63% 5,973 245 8.20% Securities Taxable 169,208 3,738 4.42% 176,437 4,061 4.60% Tax-exempt (1) 48,454 1,651 6.81% 40,262 1,429 7.10% Federal funds sold and interest bearing deposits with other banks 3,491 64 3.67% 6,013 91 3.03% --------- -------- ---- --------- -------- ---- Total interest earning assets 768,693 22,618 5.88% 662,218 20,856 6.30% -------- ---- -------- ---- Noninterest earning assets Cash & due from banks 12,005 8,565 Premises and equipment 19,432 12,585 Other assets 18,752 20,988 Allowance for loan losses (4,810) (4,163) --------- --------- Total assets $ 814,072 $ 700,193 ========= ========= Interest bearing liabilities Interest bearing demand deposits $ 117,539 $ 531 0.90% $ 97,793 $ 427 0.87% Savings deposits 48,390 111 0.46% 46,465 145 0.62% Time deposits 305,785 4,162 2.72% 277,417 4,570 3.29% Short-term borrowings 58,283 375 1.29% 21,922 173 1.58% Long-term borrowings and capital trust securities 168,336 3,386 4.02% 153,093 3,616 4.72% --------- -------- ---- --------- -------- ---- Total interest bearing liabilities 698,333 8,565 2.45% 596,690 8,931 2.99% -------- ---- -------- ---- Noninterest bearing liabilities and shareholders' equity Demand deposits 51,059 44,581 Other liabilities 5,461 5,201 Shareholders' equity 59,219 53,721 --------- --------- Total liabilities and shareholders' equity $ 814,072 $ 700,193 ========= ========= Net interest earnings $ 14,053 $ 11,925 ======== ======== Net yield on interest earning assets 3.66% 3.60% ==== ==== (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 $663,000 and$556,000 for the periods ended June 30, 2004 and 2003, respectively. 27

Table II - Changes in Interest Margin Attributable to Rate and Volume (Dollars in thousands) For the Six Months Ended June 30, 2004 versus June 30, 2003 ---------------------------------- Increase (Decrease) Due to Change in: --------------------------------- Volume Rate Net ------- -------- ------- Interest earned on: Loans Taxable $ 3,410 $(1,588) $ 1,822 Tax-exempt 86 (18) 68 Securities Taxable (163) (160) (323) Tax-exempt 281 (59) 222 Federal funds sold and interest bearing deposits with other banks (43) 16 (27) ------- ------- ------- Total interest earned on interest earning assets 3,571 (1,809) 1,762 ------- ------- ------- Interest paid on: Interest bearing demand deposits 89 15 104 Savings deposits 6 (40) (34) Time deposits 437 (845) (408) Short-term borrowings 239 (37) 202 Long-term borrowings and capital trust securities 339 (569) (230) ------- ------- ------- Total interest paid on interest bearing liabilities 1,110 (1,476) (366) ------- ------- ------- Net interest income $ 2,461 $ (333) $ 2,128 ======= ======= ======= 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 $465,000 provision for loan losses for the first six months of 2004, compared to $450,000 for the same period in 2003. Net loan charge offs for the first six months of 2004 were $193,000, as compared to $205,000 over the same period of 2003. At June 30, 2004, the allowance for loan losses totaled $4,953,000 or 0.88% of loans, net of unearned income, compared to $4,681,000 or 0.93% of loans, net of unearned income at December 31, 2003. 28

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) June 30, December 31, ------------------ 2004 2003 2003 ------ ------ ------ Accruing loans past due 90 days or more $ 593 $ 672 $ 342 Nonperforming assets: Nonaccrual loans 984 384 1,014 Nonaccrual securities 384 405 396 Foreclosed properties 475 546 497 Repossessed assets 7 17 - ------ ------ ------ Total $2,443 $2,024 $2,249 ====== ====== ====== Total nonperforming loans as a percentage of total loans 0.37% 0.36% 0.27% ====== ====== ====== Total nonperforming assets as a percentage of total assets 0.29% 0.28% 0.28% ====== ====== ====== Noninterest Income On the strength of mortgage origination revenue, total noninterest income increased to $7,432,000 in the second quarter of 2004, compared to $797,000 in the same period of 2003. Mortgage origination revenue grew to $6,614,000 for the second quarter of 2004, compared to $184,000 for the same period of 2003. This increase was due to the organization of SFLLC during the third quarter of 2003. This revenue includes mortgage loan origination and sales activity conducted through SFLLC. Refer to Note 13 of the accompanying consolidated financial statements for our segment information. Total noninterest income was $12,374,000 for the first six months of 2004, compared to $1,370,000 in the same period of 2003. Mortgage origination revenue was $10,933,000 for the first six months of 2004, compared to $323,000 for the same period of 2003. Noninterest Expense Total noninterest expense increased approximately $11,227,000, or 165.6% to $18,007,000 during the first six months of 2004 as compared to the same period in 2003. The primary factor contributing to growth in noninterest expense was an increase in salaries and employee benefits expense due to the staffing requirements of SFLLC. Two other major contributors to the increase in total noninterest expense for the quarter ended June 30, 2004 were advertising and postage expense. These increased expenses resulted from SFLLC's direct mail program utilized to obtain customers. Refer to Note 13 of the accompanying consolidated financial statements for our segment information. 29

FINANCIAL CONDITION Our total assets were $849,555,000 at June 30, 2004, compared to $791,465,000 at December 31, 2003, representing a 7.3% increase. Table IV below serves to illustrate significant changes in our financial position between December 31, 2003 and June 30, 2004. Table IV - Summary of Significant Changes in Financial Position (Dollars in thousands) Balance Balance December 31, Increase (Decrease) June 30, --------------------- 2003 Amount Percentage 2004 --------- --------- ---------- --------- Assets Securities available for sale 235,409 (21,765) -9.2% 213,644 Loans, net of unearned income 504,693 70,783 14.0% 575,476 Liabilities Interest bearing deposits $ 460,797 $ 20,267 4.4% $ 481,064 Short-term borrowings 49,714 21,636 43.5% 71,350 Long-term borrowings 168,255 7,993 4.8% 176,248 Loan growth during the first six months of 2004, 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 June 30, 2004 and December 31, 2003. 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 $100 million, or 11.7% of total assets at June 30, 2004 versus $115 million, or 14.7% of total assets at December 31, 2003. 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 June 30, 2004 totaled $58,975,000 compared to $57,188,000 at December 31, 2003, representing an increase of 3.1%. 30

Refer to Note 12 of the notes to the accompanying consolidated financial statements for information regarding regulatory restrictions on our capital as well as our subsidiaries' capital. CONTRACTUAL CASH OBLIGATIONS During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at June 30, 2004. Long Capital Term Trust Debt Securities - -------------------------------------------------------- 2004 $ 14,250,950 $ - 2005 28,575,742 - 2006 11,442,214 - 2007 12,054,208 - 2008 14,344,851 - Thereafter 84,238,697 11,341,000 - -------------------------------------------------------- Total $ 164,906,662 $ 11,341,000 ======================================================== 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 June 30, 2004 are presented in the following table. June 30, 2004 - -------------------------------------------- Commitments to extend credit: Revolving home equity and credit card lines $ 23,107,632 Construction loans 44,138,368 Other loans 29,497,969 Standby letters of credit 4,470,506 - -------------------------------------------- Total $ 101,214,475 ============================================ 31

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. 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 slightly 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. Each increase or decrease in interest rates is assumed to take place over the next 12 months, and then remain stable. 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. The following table shows our projected earnings sensitivity as of June 30, 2004 which is well within our ALCO policy limit of +/- 10%: Change in Percentage Interest Rates Change in Net (basis points) Interest Income ----------------------------------------- Down 100 0.92% Up 100 -0.49% Up 200 -0.81% CONTROLS AND PROCEDURES Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted as of June 30, 2004, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of June 30, 2004 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting 32

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. On December 26, 2003, two of our subsidiaries, Summit Financial, LLC and Shenandoah Valley National Bank, and various employees of Summit Financial, LLC were served with a Petition for Temporary Injunction and a Bill of Complaint filed in the Circuit Court of Fairfax County, Virginia by Corinthian Mortgage Corporation. The filings allege various claims against Summit Financial, LLC and Shenandoah Valley National Bank arising out of the hiring of former employees of Corinthian Mortgage Corporation and the alleged use of trade secrets. The individual defendants have also been sued based on allegations arising out of their former employment relationship with Corinthian Mortgage and their current employment with Summit Financial, LLC. The plaintiff seeks damages in the amount proven at trial on each claim and punitive damages in the amount of $350,000 on each claim. Plaintiff also seeks permanent and temporary injunctive relief prohibiting the alleged use of trade secrets by Summit Financial and the alleged solicitation of Corinthian's employees. On January 22, 2004, we successfully defeated the Petition for Temporary Injunction brought against us by Corinthian Mortgage Corporation. The Circuit Court of Fairfax County, Virginia denied Corinthian's petition. We, after consultation with legal counsel, believe that Corinthian's claims made in its recent lawsuit arising out of the hiring of former employees of Corinthian Mortgage Corporation and the alleged use of trade secrets are without foundation and that meritorious defenses exist as to all the claims. We will continue to evaluate the claims in the Corinthian lawsuit and intend to vigorously defend against them. We believe that the lawsuit is without merit and will have no material adverse effect on us. Management, at the present time, is unable to estimate the impact, if any, an adverse decision may have on our results of operations or financial condition. Item 2. Changes in Securities and Use of Proceeds On May 17, 2004, we sold 33,400 shares of Rockingham National Bank Series Convertible Preferred Stock ("Preferred Stock") in a private placement. The Preferred Stock was sold directly by Summit to potential investors that we believed would be beneficial to the development and support of the Rockingham National Bank, a division of Summit's subsidiary, Shenandoah Valley National Bank, and to the outside directors of Shenandoah Valley National Bank. The offering price for each share of the Preferred Stock was the mean of the closing prices of Summit's common stock reported on the last five (5) business days on which the stock traded prior to and inclusive of May 10, 2004, which was $35.28 per share. The aggregate offering price for the Preferred Stock was $1,411,200, and the aggregate amount of Preferred Stock sold was $1,158,471, net of related issuance costs. No underwriting discounts or commissions were paid. The Preferred Stock was offered pursuant an exemption from registration in primary reliance upon Rule 505 of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). The Preferred Stock was also offered under analogous state law exemptions from registration in the State of Virginia. Reliance on Rule 505 of Regulation D of the Act and analogous state law exemptions from registration in the State of Virginia was made based on the following facts: (i) the aggregate offering price did not exceed $5,000,000; (ii) we reasonably believed that there were no more than 2 non-accredited investors; (iii) we provided the non-accredited investors the information required by Rule 504(b) of Regulation D; (iv) we did not offer or sell securities by general solicitation or general advertising but offered and sold the securities to selected residents of the Rockingham County, Virginia area pursuant to two meetings in which these selected residents were invited to attend; (d) we placed limitations on resale of the Preferred Stock; and (e) no sales commissions were paid directly or indirectly to any brokers or underwriters for the offering or selling the Preferred Stock. 33

The shares of Preferred Stock will be automatically converted into shares of Common Stock of Summit on May 15, 2005, the second anniversary of the opening of the first office of the Rockingham National Bank division of Shenandoah Valley National Bank. The number of shares of Common Stock into which each share of Preferred Stock will be automatically converted will be based on the total loans and deposits of the Rockingham National Bank division of Shenandoah Valley National Bank on May 15, 2005. Set forth below is a table of the conversion ratios to convert each share of Preferred Stock into the specified number of shares of Common Stock on May 15, 2005. Total Loans and Deposits of the Conversion Ratio Rockingham National Bank division of (Number of Shares of Shenandoah Valley National Bank as of Common Stock to Number of May 15, 2005 Shares of Preferred Stock) ---------------------------------------- --------------------------- $0 - $29,999,999 1.00 to 1.00 ---------------------------------------- --------------------------- $30,000,000 - $39,999,999 1.10 to 1.00 ---------------------------------------- --------------------------- $40,000,000 - $59,999,999 1.15 to 1.00 ---------------------------------------- --------------------------- $60,000,000 and above 1.25 to 1.00 ---------------------------------------- --------------------------- The holders of Preferred Stock have the option to convert the shares of Preferred Stock into Common Stock prior to the automatic conversion date of May 15, 2005. The holders of Preferred Stock must hold the shares of Preferred Stock for a minimum of sixty (60) days before converting their shares of Preferred Stock to Common Stock. If the holders of Preferred Stock convert their shares prior to May 15, 2005, then each share of Preferred Stock will be converted into one (1) share of Common Stock. Item 4. Submission of Matters to a Vote of Security Holders On May 15, 2004, we held our Annual Meeting of Shareholders, and the shareholders took the following actions: 1. Elected as directors the following individuals to three year terms: For Withheld --------- -------- Oscar M. Bean 2,653,530 16,252 Dewey F. Bensenhaver 2,666,235 9,540 John W. Crites 2,715,355 1,016 James Paul Geary 2,651,542 17,792 Phoebe F. Heishman 2,666,165 9,908 Charles S. Piccirillo 2,665,521 9,456 The following directors' terms of office continued after the 2004 annual shareholders' meeting: Frank A. Baer, III, Patrick N. Frye, Duke A. McDaniel, Ronald F. Miller, George R. Ours Jr., James M. Cookman, Thomas J. Hawse, III, Gary L. Hinkle, Gerald W. Huffman, H. Charles Maddy, III, and Harold K. Michael. 34

2. Ratified Arnett & Foster, CPA's to serve as our independent auditors for 2004. For Against Abstentions --- ------- ----------- 2,663,344 5,329 3,038 3. Approved amendment to Articles of Incorporation increasing our authorized common shares to 20,000,000. For Against Abstentions --- ------- ----------- 2,599,471 133,494 18,235 Item 6. Reports on Form 8-K On April 15, 2004, Summit issued a News Release announcing its earnings for the first quarter of 2004. 35

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: August 13, 2004 --------------- 36

ARTICLES OF INCORPORATION OF SUMMIT FINANCIAL GROUP, INC. The undersigned, acting as incorporator of a corporation under Section 27, Article 1, Chapter 31 of the Code of West Virginia, adopts the following Articles of Incorporation for such corporation, FILED IN DUPLICATE: I. The undersigned agrees to become a corporation by the name of SUMMIT FINANCIAL GROUP, INC. II. The address of the principal office of said corporation will be 310 North Main Street, City of Moorefield, County of Hardy, State of West Virginia. III. The purpose or purposes for which this corporation is organized are as follows. To acquire and own stock and securities, of whatever kind, nature and description, in a bank or banks, and to take such actions as are necessary or incidental to the acquisition of a bank or banks; To engage, either directly itself, indirectly by the formation of subsidiary corporations or otherwise, in any activity permitted to be undertaken by a bank holding company under existing or future laws, rules and regulations relating thereto; Subject to the foregoing and unless otherwise limited herein to own, buy, acquire, sell, exchange, assign, lease and deal in and with real property and any interest or right therein; to own, buy, acquire, sell, exchange, assign, lease and deal in and with personal property and any interest or right therein; to own, buy, acquire, sell, exchange, assign, pledge and deal with voting stock, non-voting stock, notes, bonds, evidence of indebtedness and rights and options in and to other corporate and non-corporate entities, and to pay therefor in whole or in part in cash or by exchanging therefor stocks, bonds, or other evidences of indebtedness or securities of this or any other corporation, and while the owner or holder of any such stocks, bonds, debentures, notes, evidences or indebtedness or the securities, contracts, or 1

obligations, to receive, collect, and dispose of the interest, dividends and income arising from such property, and to possess and exercise in respect thereof, all the rights, powers and privileges of ownership, including all voting powers on any stocks so owned; and to borrow money without limit as to amount; and Otherwise, subject to the foregoing and unless otherwise limited herein, to engage in any lawful act or activity for which corporations may be organized under the laws of the State of West Virginia. IV. A. The amount of total authorized capital stock of the Corporation shall be Fifty Million Two Hundred Fifty Thousand Dollars ($50,250,000), which shall be divided into Five Million (5,000,000) shares of common stock with the par value of $2.50 each and Two Hundred Fifty Thousand (250,000) shares of preferred stock with the par value of $1.00 each. B. The Corporation may issue shares of preferred or special classes: (i) subject to the right of the Corporation to redeem any of such shares at the price fixed by the Articles of Incorporation for the redemption thereof; (ii) entitling the holders thereof to cumulative, non-cumulative or partially cumulative dividends; (iii) having preference over any other class or classes of shares as to the payment of dividends; (iv) having preference in the assets of the Corporation over any other class or classes of shares upon the voluntary or involuntary liquidation of the Corporation; and (v) convertible into shares of any other class or into shares of any series of the same or any other class, except a class having prior or superior rights and preferences as to dividends or distribution of assets upon liquidation, but shares without par value, if any, shall not be converted into shares with par value unless that part of the stated capital of the Corporation represented by such shares without the par value is, at the time of conversion, at least equal to the aggregate par value of the shares into which the shares without par value are to be converted or the amount of any such deficiency is transferred from surplus to stated capital. C. Preferred stock may be divided into and issued by the Board of Directors from time to time in one or more series. All shares of preferred stock shall be of equal rank and shall be identical, except as to the following relative rights and preferences which may be fixed and determined by the Board of Directors, as to which there may be variations between different series: 2

(1) the rate of dividends; (2) whether shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption; (3) the amount payable upon shares in event of voluntary and involuntary liquidation; (4) sinking fund provisions, if any, for the redemption or purchase of shares; (5) the terms and conditions, if any, on which shares may be converted; and (6) voting rights, if any. D. The Board of Directors of the Corporation shall have all of the power and authority with respect to the shares of preferred stock that may be delegated to the Board of Directors pursuant to the terms and provisions of Chapter 31, Article 1, Sections 78 and 79 of the Code of West Virginia, as amended, or such corresponding section of the Code of West Virginia as may be adopted from time to time, and shall exercise such power and authority by the adoption of a resolution or resolutions as prescribed by law. E. Rockingham National Bank Series Convertible Preferred Stock. A series of Preferred Stock consisting of up to Forty Thousand (40,000) shares, par value $1.00 per share, designated and known as "Rockingham National Bank Series Convertible Preferred Stock" is hereby established with the rights, preferences and privileges set forth below in this Article IV, Paragraph E and elsewhere in Article IV of these Articles of Incorporation. 1. Definitions. For purposes of this Article IV, Paragraph E, the following definitions shall apply: "Board" means the Board of Directors of the Corporation. "Common Stock" means shares of common stock of the Corporation having a par value of $2.50 per share. "Corporation" means Summit Financial Group, Inc., a West Virginia corporation. 3

"Office Opening Date" means the opening date for the first banking office in the Rockingham National Bank division of May 15, 2003. "Person" means an individual, a partnership, a joint venture, a corporation, a trust, or any other entity or organization. "Preferred Stock" means the preferred Stock designated as the Rockingham National Bank Series Convertible Preferred Stock" "Purchase Price" means the price per share of Preferred Stock which equals the mean of the closing prices of the Corporation's common stock reported on the last five (5) business days on which the stock traded prior to and inclusive of May 10, 2004. "Rockingham National Bank division" means the new banking division of the Corporation's subsidiary, Shenandoah Valley National Bank. 2. Dividends. The Preferred Stock will not pay any dividends. 3. Conversion Rights. The shares of Preferred Stock shall be convertible into shares of Common Stock as follows: (a) Optional Conversion. The holders of Preferred Stock have the option to convert shares of Preferred Stock into Common Stock prior to the second anniversary of the Office Opening Date. The holders of Preferred Stock must hold the shares of Preferred Stock for a minimum of sixty (60) days before converting their shares of Preferred Stock to Common Stock. If the holders of Preferred Stock convert their shares of Preferred Stock prior to the second anniversary of the Office Opening Date, then each share of Preferred Stock will be converted into one share of Common Stock. (b) Automatic Conversion. Each outstanding share of Preferred Stock shall automatically be converted on May 15, 2005, the second anniversary of the Office Opening Date, without any further act of the Corporation or the holders of Preferred Stock, into a certain number of fully paid and nonassessable shares of Common Stock, the exact number to be based on the total loans and deposits of the Rockingham National Bank division on May 15, 2005. The following table sets forth the conversion ratios to convert each share of Preferred Stock into the specified number of shares of Common Stock on May 15, 2005: 4

Total Loans and Deposits of Conversion Ratio Rockingham National Bank (Number of Shares of Common Stock to Division Number of Shares of Preferred Stock) - ----------------------------------------------------------------------------- $0 - $29,999,999 1.00 to 1.00 - ----------------------------------------------------------------------------- $30,000,000 - $39,999,999 1.10 to 1.00 - ----------------------------------------------------------------------------- $40,000,000 - $59,999,999 1.15 to 1.00 - ----------------------------------------------------------------------------- $60,000,000 and above 1.25 to 1.00 - ----------------------------------------------------------------------------- For the purposes of determining the total deposits and loans, the Corporation will follow the following procedures: Deposits: The term "deposits" shall have the meaning set forth in 12 U.S.C. ss. 1813(l). The Corporation's accounting system will track and account for all depository accounts of the Rockingham National Bank division on a daily basis. Loans: The term "loans" shall mean all loans reported on Schedule RC-C of Shenandoah Valley National Bank's Consolidated Report of Condition and Income for a Bank with Domestic Offices Only (the "Call Report") filed with the Federal Deposit Insurance Corporation, which are attributable to the Rockingham National Bank division. The Corporation's accounting system will track and account for all loans made by the Rockingham National Bank division on a daily basis. All determinations regarding the total amount of deposits and loans of the Rockingham National Bank division shall be made by the Board, whose determinations in this regard shall be final and conclusive for all purposes. (c) Mechanics of Optional Conversion. (i) In order for a holder of shares of Preferred Stock to convert shares of Preferred Stock into shares of Common Stock prior to the second anniversary of the Office Opening Date, such holder shall surrender the certificate or 5

certificates evidencing the ownership of such shares of Preferred Stock at the office of the transfer agent for the shares of Preferred Stock (or at the principal office of the Corporation, if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the permitted nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney-in-fact duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Optional Conversion Date"). The Corporation shall, as soon as practicable after the Optional Conversion Date, issue and deliver at such office to such holder of shares of Preferred Stock, or to his or its permitted nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the Optional Conversion Date, and the Person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Optional Conversion Date. (d) Mechanics of Automatic Conversion. Pursuant to the provisions in Section 3(b) hereof, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the office of the transfer agent for the shares of Preferred Stock (or at the principal office of the Corporation, if the Corporation serves as its own transfer agent); provided, however that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Preferred Stock are delivered either to the transfer agent for the shares of Preferred Stock (or at the principal office of the Corporation, if the Corporation serves as its own transfer agent). Conversion shall be deemed to have been effected on the 6

second anniversary of the Office Opening Date, and such date is referred to herein as the "Automatic Conversion Date." As promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Preferred Stock to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled as provided in Section 3(b) hereof. Such conversion shall be deemed to have been made immediately prior to the close of business on the Automatic Conversion Date, and the Person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Automatic Conversion Date. (e) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of any shares of Preferred Stock. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Preferred Stock, the Corporation will pay the value of such fractional shares in cash on the basis of the closing price of the Corporation's Common Stock as reported on the OTC Bulletin Board, the NASDAQ Stock Market or other securities exchange on the most recently completed trading day the Common Stock actually traded prior to the date of conversion. (f) Rights after Conversion Date. From and after the Optional Conversion Date and the Automatic Conversion Date (hereinafter collectively referred to as the "Conversion Date") (unless the Corporation defaults in issuing shares of Common Stock in exchange for the outstanding shares of Preferred Stock on the Conversion Date), such shares of Preferred Stock shall be deemed not to be outstanding and all rights of the holders of such shares as shareholders of the Corporation by reason of the ownership of such shares shall cease, except the right to receive shares of Common Stock as provided in Section 3(b) herein on presentation and surrender of the respective certificates evidencing such shares of Preferred Stock. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing shares of Preferred Stock (properly endorsed or assigned for transfer, if the 7

Corporation shall so require), such shares shall be exchanged by the Corporation for shares of Common Stock as provided in this Section 3. (g) Status of Preferred Shares After Conversion to Common Shares. Any shares of Preferred Stock that shall at any time have been converted into shares of Common Stock pursuant to this Section 3 shall, after such exchange, not be reissued as Preferred Stock, but shall become authorized but unissued shares of. Preferred Stock of the Corporation and the certificates evidencing such shares shall be canceled. (h) Reservation of Shares. The Corporation shall reserve at all times so long as any shares of Preferred Stock remain outstanding, free from preemptive rights, out of its treasury stock or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the conversion of the shares of Preferred Stock, sufficient shares of Common Stock to provide for the exchange of all outstanding shares of Preferred Stock. (i) Fully Paid and Nonassessable Shares. All shares of Common Stock or other securities which may be issued upon exchange of the shares of Preferred Stock will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result. 4. Conversion Ratio Adjustments. The number of shares of Common Stock into which the shares of Preferred Stock shall be converted pursuant to Section 3 (the "Conversion Ratios") and the securities or other property deliverable upon exchange of the Preferred Stock shall be subject to adjustment from time to time as follows: (a) Stock Dividends, Subdivisions or Split-Ups. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Preferred Stock is adjusted by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then immediately after the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend or the effective date of such subdivision or split-up, as the case may be, the Conversion 8

Ratios shall be appropriately adjusted so that the holder of any shares of Preferred Stock thereafter exchanged shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Preferred Stock been exchanged immediately prior thereto. (b) Combinations of Stock. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Preferred Stock is adjusted by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately adjusted so that the holder of any shares of Preferred Stock thereafter converted shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Preferred Stock been exchanged immediately prior thereto. (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. In case of any capital reorganization of the Corporation, or of any reclassification of the Common Stock, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Stock) to the holders of its Common Stock (collectively, a "Triggering Event"), each share of Preferred Stock shall be converted into a certain number of shares of Common Stock, the exact number to be based on the total deposits and total loans of the Rockingham National Bank division as set forth in the conversion chart in Section 3(b) hereof. The conversion ratio shall be based on the total deposits and total loans of the Rockingham National Bank division as set forth in the conversion chart in Section 3(b) hereof even if the Triggering Event occurs prior to the second anniversary of the Office Opening Date. 9

After such Triggering Event, each share of Common Stock that was converted from Preferred Stock shall be convertible into the number of shares of stock or other securities or property to which the Common Stock outstanding at the time of the Triggering Event would have been entitled upon such Triggering Event. The conversion date for purposes of determining the total deposits and total loans of the Rockingham National Bank division shall be the date the Triggering Event is announced publicly through a press release or through a Form 8-K files with the Securities and Exchange Commission. (d) Rounding of Calculations: Minimum Adjustment. All calculations under this Section 4 shall be made to the nearest one hundredth (1/100th) of a share of Common Stock, as the case may be. Any provision of this Section 4 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of. such adjustment would be less than one hundredth of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of any together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a share of Common Stock or more. (e) Timing of Issuance of Additional Common Stock upon Certain Adjustments. In any case in which the provisions of this Section 4 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any share of Preferred Stock exchanged after such record date and before the occurrence of such event the additional shares of Common Stock or other issuable or deliverable upon such exchange by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exchange before giving effect to such adjustment; provided, however, that the Corporation, --------- -------- upon request of a holder of Preferred Stock, shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment. (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 4, the Corporation shall forthwith file, at the office of any transfer agent for the Preferred Stock (or at the principal office of the Corporation, if the Corporation serves as its own transfer agent) a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be mailed, first class postage prepaid, to each holder of shares of Preferred Stock at his address appearing on the Corporation's records. Each such statement shall be signed by the Corporation's independent public accountants. 10

(g) Taxes. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of shares of Common Stock of the Corporation or other securities or property upon exchange of any shares of Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of the shares of Preferred Stock in respect of which such shares are being issued. 5. Voting. The holders of shares of Preferred Stock shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Preferred Stock shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each share of Preferred Stock held. 6. Liquidation Rights. (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Stock or on any other class of capital stock of the Corporation ranking junior to the Preferred Stock upon liquidation. All outstanding shares of any other series of preferred stock shall rank at parity with the shares of Preferred Stock. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a "dissolution, liquidation or winding up of the Corporation" within the meaning of this Section 6(a). 11

(b) After the payment to the holders of shares of Preferred Stock of the full preferential amounts fixed hereby for shares of Preferred Stock, the holders of Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (c) If the assets of the Corporation available for distribution to the holders of shares of Preferred Stock upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 6(a), no distribution shall be made on account of any shares of a class or series of capital stock of the Corporation ranking on a parity with the shares of Preferred Stock, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. 7. Reports to Holders of Preferred Stock. For so long as there shall remain outstanding any shares of Preferred Stock, the Corporation shall furnish to each holder of record of Preferred Stock (i) all reports sent by the Corporation to holders of record of the Common Stock of the Corporation, and (ii) a quarterly report setting forth the deposits and loans of the Rockingham National Bank division for the most recently completed quarter. 8. Certain Covenants. So long as any shares of Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the outstanding shares of Preferred Stock, the Corporation shall not amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Preferred Stock. 9. Restrictions on Resale; Legend. The shares of Preferred Stock have not been registered under the Securities Act or Virginia law pursuant to applicable exemptions. The shares of the Preferred Stock are subject to substantial restrictions on transfer and may not be sold, assigned, transferred or otherwise disposed of by a holder unless they are subsequently registered, or federal and other exemptions from registration are available. Upon conversion of the Preferred Stock into shares of Common Stock, such shares of Common Stock will be restricted for a period of one (1) year from the date of purchase of the Preferred Shares. This means that the shares of Common Stock may not be sold for at least one (1) year from the date the Preferred Stock was purchased. A legend will be placed on the Preferred Stock and the Common Stock certificates disclosing these restrictions, if applicable. 12

10. Exclusion of Other Rights. Unless otherwise required by law, the shares of Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein. V. The name and address of the incorporators and the number of shares subscribed by each of them is as follows: NUMBER NAME ADDRESS OF SHARES ---- ------- --------- Oscar M. Bean Rt. 2, Box 116 34 Moorefield, WV 26836 Donald W. Biller Rt. 1, Box 30 35 Lost River, WV 26811 Thomas J. Hawse 216 Washington Street 35 Moorefield, WV 26836 Phoebe F. Heishman 136 S. Main Street 35 Moorefield, WV 26836 Ed A. Leatherman, Jr. Rt. 1, Box 175 35 Purgitsville, WV 26852 J. Aleck Welton Box 366 35 Moorefield, WV 26836 Renick C. Williams Box 664 35 Moorefield, WV 26836 13

Michael T. Wilson Rt. 4 Sunset View 35 Moorefield, WV 26836 Harry C. Welton Rt. 4, Box 27 35 Moorefield, WV 26836 A. Clyde Ours, Jr. Box 541 35 Moorefield, WV 26836 E. E. Hott Box 1 35 Franklin, WV 26807 VI. The existence of this corporation is to be perpetual. VII. The name and address of the person to whom shall be sent notice or process served upon, or service of which is accepted by The Secretary of State is: Renick C. Williams Box 664 Moorefield, WV 26836 VIII. The number of directors constituting the initial board of directors of the corporation is eleven (11). The names and addresses of the persons who are to serve as directors until their term expires and their successors are elected and shall qualify are: NAME ADDRESS Oscar M. Bean Rt. 2, Box 116 Moorefield, WV 26836 Donald W. Biller Rt. 1, Box 30 Lost River, WV 26811 Thomas J. Hawse 216 Washington Street Moorefield, WV 26836 Phoebe F. Heishman 136 S. Main Street Moorefield, WV 26836 Ed A. Leatherman, Jr. Rt. 1, Box 175 Purgitsville, WV 26852 14

J. Aleck Welton Box 366 Moorefield, WV 26836 Renick C. Williams Box 664 Moorefield, WV 26836 Michael T. Wilson Rt. 4, Sunset View Moorefield, WV 26836 Harry C. Welton Rt. 4, Box 27 Moorefield, WV 26836 A. Clyde Ours, Jr. Box 541 Moorefield, WV 26836 E.E. Hott Box 1 Franklin, WV 26807 IX. Provisions limiting preemptive rights are: The shareholders of the corporation shall not have any preemptive rights to acquire any shares of stock of the corporation. X. Provisions for the regulations of the internal affairs of the corporation shall be as follows: A. Definitions. For purposes hereof, the following terms are defined as follows: 1. Affiliate. An "affiliate" of, or a person "affiliated" with, a specific person, means a person (other than this Corporation or a majority-owned or wholly owned subsidiary of this Corporation) that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. 2. Associate. The term "associate" when used to indicate a relationship with any person, means (i) any corporation, partnership, limited partnership, association, joint venture, group or other organization (other than this Corporation or a majority- owned or wholly owned subsidiary of this Corporation) of which such person is an officer or partner or is, directly or indirectly, the Beneficial Owner of ten percent (10%) or more of 15

any class of equity securities or other medium of ownership rights, (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such person, or any relative of such spouse provided the relative has the same home as such person, or (iv) any investment company registered under the Investment Company Act of 1940 for which such person or any affiliate of such person serves as investment adviser. 3. Beneficial Owner. A person shall be considered the "Beneficial Owner" of any shares of stock whether or not owned of record by such Person: (a) With respect to any shares as to which such Person or any Affiliate or Associate of such Person directly or indirectly has or shares (i) voting power, including the power to vote or to direct the voting of such shares of stock and/or (ii) investment power, including the power to dispose of or to direct the disposition of such shares of stock; ( b) With respect to any shares as to which such Person or any Affiliate or Associate of such Person has (i) the right to acquire such shares (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (ii) the right to vote pursuant to any agreement, arrangement or understanding (whether such right is exercisable immediately or only after the passage of time); or (c) With respect to any shares which are Beneficially Owned within the meaning of (a) or (b) of this Paragraph (3) above by any other Person with which such first-mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding, written or oral, with respect to acquiring, holding, voting or disposing of any shares of stock of the Corporation or any Subsidiary of the Corporation or acquiring, holding or disposing of all or substantially all, or any substantial part, of the assets or businesses of the Corporation or a Subsidiary of the Corporation. 16

For the purpose only of determining whether a Person is the Beneficial Owner of a percentage of outstanding shares, such shares shall be deemed to include any shares which may be issuable pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise and which are deemed to be beneficially owned by such Person pursuant to the foregoing provisions of this Paragraph (3) above. 4. Business Combination. A "Business Combination" means: (a) The sale, exchange, lease, transfer or other disposition to or with a Related Person or any Affiliate or Associate of such Related Person by the Corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all or substantially all, or any substantial part, or its or their assets or businesses including, without limitation, any securities issued by a Subsidiary; (b) The purchase, exchange, lease or other acquisition by the Corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all or substantially all, or any Substantial Part, of the assets or business of a Related Person or any Affiliate or Associate of such Related Person: (c) Any merger or consolidation of the Corporation or any Subsidiary thereof into or with a Related Person or any Affiliate or Associate of such Related Person or into or with another person which, after such merger or consolidation, would be an Affiliate or an Associate of a Related Person, in each case irrespective of which Person is the surviving entity in such merger or consolidation; 17

(d) Any reclassification of securities, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of shares of the Corporation or any Subsidiary thereof which are Beneficially Owned by a Related Person, or any partial or complete liquidation, spinoff, splitoff or splitup of the Corporation or Subsidiary thereof which has the effect, directly or indirectly, of increasing the proportionate amount of shares of the Corporation or any subsidiary thereof which are Beneficially Owned by a Related Person; or (e) The acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of voting shares or securities convertible into voting shares or any voting securities or securities convertible into voting securities of any Subsidiary of the Corporation, or the acquisition upon the issuance thereof of Beneficial Ownership by a Related Person of any rights, warrants or options to acquire any of the foregoing or any combination of the foregoing voting shares or voting securities of a Subsidiary. As used herein a `series of related transactions' shall be deemed to include not only a series of transactions with the same Related Person but also a series of separate transactions with a Related Person or any Affiliate or Associate of such Related Person. (f) Notwithstanding the foregoing, the term "Business Combination" shall not mean the formation of the Corporation or the acquisition by it of South Branch Valley National Bank, a national banking association, with its principal banking offices located in Moorefield, West Virginia. 5. Corporation. "Corporation" shall mean South Branch Valley Bancorp, Inc., a West Virginia business corporation. 18

6. Date of Determination. The term `Date of Determination' means (a) the date on which a binding agreement (except for the fulfillment of conditions precedent, including, without limitation, votes of shareholders to approve such transaction) is entered into by this Corporation, as authorized by its board of directors, and another corporation, person or other entity providing for any merger or consolidation of this Corporation or any sale, lease, exchange or disposition of all or substantially all of the assets of this Corporation; or, (b) if such an agreement as referred to in item (a) is amended so as to make it less favorable to this Corporation and its shareholders, the date on which such amendment is approved by the board of directors of this Corporation, or, (c) in cases where neither items (a) nor item (b) shall be applicable, the record date for the determination of shareholders of this Corporation entitled to notice of and to vote upon the transaction in question. The board of directors of this Corporation shall have the power and duty to determine for the purposes hereof the Date of Determination as to any transaction. Any such determination by the board of directors made in good faith shall be conclusive and binding for any and all purposes. 7. Person. The term "Person" shall mean any person, partnership, corporation, group or other entity (other than the Corporation, any Subsidiary of the Corporation, or a trustee holding stock for the benefit of the employees of the Corporation or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements). When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnerships, syndicate, association or group shall be deemed a "Person". 8. Related Person. "Related Person" means any Person which is the Beneficial Owner as of the Date of Determination or immediately prior to the consummation of a Business Combination, or both, of twenty-five (25) percent or more of the voting shares of the Corporation or any Person who at any time within two (2) years preceding the Date of Determination was the Beneficial Owner of twenty-five (25) percent or more of the then outstanding voting shares of the Corporation. 9. Subsidiary. "Subsidiary" shall mean South Branch Valley National Bank, a national banking association as of the effective date of the acquisition of said bank by this corporation and any other corporation, bank, banking association or other entity at least a majority of which is owned by South Branch Valley Bancorp, Inc. 19

10. Capacity to Make Certain Determinations. A majority of the directors of the Corporation shall have the power to determine for the purposes hereof on the basis of information known to them: (i) the number of voting shares of the Corporation of which any Person is the Beneficial Owner, (ii) whether a Person is an Affiliate of Associate of another, (iii) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of `Beneficial Owner' as hereinabove defined, (iv) whether the assets subject to any Business Combination constitute a substantial part of total assets, (v) whether two or more transactions constitute a `series of related transactions' as hereinabove defined, and (vi) such other matters with respect to which a determination is required hereunder. A Related Person shall be deemed to have acquired a share of the Corporation at the time when such Related Person became the Beneficial Owner thereof. With respect to shares owned by Affiliates, Associates or other Persons whose ownership is attributed to a Related Person under the foregoing definition of Beneficial Owner, if the price paid by such Related Person for such shares is not determinable, the price so paid shall be deemed to be the higher of (i) the price paid upon acquisition thereof by the Affiliate, Associate or other Person or (ii) the market price of the shares in question (as determined by a majority of the board of directors of the Corporation) at the time when the Related Person became the Beneficial Owner thereof. B. Voting Requirements for Merger, Consolidation or Sale of Assets. Subject to any other requirements provided for by law and in this charter or any amendment thereto, in order for any merger or consolidation of this Corporation with another corporation or any sale, lease or exchange by liquidation or otherwise of all or substantially all of the assets of this Corporation to be approved by the shareholders of this Corporation, not less than sixty-six and two-thirds percent (66 2/3%) of the authorized, issued and outstanding voting shares of the Corporation must vote in favor of such action unless the Business Combination has been previously approved by at least sixty-six and two-thirds percent (66 2/3%) of the board of directors of the Corporation in which case only a simple majority vote of the shareholders shall be required. 20

C. Fair Price Requirement. Neither the Corporation or any of its Subsidiaries shall become party to any Business Combination unless all of the following conditions are satisfied: (1) The ratio of (i) the aggregate amount of the cash and the fair market value of other consideration to be received per share of common stock of the Corporation in such Business Combination by holders of common stock other than the Related Person involved in such Business Combination, to (ii) the market price per share of the common stock immediately prior to the announcement of the proposed Business Combination, is at least as great as the ratio of (x) the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) which such Related Person has theretofore paid in acquiring any common stock of the Corporation prior to such Business Combination, to (y) the market price per share of common stock of the Corporation immediately prior to the initial acquisition by such Related Person of any shares of common stock of the Corporation; and (2) The aggregate amount of the cash and the fair market value of other consideration to be received per share of common stock of the Corporation in such Business Combination by holders of common stock of the Corporation, other than the Related Person involved in such Business Combination, (i) is not less than the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such Related Person in acquiring any of its holdings of common stock of the Corporation, and (ii) is not less than the earnings per share of common stock of the Corporation for the four full consecutive fiscal quarters of the Corporation immediately preceding the Date of Determination of such Business Combination multiplied by the then price/earnings multiple (if any) of such Related Person as customarily computed and reported in the financial community; provided, that for the purposes of this clause (ii), if more than one Person constitutes the Related Person involved in the Business Combination, the price/earnings multiple (if any) of the Person having the highest price/earnings multiple shall be used for the computation in this clause, (ii); and 21

(3) The consideration (if any) to be received in such Business Combination by holders of common stock of the Corporation other than the Related Person involved shall, except to the extent that a stockholder agrees otherwise as to all or part of the shares which he or she owns, be in the same form and of the same kind as the consideration paid by the Related Person in acquiring common stock of the Corporation already owned by it. D. Evaluation of Acquisition of this Corporation by Another Corporation. In connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders when evaluating an acquisition of this Corporation by another corporation or a tender or exchange offer for control of this Corporation, the board of directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant: (i) the social and economic effects of the transaction on the Corporation and its Subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its Subsidiaries operate or are located; (ii) the business and financial conditions and earnings prospects of the acquiring entity or entities, including, but not limited to, debt service and other existing or likely financial obligations of the acquiring Person or Persons, and the possible effect of such conditions upon the Corporation and its Subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring entity or entities and its or their management. 22

E. Classified Board of Directors. At the first annual meeting of the shareholders, after the effective date of the acquisition of South Branch Valley National Bank as a bank subsidiary, the board of directors shall be divided into three classes, designated Class I, Class II and Class III, consisting of an equal number of directors per class. The term of office of directors of one class shall expire at each annual meeting of stockholders, and as to each director until his or her successor shall be elected and shall qualify, or until his or her earlier resignation, removal from office, death or incapacity. Additional directorships resulting from an increase in number of directors shall be apportioned among the classes as equally as possible. A decrease in the number of directors by death, resignation or removal may but shall not be required to be filled by the remaining board members. The initial term of office of directors of Class I shall expire at the first annual meeting of stockholders, that of Class II shall expire at the second annual meeting, and that of Class III shall expire at the third annual meeting, and in all cases as to each director until his or her successor shall be elected and shall qualify, or until his or her earlier resignation, removal from office, death or incapacity. At each annual meeting of stockholders the number of directors equal to the number of directors of the class whose term expires at the time of such meeting (or, if less, the number of directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding annual meeting of the stockholders after their election. The directors remaining in office acting by a majority vote, or a sole remaining director, although less than a quorum, are hereby expressly delegated the power to fill any vacancies in the board of directors, however occurring, whether by an increase in the number of directors, death, resignation, retirement, disqualification, removal from office, or otherwise, and any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been elected and qualified, or until his or her earlier resignation, removal from office, death or incapacity. 23

The total number of directors of this Corporation shall be not less than nine nor more than twenty-one as from time to time fixed by the board of directors. F. Nomination of Directors. Nominations for election to the board of directors may be made by the board of directors or by any shareholder entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the Corporation, must be made in writing and delivered or mailed to the President of the Corporation not less than thirty (30) days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than thirty (30) days notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Corporation not later than the fifth (5th) day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known by the shareholder: (i) the name and address of each nominee, (ii) the principal occupation of each nominee, (iii) the name and address of the notifying shareholder, and (iv) the number of shares of the Corporation's stock owned by the notifying shareholder. Nominations not made in accordance herewith, may, in the discretion of the chairman of the meeting, be disregarded, and upon his instruction, the votes cast for each such nominee shall be disregarded. G. Removal of a Director for Cause Only. The removal from office of any director must be for cause as set forth herein. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if: (1) the director whose removal is proposed has been convicted, or where a director was granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; 24

(2) such director has been adjudicated by a court of competent jurisdiction to be liable for negligence, or misconduct, in the performance of his duty to the Corporation and such adjudication is no longer subject to direct appeal; (3) such director has become mentally incompetent, whether or not so adjudicated, which mental incompetency directly affects his or her ability as a director of the Corporation; (4) such director ceases to fulfill the qualification requirements for a director of a West Virginia bank holding company; or (5) such director's actions or failure to act have been determined by a majority of the board of directors to be in derogation of the director's duties. Removal for cause, as cause is defined in (1) and (2) above, must be brought within one year of such conviction or adjudication. For purposes of (5) above, the total number of directors as to which a majority is required will not include the director who is the subject of the removal determination, nor will such director be entitled to vote thereon except in his or her shareholder capacity. H. Anti-Greenmail Provision. The Corporation shall not engage, directly or indirectly, in any Stock Repurchase (as hereinafter defined) from an Interested Stockholder (as hereinafter defined) or an Affiliate (as previously defined) or Associate (as previously defined) of an Interested Stockholder (as hereinafter defined) who has beneficially acquired any shares of voting stock of the Corporation within a period of less than two (2) years immediately prior to the date of such proposed Stock Repurchase (or the date of an agreement in respect thereof) without the affirmative vote of not less than a majority of the votes entitled to be cast by the holders of all then outstanding shares of voting stock of the Corporation which are Beneficially Owned (as previously defined) by persons other than such Interested Stockholder, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or otherwise. 25

The provisions of this Article shall not be applicable to any particular Stock Repurchase from an Interested Stockholder, and such Stock Repurchase shall require only such affirmative vote, if any, as is required by law if the conditions specified in either of the following Paragraphs 1 or 2 are met: 1. The Stock Repurchase is made pursuant to a tender offer or exchange offer for a class of common stock made available on the same basis to all holders of such class of common stock. 2. The Stock Repurchase is made pursuant to an open market purchase program approved by a majority of the directors of the Corporation provided that such repurchase is effected on the open market and is not the result of a privately negotiated transaction. For purposes hereof: 1. The term "Stock Repurchase" shall mean any repurchase (or any agreement to repurchase), directly or indirectly, by the Corporation or any Subsidiary of any shares of common stock at a price greater than the Fair Market Value of such shares. 2. The term "Interested Stockholder" shall mean any person (other than this Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of this Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (1) is the Beneficial Owner of voting stock of the Corporation representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of voting stock of the Corporation; and (b) acquired at least one-half of such shares at any time within the two year period immediately prior to the date in question. 26

3. The term `Fair Market Value' means (a) in the case of a cash purchase, the amount of such cash, (b) in the case of a stock exchange, the fair market value on the date in questions of a share of such offered stock as determined in good faith by a majority of the directors; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the directors. The board of directors shall have the power and duty to determine for the purposes hereof, on the basis of information known to then after reasonable inquiry, (a) whether a person is an Interested Stockholder, (b) the number of shares of common stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another and (d) whether the consideration to be paid in any Stock Repurchase has an aggregate Fair Market Value in excess of the then Fair Market Value of the shares of common stock being repurchased. Any such determination made in good faith shall be binding and conclusive on all parties. Nothing contained herein shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 1. Director and Officer Indemnification. Unless otherwise prohibited by law, each director and officer of the corporation now or hereafter serving as such, and each director and officer of any majority or wholly owned subsidiary of the corporation that has been designated as entitled to indemnification by resolution of the board of directors of the corporation as may be from time to time determined by said board, shall be indemnified by the corporation against any and all claims and liabilities (other than an action by or in the right of the corporation or any majority or wholly owned subsidiary of the corporation) including expenses of defending such claim of liability to which he or she has or shall become subject by reason of any action alleged to have been taken, omitted, or neglected by him or her as such director or officer provided the director or officer acted in good faith and in a manner which the director or officer reasonably believed to be in or not opposed to the best interests of the corporation. With respect to any criminal proceeding, a director or officer 27

shall be entitled to indemnification if such person had no reasonable cause to believe his or her conduct was unlawful. The corporation shall reimburse each such person as provided above in connection with any claim or liability brought or arising by or in the right of the corporation or any majority or wholly owned subsidiary of the corporation provided, however, that such person shall be not indemnified in connection with, any claim or liability brought by or in the right of the corporation or any majority or wholly owned subsidiary of the corporation as to which the director or officer shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation or any majority or wholly owned subsidiary of the corporation unless and only to the extent that the court in which such action or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which such court shall deem proper. The determination of eligibility for indemnification shall be made by those board members not party to the action or proceeding or in the absence of such board members by a panel of independent shareholders appointed for such purpose by a majority of the shareholders of the corporation or in any other manner provided by law. The right of indemnification hereinabove provided for shall not be exclusive or any rights to which any director or officer of the corporation may otherwise be entitled by law. The board of directors may be by resolution, by law or other lawful manner from time to time as it shall determine extend the indemnification provided herein to agents and employees of the corporation, to directors, officers, agents or employees of other corporations or entities owned in whole or in part by the corporation. The corporation may purchase and maintain insurance for the purposes hereof. 28

J. Voting Requirements for Charter Amendments. Any amendment, change or repeal of this Article X or any other amendment of these Articles of Incorporation, which would have the effect of modifying or permitting circumvention of any provision of these Articles of Incorporation, shall require the affirmative vote, at a meeting of stockholders of the Corporation, of holders of at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting shares of the Corporation; provided, however, that this provision shall not apply to, and such vote shall not be required for, any such amendment, change or repeal recommended to stockholders by the favorable vote of not less than sixty-six and two-thirds percent (66 2/3%) of the directors of the Corporation and any such amendment, change or repeal so recommended shall require only a simple majority vote of the shareholders to be approved. WE, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of the State of West Virginia, do make and file in duplicate these ARTICLES OF INCORPORATION, and we have accordingly hereunto set our hands this 3rd day of March, 1987. /s/ Oscar M. Bean ----------------- Oscar M. Bean /s/ Donald W. Biller -------------------- Donald W. Biller /s/ Thomas J. Hawse ------------------- Thomas J. Hawse /s/ Phoebe F. Heishman ---------------------- Phoebe F. Heishman /s/ Ed A. Leatherman, Jr. ------------------------- Ed A. Leatherman, Jr. /s/ Aleck Welton ---------------- J. Aleck Welton /s/ Renick C. Williams ---------------------- Renick C. Williams /s/ Michael T. Wilson --------------------- Michael T. Wilson 29

/s/ Harry C. Welton ------------------- Harry C. Welton /s/ A. Clyde Ours, Jr. ----------------------- A. Clyde Ours, Jr. /s/ E.E. Hott ------------- E.E. Hott



                                                                  Exhibit 31.1


                         SARBANES-OXLEY ACT SECTION 302
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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 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 report;

3.            Based on my knowledge, the financial statements, and other
              financial information included in this 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 report;

4.            The registrant's other certifying officer and I are responsible
              for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-15(e) and
              15d-15(e)) for the registrant and have:

               a)   Designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, 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
                    report is being prepared;

               b)   Evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this report our
                    conclusions about the effectiveness of the disclosure
                    controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and

               c)   Disclosed in this report any change in the registrant's
                    internal control over financial reporting that occurred
                    during the registrant's most recent fiscal quarter that has
                    materially affected, or is reasonably likely to materially
                    affect, the registrant's internal control over financial
                    reporting; and

5.            The registrant's other certifying officer and I have disclosed,
              based on our most recent evaluation of internal control over
              financial reporting, 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 and material weaknesses in the
                    design or operation of internal control over financial
                    reporting which are reasonably likely to adversely affect
                    the registrant's ability to record, process, summarize and
                    report financial information; and

               b)   Any fraud, whether or not material, that involves management
                    or other employees who have a significant role in
                    registrant's internal control over financial reporting.


Date:  August 13, 2004
       ---------------

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

                                                                   Exhibit 31.2


                         SARBANES-OXLEY ACT SECTION 302
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

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 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 report;

3.            Based on my knowledge, the financial statements, and other
              financial information included in this 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 report;

4.            The registrant's other certifying officer and I are responsible
              for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-15(e) and
              15d-15(e)) for the registrant and have:

               a)   Designed such disclosure controls and procedures, or caused
                    such disclosure controls and procedures to be designed under
                    our supervision, 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
                    report is being prepared;

               b)   Evaluated the effectiveness of the registrant's disclosure
                    controls and procedures and presented in this report our
                    conclusions about the effectiveness of the disclosure
                    controls and procedures, as of the end of the period covered
                    by this report based on such evaluation; and

               c)   Disclosed in this report any change in the registrant's
                    internal control over financial reporting that occurred
                    during the registrant's most recent fiscal quarter that has
                    materially affected, or is reasonably likely to materially
                    affect, the registrant's internal control over financial
                    reporting; and

5.            The registrant's other certifying officer and I have disclosed,
              based on our most recent evaluation of internal control over
              financial reporting, 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 and material weaknesses in the
                    design or operation of internal control over financial
                    reporting which are reasonably likely to adversely affect
                    the registrant's ability to record, process, summarize and
                    report financial information; and

               b)   Any fraud, whether or not material, that involves management
                    or other employees who have a significant role in
                    registrant's internal control over financial reporting.


Date:  August 13, 2004
       ---------------

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

                                                                Exhibit 32.1


                         SARBANES-OXLEY ACT SECTION 906
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER


In connection with the Quarterly Report of Summit Financial Group, Inc. ("Summit
") on Form 10-Q for the period ending June 30, 2004 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:  August 13, 2004
       ---------------



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 32.2


                         SARBANES-OXLEY ACT SECTION 906
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER


In connection with the Quarterly Report of Summit Financial Group, Inc. ("Summit
") on Form 10-Q for the period ending June 30, 2004 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:  August 13, 2004
       ---------------




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.