Summit Financial Group Reports Fourth Quarter and Full Year 2018 Results

January 29, 2019

Q4 2018 Diluted EPS $0.60, equaling a Quarterly Record; Full Year 2018 Diluted EPS $2.26, an Annual Record

MOOREFIELD, W.Va., Jan. 29, 2019 (GLOBE NEWSWIRE) — Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported quarterly net income of $7.45 million for fourth quarter 2018, or $0.60 per diluted share — equaling our previous quarterly record, compared to $2.32 million, or $0.19 per diluted share, for the fourth quarter of 2017. Earnings per diluted share for fourth quarter 2017 were negatively impacted (on an after-tax basis) by the one-time charge of $0.28 to re-measure the Company’s net deferred tax assets as result of enactment of the Tax Cuts and Jobs Act (“TCJA”).

For the full year 2018, Summit achieved record net income of $28.07 million, and record earnings per diluted share of $2.26, compared with $11.92 million, or $1.00 per diluted share, for 2017. Full year 2018 results were positively impacted (on a diluted earnings per share basis) $0.29 as result of higher net interest income, $0.06 due to growth in trust and wealth management fees, $0.08 from increased deposit account-related fees and $0.25 in lower income tax expense as result of TCJA’s lower income tax rates. Higher total noninterest expense of $0.16 per diluted share partially offset these positive impacts. Lower earnings in 2017 were principally attributable to the following non-core or one-time items (on an after-tax, diluted earnings per share basis): $0.52 as result of a litigation settlement, $0.29 due to the enactment of the TCJA, and $0.08 as result of merger-related expenses.

Highlights for Q4 2018

Loan balances, excluding mortgage warehouse lines of credit, increased $46.1 million during the quarter, or 11.5 percent (on an annualized basis); excluding mortgage warehouse lines of credit, loans grew $80.4 million or 5.1 percent since year-end 2017;
Net interest margin for the quarter increased 8 basis points to 3.61 percent compared to Q3 2018;
Efficiency ratio improved to 51.02 percent compared to 54.25 percent for the linked-quarter as result of the improved net interest margin and well-controlled overhead;
Provision for loan losses remained unchanged at $500,000 compared to the prior quarter;
Realized securities losses of $205,000 in Q4 2018 compared to realized securities gains of $8,000 in Q3 2018; and
Write-downs of foreclosed properties were $318,000 in Q4 2018 compared to $39,000 in Q3 2018, while the net loss on sales of foreclosed properties increased to $70,000 in Q4 2018 from $18,000 in Q3 2018.

H. Charles Maddy, III, President and Chief Executive Officer of Summit, commented, “I am very gratified to report that for fourth quarter 2018, Summit had record quarterly net income and tied its previous record for quarterly earnings per share; and for the full year 2018, we achieved a new annual earnings record both in net income and on a per share basis. In addition, I am particularly pleased by our continued solid lending activity and strong core operating performance in this past quarter. Our acquisition of Peoples Bankshares, Inc. closed at the beginning of 2019, and it serves to combine Summit with a financially strong bank that shares the same commitment to build long-term client relationships by providing ‘Service Beyond Expectations’. The financial synergies relative to this transaction are already evident. I optimistically look forward to 2019 and beyond as we are laser-focused on our goal to be a consistent growing, high-performing community banking institution.”

Results from Operations

Total revenue for fourth quarter 2018, consisting of net interest income and noninterest income, increased 4.1 percent to $22.2 million compared to $21.4 million for the fourth quarter 2017. For the full year 2018, total revenue was $87.2 million compared to $80.6 million for 2017, representing an 8.2 percent increase primarily due to the acquisition of First Century Bankshares, Inc. (“FCB”) in Q2 2017.

For the fourth quarter of 2018, net interest income increased 3.5 percent to $18.1 million compared to $17.4 million for the prior-year fourth quarter and grew 4.9 percent compared to the linked quarter principally as result of $44.2 million in growth in average loans and 19 basis point improvement in average loan yields during the quarter. The net interest margin for fourth quarter 2018 was 3.61 percent compared to 3.65 percent for the same year-ago quarter, and 3.53 percent for the linked quarter. Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the acquired interest earning assets and interest bearing liabilities, Summit’s net interest margin was 3.57 percent for Q4 2018 and 3.54 percent for full year 2018.

Noninterest income, consisting primarily of insurance commissions from Summit’s insurance agency subsidiary, trust and wealth management fees and service fee income from community banking activities, for fourth quarter 2018 was $4.19 million compared to $3.93 million for the comparable period of 2017. Excluding realized securities gains and losses, noninterest income was $4.39 million for fourth quarter 2018, compared to $4.00 million reported for fourth quarter 2017 and $4.20 million for the linked quarter.

We recorded a $500,000 provision for loan losses during fourth quarter 2018 and $375,000 in Q4 2017. The need for increased loan loss provisioning during 2018 is directionally consistent with changes in the credit quality in our loan portfolio and our loan growth.

Q4 2018 total noninterest expense increased 1.0 percent to $12.47 million compared to $12.35 million for the prior-year fourth quarter. Noninterest expense for full year 2018 decreased 13.6 percent compared to 2017 principally due to: 1) $144,000 in merger expenses being incurred in 2018 compared to $1.59 million in 2017; and 2) a $9.9 million charge to resolve fully all litigation with Residential Funding Company, LLC and ResCap Liquidating Trust (collectively “ResCap”) recorded during 2017. Excluding the impact of the ResCap litigation settlement charge and merger-related expenses, noninterest expense for 2018 increased 7.5 percent to $49.9 million compared to $46.3 million for 2017, principally as result of the FCB acquisition.

Balance Sheet

At December 31, 2018, total assets were $2.20 billion, an increase of $66.3 million, or 3.1 percent since December 31, 2017. Total loans, net of unearned fees and allowance for loan losses, were $1.68 billion at December 31, 2018, up $88.3 million, or 5.5 percent, from the $1.59 billion reported at year-end 2017. Loans, excluding mortgage warehouse lines of credit, increased $46.1 million during the quarter, or 11.5 percent (on an annualized basis), and have grown $80.4 million or 5.1 percent since year-end 2017.

At December 31, 2018, deposits were $1.63 billion, an increase of $34.2 million, or 2.1 percent, since year end 2017. During 2018, checking deposits increased $117.3 million or 18.7 percent, time deposits declined by $9.1 million or 1.5 percent and savings deposits declined $74.0 million or 20.7 percent.

Shareholders’ equity was $219.8 million as of December 31, 2018 compared to $213.6 million at September 30, 2018 and $201.5 million at December 31, 2017. Tangible book value per common share increased to $15.75 at December 31, 2018 compared to $15.13 at the end of third quarter 2018 and $14.08 at year end 2017. Summit had 12,312,933 outstanding common shares at year end 2018 compared to 12,358,562 at year end 2017.

As previously announced in Q3 2018, the Board of Directors authorized the open market repurchase of up to 500,000 shares of the issued and outstanding shares of Summit’s common stock. The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan will expire December 31, 2019, but may be discontinued, suspended, or restarted at any time at the Company’s discretion. During Q4 2018, 82,423 shares of our common stock were repurchased under the Plan at an average price of $20.46 per share.

Asset Quality

As of December 31, 2018, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, were $36.5 million, or 1.66 percent of assets. This compares to $39.0 million, or 1.82 percent of assets at the linked quarter-end, and $36.9 million, or 1.73 percent of assets, at year-end 2017 as result of our continuing emphasis on improving our overall asset quality.

Fourth quarter 2018 net loan charge-offs were $398,000, or 0.10 percent of average loans annualized; while adding $500,000 to the allowance for loan losses through the provision for loan losses. The allowance for loan losses stood at 0.77 percent of total loans at December 31, 2018, compared to 0.78 percent at year-end 2017. If the acquired FCB and HCB loans, which were recorded at fair value on the acquisition dates were excluded, the allowance for loan losses to total loans ratio at December 31, 2018 and December 31, 2017 would have been 0.84 percent and 0.91 percent, respectively.

About the Company

Summit Financial Group, Inc. is a $2.20 billion financial holding company headquartered in Moorefield, West Virginia. Summit provides community banking services primarily in the Eastern Panhandle and Southern regions of West Virginia and the Northern, Shenandoah Valley and Southwestern regions of Virginia, through its bank subsidiary, Summit Community Bank, Inc., which operates thirty-three banking locations. Summit also operates Summit Insurance Services, LLC in Moorefield, West Virginia and Leesburg, Virginia.

FORWARD-LOOKING STATEMENTS

This press release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.

Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements following the date of this press release.

Contact:	Robert S. Tissue, Sr. Vice President & CFO
Telephone:	(304) 530-0552
Email:	[email protected]

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q4 2018 vs Q4 2017

		For the Quarter Ended					Percent
Dollars in thousands		12/31/2018			12/31/2017		Change
Statements of Income
	Interest income
	Loans, including fees	$	22,659		$	20,031		13.1	%
	Securities		2,527			2,412		4.8	%
	Other		127			144		-11.8	%
	Total interest income		25,313			22,587		12.1	%

	Interest expense
	Deposits		5,103			3,224		58.3	%
	Borrowings		2,158			1,925		12.1	%
	Total interest expense		7,261			5,149		41.0	%
	Net interest income		18,052			17,438		3.5	%
	Provision for loan losses		500			375		33.3	%
	Net interest income after provision for loan losses		17,552			17,063		2.9	%


	Noninterest income
	Insurance commissions		1,132			1,005		12.6	%
	Trust and wealth management fees		627			578		8.5	%
	Service charges on deposit accounts		1,209			1,200		0.8	%
	Bank card revenue		809			743		8.9	%
	Realized securities (losses) gains		(205	)		(71	)	188.7	%
	Bank owned life insurance income		249			258		-3.5	%
	Other income		366			218		67.9	%
	Total noninterest income		4,187			3,931		6.5	%
	Noninterest expense
	Salaries and employee benefits		6,928			6,520		6.3	%
	Net occupancy expense		836			772		8.3	%
	Equipment expense		1,139			1,095		4.0	%
	Professional fees		385			355		8.5	%
	Advertising and public relations		193			185		4.3	%
	Amortization of intangibles		410			435		-5.7	%
	FDIC premiums		140			250		-44.0	%
	Bank card expense		395			319		23.8	%
	Foreclosed properties expense, net of losses		507			516		-1.7	%
	Merger-related expense		59			14		321.4	%
	Other expenses		1,474			1,885		-21.8	%
	Total noninterest expense		12,466			12,346		1.0	%
	Income before income taxes		9,273			8,648		7.2	%
	Income taxes		1,823			6,325		-71.2	%
	Net income	$	7,450		$	2,323		220.7	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q4 2018 vs Q4 2017
		For the Quarter Ended						Percent
		12/31/2018			12/31/2017			Change
Per Share Data
	Earnings per common share
	Basic	$	0.60		$	0.19		215.8	%
	Diluted	$	0.60		$	0.19		215.8	%

	Cash dividends	$	0.14		$	0.11		27.3	%

	Average common shares outstanding
	Basic		12,358,104			12,325,067		0.3	%
	Diluted		12,407,678			12,371,507		0.3	%

	Common shares outstanding at period end		12,312,933			12,358,562		-0.4	%

Performance Ratios
	Return on average equity		13.85	%		4.62	%	199.8	%
	Return on average tangible equity		16.41	%		6.12	%	168.1	%
	Return on average assets		1.38	%		0.44	%	213.6	%
	Net interest margin (A)		3.61	%		3.65	%	-1.1	%
	Efficiency ratio (B)		51.02	%		51.47	%	-0.9	%

	NOTE (A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21% for 2018 and 35% for 2017.

	NOTE (B) – Computed on a tax equivalent basis excluding gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Annual Performance Summary (unaudited)
2018 vs 2017

		For the Year Ended						Percent
Dollars in thousands		12/31/2018		12/31/2017				Change
Statements of Income
	Interest income
	Loans, including fees	$	85,283		$	74,908		13.9	%
	Securities		9,587			9,010		6.4	%
	Other		539			609		-11.5	%
	Total interest income		95,409			84,527		12.9	%
	Interest expense
	Deposits		17,675			11,210		57.7	%
	Borrowings		7,937			7,170		10.7	%
	Total interest expense		25,612			18,380		39.3	%
	Net interest income		69,797			66,147		5.5	%
	Provision for loan losses		2,250			1,250		80.0	%
	Net interest income after provision for loan losses		67,547			64,897		4.1	%

	Noninterest income
	Insurance commissions		4,320			4,005		7.9	%
	Trust and wealth management fees		2,653			1,863		42.4	%
	Service charges on deposit accounts		4,631			4,109		12.7	%
	Bank card revenue		3,152			2,697		16.9	%
	Realized securities gains (losses)		622			(14	)	n/m
	Bank owned life insurance income		1,022			1,017		0.5	%
	Other income		1,022			750		36.3	%
	Total noninterest income		17,422			14,427		20.8	%
	Noninterest expense
	Salaries and employee benefits		27,478			25,075		9.6	%
	Net occupancy expense		3,364			3,011		11.7	%
	Equipment expense		4,411			3,954		11.6	%
	Professional fees		1,607			1,367		17.6	%
	Advertising and public relations		654			578		13.1	%
	Amortization of intangibles		1,671			1,410		18.5	%
	FDIC premiums		830			1,065		-22.1	%
	Bank card expense		1,475			1,432		3.0	%
	Foreclosed properties expense, net of losses		1,350			1,339		0.8	%
	Litigation settlement		–			9,900		-100.0	%
	Merger-related expense		144			1,589		-90.9	%
	Other expenses		6,889			7,025		-1.9	%
	Total noninterest expense		49,873			57,745		-13.6	%
	Income before income taxes		35,096			21,579		62.6	%
	Income taxes		7,024			9,664		-27.3	%
	Net income	$	28,072		$	11,915		135.6	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Annual Performance Summary (unaudited)
2018 vs 2017
		For the Year Ended						Percent
		12/31/2018			12/31/2017			Change
Per Share Data
	Earnings per common share
	Basic	$	2.27		$	1.00		127.0	%
	Diluted	$	2.26		$	1.00		126.0	%

	Cash dividends	$	0.53		$	0.44		20.5	%

	Average common shares outstanding
	Basic		12,364,468			11,918,390		3.7	%
	Diluted		12,424,573			11,949,245		4.0	%

	Common shares outstanding at period end		12,312,933			12,358,562		-0.4	%

Performance Ratios
	Return on average equity		13.43	%		6.40	%	109.8	%
	Return on average tangible equity		16.09	%		8.01	%	100.9	%
	Return on average assets		1.32	%		0.59	%	123.7	%
	Net interest margin (A)		3.57	%		3.67	%	-2.7	%
	Efficiency ratio (B)		53.72	%		52.41	%	2.5	%

NOTE (A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21% for 2018 and 35% for 2017.

NOTE (B) – Computed on a tax equivalent basis excluding gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)
		For the Quarter Ended
Dollars in thousands		12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
Statements of Income
	Interest income
	Loans, including fees	$	22,659			$	21,295		$	20,962		$	20,366		$	20,031
	Securities		2,527				2,367			2,303			2,391			2,412
	Other		127				138			134			140			144
	Total interest income		25,313				23,800			23,399			22,897			22,587
	Interest expense
	Deposits		5,103				4,714			4,309			3,549			3,224
	Borrowings		2,158				1,873			1,815			2,091			1,925
	Total interest expense		7,261				6,587			6,124			5,640			5,149
	Net interest income		18,052				17,213			17,275			17,257			17,438
	Provision for loan losses		500				500			750			500			375
	Net interest income after provision for loan losses		17,552				16,713			16,525			16,757			17,063
	Noninterest income
	Insurance commissions		1,132				1,062			1,013			1,113			1,005
	Trust and wealth management fees		627				687			672			667			578
	Service charges on deposit accounts		1,209				1,215			1,116			1,091			1,200
	Bank card revenue		809				793			801			749			742
	Realized securities (losses) gains		(205	)			8			87			732			(71	)
	Bank owned life insurance income		248				250			249			275			258
	Other income		367				196			210			249			219
	Total noninterest income		4,187				4,211			4,148			4,876			3,931
	Noninterest expense
	Salaries and employee benefits		6,928				6,806			6,922			6,821			6,520
	Net occupancy expense		836				856			840			832			772
	Equipment expense		1,139				1,118			1,071			1,083			1,095
	Professional fees		385				503			385			333			355
	Advertising and public relations		193				170			188			103			185
	Amortization of intangibles		410				413			413			436			435
	FDIC premiums		140				210			240			240			250
	Bank card expense		395				384			361			335			319
	Foreclosed properties expense, net of losses		507				169			350			325			516
	Merger-related expense		59				86			–			–			14
	Other expenses		1,474				1,643			1,965			1,806			1,885
	Total noninterest expense		12,466				12,358			12,735			12,314			12,346
	Income before income taxes		9,273				8,566			7,938			9,319			8,648
	Income tax expense		1,823				1,667			1,658			1,876			6,325
	Net income	$	7,450			$	6,899		$	6,280		$	7,443		$	2,323

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)

		For the Quarter Ended
		12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
Per Share Data
	Earnings per common share
	Basic	$	0.60		$	0.56		$	0.51		$	0.60		$	0.19
	Diluted	$	0.60		$	0.55		$	0.51		$	0.60		$	0.19

	Cash dividends	$	0.14		$	0.13		$	0.13		$	0.13		$	0.11

	Average common shares outstanding
	Basic		12,358,104			12,374,350			12,366,522			12,358,849			12,325,067
	Diluted		12,407,678			12,439,051			12,431,984			12,383,757			12,371,507

	Common shares outstanding at period end		12,312,933			12,382,450			12,373,747			12,366,360			12,358,562

Performance Ratios
	Return on average equity		13.85	%		13.00	%		12.16	%		14.73	%		4.62	%
	Return on average tangible equity		16.41	%		15.53	%		14.68	%		17.80	%		6.12	%
	Return on average assets		1.38	%		1.31	%		1.19	%		1.40	%		0.44	%
	Net interest margin (A)		3.61	%		3.53	%		3.58	%		3.58	%		3.65	%
	Efficiency ratio (B)		51.02	%		54.25	%		55.88	%		53.84	%		52.44	%

NOTE (A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21% for 2018 and 35% for 2017.

NOTE (B) – Computed on a tax equivalent basis excluding gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Selected Balance Sheet Data (unaudited)

Dollars in thousands, except per share amounts		12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017

Assets
	Cash and due from banks	$	23,061		$	9,382		$	8,314		$	9,042		$	9,641
	Interest bearing deposits other banks		36,479			44,452			38,097			38,365			42,990
	Securities		293,284			288,040			283,221			296,890			328,723
	Loans, net		1,682,005			1,632,747			1,617,373			1,631,150			1,593,744
	Property held for sale		21,432			22,017			21,606			21,442			21,470
	Premises and equipment, net		37,553			36,888			36,017			35,554			34,209
	Goodwill and other intangible assets		25,842			26,252			26,665			27,077			27,513
	Cash surrender value of life insurance policies		42,420			42,208			41,932			41,668			41,358
	Other assets		38,510			36,741			34,427			33,707			34,592
	Total assets	$	2,200,586		$	2,138,727		$	2,107,652		$	2,134,895		$	2,134,240


Liabilities and Shareholders’ Equity
	Deposits	$	1,634,826		$	1,651,064		$	1,639,996		$	1,654,523		$	1,600,601
	Short-term borrowings		309,084			238,403			202,429			193,513			250,499
	Long-term borrowings and subordinated debentures		20,324			20,328			40,332			65,336			65,340
	Other liabilities		16,522			15,376			15,016			16,514			16,295
	Shareholders’ equity		219,830			213,556			209,879			205,009			201,505
	Total liabilities and shareholders’ equity	$	2,200,586		$	2,138,727		$	2,107,652		$	2,134,895		$	2,134,240


	Book value per common share	$	17.85		$	17.25		$	16.96		$	16.55		$	16.30
	Tangible book value per common share	$	15.75		$	15.13		$	14.81		$	14.36		$	14.08
	Tangible common equity to tangible assets		8.9	%		8.9	%		8.8	%		8.4	%		8.3	%

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Regulatory Capital Ratios (unaudited)

		12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
Summit Financial Group, Inc.
	CET1 Risk-based Capital	11.1	%	11.1	%	11.0	%	10.7	%	10.6	%
	Tier 1 Risk-based Capital	12.2	%	12.2	%	12.1	%	11.8	%	11.8	%
	Total Risk-based Capital	12.9	%	12.9	%	12.8	%	12.5	%	12.5	%
	Tier 1 Leverage Ratio	10.1	%	10.1	%	9.9	%	9.5	%	9.4	%

Summit Community Bank, Inc.
	CET1 Risk-based Capital	12.0	%	12.0	%	12.0	%	11.7	%	11.7	%
	Tier 1 Risk-based Capital	12.0	%	12.0	%	12.0	%	11.7	%	11.7	%
	Total Risk-based Capital	12.8	%	12.7	%	12.8	%	12.5	%	12.5	%
	Tier 1 Leverage Ratio	10.0	%	9.9	%	9.8	%	9.5	%	9.4	%

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition (unaudited)

Dollars in thousands	12/31/2018		9/30/2018			6/30/2018			3/31/2018			12/31/2017

Commercial	$	194,315		$	167,972		$	171,410		$	189,586		$	189,981
Mortgage warehouse lines		39,140			35,910			54,332			45,702			30,757
Commercial real estate
Owner occupied		266,362			272,475			262,174			265,075			250,202
Non-owner occupied		564,826			530,568			503,047			498,445			484,902
Construction and development
Land and development		68,833			71,819			74,018			66,841			67,219
Construction		24,731			25,703			25,711			33,327			33,412
Residential real estate
Non-jumbo		336,977			340,783			343,044			346,477			354,101
Jumbo		73,599			72,327			66,831			67,169			62,267
Home equity		80,910			82,018			82,409			83,382			84,028
Consumer		32,460			33,664			34,249			34,825			36,202
Other		12,899			12,452			12,728			12,578			13,238
Total loans, net of unearned fees		1,695,052			1,645,691			1,629,953			1,643,407			1,606,309
Less allowance for loan losses		13,047			12,944			12,580			12,257			12,565
Loans, net	$	1,682,005		$	1,632,747		$	1,617,373		$	1,631,150		$	1,593,744

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Deposit Composition (unaudited)

Dollars in thousands	12/31/2018		9/30/2018			6/30/2018			3/31/2018			12/31/2017
Core deposits
Non-interest bearing checking	$	222,120		$	232,697		$	217,134		$	219,293		$	217,493
Interest bearing checking		523,257			505,411			472,041			447,172			410,606
Savings		284,173			301,269			322,940			346,962			358,168
Time deposits		316,914			316,941			322,801			318,556			318,036
Total core deposits		1,346,464			1,356,318			1,334,916			1,331,983			1,304,303

Brokered deposits		220,497			227,312			238,662			242,049			202,509
Other non-core time deposits		67,866			67,434			66,418			80,491			93,789
Total deposits	$	1,634,827		$	1,651,064		$	1,639,996		$	1,654,523		$	1,600,601

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information (unaudited)

		For the Quarter Ended
Dollars in thousands		12/31/2018			9/30/2018				6/30/2018				3/31/2018				12/31/2017

	Gross loan charge-offs	$	705			$	413			$	525			$	960			$	550
	Gross loan recoveries		(307	)			(278	)			(97	)			(153	)			(276	)
	Net loan charge-offs (recoveries)	$	398			$	135			$	428			$	807			$	274


	Net loan charge-offs to average loans (annualized)		0.10	%			0.03	%			0.10	%			0.20	%			0.07	%
	Allowance for loan losses	$	13,047			$	12,944			$	12,580			$	12,257			$	12,565
	Allowance for loan losses as a percentage of period end loans		0.77	%			0.79	%			0.77	%			0.75	%			0.78	%
	Nonperforming assets:
	Nonperforming loans
	Commercial	$	935			$	801			$	954			$	734			$	696
	Commercial real estate		3,239				5,090				3,238				3,400				3,164
	Residential construction and development		3,198				3,200				3,233				3,642				3,569
	Residential real estate		7,506				7,760				8,241				7,521				7,656
	Consumer		147				118				110				160				238
	Total nonperforming loans		15,025				16,969				15,776				15,457				15,323
	Foreclosed properties
	Commercial real estate		1,762				1,762				1,818				1,875				1,789
	Commercial construction and development		6,479				6,790				6,815				7,140				7,392
	Residential construction and development		11,543				11,614				11,517				11,053				11,182
	Residential real estate		1,648				1,851				1,456				1,374				1,107
	Total foreclosed properties		21,432				22,017				21,606				21,442				21,470
	Other repossessed assets		5				5				12				18				68
	Total nonperforming assets	$	36,462			$	38,991			$	37,394			$	36,917			$	36,861


	Nonperforming loans to period end loans		0.89	%			1.03	%			0.97	%			0.94	%			0.95	%
	Nonperforming assets to period end assets		1.66	%			1.82	%			1.77	%			1.73	%			1.73	%

	Troubled debt restructurings
	Performing	$	26,609			$	27,441			$	27,559			$	27,408			$	28,347
	Nonperforming		388				113				281				76				26
	Total troubled debt restructurings	$	26,997			$	27,554			$	27,840			$	27,484			$	28,373

Loans Past Due 30-89 Days (unaudited)
		For the Quarter Ended
Dollars in thousands		12/31/2018		9/30/2018			6/30/2018			3/31/2018			12/31/2017

	Commercial	$	219		$	607		$	319		$	539		$	586
	Commercial real estate		161			988			546			601			1,082
	Construction and development		194			393			264			174			1,127
	Residential real estate		6,249			5,513			4,125			5,218			7,236
	Consumer		593			345			337			425			504
	Other		38			11			8			15			38
	Total	$	7,454		$	7,857		$	5,599		$	6,972		$	10,573

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q4 2018 vs Q3 2018 vs Q4 2017 (unaudited)
	Q4 2018								Q3 2018								Q4 2017
	Average			Earnings /		Yield /			Average			Earnings /		Yield /			Average			Earnings /		Yield /
Dollars in thousands	Balances			Expense		Rate			Balances			Expense		Rate			Balances			Expense		Rate

ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable	$	1,660,250		$	22,519		5.38	%	$	1,615,700		$	21,154		5.19	%	$	1,562,978		$	19,879		5.05	%
Tax-exempt (2)		15,322			177		4.58	%		15,688			178		4.50	%		16,902			234		5.49	%
Securities
Taxable		176,059			1,502		3.38	%		155,574			1,227		3.13	%		202,377			1,328		2.60	%
Tax-exempt (2)		132,088			1,296		3.89	%		146,174			1,443		3.92	%		142,641			1,668		4.64	%
Interest bearing deposits other banks and Federal funds sold		35,402			127		1.42	%		38,642			138		1.42	%		42,021			144		1.36	%
Total interest earning assets		2,019,121			25,621		5.03	%		1,971,778			24,140		4.86	%		1,966,919			23,253		4.69	%
Noninterest earning assets
Cash & due from banks		9,686								9,326								9,753
Premises & equipment		37,224								36,533								34,263
Other assets		109,228								108,628								111,596
Allowance for loan losses		(13,172	)							(12,865	)							(12,628	)
Total assets	$	2,162,087							$	2,113,400							$	2,109,903


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Interest bearing liabilities
Interest bearing demand deposits	$	519,465		$	1,504		1.15	%	$	486,107		$	1,168		0.95	%	$	405,307		$	447		0.44	%
Savings deposits		289,809			861		1.18	%		312,467			857		1.09	%		360,630			684		0.75	%
Time deposits		607,037			2,738		1.79	%		616,657			2,689		1.73	%		629,871			2,093		1.32	%
Short-term borrowings		270,092			1,909		2.80	%		211,211			1,436		2.70	%		220,027			1,240		2.24	%
Long-term borrowings and subordinated debentures		20,326			249		4.86	%		39,265			437		4.42	%		65,342			685		4.16	%
Total interest bearing liabilities		1,706,729			7,261		1.69	%		1,665,707			6,587		1.57	%		1,681,177			5,149		1.22	%

Noninterest bearing liabilities
Demand deposits		223,999								219,986								214,624
Other liabilities		16,138								15,447								12,886
Total liabilities		1,946,866								1,901,140								1,908,687

Shareholders’ equity – common		215,221								212,260								201,216
Total liabilities and shareholders’ equity	$	2,162,087							$	2,113,400							$	2,109,903


NET INTEREST EARNINGS				$	18,360							$	17,553							$	18,104

NET INTEREST MARGIN							3.61	%							3.53	%							3.65	%

(1) For purposes of this table, nonaccrual loans are included in average loan balances.

(2) For purposes of this table, interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for 2018 periods and 35% for 2017 period. The taxable equivalent adjustment results in an increase in interest income of $309,000, $340,000 and $666,000 for Q4 2018, Q3 2018 and Q4 2017, respectively.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
YTD 2018 vs YTD 2017 (unaudited)

	YTD 2018								YTD 2017
	Average			Earnings /		Yield /			Average			Earnings /		Yield /
Dollars in thousands	Balances			Expense		Rate			Balances			Expense		Rate

ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable	$	1,626,725		$	84,716		5.21	%	$	1,480,601		$	74,365		5.02	%
Tax-exempt (2)		15,776			718		4.55	%		14,899			835		5.60	%
Securities
Taxable		170,912			5,341		3.13	%		200,596			5,071		2.53	%
Tax-exempt (2)		136,913			5,375		3.93	%		129,342			6,060		4.69	%
Interest bearing deposits other banks and Federal funds sold		38,148			539		1.41	%		43,400			609		1.40	%
Total interest earning assets		1,988,474			96,689		4.86	%		1,868,838			86,940		4.65	%

Noninterest earning assets
Cash & due from banks		9,517								8,492
Premises & equipment		36,025								31,750
Other assets		107,856								109,456
Allowance for loan losses		(12,830	)							(12,196	)
Total assets	$	2,129,042							$	2,006,340


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Interest bearing liabilities
Interest bearing demand deposits	$	471,725		$	4,205		0.89	%	$	358,225		$	1,169		0.33	%
Savings deposits		320,184			3,233		1.01	%		363,949			2,563		0.70	%
Time deposits		621,659			10,237		1.65	%		609,156			7,478		1.23	%
Short-term borrowings		228,142			5,993		2.63	%		205,743			4,473		2.17	%
Long-term borrowings and subordinated debentures		44,132			1,944		4.40	%		65,629			2,697		4.11	%
		1,685,842			25,612		1.52	%		1,602,702			18,380		1.15	%
Noninterest bearing liabilities
Demand deposits		218,541								200,707
Other liabilities		15,574								16,669
Total liabilities		1,919,957								1,820,078

Shareholders’ equity – common		209,085								186,262
Total liabilities and shareholders’ equity	$	2,129,042							$	2,006,340

NET INTEREST EARNINGS				$	71,077							$	68,560

NET INTEREST MARGIN							3.57	%							3.67	%

(1) For purposes of this table, nonaccrual loans are included in average loan balances.

(2) For purposes of this table, interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for 2018 and 35% for 2017. The taxable equivalent adjustment results in an increase in interest income of $1,280,000 and $2,413,000, respectively.

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