~~FORWARD LOOKING INFORMATION~~

This filing contains certain forward looking statements (as defined in the Private Securities Litigation Act of 1995), which reflect our beliefs and expectations based on information currently available. These forward looking statements are inherently subject to significant risks and uncertainties, including changes in general economic and financial market conditions, our ability to effectively carry out our business plans and changes in regulatory or legislative requirements. Other factors that could cause or contribute to such differences are changes in competitive conditions and continuing consolidation in the financial services industry. Although we believe the expectations reflected in such forward looking statements are reasonable, actual results may differ materially.

PART I.

Item 1. Business

~~General~~

Summit Financial Group, Inc. (“Company” or “Summit”) is a $1.6 billion financial holding company headquartered in Moorefield, West Virginia. We provide ~~commercial and retail~~community banking services primarily in the Eastern Panhandle and South Central regions of West Virginia and the Northern region of Virginia. We provide these services through our community bank subsidiary: Summit Community Bank (“Summit Community” or “Bank”). We also operate Summit Insurance Services, LLC in Moorefield, West Virginia and Leesburg, Virginia.

Community Banking

We provide a wide range of community banking services, including demand, savings and time deposits; commercial, real estate and consumer loans; letters of credit; and cash management services. The deposits of ~~the~~ Summit Community are insured by the Federal Deposit Insurance Corporation ("FDIC").

In order to compete with other financial service providers, we principally rely upon personal relationships established by our officers, directors and employees with our ~~customers,~~clients, and specialized services tailored to meet our ~~customers’~~clients’ needs. We ~~and our Bank Subsidiary~~ have maintained a strong community orientation by, among other things, supporting the active participation of staff members in local charitable, civic, school, religious and community development activities. We also have a marketing program that primarily utilizes local radio and newspapers to advertise. This approach, coupled with continuity of service by the same staff members, enables Summit Community to develop long-term customer relationships, maintain high quality service and respond quickly to customer needs. We believe that our emphasis on local relationship banking, together with a prudent approach to lending, are important factors in our success and growth.

All operational and support functions that are transparent to clients are centralized in order to achieve consistency and cost efficiencies in the delivery of products and services by each banking office. The central office provides services such as data processing, bookkeeping, accounting, treasury management, loan administration, loan review, compliance, risk management and internal auditing to enhance our delivery of quality service. We also provide overall direction in the areas of credit policy and administration, strategic planning, marketing, investment portfolio management and other financial and administrative services. The banking offices work closely with us to develop new products and services needed by their customers and to introduce enhancements to existing products and services.

Lending

Our primary lending focus is providing commercial loans to local businesses with annual sales ranging from $300,000 to $30 million and providing owner-occupied real estate loans to individuals. Typically, our customers have financing requirements between $50,000 and $1,000,000. We generally do not seek loans of more than $5 million, but will consider larger lending relationships which involve exceptional levels of credit quality. Under our commercial banking strategy, we focus on offering a broad line of financial products and services to small and medium-sized businesses through full service banking offices. Summit Community Bank has senior management with extensive lending experience. These managers exercise substantial authority over credit and pricing decisions, subject to loan committee approval for larger credits. ~~This decentralized management approach, coupled with continuity~~

We segment our loan portfolio in to the following major lending categories: commercial, commercial real estate, construction and development, residential real estate, and consumer. Commercial loans are loans made to commercial borrowers that are not secured by real estate. These encompass loans secured by accounts receivable, inventory, equipment, as well as unsecured loans. Commercial real estate loans consist of ~~service~~commercial mortgages, which generally are secured by nonresidential and multi-family residential properties. Commercial real estate loans are made to many of the same staff members, enables Summit Community to develop long-term customer relationships, maintain high quality service and respond quickly to customer needs. We believe that our emphasis on local relationship banking, together with a conservative approach to lending, are important factors in our success and growth. We centralize operational and support functions that are transparent to customers in order to achieve consistency and cost efficiencies in the delivery of products and services by each banking office. The central office provides services such as data processing, bookkeeping, accounting, treasury management, loan administration, loan review, compliance, risk management and internal auditing to enhance our delivery of quality service. We also provide overall direction in the areas of credit policy and administration, strategic planning, marketing, investment portfolio management and other financial and administrative services. The banking offices work closely with us to develop new products and services needed by their customers and carry similar industry risks as the commercial loan portfolio. Construction and development loans are loans made for the purpose of financing construction or development projects. This portfolio includes commercial and residential land development loans, one-to-four family housing construction both pre-sold and speculative in nature, multi-family housing construction, non-residential building construction, and undeveloped land. Residential real estate loans are mortgage loans to ~~introduce enhancements to existing products~~consumers and ~~services.~~

are secured primarily by a first lien deed of trust. These loans are traditional one-to-four family residential mortgages. Also included in this category of loans are second liens on one-to-four family properties as well as home equity loans. Consumer loans are loans that establish consumer credit that is granted for the consumer’s personal use. These loans include automobile loans, recreational vehicle loans, as well as personal secured and unsecured loans.

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Our loan underwriting guidelines and standards are consistent with the prudent banking practices applicable to the relevant exposure and are updated periodically and presented to the Board of Directors for approval. The purpose of these standards and guidelines are: to grant loans on a sound and collectible basis, to invest available funds in a safe and profitable manner, to serve the legitimate credit needs of our primary market area, and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program.

Our real estate underwriting loan-to-value (“LTV”) policy limits are at or below current bank regulatory guidelines, as follows:

	Regulatory	Summit
	LTV	LTV
	Guideline	Policy Limit
Undeveloped land	65%	65%
Land development	75%	70%
Construction:
Commercial, multifamily, and other non-residential	80%	80%
1-4 family residential, consumer borrower	85%	85%
1-4 family residential, commercial borrower	85%	80%
Improved property	85%	80%
Owner occupied 1-4 family	90%	85%
Home equity	90%	90%

Exceptions are permitted to these regulatory guidelines as long as such exceptions are identified, monitored, and reported to the Board of Directors at least quarterly, and the total of such exceptions do not exceed 100% of Summit Community’s total regulatory capital, which totaled $134.9 million as of December 31, 2009. As of this date, we had loans approximating $76.5 million that exceeded the above regulatory LTV guidelines, as follows:

Residential real estate
Owner occupied – 1st lien	$ 13.4 million
Owner occupied – 2nd lien	$ 1.9 million

Commercial real estate
Residential non-owner occupied, 1st lien	$ 4.8 million
Owner occupied commercial real estate	$ 30.6 million
Other commercial real estate	$ 8.9 million

Construction, development & land	$ 16.9 million

Our underwriting standards and practice are designed to originate both fixed and variable rate loan products consistent with the underwriting guidelines discussed above. Adjustable rate and variable rate loans are underwritten giving consideration both to the loan’s initial rate and to higher assumed rates commensurate with reasonably anticipated market conditions. Accordingly, we want to insure that adequate primary repayment capacity exists to address both future increases in interest rates, and fluctuations in the underlying cash flows available for repayment. Historically, we have not offered “teaser rates” or “payment option ARM” loans. Further, we have had no loan portfolio products which were specifically designed for “sub-prime” borrowers (defined as consumers with a credit score of less than 599).

Supervision and Regulation

General

We, as a financial holding company, are subject to the restrictions of the Bank Holding Company Act of 1956, as amended (“BHCA”), and are registered pursuant to its provisions. As a registered financial holding company, we are subject to the reporting requirements of the Federal Reserve Board of Governors (“FRB”), and are subject to examination by the FRB.

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As a financial holding company doing business in West Virginia, we are also subject to regulation by the West Virginia Board of Banking and Financial Institutions and must submit annual reports to the West Virginia Division of Banking.

The BHCA prohibits the acquisition by a financial holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the FRB. With certain exceptions, a financial holding company is prohibited from acquiring direct or indirect ownership or control or more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking or managing or controlling banks.

The FRB, in its Regulation Y, permits financial holding companies to engage in non-banking activities closely related to banking or managing or controlling banks. Approval of the FRB is necessary to engage in these activities or to make acquisitions of corporations engaging in these activities as the FRB determines whether these acquisitions or activities are in the public interest. In addition, by order, and on a case by case basis, the FRB may approve other non-banking activities.

The BHCA permits us to purchase or redeem our own securities. However, Regulation Y provides that prior notice must be given to the FRB if the total consideration for such purchase or consideration, when aggregated with the net consideration paid by us for all such purchases or redemptions during the preceding 12 months is equal to 10 percent or more of the company’s consolidated net worth. Prior notice is not required if (i) both before and immediately after the redemption, the financial holding company is well-capitalized; (ii) the financial holding company is well-managed and (iii) the financial holding company is not the subject of any unresolved supervisory issues.

Federal law restricts subsidiary banks of a financial holding company from making certain extensions of credit to the parent financial holding company or to any of its subsidiaries, from investing in the holding company stock, and limits the ability of a subsidiary bank to take its parent company stock as collateral for the loans of any borrower. Additionally, federal law prohibits a financial holding company and its subsidiaries from engaging in certain tie-in arrangements in conjunction with the extension of credit or furnishing of services.

Summit Community is subject to West Virginia statutes and regulations, and is primarily regulated by the West Virginia Division of Banking and is also subject to regulations promulgated by the FRB and the FDIC. As members of the FDIC, the deposits of the bank are insured as required by federal law. Bank regulatory authorities regularly examine revenues, loans, investments, management practices, and other aspects of Summit Community. These examinations are conducted primarily to protect depositors and not shareholders. In addition to these regular examinations, Summit Community must furnish to regulatory authorities quarterly reports containing full and accurate statements of their affairs.

~~FDIC Assessments~~

~~In late 2008, the FDIC raised assessment rates~~The FRB has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations, and can assess civil money penalties for ~~the first quarter of 2009 by~~certain activities conducted on a ~~uniform 7~~knowing and reckless basis, ~~points, resulting in~~if those activities caused a range between 12 and 50 basis points, depending upon the risk category. At the same time, the FDIC proposed further changes in the assessment system beginning in the second quarter of 2009. These changes commencing April 1, 2009, would set base assessment rates between 10 and 45 basis points, depending on the risk category, but would apply adjustments (relating to unsecured debt, secured liabilities, and brokered deposits) to individual institutions that could result in assessment rates between 8 and 21 basis points for institutions in the lowest risk category and 43 to 77.5 basis points for institutions in the highest risk category. A final rule to be issued in early 2009 could adjust these assessment rates further in light of developing conditions. The purpose of the April 1, 2009 changes is to ensure that riskier institutions will bear a greater share of the proposed increase in assessments, and will be subsidizedsubstantial loss to a ~~lesser degree by less risky institutions.~~depository institution. The ~~changes are also part of an FDIC plan to restore~~penalties can be as high as $1 million for each day the ~~designated reserve ratio to 1.25% by 2013.~~

activity continues.

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On February 27, 2009, the FDIC approved an interim rule to institute a one-time special assessment of 20 cents per $100 in domestic deposits to restore the DIF reserves depleted by recent bank failures. The interim rule additionally reserves the right of the FDIC to charge an additional up-to-10 basis point special premium at a later point if the DIF reserves continue to fall. The FDIC also approved an increase in regular premium rates for the second quarter of 2009. For most banks, this will be between 12 to 16 basis points per $100 in domestic deposits. Premiums for the rest of 2009 have not yet been set. The FDIC noted it would consider reducing the special one-time assessment to 10 cents if the U.S. Congress were to approve an increase in its operating line of credit with the U.S. Treasury.

Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crisis

The Congress, Treasury and the federal banking regulators, including the FDIC, have taken broad action since early September 2008 to address volatility in the U.S. financial system.

In October 2008, the Emergency Economic Stabilization Act (“EESA”) was enacted. EESA authorizes Treasury to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies under the Troubled Assets Relief Program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. Treasury has allocated $250 billion towards the TARP's Capital Purchase Program (“CPP”). Under the CPP, Treasury will purchase debt or equity securities from participating institutions. The TARP also will include direct purchases or guarantees of troubled assets of financial institutions. Participants in the CPP are subject to executive compensation limits and are encouraged to expand their lending and mortgage loan modifications. The American Recovery and Reinvestment Act of 2009 ("ARRA"), as described below, has further modified TARP and the CPP. As of March 15, 2010, Summit has received no assistance under TARP’s CPP.

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ARRA was signed into law on February 17, 2009. ARRA contains a wide variety of programs intended to stimulate the economy and provides for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients.

EESA also increased FDIC deposit insurance on most accounts from $100,000 to $250,000 through ~~2009.~~

2009, which the FDIC has subsequently extended through 2013.

Following a systemic risk determination, the FDIC established a Temporary Liquidity Guarantee Program ("TLGP") on October 14, 2008. The TLGP includes the Transaction Account Guarantee Program ("TAGP"), which provides unlimited deposit insurance coverage through ~~December 31, 2009~~June 30, 2010 for noninterest-bearing transaction accounts (including all demand deposit checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TAGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place. The TLGP also includes the Debt Guarantee Program ("DGP"), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125% of the eligible entity's eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2% of their liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008. Summit and Summit Community participate in the TAGP and did not opt out of the DGP. As of March ~~2, 2009,~~15, 2010, neither had utilized the DGP by issuing senior unsecured debt.

Permitted Non-banking Activities

The FRB permits, within prescribed limits, financial holding companies to engage in non-banking activities closely related to banking or to managing or controlling banks. Such activities are not limited to the state of West Virginia. Some examples of non-banking activities which presently may be performed by a financial holding company are: making or acquiring, for its own account or the account of others, loans and other extensions of credit; operating as an industrial bank, or industrial loan company, in the manner authorized by state law; servicing loans and other extensions of credit; performing or carrying on any one or more of the functions or activities that may be performed or carried on by a trust company in the manner authorized by federal or state law; acting as an investment or financial advisor; leasing real or personal property; making equity or debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation and the development of low income areas; providing bookkeeping services or financially oriented data processing services for the holding company and its subsidiaries; acting as an insurance agent or a broker; acting as an underwriter for credit life

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insurance which is directly related to extensions of credit by the financial holding company system; providing courier services for certain financial documents; providing management consulting advice to nonaffiliated banks; selling retail money orders having a face value of not more than $1,000, traveler's checks and U.S. savings bonds; performing appraisals of real estate; arranging commercial real estate equity financing under certain limited circumstances; providing securities brokerage services related to securities credit activities; underwriting and dealing in government obligations and money market instruments; providing foreign exchange advisory and transactional services; and acting under certain circumstances, as futures commission merchant for nonaffiliated persons in the execution and clearance on major commodity exchanges of futures contracts and options.

Credit and Monetary Policies and Related Matters

Summit Community is affected by the fiscal and monetary policies of the federal government and its agencies, including the FRB. An important function of these policies is to curb inflation and control recessions through control of the supply of money and credit. The operations of Summit Community are affected by the policies of government regulatory authorities, including the FRB which regulates money and credit conditions through open market operations in United States Government and Federal agency securities, adjustments in the discount rate on member bank borrowings, and requirements against deposits and regulation of interest rates payable by member banks on time and savings deposits. These policies have a significant influence on the growth and distribution of loans, investments and deposits, and interest rates charged on loans, or paid for time and savings deposits, as well as yields on investments. The FRB has had a significant effect on the operating results of commercial banks in the past and is expected to continue to do so in the future. Future policies of the FRB and other authorities and their effect on future earnings cannot be predicted.

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The FRB has a policy that a financial holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each such subsidiary bank. Under the source of strength doctrine, the FRB may require a financial holding company to contribute capital to a troubled subsidiary bank, and may charge the financial holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. This capital injection may be required at times when Summit may not have the resources to provide it. Any capital loans by a holding company to any subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In addition, the Crime Control Act of 1990 provides that in the event of a financial holding company's bankruptcy, any commitment by such holding company to a Federal bank or thrift regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

~~In 1989, the United States Congress enacted the~~The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")~~. Under FIRREA~~ provides that depository institutions insured by the FDIC may ~~now~~ be liable for any losses incurred by, or reasonably expected to be incurred by, the FDIC ~~after August 9, 1989,~~ in connection with (i) the default of a commonly controlled FDIC-insured depository institution, or (ii) any assistance provided by the FDIC to commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Accordingly, in the event that any insured bank or subsidiary of Summit causes a loss to the FDIC, other bank subsidiaries of Summit could be liable to the FDIC for the amount of such loss.

Under federal law, the OCC may order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank's capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock of any assessed shareholder failing to pay the assessment. Similarly, the laws of certain states provide for such assessment and sale with respect to the subsidiary banks chartered by such states. Summit, as the sole stockholder of Summit Community, is subject to such provisions.

Capital Requirements

As a financial holding company, we are subject to FRB risk-based capital guidelines. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Under the guidelines and related policies, financial holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into four weighted categories, with higher levels of capital being required for categories perceived as representing greater risk. Summit Community is subject to

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substantially similar capital requirements adopted by its applicable regulatory agencies.

Generally, under the applicable guidelines, a financial institution's capital is divided into two tiers. "Tier 1", or core capital, includes common equity, noncumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangibles. "Tier 2", or supplementary capital, includes, among other things, cumulative and limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan losses, subject to certain limitations, less required deductions. "Total capital" is the sum of Tier 1 and Tier 2 capital. Financial holding companies are subject to substantially identical requirements, except that cumulative perpetual preferred stock can constitute up to 25% of a financial holding company's Tier 1 capital.

Financial holding companies are required to maintain a risk-based capital ratio of 8%, of which at least 4% must be Tier 1 capital. The appropriate regulatory authority may set higher capital requirements when an institution's particular circumstances warrant. For purposes of the leverage ratio, the numerator is defined as Tier 1 capital and the denominator is defined as adjusted total assets (as specified in the guidelines). The guidelines provide for a minimum leverage ratio of 3% for financial holding companies that meet certain specified criteria, including excellent asset quality, high liquidity, low interest rate exposure and the highest regulatory rating. Financial holding companies not meeting these criteria are required to maintain a leverage ratio which exceeds 3% by a cushion of at least 1 to 2 percent.

The guidelines also provide that financial holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the FRB's guidelines indicate that the FRB will continue to consider a "tangible Tier 1 leverage

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ratio" in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of an institution's Tier 1 capital, less all intangibles, to total assets, less all intangibles.

~~On August 2, 1995,~~Section 305 of FDICIA (as defined below) requires the FRB and other ~~banking agencies issued their final rule to implement the portion of Section 305 of FDICIA that requires the~~ banking agencies to revise their risk-based capital standards to ensure that those standards take adequate account of interest rate risk. This final rule amends the capital standards to specify that the banking agencies ~~will~~ include, in their evaluations of a bank’s capital adequacy, an assessment of the exposure to declines in the economic value of the bank’s capital due to changes in interest rates.

Failure to meet applicable capital guidelines could subject the financial holding company to a variety of enforcement remedies available to the federal regulatory authorities, including limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital and termination of deposit insurance by the FDIC, as well as to the measures described under the "Federal Deposit Insurance Corporation Improvement Act of 1991" as applicable to undercapitalized institutions.

Our regulatory capital ratios and Summit ~~Community's~~Community’s capital ratios as of year end ~~2008~~2009 are set forth in the table in Note 1718 of the notes to the consolidated financial statements on page 73.

Federal Deposit Insurance Corporation Improvement Act of 1991

~~In December, 1991, Congress enacted the~~The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")~~, which~~ substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Corporation Act and made revisions to several other banking statues.

FDICIA establishes a new regulatory scheme, which ties the level of supervisory intervention by bank regulatory authorities primarily to a depository institution's capital category. Among other things, FDICIA authorizes regulatory authorities to take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

By regulation, an institution is "well-capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. Summit Community was a "well capitalized" institution as of December 31, ~~2008. As well-capitalized~~2009. Well-capitalized institutions ~~they~~ are permitted to engage in a wider range of banking activities, including among other things, the accepting of "brokered deposits," and the offering of interest rates on deposits higher than

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the prevailing rate in their respective markets.

Another requirement of FDICIA is that Federal banking agencies must prescribe regulations relating to various operational areas of banks and financial holding companies. These include standards for internal audit systems, loan documentation, information systems, internal controls, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and such other standards as the agencies deem appropriate.

Reigle-Neal Interstate Banking Bill

In 1994, Congress passed the Reigle-Neal Interstate Banking Bill (the "Interstate Bill"). The Interstate Bill permits certain interstate banking activities through a holding company structure, effective September 30, 1995. It permits interstate branching by merger effective June 1, 1997 unless states "opt-in" sooner, or "opt-out" before that date. States may elect to permit de novo branching by specific legislative election. In March, 1996, West Virginia adopted changes to its banking laws so as to permit interstate banking and branching to the fullest extent permitted by the Interstate Bill. The Interstate Bill permits consolidation of banking institutions across state lines and, under certain conditions, de novo entry.

USA PATRIOT Act

The Uniting and Strengthening America by Providing Appropriate Tools Is Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) is a comprehensive anti-terrorism legislation. The USA PATRIOT Act requires financial institutions to help prevent, detect and prosecute international money laundering and the financing of terrorism. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial

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institution under the Bank Merger Act, which applies to our bank, or the BHCA, which applies to Summit. We, and our subsidiaries, including the bank, have adopted systems and procedures to comply with the USA PATRIOT Act and its regulations as adopted by the Secretary of the Treasury.

Community Reinvestment Act

Financial holding companies and their subsidiary banks are also subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”). Under the CRA, the ~~Federal Reserve Board (or~~FRB(or other appropriate bank regulatory agency) is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the communities served by that bank, including low and moderate income neighborhoods. Further such assessment is also required of any financial holding company which has applied to (i) charter a national bank, (ii) obtain deposit insurance coverage for a newly chartered institution, (iii) establish a new branch office that will accept deposits, (iv) relocate an office, or (v) merge or consolidate with, or acquire the assets or assume the liabilities of a federally-regulated financial institution. In the case of a financial holding company applying for approval to acquire a bank or other financial holding company, the FRB will assess the record of each subsidiary of the applicant financial holding company, and such records may be the basis for denying the application or imposing conditions in connection with approval of the application. On December 8, 1993, the Federal regulators jointly announced proposed regulations to simplify enforcement of the CRA by substituting the present twelve categories with three assessment categories for use in calculating CRA ratings (the “December 1993 Proposal”). In response to comments received by the regulators regarding the December 1993 Proposal, the federal bank regulators issued revised CRA proposed regulations on September 26, 1994 (the “Revised CRA Proposal”). The Revised CRA Proposal, compared to the December 1993 Proposal, essentially broadens the scope of CRA performance examinations and more explicitly considers community development activities. Moreover, in 1994, the Department of Justice became more actively involved in enforcing fair lending laws.

In the most recent CRA examination by the bank regulatory authorities, Summit Community Bank was given a “satisfactory” CRA rating.

Graham-Leach-Bliley Act of 1999

The enactment of the Graham-Leach-Bliley Act of 1999 (the “GLB Act”) represents a pivotal point in the history of the financial services industry. The GLB Act swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. ~~Effective March 11, 2000, new~~New opportunities were available for banks, other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework through the financial holding company, which have as its “umbrella regulator” the FRB. Functional regulation of the financial holding company’s separately regulated subsidiaries are conducted by their primary functional regulators. The GLB Act makes a CRA rating of satisfactory or above necessary for insured depository institutions and their financial holding companies to engage in new financial activities. The GLB Act ~~also provides~~specifically gives the FRB the authority, by regulation or order, to expand the list of “financial” or “incidental” activities, but requires consultation with the U.S. Treasury Department, and gives the FRB authority to allow a ~~Federal right~~financial holding company to ~~privacy~~engage in any activity that is “complementary” to a financial activity and does not “pose a substantial risk to the safety and soundness of ~~non-public personal information of individual customers.~~depository institutions or the financial system generally.”

Under the GLB Act, all financial institutions are required to adopt privacy policies, restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer’s request, and establish procedures and practices to protect customer data from unauthorized access. We have established policies and procedures to assure our compliance with all privacy provisions of the GLB Act.

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Deposit Acquisition Limitation

Under West Virginia banking law, an acquisition or merger is not permitted if the resulting depository institution or its holding company, including its affiliated depository institutions, would assume additional deposits to cause it to control deposits in the State of West Virginia in excess of twenty five percent (25%) of such total amount of all deposits held by insured depository institutions in West Virginia. This limitation may be waived by the Commissioner of Banking by showing good cause.

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Consumer Laws and Regulations

In addition to the banking laws and regulations discussed above, bank subsidiaries are also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. Among the more prominent of such laws and regulations are the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Fair Housing Act. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. Bank subsidiaries must comply with the applicable provisions of these consumer protection laws and regulations as part of their ongoing customer relations.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOA”) was enacted, which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Effective August 29, 2002, as directed by Section 302(a) of SOA, our Chief Executive Officer and Chief Financial Officer are each required to certify that Summit’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including requiring these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal controls; and they have included information in Summit’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

Furthermore, in November 2003, in response to the directives of the SOA, NASDAQ adopted substantially expanded corporate governance criteria for the issuers of securities quoted on the NASDAQ Capital Market (the market on which our common stock is listed for trading). The new NASDAQ rules govern, among other things, the enhancement and regulation of corporate disclosure and internal governance of listed companies and of the authority, role and responsibilities of their boards of directors and, in particular, of “independent” members of such boards of directors, in the areas of nominations, corporate governance, compensation and the monitoring of the audit and internal financial control processes.

Competition

We engage in highly competitive activities. Each activity and market served involves competition with other banks and savings institutions, as well as with non-banking and non-financial enterprises that offer financial products and services that compete directly with our products and services. We actively compete with other banks, mortgage companies and other financial service companies in our efforts to obtain deposits and make loans, in the scope and types of services offered, in interest rates paid on time deposits and charged on loans, and in other aspects of banking.

In addition to competing with other banks and mortgage companies, we compete with other financial institutions engaged in the business of making loans or accepting deposits, such as savings and loan associations, credit unions, industrial loan associations, insurance companies, small loan companies, finance companies, real estate investment trusts, certain governmental agencies, credit card organizations and other enterprises. In recent years, competition for money market accounts from securities brokers has also intensified. Additional competition for deposits comes from government and private issues of debt obligations and other investment alternatives for depositors such as money market funds. We take an aggressive competitive posture, and intend to continue vigorously competing for market share within our service areas by offering competitive rates and terms on both loans and deposits.

Transactions with Affiliates

There are various statutory and regulatory limitations, including those set forth in sections 23A and 23B of the Federal Reserve Act and the related Federal Reserve Regulation W, governing the extent to which the bank will be able to purchase assets from or securities of or otherwise finance or transfer funds to us or our nonbanking affiliates. Among other restrictions, such transactions between the bank and any one affiliate (including Summit) generally will be limited to 10% of the bank’s capital and surplus, and transactions between the bank and all affiliates will be limited to 20% of the bank’s capital and surplus. Furthermore, loans and extensions of credit are required to be secured in specified amounts and are required to be on terms and conditions consistent with safe and sound banking practices.

~~Employees~~

~~At March 1, 2009, we employed 238 full-time equivalent employees.~~

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In addition, any transaction by a bank with an affiliate and any sale of assets or provisions of services to an affiliate generally must be on terms that are substantially the same, or at least as favorable, to the bank as those prevailing at the time for comparable transactions with nonaffiliated companies.

Employees

At March 1, 2010, we employed 232 full-time equivalent employees.

Available Information

Our internet website address is www.summitfgi.com, and our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments to such filed reports with the Securities and Exchange Commission (“SEC”) are accessible through this website free of charge as soon as reasonably practicable after we electronically file such reports with the SEC. The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing with the Securities and Exchange Commission.

These reports are also available at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may read and copy any materials that we file with the SEC at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Statistical Information

The information noted below is provided pursuant to Guide 3 – Statistical Disclosure by Bank Holding Companies.

;

Description of Information Page Reference

Distribution of Assets, Liabilities, and ~~Shareholders’Equity; Interest Rates and Interest Differential~~

Shareholders’

Equity; Interest Rates and Interest Differential

Average Balance Sheets

Analysis of Net Interest Earnings

Rate Volume Analysis of Changes in Interest Income and Expense

Investment Portfolio

Book Value of Investments

3231

Maturity Schedule of Investments

3231

Securities of Issuers Exceeding 10% of Shareholders’ Equity

Loan Portfolio

Types of Loans

Maturities and Sensitivity to Changes in Interest Rates

6261

Risk Elements

3332

Other Interest Bearing Assets

n/a

Summary of Loan Loss Experience

3637

5.~~Deposits~~

Deposits

a.	a.	Breakdown of Deposits by Categories, Average Balance, and Average Rate Paid	27
	b.	27

Maturity Schedule of Time Certificates of Deposit and Other

Time Deposits of $100,000 or More

Return of Equity and Assets

Short-term Borrowings

6667

109

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Item 1A1A.. Risk Factors

~~Investments in Summit Financial Group, Inc. common stock involve risk as discussed below.~~

We, like other financial holding companies, are subject to a number of risks that may adversely affect our financial condition or results of operation, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk of loss due to loan clients or other counterparties not being able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, equity prices, and credit spreads, (3) liquidity risk, which is the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, investor and customer perception of financial strength, and events unrelated to the Company such as war, terrorism, or financial institution market specific issues, and (4) operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks.

In addition to the other information included or incorporated by reference into this report, readers should carefully consider that the following important factors, among others, could materially impact our business, future results of operations, and future cash flows.

Risks Relating to the Economic Environment

Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally.

Negative developments in the financial services industry have resulted in uncertainty in the financial markets in general and a related general economic downturn. In addition, as a consequence of the recession in the United States, beginning in the latter half of 2007, business activity across a wide range of industries faces serious difficulties due to the lack of consumer spending and the extreme lack of liquidity in the global credit markets. Unemployment has also increased significantly.

As a result of these financial economic crises, many lending institutions, including us, have experienced declines in the performance of their loans, including construction and land development loans, residential real estate loans, commercial real estate loans and consumer loans. ~~Moreover, competition among depository institutions for deposits and quality loans has increased significantly.~~ In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. Bank and bank holding company stock prices have been negatively affected. In addition, the ability of banks and bank holding companies to raise capital or borrow in the debt markets has become more difficult compared to recent years. As a result, there is a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal or informal enforcement actions or orders. The impact of new legislation in response to those developments may negatively impact our operations by restricting our business operations, including our ability to originate loans, and adversely impact our financial performance or our stock price.

In addition, further negative market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.

Overall, during the past year, the general business environment has had an adverse effect on our business, and there can be no assurance that the environment will improve in the near term. Until conditions improve, we expect our business, financial condition and results of operations to be adversely affected.

Further downturn in our real estate markets could hurt our business.

Substantially all of our real estate loans are located in West Virginia and Virginia. While we do not have any sub-prime loans, our construction and development and residential real estate loan portfolios, along with our commercial real estate loan portfolio and certain of our other loans, have been affected by the recent downturn in the residential and commercial real estate market. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature. We anticipate that further declines in the real estate markets in our primary market areas would affect our business. If real estate values continue to decline, the collateral for our loans will provide less security. As a result, our ability to recover on defaulted loans by selling the underlying real estate will be diminished, and we would be more likely to suffer losses on defaulted loans. The events and conditions described in this risk factor could therefore have a material adverse effect on our business, results of operations and financial condition.

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The soundness of other financial institutions could adversely affect us.

Since mid-2007, the financial services industry as a whole, as well as the securities markets generally, have been materially and adversely affected by very significant declines in the values of nearly all asset classes and by a very serious lack of liquidity. Financial institutions in particular have been subject to increased volatility and an overall loss in investor confidence.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other

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relationships. We have exposure to different industries and counterparties, and we execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses or defaults would not materially and adversely affect our business, financial condition or results of operations.

The unprecedented levels of market volatility may adversely impact our ability to access capital or our business, financial condition and results of operations.

The volatility and disruption of the capital and credit markets have reached unprecedented levels, adversely impacting the stock prices and credit availability for certain issuers, often without regard to their financial capabilities. If the current levels of market disruption and volatility continue or further deteriorate, our ability to access capital or our business, financial condition and results of operations could be adversely impacted.

There can be no assurance that the recently enacted emergency economic stabilization act of 2008 (the "EESA") and other recently enacted government programs will help stabilize the U.S. financial system.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the "EESA") was enacted. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation and otherwise to address capital and liquidity issues in the banking system, including the Troubled Assets Relief Program Capital Purchase Program, and the Capital Assistance Program. In addition, other regulators have taken steps to attempt to stabilize and add liquidity to the financial markets, such as the FDIC Temporary Liquidity Guarantee Program ("TLG Program"), in which we are a participant. However, there can be no assurance that we will issue any guaranteed debt under the TLG Program, or that we will participate in any other stabilization programs in the future.

There can also be no assurance as to the actual impact that the EESA and other programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA and other programs to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

The EESA is relatively new legislation and, as such, is subject to change and evolving interpretation. This is particularly true given the change in administration that occurred on January 20, 2009. There can be no assurances as to the effects that such changes will have on the effectiveness of the EESA or on our business, financial condition or results of operations.

Risks Relating to Our Business

We are subject to certain supervisory actions by bank supervisory authorities that could have a material negative effect on our business, financial condition and the value of our common stock.

On September 24, 2009, Summit Community entered into an informal Memorandum of Understanding (“Bank MOU”) with the FDIC and the West Virginia Division of Banking. A memorandum of understanding is characterized by regulatory authorities as an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. Among other things, under the Bank MOU, we have agreed to address the following matters relative to the Bank:

§	increased monitoring of the Bank’s current financial position;

§	approval of an internally-prepared written risk assessment of all business activities and product lines of the Bank and the establishment of goals and limitations for each such business activity or product identified as containing elevated degrees of risk;

§	achieving and maintaining a minimum Tier 1 leverage capital ratio of at least 8% and a total-risk-based capital ratio of at least 11%;

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§	declaring an intent to pay a cash dividend only if we give 30 days prior notice to our regulatory authorities and they do not object;

§	reviewing the adequacy of the Bank’s loan policies and approve necessary changes to strengthen credit administration and risk identification;

§	reviewing the investment policy and approving changes as appropriate;

§	reviewing the organizational structure of the Bank’s lending department;

§	providing the Bank’s regulatory authorities with updated reports of criticized assets and/or formal work-out plans for all nonperforming borrowers with outstanding balances exceeding $1.0 million;

§	establishing procedures to report all loans with balances exceeding $500,000 that have credit weaknesses or that fall outside of the Bank’s policy;

§	maintaining an adequate allowance for loan and lease losses through charges to current operating income;

§	employing a qualified independent third party to assess the procedures used to estimate the Bank’s allowance for loan and lease losses in accordance with FAS 5 and FAS 114;

§	preparing an updated comprehensive budget and earnings forecast for the bank;

§	developing a comprehensive three-year strategic plan for the bank; and,

§	providing quarterly progress reports to the Bank’s regulatory authorities detailing steps taken to comply with the Bank MOU.

In addition to the Bank MOU, on November 6, 2009, Summit entered into an informal Memorandum of Understanding (“Holding Company MOU”) with its principal regulators, the West Virginia Division of Banking and the FRB of Richmond. Under the terms of the Holding Company MOU, we agreed to:

§	promote compliance with the provisions of the Bank MOU;

§	suspend all cash dividends on our common stock until further notice;

§	not incur any additional debt, other than trade payables, without the prior written consent of the principal banking regulators;

§	adopt and implement a capital plan that is acceptable to the principal banking regulators and that is designed to maintain an adequate level and composition of capital protection commensurate for the risk profile of the organization; and

§	provide quarterly progress reports to Summit’s regulatory authorities detailing the steps taken to comply with the Holding Company MOU.

Dividends on all preferred stock, including the Series 2009 preferred stock, as well as interest payments on our subordinated debt and junior subordinated debentures underlying our trust preferred securities, continue to be permissible. However, such dividends and interest payments on our preferred stock and trust preferred debt are subject to future review by the Federal Reserve should we continue to experience deterioration in our financial condition.

Although dividends from the Bank are our principal source of funds to pay dividends and interest payments on our common stock, preferred stock, trust preferred debt and subordinated debt, we currently have sufficient cash on hand to continue to service our trust preferred and subordinated debt obligations as well as the expected dividend payments on our preferred stock through at least 2011. Nevertheless, we can make no assurances that we will continue to have sufficient funds available for distributions to the holders of our preferred stock or that such dividends will continue to be permitted by our regulatory authorities.

The MOUs will remain in effect until modified, terminated, lifted, suspended or set aside by the regulatory authorities.

If we were unable to meet the requirements of the MOUs in a timely manner, we could become subject to additional supervisory action, including a cease and desist order. If our regulators were to take such additional supervisory action, we could, among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a prescribed period of time, or both. The

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terms of any such supervisory action could have a material negative effect on our business, our financial condition and the value of our common stock. Additionally, there can be no assurance that we will not be subject to further supervisory action or regulatory proceedings.

We may become subject to additional regulatory restrictions in the event that our regulatory capital levels decline.

Although we ~~believe~~and the Bank both qualified as “well capitalized” under the regulatory framework for prompt corrective action as of December 31, 2009, there is no guarantee that we will not have a decline in our capital category in the future. In the event of such a capital category decline, we would be subject to increased regulatory restrictions which could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.

If the bank is classified as undercapitalized, the bank is required to submit a capital restoration plan to the FDIC. Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch office, except under certain circumstances, including the acceptance by the FDIC of a capital restoration plan for the bank. Furthermore, if a state non-member bank is classified as undercapitalized, the FDIC may take certain actions to correct the capital position of the bank; if a bank is classified as significantly undercapitalized or critically undercapitalized, the FDIC would be required to take one or more prompt corrective actions. These actions would include, among other things, requiring sales of new securities to bolster capital; improvements in management; limits on interest rates paid; prohibitions on transactions with affiliates; termination of certain risky activities and restrictions on compensation paid to executive officers. If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or receivership within 90 days, unless the Federal Reserve determines that other action would better achieve the purposes of FDICIA regarding prompt corrective action with respect to undercapitalized banks.

Under FDICIA, banks may be restricted in their ability to accept broker deposits, depending on their capital classification. “Well-capitalized” banks are permitted to accept broker deposits, but all banks that are not well-capitalized could be restricted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized, such as the Bank, to accept broker deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank. These restrictions could materially and adversely affect our ability to access lower costs funds and thereby decrease our future earnings capacity.

Our financial flexibility could be severely constrained if we are unable to renew our wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to continue to fund new loan originations, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. Our inability to obtain regulatory consent to accept or renew brokered deposits could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects and our ability to continue as a going concern.

Finally, the capital classification of a bank affects the frequency of examinations of the bank, the deposit insurance premiums paid by such bank, and the ability of the bank to engage in certain activities, all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects. Under FDICIA, the FDIC is required to conduct a full-scope, on-site examination of every bank at least once every twelve months. An exception to this rule is made, however, that provides that banks (i) with assets of less than $100.0 million, (ii) are categorized as “well-capitalized,” (iii) were found to be well managed and its composite rating was outstanding and (iv) has not been subject to a change in control during the last twelve months, need only be examined by the FDIC once every 18 months.

Our decisions regarding credit risk could be inaccurate, and our allowance for loan ~~and lease~~ losses ~~is sufficient to absorb all credit losses inherent in our portfolio, if our allowance for loan and lease losses is~~may be inadequate, itwhich could materially and adversely affect our business, financial condition, results of operations, cash flows and/or future prospects.

Our loan ~~and lease~~ portfolio ~~and investments in marketable securities subject~~subjects us to credit risk. Inherent risks in lending also include fluctuations in collateral values and economic downturns. Making loans ~~and leases~~ is an essential element of our business, and there is a risk that our loans ~~and leases~~ will not be repaid.

We attempt to maintain an appropriate allowance for loan ~~and lease~~ losses to provide for estimated probable credit losses inherent in our loan ~~and lease~~ portfolio. As of December 31, ~~2008,~~2009, our allowance for loan ~~and lease~~ losses totaled ~~$16.9~~$17.0 million, which represents approximately ~~1.40%~~1.47% of our total ~~loans and leases.~~loans. There is no precise method of predicting loan ~~and lease~~ losses, and therefore, we always face the risk that charge-offs in future periods will exceed our allowance for loan ~~and lease~~ losses and that we would need to make additional provisions to our allowance for loan ~~and lease~~ losses.

Our methodology for the determination of the adequacy of the allowance for loan ~~and lease~~ losses for impaired loans is based on classifications of loans ~~and leases~~ into various categories and the application of ~~SFAS No. 114, as amended.~~generally accepted accounting principles in the United States. For non-classified loans, the estimated allowance is based on historical loss experiences as adjusted for changes in trends and conditions on at least an annual basis. In addition, on a quarterly basis, the estimated allowance for non-classified loans is adjusted for the probable effect that current environmental factors could have on the historical loss factors currently in use. While our allowance for loan ~~and lease~~ losses is established

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in different portfolio components, we maintain an allowance that we believe is sufficient to absorb all estimated probable credit losses inherent in our portfolio.

In addition, the FDIC as well as the West Virginia Division of Banking review our allowance for loan and lease losses and may require us to establish additional reserves. Additions to the allowance for loan and lease losses will result in a decrease in our net earnings and capital and could hinder our ability to grow our assets.

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We may elect or be compelled to seek additional capital in the future, but capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors, which may diminish our ability to raise additional capital.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

We rely on funding sources to meet our liquidity needs, such as brokered deposits and FHLB ~~short-term~~ borrowings, which are generally more sensitive to changes in interest rates and can be adversely affected by ~~local and~~ general economic conditions.

We have frequently utilized as a source of funds certificates of deposit obtained through deposit brokers that solicit funds from their customers for deposit with us, or brokered deposits. Brokered deposits, when compared to retail deposits attracted through a branch network, are generally more sensitive to changes in interest rates and volatility in the capital markets and could reduce our net interest spread and net interest margin. In addition, brokered deposit funding sources may be more sensitive to significant changes in our financial condition. As of December 31, ~~2008,~~2009, brokered deposits totaled ~~$296.6~~$241.8 million, or approximately ~~33.1%~~23.8% of our total deposits, compared to brokered deposits in the amount of ~~$176.4~~$296.6 million or approximately ~~23.1%~~30.7% of our total deposits at December 31, ~~2007.~~2008. As of December 31, ~~2008,~~2009, approximately ~~$140.2~~$85.2 million in brokered deposits, or approximately ~~34.8%~~35.2% of our total brokered deposits, are short-term and mature within one year. Our ability to continue to acquire brokered deposits is subject to our ability to price these deposits at competitive levels, which may increase our funding costs, and the confidence of the market. In addition, if our capital ratios fall below the levels necessary to be considered “well-capitalized” under current regulatory guidelines, we could be restricted from using brokered deposits as a funding source.

We also have ~~short-term~~ borrowings with the Federal Home Loan Bank, or the FHLB. As of December 31, ~~2008,~~2009, our FHLB ~~short-term~~ borrowings ~~totaled $142.3 million and mature~~maturing within one ~~year.~~year totaled $121.5 million. If we were unable to borrow from the FHLB in the future, we may be required to seek higher cost funding sources, which could materially and adversely affect our net interest income.

Summit operates in a very competitive industry and market.

We face aggressive competition not only from banks, but also from other financial services companies, including finance companies and credit unions, and, to a limited degree, from other providers of financial services, such as money market mutual funds, brokerage firms, and consumer finance companies. A number of competitors in our market areas are larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. Many of our non-bank competitors are not subject to the same extensive regulations that govern us. As a result, these non-bank competitors have advantages over us in providing certain services. Our profitability depends upon our ability to attract loans and deposits. There is a risk that aggressive competition could result in our controlling a smaller share of our markets. A decline in market share could adversely affect our results of operations and financial condition.

Changes in interest rates could negatively impact our future earnings.

Changes in interest rates could reduce income and cash flow. Our income and cash flow depend primarily on the difference between the interest earned on loans and investment securities, and the interest paid on deposits and other borrowings. Interest rates are beyond our control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence loan originations, purchases of investments, volumes of deposits, and rates received on loans and investment securities and paid on deposits. Our results of operations may be adversely affected by increases or decreases in interest rates or by the shape of the yield curve.

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Concern of customers over deposit insurance may cause a decrease in ~~deposit.~~deposits.

With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income.

Our deposit insurance premium could be substantially higher in the future, which could have a material adverse effect on our future earnings.

The FDIC insures deposits at FDIC insured financial institutions, including Summit ~~Community Bank.~~Community. The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. Current economic conditions have increased bank failures and expectations for further failures, in which case the FDIC ensures payments of deposits up to insured limits from the Deposit Insurance Fund.

On October 16, 2008, the FDIC published a restoration plan designed to replenish the Deposit Insurance Fund over a period of five years and to increase the deposit insurance reserve ratio, which had decreased to 1.01% of insured deposits onas of June 30, 2008, to the statutory minimum of 1.15% of insured deposits by December 31, 2013. In order to implement the restoration plan, the FDIC ~~proposes to change~~changed both its risk-based assessment system and its base assessment rates. For the first quarter of 2009 only, the FDIC increased all FDIC deposit assessment rates by 7 basis points. These new rates range from 12-14 basis points for Risk Category I institutions to 50 basis points for Risk Category IV institutions. Under the FDIC's restoration plan, the FDIC ~~proposes to establish~~established new initial base assessment rates that ~~will be~~are subject to adjustment as described below. Beginning April 1, 2009, the base assessment rates ~~would~~ range from 10-14 basis points for Risk Category I institutions to 45 basis points for Risk Category IV institutions. Changes to the risk-based assessment system ~~would~~ include increasing premiums for institutions that rely on excessive amounts of brokered deposits, including CDARS, increasing premiums for excessive use of secured liabilities, including Federal Home Loan Bank advances, lowering premiums for smaller institutions with very high capital levels, and adding financial ratios and debt issuer ratings to the premium calculations for banks with over $10 billion in assets, while providing a reduction for their unsecured debt.

On ~~February 27,~~May 22, 2009, the FDIC approved ~~an interim~~a final rule to institute a one-time special assessment of 20five cents per $100 ~~in domestic deposits to restore the DIF reserves depleted by recent bank failures. The interim rule additionally reserves the right~~ of the ~~FDIC to charge an additional up-to-10 basis point special premium at a later point if the Deposit Insurance Fund reserves continue to fall.~~difference between each insured institution’s total assets and its Tier 1 capital as of June 30, 2009. The assessment was collected on September 30, 2009. The FDIC also ~~approved an increase~~stated that additional special assessments may be announced in ~~regular premium rates for~~ the second quarter of 2009. For most banks, this will be between 12 to 16 basis points per $100 in domestic deposits. Premiums for the rest of 2009 have not yet been set. The FDIC noted it would consider reducing the special one-time assessment to 10 cents if the U.S. Congress were to approve an increase in its operating line of credit with the U.S. Treasury.future. Either an increase in the Risk Category of Summit Community ~~Bank~~ or adjustments to the base assessment rates could have a material adverse effect on our earnings.

The value of securities in our investment securities portfolio may be negatively affected by continued disruptions in securities markets.

The market for some of the investment securities held in our portfolio has become extremely volatile over the past ~~twelve~~24 months. Volatile market conditions may detrimentally affect the value of these securities, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that the declines in market value associated with these disruptions will not result in other than temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

We rely heavily on our management team and the unexpected loss of key officers could adversely affect our business, financial condition, results of operations, cash flows and/or future prospects.

Our success has been and will continue to be greatly influenced by our ability to retain the services of existing senior management and, as we expand, to attract and retain qualified additional senior and middle management. Our senior executive officers have been instrumental in the development and management of our business. The loss of the services of any of our senior executive officers could have an adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects. We have not established a detailed management succession plan. Accordingly, should we lose the services of any of our senior executive officers, our Board of Directors may have to search outside of Summit Financial Group for a qualified permanent replacement. This search may be prolonged and we cannot assure you that we will be able to locate and

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hire a qualified replacement. If any of our senior executive officers leaves his or her respective position, our business, financial condition, results of operations, cash flows and/or future prospects may suffer.

An interruption in or breach in security of our information systems may result in a loss of customer business and have an adverse affect on our results of operations, financial condition and cash flows.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposits, servicing or loan origination systems. Although we have policies and procedures designed to prevent or minimize the effect of a failure, interruption or

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breach in security of our communications or information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur, or if they do occur, that they will be adequately addressed. The occurrence of any such failures, interruptions or security breaches could result in a loss of customer business and have a negative effect on our results of operations, financial condition and cash flows.

Our business is dependent on technology and our inability to invest in technological improvements may adversely affect our results of operations, financial condition and cash flows.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success depends in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as create additional efficiencies in its operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, which may negatively affect our results of operations, financial condition and cash flows.

Risks Relating to an Investment in Our ~~Common Stock~~Securities

Our ability to pay dividends is limited and we have stopped paying cash dividends

We are a separate and distinct legal entity from our subsidiaries. We receive substantially all of our revenue from dividends from our subsidiary bank, Summit Community. These dividends are the principal source of funds to pay dividends on our common stock and interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that Summit Community may pay to Summit. Also, Summit’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event Summit Community is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay dividends on either our common stock or our Series 2009 preferred stock. The inability to receive dividends from Summit Community could have a material adverse effect on our business, financial condition and results of operations.

Under the terms of the Bank MOU, Summit Community may pay dividends to us if they give 30 days prior notice to the FDIC and the West Virginia Division of Banking and they do not object. In addition, under the terms of the Holding Company MOU, we have suspended all cash dividends on our common stock until further notice. Dividends on all preferred stock, including the Series 2009 preferred stock, as well as interest payments on subordinated notes underlying our trust preferred securities, continue to be permissible. However, no assurances can be given that such payments will be permitted in the future if we continue to experience deterioration in our financial condition.

The market price for shares of our common stock may fluctuate.

The market price of our common stock could be subject to significant fluctuations due to a change in sentiment in the market regarding our operations or business prospects. Such risks may include:

·§	Operating results that vary from the expectations of management, securities analysts and investors;

·§	Developments in our business or in the financial sector generally;

·§	Regulatory changes affecting our industry generally or our businesses and operations;

·§	The operating and securities price performance of companies that investors consider to be comparable to us;

·§	Announcements of strategic developments, acquisitions and other material events by us or our competitors;

·§	Changes in the credit, mortgage and real estate markets, including the markets for mortgage-related securities;

·§	Changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stocks, commodity, credit or asset valuations or volatility;

·§	Changes in securities analysts’ estimates of financial performance

·§	Volatility of stock market prices and volumes

·§	Rumors or erroneous information

·§	Changes in market valuations of similar companies

·§	Changes in interest rates

·§	New developments in the banking industry

·§	Variations in our quarterly or annual operating results

·§	New litigation or changes in existing litigation

·§	Regulatory actions

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Stock markets in general and our common stock in particular have, over the past year, and continue to be, experiencing significant price and volume volatility. As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may be unrelated to our operating performance or prospects. Increased volatility could result in a decline in the market price of our common stock.

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Our executive officers and directors own shares of our common stock, allowing management to have an impact on our corporate affairs.

As of ~~December 31, 2008,~~March 6, 2010 our executive officers and directors beneficially own ~~24.45%~~25.50% of the outstanding shares of our common stock. Accordingly, these executive officers and directors will be able to impact, the outcome of all matters required to be submitted to our stockholders for approval, including decisions relating to the election of directors, the determination of our day-to-day corporate and management policies and other significant corporate transactions.

Your share ownership may be diluted by the issuance of additional shares of our common stock in the ~~future.~~future and by the conversion of our Series 2009 Preferred Stock.

Your share ownership may be diluted by the issuance of additional shares of our common stock in the future. In 1998, we adopted a stock option plan (the “1998 Plan”) that provided for the granting of stock options to our directors, executive officers and other employees. Although the 1998 Plan expired in May, 2008, as of December 31, ~~2008, 335,730~~2009, 309,180 shares of our common stock are still issuable under options granted in connection with our 1998 Plan. ~~Our Board of Directors has approved the adoption of a new stock officer plan and we are submitting this plan to our shareholders at~~At our 2009 Annual Meeting of shareholders, a new officer stock option plan was approved providing for ~~approval. If approved,~~ 350,000 shares of common stock ~~will~~to be available for issuance under the plan. It is probable that the stock options will be exercised during their respective terms if the fair market value of our common stock exceeds the exercise price of the particular option. If the stock options are exercised, your share ownership will be diluted.

In addition, our amended and restated articles of incorporation authorize the issuance of up to 20,000,000 shares of common stock, but do not provide for preemptive rights to the holders of our common stock. Any authorized but unissued shares are available for issuance by our Board of Directors. As a result, if we issue additional shares of common stock to raise additional capital or for other corporate purposes, you may be unable to maintain your pro rata ownership in Summit Financial Group.

We ~~rely on dividends from~~have also issued 3,710 shares of our ~~subsidiary bank~~Series 2009 Preferred Stock. The conversion of some or all of the Series 2009 Preferred Stock will dilute the ownership interest of our existing common shareholders.

The market price of the Series 2009 preferred stock will be directly affected by the market price of our common stock, which may be volatile.

To the extent that a secondary market for the Series 2009 preferred stock develops, we believe that the market price of the Series 2009 preferred stock will be significantly affected by the market price of our common stock. We cannot predict how the shares of our common stock will trade in the future. This may result in greater volatility in the market price of the Series 2009 preferred stock than would be expected for nonconvertible preferred stock. The market price of our common stock will likely continue to fluctuate in response to a number of factors including the following, most of which are beyond our ~~revenue.~~control:

~~We are a separate~~

§	actual or anticipated quarterly fluctuations in our operating and financial results;

§	our announcements of developments related to our business;

§	changes in financial estimates and recommendations by financial analysts;

§	dispositions, acquisitions and financings;

§	actions of our current shareholders, including sales of common stock by existing shareholders and our directors and executive officers;

§	fluctuations in the stock price and operating results of other companies deemed to be peers;

§	actions by government regulators; and

§	developments related to the financial services industry.

Our common share price may fluctuate significantly in the future, and ~~distinct legal entity from~~these fluctuations may be unrelated to our ~~subsidiaries. We receive substantially all~~performance. General market price declines or market volatility in the future could adversely affect the price of our ~~revenue~~common stock, and the current market price of such stock may not be indicative of future market prices.

The conversion rate of the Series 2009 preferred stock may not be adjusted for all dilutive events that may adversely affect the market price of the Series 2009 preferred stock or the common stock issuable upon conversion of the Series 2009 preferred stock.

The number of shares of our common stock that the holders of Series 2009 preferred stock are entitled to receive upon conversion of a share of their preferred stock is subject to adjustment for certain events arising from ~~dividends from our subsidiary bank, Summit Community Bank. These dividends are the principal source of funds to pay~~increases in cash dividends on our common stock,

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dividends or distributions in common stock or other property, certain issuances of stock purchase rights, certain self tender offers, subdivisions, splits and ~~interest~~combinations of the common stock and ~~principal~~certain other actions by us that modify our capital structure. We will not adjust the conversion rate for other events, including offerings of common stock for cash by us or in connection with acquisitions. There can be no assurance that an event that adversely affects the value of the Series 2009 preferred stock, but does not result in an adjustment to the conversion rate, will not occur. Further, if any of these other events adversely affects the market price of our common stock, it may also adversely affect the market price of the Series 2009 preferred stock. In addition, we are not restricted from offering common stock in the future or engaging in other transactions that could dilute our common stock.

The conversion of the Series 2009 preferred stock will dilute the appreciation of our common stock.

Although our common stock may appreciate in value, the future conversion of the Series 2009 preferred stock will dilute such appreciation. There is no guarantee that an investor in our common stock will recognize an increase in value after the impact of the conversion of the Series 2009 preferred stock despite overall positive performance.

There may be future sales of additional common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock or the Series 2009 preferred stock.

Our Board of Directors is authorized to cause us to issue additional classes or series of preferred shares without any action on the part of the shareholders. The board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred shares that may be issued, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our ~~debt. Various federal and/or state laws~~business and ~~regulations limit~~other terms. If we issue preferred shares in the ~~amount~~future that have a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred shares with voting rights that ~~Summit Community Bank may pay to Summit. Also, Summit’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to~~dilute the ~~prior claims~~voting power of the ~~subsidiary’s creditors. In~~common stock, the ~~event Summit Community Bank is unable to pay dividends to us, we may not~~rights of holders of the common stock or the market price of the common stock could be ~~able to service debt, pay obligations or pay dividends on~~adversely affected.

The market price of our common ~~stock.~~stock or preferred stock, including the Series 2009 preferred stock, could decline as a result of sales of a large number of shares of common stock or preferred stock or similar securities in the market after this offering or the perception that such sales could occur. The ~~inability~~conversion of some or all of the Series 2009 preferred stock will dilute the ownership interest of our existing common shareholders. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of the outstanding shares of our common stock and the Series 2009 preferred stock.

Although we have not finalized plans to ~~receive dividends from Summit Community Bank could have a material adverse effect on~~issue additional securities, we are currently exploring the merits of conducting an additional offering of the Series 2009 preferred stock to our ~~business, financial condition and results of operations.~~existing shareholders.

Holders of our junior subordinated debentures and our subordinated debt have rights that are senior to those of our stockholders.

We have three 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 of these unconsolidated statutory trusts totaled $19,589,000 at December 31, ~~2008~~2009 and ~~2007.~~2008.

Distributions on the capital securities issued by the trusts are payable quarterly at the variable interest rates specified in those certain securities. The capital securities are subject to mandatory redemption in whole or in part, upon repayment of the debentures.

Payments of the principal and interest on the trust preferred securities of the statutory trusts are conditionally guaranteed by us. The junior subordinated debentures are senior to our shares of common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our common stock. We have the right to defer distributions on the junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on our common stock. In ~~2008,~~2009, our total interest payments on these junior subordinated debentures approximated ~~$1,200,000.~~$714,000. Based on current rates, our quarterly interest payment obligation on our junior subordinated debentures is approximately ~~$200,000.~~ $125,000.

The capital securities held by our three trust subsidiaries qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of

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goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.

We have also issued $16.8 million of subordinated debt. In 2008, $10 million of ~~subordinated~~this debt was issued to an ~~unrelated~~unaffiliated financial institution, ~~which~~ bears a variable interest rate of 1 month LIBOR plus 275 basis points, a term of 7.5 years, and is not prepayable by us within

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the first two and one half years. During 2009, $5 million was issued to an affiliate of a director of Summit, and $1.0 million and $0.8 million was issued to two unrelated parties. These 2009 issuances bear an interest rate of 10 percent per annum, a term of 10 years, and are not prepayable by us within the first five years. Like the junior subordinated debentures, the subordinated debt is senior to our common stock and we must make payments on the subordinated debt before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the subordinated debt must be satisfied before any distributions can be made on our common stock. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines. Our total interest payments on this subordinated debt in ~~2008~~2009 was approximately ~~$390,000.~~$730,000. Based upon the current rate, our quarterly interest payment obligation on this debt is approximately ~~$80,000.~~$245,000.

Holders of our Series 2009 Preferred Stock have rights senior to those of our common stockholders.

On September 30, 2009, we issued 3,710 shares of our Series 2009 preferred stock in the amount of $3.71million. Our Series 2009 preferred stock has rights and preferences that could adversely affect holders of our common stock. For example, upon any voluntary or involuntary liquidation, dissolution, or winding up of our business, the holders of our Series 2009 preferred stock are entitled to receive distributions out of our available assets before any distributions can be made to holders of our common stock.

Provisions of our amended and restated articles of incorporation could delay or prevent a takeover of us by a third party.

Our amended and restated articles of incorporation could delay, defer or prevent a third party from acquiring us, despite the possible benefit to our stockholders, or could otherwise adversely affect the price of our common stock. For example, our amended and restated articles of incorporation contain advance notice requirements for nominations for election to our Board of Directors. We also have a staggered board of directors, which means that only one-third of our Board of Directors can be replaced by stockholders at any annual meeting.

Your shares are not an insured deposit.

Your investment in our common stock is not be a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. Your investment is subject to investment risk, and you must be capable of affording the loss of your entire investment.

Other

Additional factors could have a negative effect on our financial performance and the value of our common stock. Some of these factors are general economic and financial market conditions, continuing consolidation in the financial services industry, new litigation or changes in existing litigation, regulatory actions, and losses.

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Item 1B1B.. Unresolved Staff Comments

~~None~~Not applicable.

Item 2. Properties

Our principal executive office is located at 300 North Main Street, Moorefield, West Virginia in a building ~~that we own.~~owned by Summit Community. Summit Community’s headquarters and branch locations occupy offices which are either owned or operated under long-term lease arrangements. At December 31, ~~2008,~~2009, Summit Community operated 15 banking offices. Summit Insurance Services, LLC operates out of the Moorefield, West Virginia ~~office~~and Leesburg, Virginia offices of Summit Community, and also leases ~~2 locations~~a location in Leesburg, Virginia.

	Number of Offices						Number of Offices
Office Location	Owned		Leased		Total		Owned		Leased		Total
Summit Community Bank
Moorefield, West Virginia		1		-		1		1		-		1
Mathias, West Virginia		1		-		1		1		-		1
Franklin, West Virginia		1		-		1		1		-		1
Petersburg, West Virginia		1		-		1		1		-		1
Charleston, West Virginia		2		-		2		2		-		2
Rainelle, West Virginia		1		-		1		1		-		1
Rupert, West Virginia		1		-		1		1		-		1
Winchester, Virginia		1		1		2		1		1		2
Leesburg, Virginia		-		1		1		1		-		1
Harrisonburg, Virginia		-		2		2		1		1		2
Warrenton, Virginia		-		1		1		-		1		1
Martinsburg, West Virginia		1		-		1		1		-		1
Summit Insurance Services, LLC
Leesburg, Virginia		-		2		2		-		1		1

We believe that the premises occupied by us and our subsidiaries generally are well-located and suitably equipped to serve as financial services facilities. See Notes 9 and 10 of our consolidated financial statements on page 64.

Item 3. Legal Proceedings

Information required by this item is set forth under the caption "Litigation" in Note 16 of our consolidated financial statements on page 72.

Item 4. 4 ~~Submission of Matters to a Vote of Shareholders~~. Removed and Reserved

~~No matters were submitted during the fourth quarter of 2008 to a vote of Company shareholders.~~

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PART II.II.

Item 55..

Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Common Stock Dividend and Market Price Information: Our stock trades on ~~The~~the NASDAQ ~~SmallCap~~Capital Market under the symbol “SMMF”. The following table presents cash dividends paid per share and information regarding bid prices per share of Summit's common stock for the periods indicated. The bid prices presented are based on information reported by NASDAQ, and may reflect inter-dealer prices, without retail mark-up, mark-down or commission and not represent actual transactions.


	First		Second		Third		Fourth		First		Second		Third		Fourth
									Quarter		Quarter		Quarter		Quarter
2009
Dividends paid									$	-	$	0.06	$	-	$	-
High Bid										10.00		8.75		8.62		5.01
Low Bid										6.85		5.25		5.00		3.50
	Quarter		Quarter		Quarter		Quarter
2008
Dividends paid	$	-	$	0.18	$	-	$	0.18	$	-	$	0.18	$	-	$	0.18
High Bid		16.25		14.47		13.55		12.00		16.25		14.47		13.55		12.00
Low Bid		13.51		12.50		10.05		7.74		13.51		12.50		10.05		7.74

2007
Dividends paid	$	-	$	0.17	$	-	$	0.17
High Bid		21.56		21.20		19.85		18.96
Low Bid		19.45		19.65		18.28		13.56

~~Dividends~~Historically, we have paid semi-annual dividends on ~~Summit’s~~our common stock ~~are paid~~ on the 15th day of June and ~~December. The~~December, and the record date ishas been the 1st day of each respective month. ~~For a discussion~~The payment of dividends is subject to the restrictions set forth in the West Virginia Business Corporation Act and the limitations imposed by the Federal Reserve Board. We are presently restricted from paying dividends on our common shares as discussed in Item 1A. - Risk Factors on page 10 and Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations on page 23, and in Note 18 of our consolidated financial statements on page 73. Payment of dividends ~~see Note 17~~by Summit is dependent upon receipt of dividends from Summit Community. Under the terms of the ~~notes~~Bank MOU, Summit Community may only pay dividends to us if they give 30 days prior notice to the ~~accompanying consolidated financial statements.~~FDIC and the West Virginia Division of Banking and they do not object.

As of March 1, ~~2009,~~2010, there were approximately ~~1,290~~1,279 shareholders of record of Summit’s common stock.

Purchases of Summit Equity Securities:

We have an Employee Stock Ownership Plan (“ESOP”), which enables eligible employees to acquire shares of our common stock. The cost of the ESOP is borne by us through annual contributions to an Employee Stock Ownership Trust in amounts determined by the Board of Directors.

In August 2006, the Board of Directors authorized the open market repurchase of up to 225,000 shares (approximately 3%) of the issued and outstanding shares of Summit’s common stock (“August 2006 Repurchase Plan”). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management, and the plan may be discontinued, or suspended and reinitiated, at any time. The maximum number of shares that may yet be purchased under this plan is 165,375 shares.

~~The following table sets forth certain information regarding Summit’s purchase~~There were no purchases of ~~its~~Summit common stock under the Repurchase Plan ~~and under~~or Summit’s ESOP plan for the quarter ended December 31, ~~2008.~~2009.

Period Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (b)
October 1, 2008 - October 31, 2008 - $ - - 165,375
November 1, 2008 - November 30, 2008 14,194 8.86 - 165,375
December 1, 2008 - December 31, 2008 3,985 8.71 - 165,375

~~(a) Includes shares repurchased under the August 2006 Repurchase Plan and shares repurchased under the Employee Stock Ownership Plan.~~

~~(b) Shares available to be repurchased under the August 2006 Repurchase Plan.~~

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~~Performance Graph:~~

Set forth below is a line graph comparing the cumulative total return of Summit’s Common Stock assuming reinvestment of dividends, with that of the NASDAQ Composite Index (“NASDAQ Composite”) and a peer group for the five-year period ending December 31, 2008. The “Summit Peer Group” consists of publicly-traded bank holding companies headquartered in West Virginia and Virginia having total assets between $500 million and $2 billion.

The cumulative total shareholder return assumes a $100 investment on December 31, 2003 in the common stock of Summit and each index and the cumulative return is measured as of each subsequent fiscal year-end. There is no assurance that Summit’s common stock performance will continue in the future with the same or similar trends as depicted in the graph.

The Stock Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that Summit specifically incorporates it by reference into such filing.

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Item 6. Selected Financial Data

The following consolidated selected financial data is derived from our audited financial statements as of and for the five years ended December 31, ~~2008.~~2009. The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes contained elsewhere in this report.

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	For the Year Ended															For the Year Ended
	(unless otherwise noted)															(unless otherwise noted)
Dollars in thousands, except per share amounts	2008			2007			2006			2005			2004			2009			2008			2007			2006			2005
Summary of Operations
Interest income	$	93,484		$	91,384		$	80,278		$	56,653		$	45,041		$	89,536		$	93,484		$	91,384		$	80,278		$	56,653
Interest expense		49,409			52,317			44,379			26,502			18,663			45,994			49,409			52,317			44,379			26,502
Net interest income		44,075			39,067			35,899			30,151			26,378			43,542			44,075			39,067			35,899			30,151
Provision for loan losses		15,500			2,055			1,845			1,295			1,050			20,325			15,500			2,055			1,845			1,295
Net interest income after provision
for loan losses		28,575			37,012			34,054			28,856			25,328			23,217			28,575			37,012			34,054			28,856
Noninterest income		2,868			7,357			3,634			1,605			3,263			5,800			2,868			7,357			3,634			1,605
Noninterest expense		29,434			25,098			21,610			19,264			16,919			31,898			29,434			25,098			21,610			19,264
Income before income taxes		2,009			19,271			16,078			11,197			11,672
Income (loss) before income taxes																	(2,881	)		2,009			19,271			16,078			11,197
Income tax expense (benefit)		(291	)		5,734			5,018			3,033			3,348			(2,165	)		(291	)		5,734			5,018			3,033
Income from continuing operations		2,300			13,537			11,060			8,164			8,324
Discontinued operations
Exit costs and impairment of long-lived assets		-			(312	)		(2,480	)		-			-
Operating income (loss)		-			(10,347	)		(1,750	)		3,862			2,913
Income (loss) from discontinued operations before tax		-			(10,659	)		(4,230	)		3,862			2,913
Income tax expense (benefit)		-			(3,578	)		(1,427	)		1,339			1,004
Income (loss) from continuing operations																	(716	)		2,300			13,537			11,060			8,164
Income (loss) from discontinued operations		-			(7,081	)		(2,803	)		2,523			1,909			-			-			(7,081	)		(2,803	)		2,523
Net income	$	2,300		$	6,456		$	8,257		$	10,687		$	10,233
Net income (loss)																	(716	)		2,300			6,456			8,257			10,687
Dividends on preferred shares																	74			-			-			-			-
Net income (loss) applicable to common shares																$	(790	)	$	2,300		$	6,456		$	8,257		$	10,687

Balance Sheet Data (at year end)
Assets	$	1,627,166		$	1,435,536		$	1,235,519		$	1,110,214		$	889,830		$	1,584,625		$	1,627,116		$	1,435,536		$	1,235,519		$	1,110,214
Securities available for sale		327,606			283,015			235,780			208,011			197,519			271,654			327,606			283,015			235,780			208,011
Loans		1,192,157			1,052,489			916,045			793,452			602,728			1,137,336			1,192,157			1,052,489			916,045			793,452
Deposits		965,850			828,687			888,687			673,887			524,596			1,017,338			965,850			828,687			888,687			673,887
Short-term borrowings		153,100			172,055			60,428			182,028			120,629			49,739			153,100			172,055			60,428			182,028
Long-term borrowings		392,748			315,738			176,110			152,706			161,760			381,492			382,748			315,738			176,110			152,706
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589			19,589			19,589			11,341
Shareholders' equity		87,244			89,420			78,752			72,691			65,150			90,660			87,244			89,420			78,752			72,691

Credit Quality
Net loan charge-offs																$	20,258		$	7,759		$	1,066		$	446		$	256
Nonperforming assets																	107,504			56,082			12,391			5,353			1,667
Allowance for loan losses																	17,000			16,933			9,192			7,511			6,112

Per Share Data
Earnings per share from continuing operations
Basic earnings	$	0.31		$	1.87		$	1.55		$	1.15		$	1.18		$	(0.11	)	$	0.31		$	1.87		$	1.55		$	1.15
Diluted earnings		0.31			1.85			1.54			1.13			1.17			(0.11	)		0.31			1.85			1.54			1.13
Earnings per share from discontinued operations
Basic earnings		-			(0.98	)		(0.39	)		0.35			0.27			-			-			(0.98	)		(0.39	)		0.35
Diluted earnings		-			(0.97	)		(0.39	)		0.35			0.27			-			-			(0.97	)		(0.39	)		0.35
Earnings per share
Basic earnings		0.31			0.89			1.16			1.51			1.46			(0.11	)		0.31			0.89			1.16			1.51
Diluted earnings		0.31			0.88			1.15			1.48			1.44			(0.11	)		0.31			0.88			1.15			1.48
Shareholders' equity (at year end)		11.77			12.07			11.12			10.20			9.25
Book value per common share (at year end) (A)																	11.19			11.77			12.07			11.12			10.20
Tangible book value per common share (at year end) (A)																	10.04			10.46			10.70			10.66			9.73
Cash dividends		0.36			0.34			0.32			0.30			0.26			0.06			0.36			0.34			0.32			0.30

Performance Ratios
Return on average equity		2.59	%		7.34	%		10.44	%		15.09	%		16.60	%		-0.90	%		2.59	%		7.34	%		10.44	%		15.09	%
Return on average assets		0.15	%		0.50	%		0.70	%		1.10	%		1.22	%		-0.05	%		0.15	%		0.50	%		0.70	%		1.10	%
Dividend payout		116.0	%		38.1	%		27.6	%		20.0	%		17.9	%
Equity to assets		5.4	%		6.2	%		6.4	%		6.5	%		7.3	%		5.7	%		5.4	%		6.2	%		6.4	%		6.5	%

Table of Contents

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

FORWARD LOOKING STATEMENTS

This annual report 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. 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. 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.

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 economy.

DESCRIPTION OF BUSINESS

We are a $1.6 billion community-based financial services company providing a full range of banking and other financial services to individuals and businesses through our two operating segments: community banking and insurance. Our community bank, Summit Community Bank, has a total of 15 banking offices located in West Virginia and Virginia. In addition, we also operate an insurance agency, Summit Insurance Services, LLC with an office in Moorefield, West Virginia which offers both commercial and personal lines of insurance and two offices in Leesburg, Virginia, primarily specializing in group health, life and disability benefit plans. ~~Although~~See Note 19 of the accompanying consolidated financial statements for our ~~business operates as two separate segments, the insurance~~ segment ~~is not a reportable segment as it is immaterial, and thus our financial information is presented on an aggregated basis.~~information. Summit Financial Group, Inc. employs approximately ~~250~~232 full time equivalent employees.

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.

Key Items in ~~2008~~2009

Net loss for 2009 totaled $790,000 compared to net income ~~for 2008 totaled~~of $2.3 million ~~compared to $13.5 million income from continuing operations~~ in ~~2007.~~2008. The decline is primarily a result of higher loan loss ~~provisions and other-than-temporary impairment on securities.~~provisions.

We strengthened our allowance for loan losses to reflect the weaker economy and its current and future impact on asset quality. The ~~$15.5~~$20.3 million loan loss provision recorded this year raised the allowance for loan losses to ~~1.40~~1.47 percent of total loans at year-end, after net loan charge-offs of ~~$7.8~~$20.3 million during the course of the year.

We ~~felt the impact of~~continue to be impacted by the housing crisis as reflected by the impairment of ~~our~~certain investments in ~~Freddie Mac and Fannie Mae preferred stock~~mortgage backed securities resulting in ~~$6.4~~$5.4 million in charges recorded relative to these securities in ~~2008.~~

·	~~Asset growth of 13.3 percent was primarily driven by loan growth of $147.9 million, or 13.9 percent year-over-year, which was derived principally from commercial and commercial real estate loans.~~

~~Table of Contents~~

We are experiencing the challenges related to the current economic environment, as evidenced by the dramatic increase in nonperforming assets at December 31, 2008, climbing to $56 million from $12 million one year ago. Our loan quality was impacted by the contracting economy and commercial real estate market, which caused declines in real estate values and deterioration in financial condition of various borrowers. These conditions led to our downgrading the loan quality ratings on various real estate loans through our normal loan review process. In addition, several impaired loans became under-collateralized due to the reduction in the estimated net realizable fair value of the underlying collateral.2009.

·	~~Stability of the net interest margin; this~~Asset quality continues to ~~be a highlight of our performance despite the rapid decline of interest rates beginning in third quarter 2007. However,~~deteriorate. In 2009, nonperforming assets increased by $51.4 million. Our loan quality

was impacted by the contracting economy and commercial real estate market, which caused declines in real estate values and deterioration in financial condition of various borrowers. These conditions led to our downgrading the loan quality ratings on various real estate loans through our normal loan review process. In addition, several impaired loans became under-collateralized due to the reduction in the estimated net realizable fair value of the underlying collateral.

·	The impact of foregone interest income from nonaccruing loans ~~has~~ negatively impacted the margin during ~~the last two quarters~~2009 as it fell to 2.96%.

·	The deposit mix benefited from higher levels of ~~2008.~~retail deposits, primarily savings accounts, allowing us to reduce brokered deposits and short-term borrowings.

·	We remained well-capitalized by regulatory capital guidelines at December 31, ~~2008, however access to new capital resources is presently constrained.~~2009.

·	~~We mutually terminated the Greater Atlantic merger agreement.~~

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TABLE I - AVERAGE DISTRIBUTION OF CONSOLIDATED ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST EARNINGS & EXPENSES, AND AVERAGE YIELDS/RATES

	2009			2008			2007
	Average	Earnings/	Yield/	Average	Earnings/	Yield/	Average	Earnings/	Yield/
	Balances	Expense	Rate	Balances	Expense	Rate	Balances	Expense	Rate
Dollars in thousands
ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable	$ 1,184,571	$ 71,405	6.03%	$1,127,808	$ 77,055	6.83%	$ 963,116	$ 77,511	8.05%
Tax-exempt (2)	8,045	665	8.27%	8,528	697	8.17%	9,270	738	7.96%
Securities
Taxable	271,820	15,602	5.74%	264,667	13,707	5.18%	219,605	11,223	5.11%
Tax-exempt (2)	46,740	3,150	6.74%	49,953	3,380	6.77%	47,645	3,289	6.90%
Federal Funds sold and interest
bearing deposits with other banks	1,335	13	0.97%	370	8	2.16%	1,011	51	5.04%
	$ 1,512,511	$ 90,835	6.01%	$1,451,326	$ 94,847	6.54%	$1,240,647	$ 92,812	7.48%
Noninterest earning assets
Cash and due from banks	18,282			18,792			14,104
Banks premises and equipment	23,646			22,154			22,179
Other assets	60,656			38,760			30,795
Allowance for loan losses	(18,293)			(12,980)			(8,683)
Total assets	$ 1,596,802			$1,518,052			$1,299,042

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing demand deposits	$ 154,233	$ 784	0.51%	$ 190,066	$ 2,416	1.27%	$ 227,014	$ 7,695	3.39%
Savings deposits	112,712	1,774	1.57%	55,554	908	1.63%	42,254	706	1.67%
Time deposits	632,988	22,407	3.54%	568,491	24,019	4.23%	524,389	25,895	4.94%
Short-term borrowings	99,497	573	0.58%	112,383	2,392	2.13%	95,437	4,822	5.05%
Long-term borrowings and
subordinated debentures	429,481	20,457	4.76%	419,454	19,674	4.69%	245,937	13,199	5.37%
	$ 1,428,911	$ 45,995	3.22%	$1,345,948	$ 49,409	3.67%	$1,135,031	$ 52,317	4.61%
Noninterest bearing liabilities
Demand deposits	71,281			75,165			65,060
Other liabilities	8,666			7,976			11,000
Total liabilities	1,508,858			1,429,089			1,211,091
Shareholders' equity	87,944			88,963			87,951
Total liabilities and
shareholders' equity	$ 1,596,802			$1,518,052			$1,299,042
NET INTEREST EARNINGS		$ 44,840			$ 45,438			$ 40,495
NET INTEREST MARGIN			2.96%			3.13%			3.26%

(1) For purposes of this table, nonaccrual loans are included in average loan balances. Included in interest and fees on loans are loan fees of $890,000,
$775,000, and $633,000 for the years ended December 31, 2009, 2008 and 2007 respectively.

(2) For purposes of this table, interest income on tax-exempt securities and loans has been adjusted assuming an effective combined Federal and state tax
rate of 34% for all years presented. The tax equivalent adjustment results in an increase in interest income of $1,298,000, $1,363,000, and $1,428,000,
for the years ended December 31, 2009, 2008 and 2007, respectively.

TABLE I - AVERAGE DISTRIBUTION OF CONSOLIDATED ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST EARNINGS & EXPENSES, AND AVERAGE YIELDS/RATES

2008 2007 2006
Average Earnings/ Yield/ Average Earnings/ Yield/ Average Earnings/ Yield/
Balances Expense Rate Balances Expense Rate Balances Expense Rate
Dollars in thousands
ASSETS
Interest earning assets
    Loans, net of unearned interest (1)
        Taxable $1,127,808 $77,055 6.83% $963,116 $77,511 8.05% $872,017 $68,915 7.90%
        Tax-exempt (2) 8,528 697 8.17% 9,270 738 7.96% 8,428 642 7.62%
    Securities
        Taxable 264,667 13,707 5.18% 219,605 11,223 5.11% 193,046 9,403 4.87%
        Tax-exempt (2) 49,953 3,380 6.77% 47,645 3,289 6.90% 46,382 3,227 6.96%
Federal Funds sold and interest
  bearing deposits with other banks 370 8 2.16% 1,011 51 5.04% 1,216 62 5.10%
$1,451,326 $94,847 6.54% $1,240,647 $92,812 7.48% $1,121,089 $82,249 7.34%
Noninterest earning assets
    Cash and due from banks 18,792 14,104 13,417
    Banks premises and equipment 22,154 22,179 23,496
   Other assets 38,760 30,795 26,422
    Allowance for loan losses (12,980) (8,683) (6,849)
        Total assets $1,518,052 $1,299,042 $1,177,575

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
    Interest bearing demand deposits $190,066 $2,416 1.27% $227,014 $7,695 3.39% $215,642 $7,476 3.47%
    Savings deposits 55,554 908 1.63% 42,254 706 1.67% 42,332 554 1.31%
    Time deposits 568,491 24,019 4.23% 524,389 25,895 4.94% 458,864 20,282 4.42%
    Short-term borrowings 112,383 2,392 2.13% 95,437 4,822 5.05% 130,771 6,612 5.06%
    Long-term borrowings and
      subordinated debentures 419,454 19,674 4.69% 245,937 13,199 5.37% 176,422 9,455 5.36%
$1,345,948 $49,409 3.67% $1,135,031 $52,317 4.61% $1,024,031 $44,379 4.33%
Noninterest bearing liabilities
    Demand deposits 75,165 65,060 64,380
    Other liabilities 7,976 11,000 10,106
    Total liabilities 1,429,089 1,211,091 1,098,517
    Shareholders' equity 88,963 87,951 79,058
      Total liabilities and
        shareholders' equity $1,518,052 $1,299,042 $1,177,575
NET INTEREST EARNINGS $45,438 $40,495 $37,870
NET INTEREST MARGIN 3.13% 3.26% 3.38%

(1) For purposes of this table, nonaccrual loans are included in average loan balances.  Included in interest and fees on loans are loan fees of $775,000,
    $633,000, and $636,000 for the years ended December 31, 2008, 2007 and 2006 respectively.

(2) For purposes of this table, interest income on tax-exempt securities and loans has been adjusted assuming an effective combined Federal and state tax
    rate of 34% for all years presented.  The tax equivalent adjustment results in an increase in interest income of $1,363,000, $1,428,000, and $1,286,000,

Table of Contents

Table II - Changes in Interest Margin Attributable to Rate and Volume - Consolidated Basis

	2009 Versus 2008									2008 Versus 2007
	Increase (Decrease)									Increase (Decrease)
	Due to Change in:									Due to Change in:
Dollars in thousands	Volume			Rate			Net			Volume			Rate			Net
Interest earned on:
Loans
Taxable	$	3,757		$	(9,407	)	$	(5,650	)	$	12,191		$	(12,647	)	$	(456	)
Tax-exempt		(40	)		8		$	(32	)		(60	)		19			(41	)
Securities
Taxable		378			1,517		$	1,895			2,332			152			2,484
Tax-exempt		(217	)		(13	)	$	(230	)		157			(66	)		91
Federal funds sold and interest
bearing deposits with other banks		11			(6	)		5			(22	)		(21	)		(43	)
Total interest earned on
interest earning assets		3,889			(7,901	)		(4,012	)		14,598			(12,563	)		2,035

Interest paid on:
Interest bearing demand
deposits		(390	)		(1,242	)		(1,632	)		(1,090	)		(4,189	)		(5,279	)
Savings deposits		901			(35	)		866			217			(15	)		202
Time deposits		2,551			(4,163	)		(1,612	)		2,062			(3,938	)		(1,876	)
Short-term borrowings		(247	)		(1,572	)		(1,819	)		740			(3,170	)		(2,430	)
Long-term borrowings and
subordinated debentures		475			308			783			8,316			(1,841	)		6,475
Total interest paid on
interest bearing liabilities		3,290			(6,704	)		(3,414	)		10,245			(13,153	)		(2,908	)

Net interest income	$	599		$	(1,197	)	$	(598	)	$	4,353		$	590		$	4,943

Table II - Changes in Interest Margin Attributable to Rate and Volume - Consolidated Basis

2008 Versus 2007 2007 Versus 2006
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
Dollars in thousands Volume Rate Net Volume Rate Net
Interest earned on:
Loans
  Taxable $ 12,191 $ (12,647 ) $ (456 ) $ 7,312 $ 1,284 $ 8,596
  Tax-exempt (60 ) 19 (41 ) 66 30 96
Securities
  Taxable 2,332 152 2,484 1,341 479 1,820
  Tax-exempt 157 (66 ) 91 87 (25 ) 62
Federal funds sold and interest
  bearing deposits with other banks (22 ) (21 ) (43 ) (10 ) (1 ) (11 )
Total interest earned on
  interest earning assets 14,598 (12,563 ) 2,035 8,796 1,767 10,563

Interest paid on:
Interest bearing demand
  deposits (1,090 ) (4,189 ) (5,279 ) 388 (169 ) 219
Savings deposits 217 (15 ) 202 (1 ) 153 152
Time deposits 2,062 (3,938 ) (1,876 ) 3,082 2,531 5,613
Short-term borrowings 740 (3,170 ) (2,430 ) (1,786 ) (4 ) (1,790 )
Long-term borrowings and
   subordinated debentures 8,316 (1,841 ) 6,475 3,731 13 3,744
  Total interest paid on
    interest bearing liabilities 10,245 (13,153 ) (2,908 ) 5,414 2,524 7,938

Net interest income $ 4,353 $ 590 $ 4,943 $ 3,382 $ (757 ) $ 2,625

Noninterest Income

Noninterest income from continuing operations totaled ~~0.19%~~0.36%, ~~0.57%~~0.19%, and ~~0.31%~~0.57%, of average assets in 2009, 2008, ~~2007~~ and ~~2006~~2007, respectively. Noninterest income from continuing operations totaled $5,800,000 in 2009, compared to $2,868,000 in 2008 ~~compared to~~and $7,357,000 in 2007, ~~and $3,633,000 in 2006,~~ with service fees from deposit accounts and insurance commissions being the primary positive ~~components.~~components and other-than-temporary impairment of securities being the largest negative component. During 2009 and 2008, we recorded an other-than-temporary impairment ~~charge~~charges on securities of ~~$7,060,000.~~$5,366,000 and $7,060,000, respectively. Further detail regarding noninterest income from continuing operations is reflected in the following table.

Table III -- Noninterest Income - Continuing Operations
Dollars in thousands	2009			2008			2007
Insurance commissions	$	5,045		$	5,139		$	2,876
Service fees		3,330			3,246			3,004
Mortgage origination revenue		265			94			134
Realized securities gains (losses)		1,497			(6	)		-
Other-than-temporary impairment of securities		(5,366	)		(7,060	)		-
Net cash settlement on interest rate swaps		-			(170	)		(727	)
Change in fair value of interest rate swaps		-			705			1,478
Gain (loss) on sale of assets		(112	)		126			(33	)
ATM/Debit Card Income		764			646			535
Other		377			148			90
Total	$	5,800		$	2,868		$	7,357

Table of Contents

Noninterest Income - Continuing Operations
Dollars in thousands 2008 2007 2006
    Insurance commissions $ 5,139 $ 2,876 $ 924
    Service fees 3,246 3,004 2,758
    Securities (losses) (6 ) - -
    Other-than-temporary impairment of securities (7,060 ) - -
    Net cash settlement on interest rate swaps (170 ) (727 ) (534 )
    Change in fair value of interest rate swaps 705 1,478 (90 )
    Gain (loss) on sale of assets 126 (33 ) (46 )
    Other 888 759 622
Total $ 2,868 $ 7,357 $ 3,634

Insurance commissions: The increase in ~~both~~ 2008 ~~and 2007 are~~was due to our acquisition of the Kelly Agencies, two insurance agencies specializing in group health, life and disability benefit plans in July, 2007.

Service fees: Total service fees increased 2.6% in 2009 and 8.1% in 2008 ~~and 8.9% in 2007~~ primarily as a result of increases in overdraft and nonsufficient funds (NSF) fees due to an increased overdraft usage by customers and a change in our fee structure during 2007.

Other-than-temporary impairment of securities: During 2009, we took other-than-temporary non-cash impairment charges of $5.2 million pre-tax, equivalent to $3.2 million after-tax, related to certain residential mortgage-backed securities. The remaining $215,000 other-than-temporary impairment charge on securities during 2009 was related to an equity investment. During 2008, we took an other-than-temporary non-cash impairment charge of $6.4 million pre-tax, equivalent to $4.0 million after-tax, related to $8.0 million of certain preferred stock issuances of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation and a $0.7 million impairment charge on our investment in Greater Atlantic Financial Corp.’s common ~~stock .~~stock.

Change in fair value of derivative instruments: During 2008, we realized a $705,000 gain on derivative instruments upon termination of interest rate swaps that did not qualify for hedge accounting. During 2007, $1,478,000 change in fair value was attributable to the expectation of falling short-term market interest rates which positively impacts the fair value of related derivative instruments.

Gains/~~Losses~~losses on sales of assets: These items are primarily a result of sales of foreclosed properties.

Noninterest Expense

Noninterest expense for continuing operations was well controlled in both ~~2008~~2009 and ~~2007.~~2008. These expenses totaled $31,898,000, $29,434,000, and $25,098,000, ~~and $21,609,000,~~ or ~~1.9%~~2.0%, 1.9%, and ~~1.8%~~1.9%, of average assets for each of the years ended December 31, 2009, 2008 ~~2007~~ and ~~2006,~~2007, respectively. Total noninterest expense for continuing operations increased $2,464,000 in 2009 compared to 2008 and increased $4,336,000 in 2008 compared to ~~2007, and $3,489,000 in 2007 compared to 2006.~~2007. Table ~~III~~IV below shows the breakdown of these increases.

Salaries and employee benefits: Salaries and employee benefits decreased 5.1% during 2009 compared to 2008. This decrease was primarily attributable to decreased performance-based incentive payments throughout the Company. These expenses increased 14.7% during 2008 compared to 2007. The additional salaries and benefit costs associated with the Kelly Agencies was generally offset by reductions in performance-based incentive payments throughout the Company. ~~These expenses~~

Professional fees: Professional fees, consisting primarily of legal, accounting, and consulting fees, increased ~~23.6% in 2007~~94.9% during 2009 primarily due to increased ~~staffing as a result of~~legal fees related to the ~~acquisition of the Kelly Agencies.~~foreclosure process.

~~Net occupancy~~FDIC premiums: The increase in FDIC premiums during 2009 is attributable to the one-time special assessment during second quarter, and ~~Equipment~~also higher rates charged by the FDIC. The increase in 2008 was the result of higher rates also.

OREO foreclosure expense: ~~The increases in net occupancy and equipment expense for~~These expenses increased during both 2008 and ~~2007 are attributed~~2009 due to ~~increased facility costs as a result of acquiring~~ the ~~Kelly Agencies~~increase in ~~2007.~~properties that we foreclosed upon in both periods.

Other: ~~Other expenses increased $1,701,000 or 36.7% during 2008.~~ The ~~two largest contributors to this increase were 1) FDIC assessment, which totaled $744,000 in 2008 compared to $290,000 in 2007 due to an~~26.6% increase in ~~assessment rates by the FDIC and 2) $681,000 of~~other expenses during 2008 included a $682,000 charge related to the termination ~~during 2008~~ of the merger agreement with Greater Atlantic Financial Corp.

Table IV - Noninterest Expense - Continuing Operations
			Change							Change
Dollars in thousands	2009		$			%			2008	$		%			2007
Salaries and employee benefits	$	15,908	$	(854	)	-5.1	%	$	16,762	$	2,154	14.7	%	$	14,608
Net occupancy expense		2,032		162		8.7	%		1,870		112	6.4	%		1,758
Equipment expense		2,151		(22	)	-1.0	%		2,173		169	8.4	%		2,004
Supplies		967		42		4.5	%		925		54	6.2	%		871
Professional fees		1,409		686		94.9	%		723		28	4.0	%		695
Advertising		198		(91	)	-31.5	%		289		18	6.6	%		271
Amortization of intangibles		351		-		0.0	%		351		100	39.8	%		251
FDIC premiums		3,223		2,479		333.2	%		744		454	156.6	%		290
OREO expense		478		336		236.6	%		142		100	238.1	%		42
Other		5,181		(274	)	-5.0	%		5,455		1,147	26.6	%		4,308
Total	$	31,898	$	2,464		8.4	%	$	29,434	$	4,336	17.3	%	$	25,098

Table of Contents

Table III - Noninterest Expense - Continuing Operations
Change Change
Dollars in thousands 2008                           $ %      2007                               $ %        2006
    Salaries and employee benefits $ 16,762 $ 2,154 14.7 % $ 14,608 $ 2,787 23.6 % $ 11,821
    Net occupancy expense 1,870 112 6.4 % 1,758 201 12.9 % 1,557
    Equipment expense 2,173 169 8.4 % 2,004 103 5.4 % 1,901
    Supplies 925 54 6.2 % 871 74 9.3 % 797
    Professional fees 723 28 4.0 % 695 (198 ) -22.2 % 893
    Advertising 289 18 6.6 % 271 (13 ) -4.6 % 284
    Amortization of intangibles 351 100 39.8 % 251 100 66.2 % 151
    Other 6,341 1,701 36.7 % 4,640 434 10.3 % 4,206
Total $ 29,434 $ 4,336 17.3 % $ 25,098 $ 3,488 16.1 % $ 21,610

Income Tax Expense/Benefit

Income tax expense/benefit for continuing operations for the three years ended December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007 totaled ($2,165,000), ($291,000), ~~$5,734,000,~~ and ~~$5,018,000,~~$5,734,000, respectively. Refer to Note 14 of the accompanying consolidated financial statements for further information and additional discussion of the significant components influencing our effective income tax rates.

CHANGES IN FINANCIAL POSITION

~~Total~~Although our average assets ~~in 2008 were $1,518,052,000,~~grew during 2009 to $1,596,802,000, an increase of ~~16.9%~~5.2% over ~~2007's~~2008's average of ~~$1,299,042,000.~~$1,518,052,000, our year end December 31, 2009 assets were $42,491,000 less than December 31, 2008. Average assets grew ~~10.3%~~16.9% in ~~2007,~~2008, from ~~$1,177,575,000~~$1,299,042,000 in ~~2006. This growth principally occurred in our loan portfolio in both years.~~2007. Significant changes in the components of our balance sheet in ~~2008~~2009 and ~~2007~~2008 are discussed below.

Loan Portfolio

Table IVV depicts loan balances by type and the respective percentage of each to total loans at December 31, as follows:

Table IV - Loans by Type
2008 2007 2006 2005 2004
Percent Percent Percent Percent Percent
Dollars in thousands Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total

Commercial $ 130,106 10.7 % $ 92,599 8.7 % $ 69,470 7.5 % $ 63,206 7.9 % $ 53,226 8.7 %
Commercial real estate, land development, and construction 667,729 55.2 % 609,748 57.4 % 530,018 57.3 % 407,435 50.8 % 283,547 46.6 %
Residential mortgage 376,026 31.0 % 322,640 30.3 % 282,512 30.5 % 285,241 35.6 % 223,690 36.7 %
Consumer 31,519 2.6 % 31,956 3.0 % 36,455 3.9 % �� 36,863 4.6 % 38,948 6.4 %
Other 6,061 0.5 % 6,641 0.6 % 6,969 0.8 % 8,598 1.1 % 9,605 1.6 %

Total loans $ 1,211,441 100.0 % $ 1,063,584 100.0 % $ 925,424 100.0 % $ 801,343 100.0 % $ 609,016 100.0 %

Table V - Loans by Type
	2009					2008					2007					2006					2005
			Percent					Percent					Percent					Percent					Percent
Dollars in thousands	Amount		of Total			Amount		of Total			Amount		of Total			Amount		of Total			Amount		of Total

Commercial	$	122,508		10.6	%	$	130,106		10.7	%	$	92,599		8.7	%	$	69,470		7.5	%	$	63,206		7.9	%
Commercial real estate		465,037		40.2	%		452,264		37.3	%		384,478		36.1	%		314,198		34.0	%		266,229		33.2	%
Construction and
development		162,080		14.1	%		215,465		17.9	%		225,270		21.3	%		215,820		23.3	%		141,206		17.6	%
Residential mortgage		372,867		32.2	%		376,026		31.0	%		322,640		30.3	%		282,512		30.5	%		285,241		35.6	%
Consumer		28,203		2.4	%		31,519		2.6	%		31,956		3.0	%		36,455		3.9	%		36,863		4.6	%
Other		5,652		0.5	%		6,061		0.5	%		6,641		0.6	%		6,969		0.8	%		8,598		1.1	%

Total loans	$	1,156,347		100.0	%	$	1,211,441		100.0	%	$	1,063,584		100.0	%	$	925,424		100.0	%	$	801,343		100.0	%

Total net loans averaged $1,192,616,000 in 2009 compared to $1,136,336,000 in 2008, ~~compared to $972,386,000 in 2007,~~ which represented ~~74.9%~~nearly 75% of total average assets for both years. ~~The increase in the dollar volume of loans was primarily attributable to~~We have slowed our loan growth ~~mode. This trend will not continue~~ due to the current weakened economic conditions in our market areas and limited availability of new capital resources.

~~Table of Contents~~

Refer to Note 7 of the accompanying consolidated financial statements for our loan maturities and a discussion of our adjustable rate loans as of December 31, ~~2008.~~2009.

In the normal course of business, we make various commitments and incur certain contingent liabilities, which are disclosed in Note 16 of the accompanying consolidated financial statements but not reflected in the accompanying consolidated financial statements. There have been no significant changes in these types of commitments and contingent liabilities and we do not anticipate any material losses as a result of these commitments.

Securities

Securities comprised approximately ~~21.6%~~17.1% of total assets at December 31, ~~2008~~2009 compared to ~~20.9%~~20.1% at December 31, ~~2007.~~2008. Average securities approximated ~~$314,620,000~~$318,560,000 for ~~2008~~2009 or ~~17.7%~~1.3% more than ~~2007's~~2008's average of ~~$267,250,000.~~$314,620,000. Refer to Note 6 of the accompanying consolidated financial statements for details of amortized cost, the estimated fair values, unrealized gains and losses as well as the security classifications by type.

All of our securities are classified as available for sale to provide us with flexibility to better manage our balance sheet structure and react to asset/liability management issues as they arise. Pursuant to ~~SFAS No. 115,~~ASC Topic 320 Investments—Debt and Equity Securities, anytime that we carry a security with an unrealized loss that has been determined to be ~~“other than temporary”~~“other-than-temporary”, we must recognize that loss in income. During 2009, we took other-than-temporary non-cash impairment charges of $5.2 million pre-tax, equivalent to $3.2 million after-tax, related to certain nongovernment sponsored residential mortgage-backed securities, with a book value of $2.2 million. During 2008, we took an other-than-temporary non-cash impairment charge of $6.4 million pre-tax, equivalent to $4.0 million after-tax, related to $8.0 million of certain preferred stock issuances of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation that we continue to own with a book value of $103,000. The action taken by the Federal Housing Finance Agency on September 7, 2008 placing these Government-Sponsored Agencies into conservatorship and eliminating the dividends on their preferred shares led to our determination that these securities are other-than-temporarily impaired. We also recognized an other-than-temporary impairment charge of $0.7 million (the entire amount) on our investment in Greater Atlantic Financial Corp. stock, which we continue to own.

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At December 31, ~~2008~~2009, we had ~~$10.0~~$6.4 million in unrealized losses related to residential mortgage backed securities issued by nongovernment sponsored entities. We monitor the performance of the mortgages underlying these bonds. Although there has been some deterioration in collateral performance, we only hold ~~the most~~primarily senior tranches of each issue which provides protection against defaults. We attribute the unrealized loss on these mortgage backed securities held largely to the current absence of liquidity in the credit markets and not to deterioration in credit quality. We expect to receive all contractual principal and interest payments due on our debt securities and have the ability and intent to hold these investments until their fair value recovers or until maturity. The mortgages in these asset pools have been made to borrowers with strong credit history and significant equity invested in their homes. They are well diversified geographically. Nonetheless, significant further weakening of economic fundamentals coupled with significant increases in unemployment and substantial deterioration in the value of high end residential properties could extend distress to this borrower population. This could increase default rates and put additional pressure on property values. Should these conditions occur, the value of these securities could decline further and trigger the recognition of anadditional other-than-temporary impairment ~~charge.~~charges.

At December 31, ~~2008,~~2009, we did not own securities of any one issuer that were not issued by the U.S. Treasury or a U.S. Government agency that exceeded ten percent of shareholders’ equity. The maturity distribution of the securities portfolio at December 31, ~~2008,~~2009, together with the weighted average yields for each range of maturity, is summarized in Table V.VI. The stated average yields are actual yields and are not stated on a tax equivalent basis.

~~Table of Contents~~

Table V - Securities Maturity Analysis
Table VI - Securities Maturity Analysis																	Table VI - Securities Maturity Analysis
					After one				After five														After one					After five
	Within				but within				but within				After					Within					but within					but within					After
At amortized cost, dollars in thousands	one year				five years				ten years				ten years
																		one year					five years					ten years					ten years
(At amortized cost, dollars in thousands)																		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield

U. S. Government agencies
and corporations	$	3,741	4.5	%	$	8,769	4.9	%	$	17,453	5.1	%	$	6,971	5.4	%		$	2,758		2.6	%	$	11,900		3.0	%	$	18,391		4.8	%	$	21,801		5.3	%
Residential mortgage backed securities:
Government sponsored agencies		52,645	5.3	%		56,858	5.3	%		25,799	5.6	%		11,773	5.7	%			39,960		5.4	%		46,632		5.3	%		6,255		4.8	%		3,091		5.1	%
Nongovernment sponsored entities		15,793	6.3	%		47,657	6.5	%		22,884	6.2	%		9,234	5.6	%			18,427		6.2	%		43,223		6.3	%		10,733		6.1	%		3,164		7.9	%
State and political
subdivisions		776	4.2	%		6,176	6.6	%		12,978	6.7	%		30,447	6.5	%			420		5.4	%		7,622		6.7	%		8,728		6.2	%		29,476		6.3	%
Corporate debt securities		-	-			349	6.8	%		-	-			-	-				350		6.8	%		-		-			-		-			-		-
Other		-	-			-	-			-	-			395	-				-		-			-		-			-		-			77		-

Total	$	72,955	5.5	%	$	119,809	5.8	%	$	79,114	5.9	%	$	58,820	6.0	%		$	61,915		5.5	%	$	109,377		5.5	%	$	44,107		5.4	%	$	57,609		5.9	%

Deposits

Total deposits at December 31, ~~2008~~2009 increased ~~$137,163,000~~$51,488,000 or ~~16.6%~~5.3% compared to December 31, ~~2007.~~2008. Average interest bearing deposits increased ~~$20,454,000,~~$85,822,000, or ~~2.6%~~10.5% during ~~2008.~~2009. We have strengthened our focus on growing retail deposits, which is reflected by their steady growth over the past two years, increasing 15.9% in 2009 and 2.6% in ~~2008 and 7.1%~~2008. The increase in ~~2007.~~2009 resulted from the introduction of a new internet savings product. Wholesale deposits, which represent brokered certificates of deposit acquired through a third party, ~~increased 68.1%~~decreased 18.5% to $241,814,000 at December 31, 2009. These deposits totaled $296,589,000 at December 31, ~~2008. These~~2008, an increase of 68.1% from 2007. During 2009, we focused on increasing retail deposits, ~~totaled $176,391,000 at December 31, 2007, a decrease of 36.9% from 2006.~~which enabled us to lower our wholesale deposits. During 2008, the pricing of brokered certificates of deposits was more favorable when compared to other wholesale funding sources, and were used to pay off short term Federal Home Loan Bank advances. ~~Our decreased utilization of brokered deposits during 2007 was due to favorable pricing of other alternative wholesale funding sources, including wholesale reverse repurchase agreements.~~

Deposits
Table VII - Deposits
Dollars in thousands	2008		2007		2006		2005		2004		2009		2008		2007		2006		2005
Noninterest bearing demand	$	69,808	$	65,727	$	62,591	$	62,617	$	55,402	$	74,119	$	69,808	$	65,727	$	62,591	$	62,617
Interest bearing demand		156,990		222,825		220,167		200,638		122,355		148,587		156,990		222,825		220,167		200,638
Savings		61,689		40,845		47,984		44,681		50,428		188,419		61,689		40,845		47,984		44,681
Certificates of deposit		347,444		291,294		249,952		211,032		217,863		328,858		347,444		291,294		249,952		211,032
Individual Retirement Accounts		33,330		31,605		28,370		26,231		25,298		35,541		33,330		31,605		28,370		26,231
Retail deposits		669,261		652,296		609,064		545,199		471,346		775,524		669,261		652,296		609,064		545,199
Wholesale deposits		296,589		176,391		279,623		128,688		53,268		241,814		296,589		176,391		279,623		128,688
Total deposits	$	965,850	$	828,687	$	888,687	$	673,887	$	524,614	$	1,017,338	$	965,850	$	828,687	$	888,687	$	673,887

See Table I for average deposit balance and rate information by deposit type for 2009, 2008 ~~2007~~ and ~~2006~~2007 and Note 12 of the accompanying consolidated financial statements for a maturity distribution of time deposits as of December 31, ~~2008.~~2009.

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Borrowings

Lines of Credit: We have available lines of credit from various correspondent banks totaling $18,501,000 at December 31, 2008. These lines are utilized when temporary day to day funding needs arise. They are reflected on the consolidated balance sheet as short-term borrowings. We also have remaining available lines of credit from the Federal Home Loan Bank totaling ~~$188,279,000~~$219,436,000 at December 31, ~~2008.~~2009. We use these lines primarily to fund loans to customers. Funds acquired through this

~~Table of Contents~~

program are reflected on the consolidated balance sheet in short-term borrowings or long-term borrowings, depending on the repayment terms of the debt agreement. We also had ~~$23~~$102 million available on a short term line of credit with the Federal Reserve Bank at December 31, ~~2008,~~2009, which is primarily secured by consumer loans and commercial and industrial loans.

Short-term Borrowings: Total short-term borrowings decreased ~~$18,955,000~~$103,361,000 from ~~$172,055,000 at December 31, 2007 to~~ $153,100,000 at December 31, ~~2008.~~2008 to $49,739,000 at December 31, 2009. These borrowings were principally replaced with ~~brokered certificates~~retail deposits and principal paydowns of ~~deposits.~~mortgage-backed securities. See Note 13 of the accompanying consolidated financial statements for additional disclosures regarding our short-term borrowings.

Long-term Borrowings: Total long-term borrowings of ~~$392,748,000~~$381,492,000 at December 31, 2009 and $382,748,000 at December 31, 2008, consisted primarily of funds borrowed on available lines of credit from the Federal Home Loan Bank and structured reverse repurchase agreements with two unaffiliated institutions. Borrowings from the Federal Home Loan Bank ~~increased $65,123,000~~totaled $258,856,000 at December 31, 2009, compared to $260,111,000 ~~compared to the $194,988,000~~ outstanding at December 31, ~~2007.~~2008. We have a term loan with an unrelated financial institution that is secured by the common stock of our subsidiary bank, with an interest rate of prime minus 50 basis points, and matures in 2017. The outstanding balance of this term loan was $12,637,000 ~~and $10,750,000~~ at December 31, ~~2008~~2009 and 2007, respectively. During 2008, $10 million of subordinated debt was issued to an unrelated institution, which bears a variable interest rate of 1 month LIBOR plus 275 basis points, a term of 7.5 years, and it is not prepayable by us within the first two and one half years.2008. During 2007, we entered into $110 million of structured reverse repurchase agreements, with terms ranging from 5 to 10 years and call features ranging from 2 to 3.5 years in which they are callable by the purchaser. Long term borrowings were principally used to fund our loan growth. Refer to Note 13 of the accompanying consolidated financial statements for additional information regarding our long-term borrowings.

Subordinated Debentures: We have subordinated debt which qualifies as Tier 2 regulatory capital totaling $16.8 million at December 31, 2009 and $10 million at December 31, 2008. During 2009, we issued $6.8 million in subordinated debt, of which $5 million was issued to an affiliate of a director of Summit. We also issued $1.0 million and $0.8 million to two unrelated parties. These three issuances bear an interest rate of 10 percent per annum, have a term of 10 years, and are not prepayable by us within the first five years. During 2008, $10 million of subordinated debt was issued to an unrelated institution, which bears a variable interest rate of 1 month LIBOR plus 275 basis points, has a term of 7.5 years, and it is not prepayable by us within the first two and one half years.

ASSET QUALITY

~~ASSET QUALITY~~

~~During 2007, certain of our customers began experiencing difficulty making timely payments on their loans.~~ Due to current ~~declining~~recessionary economic conditions, borrowers have in many cases been unable to refinance their loans due to a range of factors including declining property values. As a result, we have experienced higher delinquencies and nonperforming assets, particularly inwith regard to our construction & development, residential real estate, ~~loan portfolios~~ and in commercial ~~construction loans to residential~~ real estate ~~developers.~~loan portfolios. It is not known when the housing market will stabilize. ~~While management~~Management anticipates loan delinquencies will remain higher than historical levels ~~for~~in the ~~foreseeable future,~~near term, and we anticipate that nonperforming assets will remain elevated infor the ~~near term.~~foreseeable future.

~~Table VI presents a summary of non-performing assets of continuing operations at December 31, as follows:~~

Table VIII presents a summary of non-performing assets of continuing operations at December 31, as follows:

~~See notes to consolidated~~ ~~financial~~ ~~statements~~

	December 31,
Dollars in thousands	2009			2008

ASSETS
Cash and due from banks	$	6,813		$	11,356
Interest bearing deposits with other banks		34,247			108
Federal funds sold		-			2
Securities available for sale		271,654			327,606
Other investments		24,008			23,016
Loan held for sale, net		1			978
Loans, net		1,137,336			1,192,157
Property held for sale, net		40,293			8,110
Premises and equipment, net		24,234			22,434
Accrued interest receivable		6,323			7,217
Intangible assets		9,353			9,704
Other assets		30,363			24,428
Total assets	$	1,584,625		$	1,627,116

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	74,119		$	69,808
Interest bearing		943,219			896,042
Total deposits		1,017,338			965,850
Short-term borrowings		49,739			153,100
Long-term borrowings		381,492			382,748
Subordinated debentures		16,800			10,000
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		9,007			8,585
Total liabilities		1,493,965			1,539,872
Commitments and Contingencies

Shareholders' Equity
Preferred stock and related surplus, $1.00 par value; authorized 250,000 shares;
3,710 shares issued 2009		3,519			-
Common stock and related surplus, $2.50 par value; authorized 20,000,000;
issued 2009 - 7,425,472 shares; 2008 - 7,415,310 shares		24,508			24,453
Retained earnings		63,474			64,709
Accumulated other comprehensive income		(841	)		(1,918	)
Total shareholders' equity		90,660			87,244

Total liabilities and shareholders' equity	$	1,584,625		$	1,627,116

See Notes to Consolidated Financial Statements

4544

Table of Contents

Consolidated Statements of Income


Dollars in thousands (except per share amounts)	For the Year Ended December 31,
	2009			2008			2007
Interest income
Interest and fees on loans
Taxable	$	71,405		$	77,055		$	77,424
Tax-exempt		439			460			487
Interest and dividends on securities
Taxable		15,601			13,707			11,223
Tax-exempt		2,079			2,254			2,199
Interest on interest bearing deposits with other banks		12			4			14
Interest on Federal Funds sold		-			4			37
Total interest income		89,536			93,484			91,384
Interest expense
Interest on deposits		24,951			27,343			34,296
Interest on short-term borrowings		573			2,392			4,822
Interest on long-term borrowings and subordinated debentures		20,470			19,674			13,199
Total interest expense		45,994			49,409			52,317
Net interest income		43,542			44,075			39,067
Provision for loan losses		20,325			15,500			2,055
Net interest income after provision for loan losses		23,217			28,575			37,012
Noninterest income
Insurance commissions		5,045			5,139			2,876
Service fees		3,330			3,246			3,004
Realized securities gains (losses)		1,497			(6	)		-
Net cash settlement on interest rate swaps		-			(170	)		(727	)
Change in fair value of interest rate swaps		-			705			1,478
Gain (loss) on sale of assets		(112	)		126			(33	)
Other		1,406			888			759
Total other-than-temporary impairment loss on securities		(5,892	)		(7,060	)		-
Portion of loss recognized in other comprehensive income		526			-			-
Net impairment loss recognized in earnings		(5,366	)		(7,060	)		-
Total noninterest income		5,800			2,868			7,357
Noninterest expenses
Salaries and employee benefits		15,908			16,762			14,608
Net occupancy expense		2,032			1,870			1,758
Equipment expense		2,151			2,173			2,004
Supplies		967			925			871
Professional fees		1,409			723			695
Amortization of intangibles		351			351			251
FDIC premiums		3,223			744			290
OREO expense		478			142			42
Other		5,379			5,744			4,579
Total noninterest expenses		31,898			29,434			25,098
Income (loss) before income tax expense		(2,881	)		2,009			19,271
Income tax expense (benefit)		(2,165	)		(291	)		5,734
Income (loss) from continuing operations		(716	)		2,300			13,537
(Loss) from discontinued operations		-			-			(7,081	)
Net income (loss)		(716	)		2,300			6,456
Dividends on preferred shares		74			-			-
Net income (loss) applicable to common shares	$	(790	)	$	2,300		$	6,456

Basic earnings per common share from continuing operations	$	(0.11	)	$	0.31		$	1.87
Basic earnings per common share	$	(0.11	)	$	0.31		$	0.89

Diluted earnings per common share from continuing operations	$	(0.11	)	$	0.31		$	1.85
Diluted earnings per common share	$	(0.11	)	$	0.31		$	0.88

See Notes to Consolidated Financial Statements

Consolidated Statements of Income
Dollars in thousands (except per share amounts) For the Year Ended December 31,
2008 2007 2006
Interest income
     Interest and fees on loans
         Taxable $ 77,055 $ 77,424 $ 68,231
         Tax-exempt 460 487 425
     Interest and dividends on securities
         Taxable 13,707 11,223 9,404
         Tax-exempt 2,254 2,199 2,158
     Interest on interest bearing deposits with other banks 4 14 26
     Interest on Federal Funds sold 4 37 34
                 Total interest income 93,484 91,384 80,278
Interest expense
     Interest on deposits 27,343 34,296 28,312
     Interest on short-term borrowings 2,392 4,822 6,612
     Interest on long-term borrowings and subordinated debentures 19,674 13,199 9,455
                 Total interest expense 49,409 52,317 44,379
                 Net interest income 44,075 39,067 35,899
     Provision for loan losses 15,500 2,055 1,845
                 Net interest income after provision for loan losses 28,575 37,012 34,054
Noninterest income
     Insurance commissions 5,139 2,876 924
     Service fees 3,246 3,004 2,758
     Mortgage origination revenue 94 134 -
     Realized securities (losses) (6 ) - -
     Other-than-temporary impairment of securities (7,060 ) - -
     Net cash settlement on interest rate swaps (170 ) (727 ) (534 )
     Change in fair value of interest rate swaps 705 1,478 (90 )
     Gain (loss) on sale of assets 126 (33 ) (47 )
     Writedown of OREO (196 ) (250 ) -
     Other 990 875 622
                 Total noninterest income 2,868 7,357 3,633
Noninterest expenses
     Salaries and employee benefits 16,762 14,608 11,821
     Net occupancy expense 1,870 1,758 1,557
     Equipment expense 2,173 2,004 1,901
     Supplies 925 871 797
     Professional fees 723 695 892
     Merger abandonment expense 682 - -
     Amortization of intangibles 351 251 151
     Other 5,948 4,911 4,490
                 Total noninterest expenses 29,434 25,098 21,609
Income before income tax expense 2,009 19,271 16,078
     Income tax expense (benefit) (291 ) 5,734 5,018
                 Income from continuing operations 2,300 13,537 11,060
Discontinued operations
      Exit costs and impairment of long-lived assets - (312 ) (2,480 )
      Operating income(loss) - (10,347 ) (1,750 )
Income from discontinued operations before income tax expense (benefit) - (10,659 ) (4,230 )
       Income tax expense(benefit) - (3,578 ) (1,427 )
                  Income from discontinued operations - (7,081 ) (2,803 )

                          Net Income $ 2,300 $ 6,456 $ 8,257

Basic earnings per common share from continuing operations $ 0.31 $ 1.87 $ 1.55
Basic earnings per common share $ 0.31 $ 0.89 $ 1.16

Diluted earnings per common share from continuing operations $ 0.31 $ 1.85 $ 1.54
Diluted earnings per common share $ 0.31 $ 0.88 $ 1.15

~~See notes to consolidated~~ ~~financial~~ ~~statements~~

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Consolidated Statements of Shareholders’ Equity

For the Years Ended December 31, 2009, 2008 and 2007

Consolidated Statements of Shareholders’ Equity
For the Years Ended December 31, 2008, 2007 and 2006

Common Accumulated Total
Stock and Retained Other Shareholders'
Related Earnings Treasury Comprehensive Equity
Dollars in thousands (except per share amounts) Surplus (Restated) Stock Income (Restated)
Balance, December 31, 2005 $ 18,857 $ 55,102 $ - $ (1,268 ) $ 72,691
Comprehensive income:
   Net income - 8,257 - - 8,257
   Other comprehensive income,
     net of deferred tax expense of $214:
     Net unrealized gain on
       securities of $917, net
       of reclassification adjustment
       for gains included in net
       income of ($0) - - - 917 917
     Total comprehensive income 9,174
Exercise of stock options 188 - - - 188
Repurchase of common stock (1,024 ) - - (1,024 )
Cash dividends declared ($0.32 per share) - (2,276 ) - - (2,276 )
Balance, December 31, 2006 18,021 61,083 - (351 ) 78,753
Comprehensive income:
   Net income - 6,456 - - 6,456
   Other comprehensive income,
     net of deferred tax expense of $186:
     Net unrealized gain on
       securities of $304, net
       of reclassification adjustment
       for gains included in net
       income of ($0) - - - 303 303
     Total comprehensive income 6,759
Issuance of 317,686 shares at $19.93 per share 6,331 - - - 6,331
Exercise of stock options 141 - - - 141
Repurchase of common stock (102 ) - - - (102 )
Cash dividends declared ($0.34 per share) - (2,462 ) - - (2,462 )
Balance, December 31, 2007 24,391 65,077 - (48 ) 89,420
Comprehensive income:
   Net income - 2,300 - - 2,300
   Other comprehensive income,
     net of deferred tax (benefit) of ($1,146):
     Net unrealized (loss) on
       securities of ($1,864), net
       of reclassification adjustment
       for losses included in net
       income of ($6) - - - (1,870 ) (1,870 )
     Total comprehensive income 430
Exercise of stock options 15 - - - 15
Stock compensation expense 12 - - - 12
Repurchase of common stock 35 - - - 35
Cash dividends declared ($0.36 per share) - (2,668 ) - - (2,668 )
Balance, December 31, 2008 $ 24,453 $ 64,709 $ - $ (1,918 ) $ 87,244

~~See notes to consolidated~~ ~~financial~~ ~~statements~~


	Preferred		Common								Accumulated
	Stock and		Stock and								Other			Total
	Related		Related			Retained			Treasury		Comprehensive			Shareholders'
Dollars in thousands (except per share amounts)	Surplus		Surplus			Earnings			Stock		Income (Loss)			Equity
Balance, December 31, 2006		-		18,021			61,083			-		(351	)		78,753
Comprehensive income:
Net income		-		-			6,456			-		-			6,456
Other comprehensive income,
net of deferred tax expense of $186:
Net unrealized gain on securities of $489, net
of reclassification adjustment for gains included
in net income of $0		-		-			-			-		303			303
Total comprehensive income															6,759
Issuance of 317,686 shares at $19.93 per share		-		6,331			-			-		-			6,331
Exercise of stock options		-		141			-			-		-			141
Repurchase of common stock		-		(102	)		-			-		-			(102	)
Cash dividends declared ($0.34 per share)		-		-			(2,462	)		-		-			(2,462	)
Balance, December 31, 2007		-		24,391			65,077			-		(48	)		89,420
Comprehensive income:
Net income		-		-			2,300			-		-			2,300
Other comprehensive income,
net of deferred tax benefit of $1,146:
Net unrealized loss on securities of $3,016, net
of reclassification adjustment for losses included
in net income of $6		-		-			-			-		(1,870	)		(1,870	)
Total comprehensive income															430
Exercise of stock options		-		15			-			-		-			15
Stock compensation expense		-		12			-			-		-			12
Repurchase of common stock		-		35			-			-		-			35
Cash dividends declared ($0.36 per share)		-		-			(2,668	)		-		-			(2,668	)
Balance, December 31, 2008		-		24,453			64,709			-		(1,918	)		87,244
Comprehensive income:
Net loss		-		-			(716	)		-		-			(716	)
Other comprehensive income:
Non-credit related other-than-temporary
impairment on debt securities of $75, net of
deferred tax benefit of $28		-		-			-			-		47			47
Net unrealized loss on securities of $1,663, net of deferred
tax benefit of $633 and reclassification adjustment for gains
included in net income of $1,497		-		-			-			-		1,030			1,030
Total comprehensive income															361
Exercise of stock options		-		55			-			-		-			55
Issuance of 3,710 shares of preferred stock		3,519		-			-			-		-			3,519
Preferred stock cash dividends declared ($20.00 per share)		-		-			(74	)		-		-			(74	)
Common stock cash dividends declared ($0.06 per share)		-		-			(445	)		-		-			(445	)
Balance, December 31, 2009	$	3,519	$	24,508		$	63,474		$	-	$	(841	)	$	90,660

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows For the Year Ended December 31,
Dollars in thousands 2008 2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income $ 2,300 $ 6,456 $ 8,257
     Adjustments to reconcile net earnings to
         net cash provided by operating activities:
         Depreciation 1,602 1,524 1,769
         Provision for loan losses 15,500 2,305 2,515
         Stock compensation expense 12 32 44
         Deferred income tax (benefit) (5,745 ) 225 (1,535 )
         Loans originated for sale (5,961 ) (17,902 ) (234,047 )
         Proceeds from loans sold 6,420 25,315 249,967
         (Gains) on loans sold (60 ) (362 ) (7,764 )
         Security losses 6 - -
         Change in fair value of derivative instruments (705 ) (1,478 ) 90
         Writedown of preferred stock and GAFC stock 7,060 - -
         Writedown of fixed assets to fair value & exit costs accrual of discontinued operations - 312 2,480
         (Gain) loss on disposal of premises, equipment and other assets (126 ) 33 47
         Amortization of securities premiums (accretion
             of discounts), net (519 ) (176 ) 65
         Amortization of goodwill and purchase
             accounting adjustments, net 363 263 163
         Tax benefit of exercise of stock options 6 46 71
         (Increase) in accrued interest receivable (26 ) (843 ) (1,512 )
         (Increase) decrease in other assets (2,337 ) (1,964 ) 553
         Increase (decrease) in other liabilities 2,575 (477 ) 795
             Net cash provided by operating activities 20,365 13,309 21,958
CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from maturities and calls of ��
         securities available for sale 22,944 28,610 14,370
     Proceeds from sales of securities available for sale 1,141 - -
     Principal payments received on  securities available for sale 30,858 28,137 25,363
     Purchases of securities available for sale (112,086 ) (103,987 ) (66,022 )
     Purchases of other investments (15,232 ) (16,387 ) (14,695 )
     Redemption of Federal Home Bank Loan Stock 12,257 12,099 18,264
     Net decrease in federal funds sold 179 336 3,133
     Net loans made to customers (163,971 ) (140,958 ) (125,059 )
     Purchases of premises and equipment (1,940 ) (1,187 ) (1,780 )
     Proceeds from sales of premises, equipment and other assets 2,889 170 305
     Proceeds from (purchase of) interest bearing deposits with other banks (31 ) 194 1,266
     Purchases of life insurance contracts - - (880 )
     Net cash acquired in acquisitions - 233 -
     Proceds from early termination of interest rate swap 212 - -
             Net cash (used in) investing activities (222,780 ) (192,740 ) (145,735 )
CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase (decrease) in demand deposit,
         NOW and savings accounts (40,910 ) (1,347 ) 22,795
     Net increase (decrease) in time deposits 178,071 (58,721 ) 191,954
     Net increase (decrease) in short-term borrowings (18,955 ) 111,627 (121,600 )
     Proceeds from long-term borrowings 131,281 162,948 63,342
     Repayments of long-term borrowings (54,377 ) (23,320 ) (39,991 )
     Exercise of stock options 9 63 72
     Dividends paid (2,668 ) (2,462 ) (2,276 )
    Repurchase of common stock - (103 ) (1,024 )
    Reinvested dividends 35 - -
         Net cash provided by financing activities 192,486 188,685 113,272
     Increase (decrease) in cash and due from banks (9,929 ) 9,254 (10,505 )
     Cash and due from banks:
         Beginning 21,285 12,031 22,536
         Ending $ 11,356 $ 21,285 $ 12,031

~~See notes to consolidated~~ ~~financial~~ ~~statements~~

	For the Year Ended December 31,
Dollars in thousands	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	(716	)	$	2,300		$	6,456
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,600			1,602			1,524
Provision for loan losses		20,325			15,500			2,305
Stock compensation expense		-			12			32
Deferred income tax (benefit)		1,272			(5,745	)		225
Loans originated for sale		(16,498	)		(5,961	)		(17,902	)
Proceeds from loans sold		17,508			6,420			25,315
(Gains) on loans sold		(34	)		(60	)		(362	)
Realized security (gains) losses		(1,497	)		6			-
Change in fair value of derivative instruments		-			(705	)		(1,478	)
Writedown of premises to fair value and exit costs accrual of discontinued operations		-			-			312
Other-than-temporary losses on securities		5,366			7,060			-
(Gain) loss on sale of property held for sale		112			(126	)		33
Amortization of securities premiums (accretion of discounts), net		(2,561	)		(519	)		(176	)
Amortization of goodwill and purchase accounting adjustments, net		363			363			263
Tax benefit of exercise of stock options		-			6			46
(Increase) decrease in accrued interest receivable		894			(26	)		(843	)
(Increase) in other assets		(6,167	)		(2,337	)		(1,964	)
Increase (decrease) in other liabilities		348			2,575			(477	)
Net cash provided by operating activities		20,315			20,365			13,309
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities available for sale		21,365			22,944			28,610
Proceeds from sales of securities available for sale		45,543			1,141			-
Principal payments received on securities available for sale		73,631			30,858			28,137
Purchases of securities available for sale		(84,166	)		(112,086	)		(103,987	)
Purchases of other investments		(3,982	)		(15,232	)		(16,387	)
Redemption of Federal Home Bank Loan Stock		-			12,257			12,099
Proceeds from maturities and calls of other investments		3,000			-			-
Net decrease in federal funds sold		2			179			336
Net loans made to customers		(777	)		(163,971	)		(140,958	)
Purchases of premises and equipment		(3,409	)		(1,940	)		(1,187	)
Proceeds from sale of other repossessed assets & property held for sale		3,411			2,889			170
Proceeds from (purchase of) interest bearing deposits with other banks		(34,139	)		(31	)		194
Purchases of life insurance contracts		(2,100	)		-			-
Net cash acquired in acquisitions		-			-			233
Proceds from early termination of interest rate swap		-			212			-
Net cash (used in) investing activities		18,379			(222,780	)		(192,740	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposit, NOW and savings accounts		122,638			(40,910	)		(1,347	)
Net increase (decrease) in time deposits		(71,151	)		178,071			(58,721	)
Net increase (decrease) in short-term borrowings		(103,360	)		(18,955	)		111,627
Proceeds from long-term borrowings		82,656			131,281			162,948
Repayments of long-term borrowings		(83,911	)		(54,377	)		(23,320	)
Proceeds from issuance of subordinated debentures		6,762			-			-
Net proceeds from issuance of preferred stock		3,519			-			-
Exercise of stock options		43			9			63
Dividends paid		(445	)		(2,668	)		(2,462	)
Repurchase of common stock		-			-			(103	)
Reinvested dividends		12			35			-
Net cash provided by financing activities		(43,237	)		192,486			188,685
Increase (decrease) in cash and due from banks		(4,543	)		(9,929	)		9,254
Cash and due from banks:
Beginning		11,356			21,285			12,031
Ending	$	6,813		$	11,356		$	21,285

See Notes to Consolidated Financial Statements

4847

Table of Contents

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows-continued For the Year Ended December 31,
Dollars in thousands 2008 2007 2006
SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
     Cash payments for:
         Interest $ 49,347 $ 51,259 $ 44,137
         Income taxes $ 4,190 $ 3,472 $ 4,991

SUPPLEMENTAL SCHEDULE OF NONCASH
     INVESTING AND FINANCING ACTIVITIES
     Other assets acquired in settlement of loans $ 8,802 $ 2,389 $ 86

- ~~See notes to consolidated~~ ~~financial~~continued ~~statements~~

	For the Year Ended December 31,
Dollars in thousands	2009		2008		2007
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest	$	46,645	$	49,347	$	51,259
Income taxes	$	1,395	$	4,190	$	3,472

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Other assets acquired in settlement of loans	$	35,273	$	8,802	$	2,389

See Notes to Consolidated Financial Statements

4948

Table of Contents

NOTE 1. ~~SIGNIFICANT ACCOUNTING POLICIES~~BASIS OF PRESENTATION

~~Nature of business~~: We are a financial holding company headquartered in Moorefield, West Virginia. Our primary business is ~~retail~~community banking. Our community bank subsidiary, Summit Community Bank (“Summit Community”) provides commercial and retail banking services primarily in the Eastern Panhandle and South Central regions of West Virginia and the Northern region of Virginia. We also operate Summit Insurance Services, ~~LLC.~~LLC in Moorefield, West Virginia and Leesburg, Virginia.

~~Basis of financial statement presentation~~: Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.

Use of estimates: We must make estimates and assumptions that affect the reported amounts and disclosures in preparing our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

Principles of consolidation: The accompanying consolidated financial statements include the accounts of Summit and its subsidiaries. All significant accounts and transactions among these entities have been eliminated.

Variable interest entities: In accordance with ASC Topic 810, Consolidation, 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 ASC Topic 810, 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 ASC Topic 810 do not require consolidation of subsidiary trusts which issue guaranteed preferred beneficial interests in subordinated debentures (Trust Preferred Securities). 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 ASC Topic 810. The adoption of the provisions of ASC Topic 810 has had no material impact on our results of operations, financial condition, or liquidity. See Note 13 of our Notes to Consolidated Financial Statements for a discussion of our subordinated debentures owed to unconsolidated subsidiary trusts.

Presentation of cash flows: For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from federal funds sold, demand deposits, NOW accounts, savings accounts and short-term borrowings are reported on a net basis, since their original maturities are less than three months. Cash flows from loans and certificates of deposit and other time deposits are reported net. The statements of cash flows are presented on a consolidated basis, including both continuing and discontinued operations.

~~Securities~~: We classify debt and equity securities as “held to maturity”, “available for sale” or “trading” according to management’s intent. The appropriate classification is determined at the time of purchase of each security and re-evaluated at each reporting date.

~~Securities held to maturity~~ – Certain debt securities for which we have the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts. There are no securities classified as held to maturity in the accompanying financial statements.

~~Securities available for sale~~ - - Securities not classified as "held to maturity" or as "trading" are classified as "available for sale." Securities classified as "available for sale" are those securities that we intend to hold for an indefinite period of time, but not necessarily to maturity. "Available for sale" securities are reported at estimated fair value net of unrealized gains or losses, which are adjusted for applicable income taxes, and reported as a separate component of shareholders' equity.

~~Trading securities~~ ~~- There are no securities classified as "trading" in the accompanying financial statements.~~

~~Impairment assessment:~~ Impairment exists when the fair value of a security is less than its cost. Cost includes adjustments made to the cost basis of a security for accretion, amortization and previous other-than-temporary impairments. We perform a quarterly assessment of the debt and equity securities in our investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their cost is other-than-temporary. This determination requires significant judgment. Impairment is considered other-than-temporary when it becomes probable that we will be unable to recover the cost of an investment. This assessment takes into consideration factors such as the length of time and the extent to which the market value have been less than cost, the financial condition and near term prospects of the issuer including events specific to the issuer or industry, defaults or deferrals of scheduled interest, principal or dividend payments, external credit ratings and recent downgrades, and our intent and ability to hold the security for a period of time sufficient to allow for a recovery in fair value. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis. The amount of the write down is included in other-than-temporary impairment of securities in the consolidated statements of income. The new cost basis is not adjusted for subsequent recoveries in fair value, if any.

~~Realized gains and losses on sales of securities are recognized on the specific identification method. Amortization of premiums and accretion of discounts are computed using the interest method.~~

~~Loans and allowance for loan losses: Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and allowance for loan losses.~~

~~Table of Contents~~

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. We make continuous credit reviews of the loan portfolio and consider current economic conditions, historical loan loss experience, review of specific problem loans and other potential risk factors in determining the adequacy of the allowance for loan losses. Loans are charged against the allowance for

loan losses when we believe that collectibility is unlikely. While we use the best information available to make our evaluation, future adjustments may be necessary if there are significant changes in conditions.

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the specific loan agreement. Impaired loans, other than certain large groups of smaller-balance

homogeneous loans that are collectively evaluated for impairment, are required to be reported at the present value of expected future cash flows discounted using the loan's original effective interest rate or, alternatively, at the loan's observable market price, or at the fair

value of the loan's collateral if the loan is collateral dependent. The method selected to measure impairment is made on a loan-by-loan basis, unless foreclosure is deemed to be probable, in which case the fair value of the collateral method is used.

Generally, after our evaluation, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest is accrued daily on impaired loans unless the loan is placed on nonaccrual status. Impaired loans are placed on nonaccrual status when the payments of principal and interest are in default for a period of 90 days, unless the loan is both well-secured and in the process of collection. Interest on nonaccrual loans is recognized primarily using the cost-recovery method.

~~Interest on loans is accrued daily on the outstanding balances.~~

~~Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life.~~

~~Property held for sale: Property held for sale consists of premises qualifying as held for sale under Statement of Financial Accounting Standards No. 144,~~ ~~Accounting for the Impairment or Disposal of Long-lived Assets,~~ and of real estate acquired through foreclosure on loans secured by such real estate. Qualifying premises are transferred to property held for sale at the lower of carrying value or estimated fair value less anticipated selling costs. Foreclosed property is recorded at the estimated fair value less anticipated selling costs based upon the property’s appraised value at the date of foreclosure, with any difference between the fair value of foreclosed property and the carrying value of the related loan charged to the allowance for loan losses. We perform periodic valuations of property held for sale subsequent to transfer. Gains or losses not previously recognized resulting from the sale of property held for sale is recognized on the date of sale. Changes in value subsequent to transfer are recorded in noninterest income. Depreciation is not recorded on property held for sale. Expenses incurred in connection with operating foreclosed properties are charged to noninterest expense.

~~Premises and equipment~~: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method for premises and equipment over the estimated useful lives of the assets. The estimated useful lives employed are on average 30 years for premises and 3 to 10 years for furniture and equipment. Repairs and maintenance expenditures are charged to operating expenses as incurred. Major improvements and additions to premises and equipment, including construction period interest costs, are capitalized. No interest was capitalized during 2008, 2007, or 2006.

~~Intangible assets:~~ Goodwill and certain other intangible assets with indefinite useful lives are not amortized into net income over an estimated life, but rather are tested at least annually for impairment. Intangible assets determined to have definite useful lives are amortized over their estimated useful lives and also are subject to impairment testing.

~~Securities sold under agreements to repurchase:~~ We generally account for securities sold under agreements to repurchase as collateralized financing transactions and record them at the amounts at which the securities were sold, plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral provided is continually monitored and additional collateral is provided as needed.

Advertising: Advertising costs are expensed as incurred.

~~Guarantees:~~ ~~In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),~~ ~~Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a~~

~~liability for the fair value of an obligation assumed under a guarantee. FIN 45 clarifies the requirements of SFAS 5, Accounting for Contingencies, relating to guarantees. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the~~

~~Table of Contents~~

guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, among others, guarantees relating to employee compensation, residual value guarantees under capital lease arrangements, commercial letters of credit, loan commitments, subordinated interests in an SPE, and guarantees of a company’s own

future performance. Other guarantees are subject to the disclosure requirements of FIN 45 but not to the recognition provisions and include, among others, a guarantee accounted for as a derivative instrument under SFAS 133, a parent’s guarantee of debt owed to a third party by its subsidiary or vice versa, and a guarantee which is based on performance, not price.

~~Income taxes~~: The consolidated provision for income taxes includes Federal and state income taxes and is based on pretax net income reported in the consolidated financial statements, adjusted for transactions that may never enter into the computation of income taxes payable. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Valuation allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized.

~~FASB Interpretation No. 48,~~ ~~Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109~~ (FIN 48) clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 requires that a tax position meet a "probable recognition threshold" for the benefit of the uncertain tax position to be recognized in the financial statements. A tax position that fails to meet the probable recognition threshold will result in either reduction of a current or deferred tax asset or receivable, or recording a current or deferred tax liability. FIN 48 also provides guidance on measurement, derecognition of tax benefits, classification, interim period accounting disclosure, and transition requirements in accounting for uncertain tax positions.

~~Stock-based compensation:~~ ~~In accordance with Statement of Financial Accounting Standards No. 123,~~ ~~Accounting for Stock-Based Compensation, we recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited.~~

~~Basic and diluted earnings per share~~: Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares outstanding increased by the number of shares of common stock which would be issued assuming the exercise of employee stock options and the conversion of preferred stock.

Trust services: Assets held in an agency or fiduciary capacity are not our assets and are not included in the accompanying consolidated balance sheets. Trust services income is recognized on the cash basis in accordance with customary banking practice. Reporting such income on a cash basis rather than the accrual basis does not have a material effect on net income.

~~Derivative instruments and hedging activities: In accordance with SFAS 133,~~ ~~Accounting for Derivative Instruments and Hedging Activities~~, as amended, all derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction.

~~Fair-value hedges~~ – For transactions in which we are hedging changes in fair value of an asset, liability, or a firm commitment, changes in the fair value of the derivative instrument are generally offset in the income statement by changes in the hedged item’s fair value.

~~Cash-flow hedges~~ – For transactions in which we are hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument are reported in other comprehensive income. The gains and losses on the derivative instrument, which are reported in comprehensive income, are reclassified to earnings in the periods in which earnings are impacted by the variability of cash flows of the hedged item.

~~The ineffective portion of all hedges is recognized in current period earnings.~~

Other derivative instruments used for risk management purposes do not meet the hedge accounting criteria and, therefore, do not qualify for hedge accounting. These derivative instruments are accounted for at fair value with changes in fair value recorded in the income statement.

~~During 2008 and 2007, we were party to instruments that qualified for fair-value hedge accounting and other~~ ~~instruments that were held for risk management purposes that did not qualify for hedge accounting.~~

~~Table of Contents~~

~~Variable interest entities:~~ ~~In accordance with FIN 46-R,~~ ~~Consolidation of Variable Interest Entities,~~ 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 do not require consolidation of subsidiary trusts which issue guaranteed preferred beneficial interests in subordinated debentures (Trust Preferred Securities). 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 13 of our Notes to Consolidated Financial Statements for a discussion of our subordinated debentures.

~~Loan commitments:~~ ~~Statement of Financial Accounting Standards No. 149 (“SFAS 149”),~~ ~~Amendment of Statement 133 on Derivative Instruments and Hedging Activities~~ 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.

~~Fair value measurements:~~ ~~We adopted Statement of Financial Accounting Standards No. 157 (“SFAS 157”),~~ ~~Fair Value Measurements~~ effective January 1, 2008. SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

~~Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.~~

~~Level 2~~: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

~~Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.~~

Accordingly, securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, and impaired loans held for investment. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

~~Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.~~

~~Available-for-Sale Securities~~: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Certain residential mortgage-backed securities issued by nongovernment entities are Level 3, due to the unobservable inputs used in pricing those securities.

~~Loans Held for Sale~~: Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, we classify loans subject to nonrecurring fair value adjustments as Level 2.

~~Loans~~: We do not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired,

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management measures impairment in accordance with SFAS 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2008, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the impaired loan as nonrecurring Level 3.

~~Derivative Assets and Liabilities~~: Substantially all derivative instruments held or issued by us for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, we measure fair value using models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. We classify derivative instruments held or issued for risk management or customer-initiated activities as Level 2. Examples of Level 2 derivatives are interest rate swaps.

Reclassifications: Certain accounts in the consolidated financial statements for ~~2007~~2008 and ~~2006,~~2007, as previously presented, have been reclassified to conform to current year classifications.

Significant accounting policies: The following table identifies our other significant accounting policies and the Note and page where a detailed description of each policy can be found.

Fair Value Measurements	Note 4	Page 51
Securities	Note 6	Page 56
Loans	Note 7	Page 61
Allowance for Loan Losses	Note 8	Page 63
Property Held for Sale	Note 9	Page 64
Premises and Equipment	Note 10	Page 64
Intangible Assets	Note 11	Page 65
Securities Sold Under Agreements to Repurchase	Note 13	Page 67
Income Taxes	Note 14	Page 69
Stock Based Compensation	Note 15	Page 71
Earnings Per Share	Note 20	Page 76

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NOTE 2.

SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING ~~PRONOUNCEMENTS~~GUIDANCE

~~In December 2007,~~The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, the ASC became the officially recognized source of authoritative accounting principles recognized by the FASB ~~issued Statement~~to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the ASC carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the ASC is superseded and deemed non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

Effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, new authoritative accounting guidance under ASC Topic 320, Investments - Debt and Equity Securities, requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the noncredit component in other comprehensive income when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to its recovery. This guidance does not change the recognition of other-than-temporary impairment for equity securities. We adopted this guidance effective April 1, 2009, which resulted in a $451,000, pre-tax, reduction in the other-than-temporary impairment charges recorded in earnings for the three month period ended June 30, 2009. The adoption had no effect on any prior periods, as we held no debt securities at the time of its adoption for which an other-than-temporary impairment had been previously recognized. Accordingly, we recorded no cumulative effect adjustment upon adoption. The expanded disclosures related to ASC Topic 320 are included in Note 6. Securities.

New authoritative accounting guidance under ASC Topic 815, Derivatives and Hedging, amends prior guidance to amend and expand the disclosure requirements for derivatives and hedging activities to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. The new authoritative accounting guidance under ASC Topic 815 is effective for fiscal years and interim periods beginning after November 15, 2008 and did not have a material impact on our financial condition or results of operations as it only relates to disclosures.

New authoritative accounting guidance under ASC Topic 820, Fair Value Measurements and Disclosures, affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. We adopted the new guidance during the quarter ended June 30, 2009, and the adoption did not have a material impact on our financial condition or results of operations.

Further new authoritative accounting guidance (Accounting Standards Update No. ~~141 (revised 2007) (“SFAS 141R”)~~2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 was effective for us beginning October 1, 2009 and did not have a significant impact on our financial statements.

New authoritative accounting guidance under ASC Topic 825, Financial Instruments, requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods. During second quarter 2009, we adopted this guidance, which only relates to disclosures and therefore it did not have an impact on our financial condition or results of operations. The new interim disclosures required under Topic 825 are included in Note 4. Fair Value Measurements.

New authoritative accounting guidance under ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events occurring subsequent to the balance sheet date. We have considered and evaluated all events that occurred subsequent to December 31, 2009 through March 30, 2010 (the date of the filing of this Annual Report) in the preparation of our Consolidated Financial Statements, as of and for the year ended December 31, 2009.

On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, Business Combinations,~~. SFAS 141R will significantly change how the acquisition method will be applied~~ became applicable to our

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accounting for business ~~combinations. SFAS 141R~~combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under ~~SFAS 141~~previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ~~SFAS 141R~~ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under ~~SFAS 141.~~prior accounting guidance. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, Contingencies. Under ~~SFAS 141R,~~ASC Topic 805, the requirements of ~~SFAS 146,~~ASC Topic 420, ~~Accounting for Costs Associated with~~ Exit or Disposal ~~Activities~~Cost Obligations, would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ~~SFAS 5,~~ ~~Accounting for Contingencies~~. Reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period. The allowance for loan losses of an acquiree will not be permitted to be recognized by the acquirer. Additionally, SFAS 141R will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward.ASC Topic 450. We will be required to prospectively apply ~~SFAS 141R~~ASC Topic 805 to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. We are currently evaluating ~~SFAS 141R~~this guidance and have not determined the impact it will have on our financial statements.

Accounting Standards Update (ASU) 2010-6 — Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, amends ASC Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In ~~December 2007,~~addition, the ~~FASB issued SFAS No. 160 (“SFAS 160”),~~ ~~Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51. SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest~~reconciliation for level 3 activity will be ~~recharacterized as~~required on a ~~“noncontrolling interests” and should be reported as a component of equity. Among other requirements, SFAS 160 requires consolidated~~gross rather than net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributablebasis. The ASU provides additional guidance related to the ~~parent~~level of disaggregation in determining classes of assets and ~~to the non-controlling interest. SFAS 160 is effective for us on January 1, 2009 and is not expected to have a significant impact on our financial statements.~~

~~In March 2008, the FASB issued SFAS No. 161, (“SFAS 161”),~~ ~~Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133. SFAS 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133. SFAS 161 amends SFAS No. 133,~~ ~~Accounting for Derivative Instruments and Hedging Activities~~, to amend and expand the disclosure requirements of SFAS No. 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about

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~~fair value amounts of gains and losses on derivative instruments~~liabilities and disclosures about ~~credit-risk-related contingent features in derivative agreements. SFAS 161 is effective January 1, 2009~~inputs and ~~is not expected to have a significant impact on our financial statements.~~

~~In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”),~~ valuation techniques. The ~~Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of account principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that~~amendments are presented in conformity with generally accepted accounting principles (GAAP) in the United States. SFAS 162 is effective 60 days following the SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, ~~The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Adoption of SFAS 162 will not be a change in our current accounting practices; therefore, it will not have a material impact on the our consolidated financial condition or results of operations.~~

~~In June 2008, the FASB issued FSP EITF 03-6-1 (“FSP EITF 03-6-1”),~~ ~~Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities~~. FSP EITF 03-6-1 clarifies whether instruments, such as restricted stock, granted in share-based payments are participating securities prior to vesting. Such participating securities must be included in the computation of earnings per share under the two-class method as described in SFAS No. 128, ~~Earnings per Share~~. FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. FSP EITF 03-6-1 is effective for ~~financial statements issued for fiscal years and~~annual or interim reporting periods beginning after December 15, ~~2008, and requires~~2009, except for the requirement to provide the reconciliation for level 3 activity on a ~~company to retrospectively adjust its earnings per share data. Early adoption is not permitted. We do not expect that the adoption of FSP EITF 03-6-1~~gross basis which will ~~have a material effect on consolidated results of operations or earnings per share.~~be effective for fiscal years beginning after December 15, 2010.

NOTE 3. ACQUISITIONS

Effective July 2, 2007, we acquired Kelly Insurance Agency, Inc. and Kelly Property and Casualty, Inc., two Virginia corporations located in Leesburg, Virginia, which were merged into Summit Insurance Services, LLC, our wholly owned subsidiary. We have deemed this transaction to be an immaterial acquisition.

On April 9, 2008, we exercised our right to terminate the Agreement and Plan of Reorganization (the “Agreement”) by and between Summit and Greater Atlantic Financial Corp. (“Greater Atlantic”) (Pink Sheets: GAFC.PK) dated April 12, 2007 under the terms of which Summit was to acquire Greater Atlantic. The Agreement permitted either party to terminate the Agreement if the transaction was not completed by March 31, 2008.

Greater Atlantic and Summit then initiated negotiations towards a new agreement which was entered into and announced on June 10, 2008 (“New Agreement”). Under the terms of the New Agreement, each holder of a share of Greater Atlantic common stock was entitled to receive, subject to the limitations and adjustments set forth in the New Agreement, the number of shares of Summit common stock equal to $4.00 divided by the average closing price of Summit’s common stock as reported on the NASDAQ Capital Market for the twenty (20) trading days before the closing of the merger. In no event was each share of Greater Atlantic common stock to be exchanged for more than 0.328625 of a share of Summit common stock. If, at closing, Greater Atlantic’s shareholders’ equity, adjusted to exclude accumulated other comprehensive income or loss and the effect of removing the benefit of net operating loss carryforwards from the net deferred tax assets, was less than $4,214,000 (which equaled Greater Atlantic’s shareholders’ equity at March 31, 2008), then the aggregate value of the merger consideration was to be reduced one dollar for each dollar that Greater Atlantic’s adjusted shareholders’ equity was less than $4,214,000. For purposes of determining Greater Atlantic’s adjusted shareholders’ equity at closing, Greater Atlantic’s shareholders’ equity at closing was to be increased by the actual monthly operating losses, up to $250,000 per month, incurred by Greater Atlantic after March 31, 2008 and before September 1, 2008, the fees accrued or paid to Greater Atlantic’s financial advisor, and the fees accrued or paid to Greater Atlantic’s legal counsel up to $150,000.

The acquisition was also conditioned upon the following at close of the transaction: (a) Greater Atlantic and GAB having minimum regulatory capital ratios of: Tier 1 (core) capital equal to 4.0%, Tier 1 risk-based capital equal to 4.0% and total risk-based capital equal to 8.0%; (b) GAB’s ratio of the sum of non-performing loans, other real estate owned and net loans charged off after March 31, 2008, to total consolidated assets not exceeding 2.78%; and (c) Greater Atlantic’s allowance for loan losses being adequate in accordance with generally accepted accounting principles and applicable regulatory guidance, as determined by Summit with the concurrence of Greater Atlantic’s independent auditors.

As announced on December 16, 2008, we mutually agreed to terminate ~~the New~~our Agreement and Plan of Reorganization with Greater Atlantic Financial Corp. because one or more conditions to closing could not be met prior to December 31, 2008, the date on which either party could exercise the right to terminate. Pursuant to the Termination Agreement, neither party shall have any liability or further obligation to any other party under the Merger Agreement. In conjunction with this termination, we recognized merger abandonment expense of $682,000 during 2008 as reflected in noninterest expense on the accompanying consolidated statements of income.

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NOTE 4. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Level 1:

Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:

Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:

Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Accordingly, securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, and impaired loans held for investment.

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These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-Sale Securities: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Certain residential mortgage-backed securities issued by nongovernment entities are Level 3, due to the unobservable inputs used in pricing those securities.

Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, we classify loans subject to nonrecurring fair value adjustments as Level 2.

Loans: We do not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC Topic 310, impaired loans where an allowance is established based on the fair value of collateral requires classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the impaired loan as nonrecurring Level 2. When a current appraised value is not available and there is no observable market price, we record the impaired loan as nonrecurring Level 3.

When a collateral dependent loan is identified as impaired, management immediately begins the process of evaluating the estimated fair value of the underlying collateral to determine if a related specific allowance for loan losses or charge-off is necessary. Current appraisals are ordered once a loan is deemed impaired if the existing appraisal is more than twelve months old, or more frequently if there is known deterioration in value. For recently identified impaired loans, a current appraisal may not be available at the financial statement date. Until the current appraisal is obtained, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the loan’s underlying collateral since the date of the original appraisal. Such discounts are generally estimated based upon management’s knowledge of sales of similar collateral within the applicable market area and its knowledge of other real estate market-related data as well as general economic trends. When a new appraisal is received (which generally are received within 3 months of a loan being identified as impaired), management then re-evaluates the fair value of the collateral and adjusts any specific allocated allowance for loan losses, as appropriate. In addition, management also assigns a discount of 7–10% for the estimated costs to sell the collateral. As of December 31, 2009, the total fair value of our collateral dependent impaired loans which had a related specific allowance or charge-off was $8,315,000 less than the related appraised values of the underlying collateral for such loans.

Other Real Estate Owned (“OREO”): OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the real estate or its fair value less estimated selling costs. The fair value of OREO is determined on a nonrecurring basis generally utilizing current appraisals performed by an independent, licensed appraiser applying an income or market value approach using observable market data (Level 2). Updated appraisals of OREO are generally obtained if the existing appraisal is more than 18 months old, or more frequently if there is a known deterioration in value. However, if a current appraisal is not available, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the real estate since the date of its original appraisal. Such discounts are generally estimated based upon management’s knowledge of sales of similar property within the applicable market area and its knowledge of other real estate market-related data as well as general economic trends (Level 3). Upon foreclosure, any fair value adjustment is charged against the allowance for loan losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest income in the consolidated statements of income.

Derivative Assets and Liabilities: Substantially all derivative instruments held or issued by us for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, we measure fair value using models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. We classify derivative instruments held or issued for risk management or customer-initiated activities as Level 2. Examples of Level 2 derivatives are interest rate swaps.

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A distribution of asset and liability fair values according to the fair value hierarchy at December 31, ~~2008~~2009 is provided in the tables below. ~~See Note 1 for a discussion of our policies regarding this fair value hierarchy and valuation techniques.~~

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.

									Balance at		Fair Value Measurements Using:
Dollars in thousands									December 31, 2009		Level 1		Level 2		Level 3
Available for sale securities									$	271,654	$	-	$	271,654	$	-


	Total at		Fair Value Measurements Using:						Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2008		Level 1		Level 2		Level 3		December 31, 2008		Level 1		Level 2		Level 3
Assets:
Available for sale securities	$	327,606	$	-	$	315,895	$	11,711	$	327,606	$	-	$	315,895	$	11,711
Derivatives		16		-		16		-		16		-		16		-

Liabilities:
Derivatives	$	18	$	-	$	18	$	-	$	18	$	-	$	18	$	-

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the ~~period~~periods ended December 31, 2009 and 2008. ~~There were no gains or losses recorded in earnings attributable to unrealized gains or losses relating to those securities still held at December 31, 2008.~~

	Available for
	Sale
Dollars in thousands	Securities
Balance January 1, 2008	$	-
Total realized/unrealized gains (losses):
Included in earnings		-
Included in other comprehensive income		(25	)
Purchases, sales, issuances and settlements, net		7,369
Transfers between categories		4,367
Balance December 31, 2008	$	11,711
Total realized/unrealized gains (losses):
Included in earnings		(5,151	)
Included in other comprehensive income		4,401
Purchases, sales, issuances and settlements, net		(970	)
Transfers between categories		(9,991	)
Balance December 31, 2009	$	-

Dollars in thousands Securities
Balance Jan. 1, 2008 $ -
Unrealized gains/(losses) recorded in other comprehensive income (25 )
Purchases, issuances, and settlements 7,369
Transfers in and/or out of Level 3 4,367
Balance Dec. 31, 2008 $ 11,711

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.

Total at Fair Value Measurements Using:
Dollars in thousands December 31, 2008 Level 1 Level 2 Level 3

Loans held for sale $ 978 $ - $ 978 $ -
Impaired loans 54,029 - - 54,029
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	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2009		Level 1		Level 2		Level 3

Loans held for sale	$	1	$	-	$	1	$	-
Impaired loans		74,484		-		52,005		22,479
OREO		40,293		-		38,788		1,505

	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2008		Level 1		Level 2		Level 3

Loans held for sale	$	978	$	-	$	978	$	-
Impaired loans		54,029		-		-		54,029

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral-dependent loans, had a carrying amount of ~~$62,021,000,~~$84,695,000, with a valuation allowance of ~~$7,992,000,~~$10,211,000, resulting in an additional provision for loan losses of ~~$7,715,000~~$9,101,000 for the year ended December 31, ~~2008.~~2009.

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The following summarizes the methods and significant assumptions we used in estimating our fair value disclosures for financial instruments.

Cash and due from banks: The carrying values of cash and due from banks approximate their estimated fair value.

Interest bearing deposits with other banks: The fair values of interest bearing deposits with other banks are estimated by discounting scheduled future receipts of principal and interest at the current rates offered on similar instruments with similar remaining maturities.

Federal funds sold: The carrying values of Federal funds sold approximate their estimated fair values.

Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

Loans held for sale: The carrying values of loans held for sale approximate their estimated fair values.

Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.

Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values.

Deposits: The estimated fair values of demand deposits (i.e. non-interest bearing checking, NOW, money market and savings accounts) and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

Short-term borrowings: The carrying values of short-term borrowings approximate their estimated fair values.

Long-term borrowings: The fair values of long-term borrowings are estimated by discounting scheduled future payments of principal and interest at current rates available on borrowings with similar terms.

Subordinated debentures: The carrying values of subordinated debentures approximate their estimated fair values.

Subordinated debentures owed to unconsolidated subsidiary trusts: The carrying values of subordinated debentures owed to unconsolidated subsidiary trusts approximate their estimated fair values.

Derivative financial instruments: The fair values of the interest rate swaps are valued using cash flow projection models.

5654

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Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counter parties. The amounts of fees currently charged on commitments and standby letters of credit are deemed

insignificant, and therefore, the estimated fair values and carrying values are not shown below.

The carrying values and estimated fair values of our financial instruments are summarized below:

	At December 31,
	2009				2008
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
Dollars in thousands	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	6,813	$	6,813	$	11,356	$	11,356
Interest bearing deposits,
other banks		34,247		34,247		108		108
Federal funds sold		-		-		2		2
Securities available for sale		271,654		271,654		327,606		327,606
Other investments		24,008		24,008		23,016		23,016
Loans held for sale, net		1		1		978		978
Loans, net		1,137,336		1,152,837		1,192,157		1,201,884
Accrued interest receivable		6,323		6,323		7,217		7,217
Derivative financial assets		-		-		16		16
	$	1,480,382	$	1,495,883	$	1,562,456	$	1,572,183
Financial liabilities:
Deposits	$	1,017,338	$	1,087,212	$	965,850	$	1,077,942
Short-term borrowings		49,739		49,739		153,100		153,100
Long-term borrowings		381,492		395,375		382,748		404,583
Subordinated debentures		16,800		16,800		10,000		10,000
Subordinated debentures owed to
unconsolidated subsidiary trusts		19,589		19,589		19,589		19,589
Accrued interest payable		4,146		4,146		4,796		4,796
Derivative financial liabilities		-		-		18		18
	$	1,489,104	$	1,572,861	$	1,536,101	$	1,670,028

NOTE 5. DISCONTINUED OPERATIONS

During fourth quarter 2006, we decided to either sell or terminate substantially all business activities of Summit Mortgage (a division of Shenandoah Valley National Bank), our residential mortgage loan origination unit. The decision to exit the mortgage banking business was based on this business unit’s poor operating results and the continuing uncertainty for performance improvement. Further, we desired to concentrate our resources and capital on our community banking operations, which have a consistent record of exceptional growth and profitability.

Summit Mortgage, which was previously presented as a separate segment, is presented as discontinued operations for all periods presented in these financial statements.

The ~~following table lists the assets and liabilities of Summit Mortgage included in the balance sheets as assets and liabilities related to discontinued operations.~~

December 31,
Dollars in thousands 2008 2007
Assets:
Loans held for sale, net $ - $ -
Loans, net - -
Property held for sale - -
Other assets - 214
Total assets $ - $ 214
Liabilities:
Accrued expenses and other liabilities $ - $ 806
Total liabilities $ - $ 806

~~The~~ results of Summit Mortgage are presented as discontinued operations in a separate category on the income statements following the results from continuing operations. The income (loss) from discontinued operations for the ~~years~~year ended December 31, ~~2008,~~ 2007 ~~and 2006~~ is presented below.

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Statement of Income from Discontinued Operations

Dollars in thousands	2007
Interest income	$	131
Interest expense		45
Net interest income		86
Provision for loan losses		250
Net interest income after provision for loan losses		(164	)

Noninterest income
Mortgage origination revenue		812
(Loss) on sale of assets		(51	)
Total noninterest income		761

Noninterest expense
Salaries and employee benefits		542
Net occupancy expense		(5	)
Equipment expense		38
Professional fees		663
Advertising		98
Exit costs		312
Litigation settlement		9,250
Other		358
Total noninterest expense		11,256
Income (loss) before income tax expense		(10,659	)
Income tax expense (benefit)		(3,578	)
Income (loss) from discontinued operations	$	(7,081	)

Basic earnings per common share from discontinued operations	$	(0.98	)
Diluted earnings per common share from discontinued operations	$	(0.97	)

Statements of Income from Discontinued Operations
For the Year Ended December 31,
Dollars in thousands 2008 2007 2006
Interest income $ - $ 131 $ 1,541
Interest expense - 45 856
Net interest income - 86 685
Provision for loan losses - 250 670
Net interest income after provision for loan losses - (164 ) 15

Noninterest income
   Mortgage origination revenue - 812 19,741
   (Loss) on sale of assets - (51 ) -
Total noninterest income - 761 19,741

Noninterest expense
   Salaries and employee benefits - 542 6,751
   Net occupancy expense - (5 ) 689
   Equipment expense - 38 301
   Professional fees - 663 742
   Postage - - 6,155
   Advertising - 98 4,678
   Impairment of long-lived assets - - 621
   Exit costs - 312 1,859
   Litigation settlement - 9,250 -
   Other - 358 2,190
Total noninterest expense - 11,256 23,986
Income (loss) before income tax expense - (10,659 ) (4,230 )
   Income tax expense (benefit) - (3,578 ) (1,427 )
Income (loss) from discontinued operations $ - $ (7,081 ) $ (2,803 )

During fourth quarter 2006, we recognized a charge of $621,000 to write down the fixed assets of Summit Mortgage to fair value. We disposed of those assets during 2007. Also, we accrued $1,859,000 for exit costs, which ~~are~~was previously included in Liabilities Related to Discontinued Operations in the ~~accompanying~~ consolidated financial statements. The ~~balance~~activity related to this charge ~~at December 31,~~during 2008 is ~~comprised of the following:~~as follows:

Dollars in thousands	Operating Lease Terminations			Vendor Contracts Terminations		Severance Payments		Total
Balance, December 31, 2007	$	586		$	-	$	-	$	586
Less:
Payments from the accrual		(586	)		-		-		(586	)
Addition to the accrual		-			-		-		-
Reversal of over accrual		-			-		-		-
Balance, December 31, 2008	$	-		$	-	$	-	$	-

NOTE 6. SECURITIES

We classify debt and equity securities as “held to maturity”, “available for sale” or “trading” according to management’s intent. The appropriate classification is determined at the time of purchase of each security and re-evaluated at each reporting date.

Securities held to maturity – Certain debt securities for which we have the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts. There are no securities classified as held to maturity in the accompanying financial statements.

Securities available for sale - - Securities not classified as "held to maturity" or as "trading" are classified as "available for sale." Securities classified as "available for sale" are those securities that we intend to hold for an indefinite period of time, but not necessarily to maturity. "Available for sale" securities are reported at estimated fair value net of unrealized gains or losses, which are adjusted for applicable income taxes, and reported as a separate component of shareholders' equity.

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Trading securities - There are no securities classified as "trading" in the accompanying financial statements.

~~NOTE 6. SECURITIES~~Impairment assessment: Impairment exists when the fair value of a security is less than its cost. Cost includes adjustments made to the cost basis of a security for accretion, amortization and previous other-than-temporary impairments. We perform a quarterly assessment of the debt and equity securities in our investment portfolio that have an unrealized loss to determine whether the decline in the fair value of these securities below their cost is other-than-temporary. This determination requires significant judgment. Impairment is considered other-than-temporary when it becomes probable that we will be unable to recover the cost of an investment. This assessment takes into consideration factors such as the length of time and the extent to which the market values have been less than cost, the financial condition and near term prospects of the issuer including events specific to the issuer or industry, defaults or deferrals of scheduled interest, principal or dividend payments, external credit ratings and recent downgrades, and our intent and ability to hold the security for a period of time sufficient to allow for a recovery in fair value. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value which then becomes the new cost basis. The amount of the write down is included in other-than-temporary impairment of securities in the consolidated statements of income. The new cost basis is not adjusted for subsequent recoveries in fair value, if any.

Realized gains and losses on sales of securities are recognized on the specific identification method. Amortization of premiums and accretion of discounts are computed using the interest method.

The amortized cost, unrealized gains and losses, and estimated fair values of securities at December 31, ~~2008~~2009 and ~~2007,~~2008, are summarized as follows:

	2009
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities
U. S. Government agencies
and corporations	$	54,850	$	693	$	582	$	54,961
Residential mortgage-backed securities:
Government-sponsored agencies		95,939		4,189		92		100,036
Nongovernment-sponsored entities		75,546		662		6,411		69,797
State and political subdivisions		3,760		37		5		3,792
Corporate debt securities		350		6		-		356
Total taxable debt securities		230,445		5,587		7,090		228,942
Tax-exempt debt securities
State and political subdivisions		42,486		570		421		42,635
Total tax-exempt debt securities		42,486		570		421		42,635
Equity securities		77		-		-		77
Total available for sale securities	$	273,008	$	6,157	$	7,511	$	271,654

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2008
Amortized Unrealized Estimated
Dollars in thousands Cost Gains Losses Fair Value
Available for sale
Taxable:
  U. S. Government agencies
      and corporations $ 36,934 $ 1,172 $ 3 $ 38,103
  Residential mortgage-backed securities:
        Government-sponsored agencies 147,074 4,291 71 151,294
        Nongovernment-sponsored entities 95,568 2,335 10,020 87,883
  State and political subdivisions 3,760 19 - 3,779
  Corporate debt securities 349 5 - 354
  Other equity securities 293 - - 293
        Total taxable 283,978 7,822 10,094 281,706
Tax-exempt:
   State and political subdivisions 46,617 639 1,459 45,797
   Fannie Mae and Freddie Mac preferred stock 103 - - 103
          Total tax-exempt 46,720 639 1,459 45,900
                Total $ 330,698 $ 8,461 $ 11,553 $ 327,606

	2008
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities
U. S. Government agencies
and corporations	$	36,934	$	1,172	$	3	$	38,103
Residential mortgage-backed securities:
Government-sponsored agencies		147,074		4,291		71		151,294
Nongovernment-sponsored entities		95,568		2,335		10,020		87,883
State and political subdivisions		3,760		19		-		3,779
Corporate debt securities		349		5		-		354
Total taxable debt securities		283,685		7,822		10,094		281,413
Tax-exempt debt securities
State and political subdivisions		46,617		639		1,459		45,797
Total tax-exempt debt securities		46,617		639		1,459		45,797
Equity securities		396		-		-		396
Total available for sale securities	$	330,698	$	8,461	$	11,553	$	327,606

The proceeds from sales, calls and maturities of securities, including principal payments received on available for sale mortgage-backed obligations and the related gross gains and losses realized are as follows:

Dollars in thousands	Proceeds from						Gross realized
			Calls and		Principal
Years ended December 31,	Sales		Maturities		Payments		Gains		Losses
2009	$	45,543	$	21,365	$	73,631	$	1,511	$	14
2008	$	1,141	$	22,944	$	30,858	$	6	$	12
2007	$	12,099	$	28,611	$	28,137	$	-	$	-

Residential mortgage-backed obligations having contractual maturities ranging from 1 to 30 years are reflected in the following maturity distribution schedules based on their anticipated average life to maturity, which ranges from 1 to 18 years. Accordingly, discounts are accreted and premiums are amortized over the anticipated average life to maturity of the specific obligation.

The maturities, amortized cost and estimated fair values of securities at December 31, 2009, are summarized as follows:

2007
Amortized Unrealized Estimated
Dollars in thousands Cost Gains Losses Fair Value
Available for sale
Taxable:
  U. S. Government agencies
      and corporations $ 45,871 $ 420 $ 77 $ 46,214
  Residential mortgage-backed securities:
        Government-sponsored agencies 117,039 1,073 668 117,444
        Nongovernment-sponsored entities 63,799 221 683 63,337
  State and political subdivisions 3,759 26 - 3,785
  Corporate debt securities 1,348 18 30 1,336
  Other equity securities 844 - - 844
        Total taxable 232,660 1,758 1,458 232,960
Tax-exempt:
   State and political subdivisions 43,960 880 335 44,505
   Fannie Mae and Freddie Mac preferred stock 6,470 - 920 5,550
          Total tax-exempt 50,430 880 1,255 50,055
                Total $ 283,090 $ 2,638 $ 2,713 $ 283,015

	Amortized		Estimated
Dollars in thousands	Cost		Fair Value

Due in one year or less	$	61,915	$	62,321
Due from one to five years		109,377		109,112
Due from five to ten years		44,107		43,471
Due after ten years		57,532		56,673
Equity securities		77		77
Total	$	273,008	$	271,654

At December 31, 2009 and 2008, securities with estimated fair values of $201,769,000 and $170,635,000 respectively, were pledged to secure public deposits, and for other purposes required or permitted by law.

During 2009 and 2008 we ~~recognized an~~recorded other-than-temporary ~~non-cash~~ impairment ~~charge of $6.4 million related to our investments in preferred stock issuances of Fannie Mae and Freddie Mac which we continue to own. The action taken by the Federal Housing Finance Agency~~losses on ~~September 7, 2008 placing these Government-Sponsored Agencies into conservatorship and eliminating the dividends on their~~securities as follows:

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~~preferred shares led~~

	2009									2008
	Residential MBS									Residential MBS
	Nongovernment									Nongovernment
	- Sponsored			Equity						- Sponsored		Equity
Dollars in thousands	Entities			Securities			Total			Entities		Securities			Total

Total other-than-temporary impairment losses	$	(5,646	)	$	(215	)	$	(5,861	)	$	-	$	(7,060	)	$	(7,060	)
Portion of loss recognized in
other comprehensive income		495			-			495			-		-			-
Net impairment losses recognized in earnings	$	(5,151	)	$	(215	)	$	(5,366	)	$	-	$	(7,060	)	$	(7,060	)

Activity related to the credit component recognized on debt securities available for sale for which a portion of other-than-temporary impairment was recognized in other comprehensive income for year ended December 31, 2009 is as follows:

Dollars in thousands	Total
Balance, April 1, 2009	$	-
Additions for the credit component on debt securities in which
other-than-temporary impairment was not previously recognized		(5,151	)
Securities sold during the period		2,229
Balance, December 31, 2009	$	(2,922	)

At December 31, 2009, our ~~determination~~debt securities with other-than-temporary impairment in which only the amount of loss related to credit was recognized in earnings consisted solely of residential mortgage-backed securities issued by nongovernment-sponsored entities. We utilize third party vendors to estimate the portion of loss attributable to credit using discounted cash flow models. The vendors estimate cash flows of the underlying loan collateral of each mortgage-backed security using models that incorporate their best estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Assumptions utilized could vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, collateral type and borrower characteristic. Specific such assumptions utilized by our vendors in their valuation of our other-than-temporarily impaired residential mortgage-backed securities issued by nongovernment-sponsored entities were as follows at December 31, 2009:

	Weighted	Range
	Average	Minimum	Maximum
Constant prepayment rates	5.3%	3.1%	7.5%
Constant default rates	8.6%	7.0%	12.0%
Loss severities	51.5%	51.0%	53.0%

Our vendors performing these valuations also analyze the structure of each mortgage-backed instrument in order to determine how the estimated cash flows of the underlying collateral will be distributed to each security issued from the structure. Expected principal and interest cash flows on the impaired debt securities are ~~other-than-temporarily impaired. We also recognized an other-than-temporary impairment of $693,000~~discounted predominantly using unobservable discount rates which the vendors assume that market participants would utilize in pricing the specific security. Based on the discounted expected cash flows derived from our ~~investment in Greater Atlantic Financial Corp. stock that~~vendors’ models, we ~~continue~~expect to ~~own.~~

recover the remaining unrealized losses on residential mortgage-backed securities issued by nongovernment sponsored entities.

We held 9978 available for sale securities having an unrealized loss at December 31, ~~2008.~~2009. Provided below is a summary of securities available for sale which were in an unrealized loss position at December 31, ~~2008~~2009 and ~~2007.~~2008. We have the ability and intent to hold these securities until such time as the value recovers or the securities mature. Further, we believe that the decline in value is attributable to changes in market interest rates and not credit quality of the issuer and no additional impairment is warranted at this time.

2008
Less than 12 months 12 months or more Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Dollars in thousands Fair Value Loss Fair Value Loss Fair Value Loss
Taxable:
U. S. Government agencies
       and corporations $ 1,240 $ (3 ) $ - $ - $ 1,240 $ (3 )
Residential mortgage-backed securities:
        Government-sponsored agencies 7,542 (33 ) 5,327 (38 ) 12,869 (71 )
        Nongovernment-sponsored entities 45,940 (6,612 ) 16,932 (3,408 ) 62,872 (10,020 )
Tax-exempt:
State and political subdivisions 19,797 (1,004 ) 2,481 (455 ) 22,278 (1,459 )
     Total temporarily impaired securities $ 74,519 $ (7,652 ) $ 24,740 $ (3,901 ) $ 99,259 $ (11,553 )

2007
Less than 12 months 12 months or more Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Dollars in thousands Fair Value Loss Fair Value Loss Fair Value Loss
Taxable:
U. S. Government agencies
       and corporations $ 6,010 $ (35 ) $ 8,031 $ (42 ) $ 14,041 $ (77 )
Residential mortgage-backed securities :
        Government-sponsored agencies 18,443 (35 ) 37,273 (633 ) 55,716 (668 )
        Nongovernment-sponsored entities 20,045 (198 ) 23,612 (485 ) 43,657 (683 )
Corporate debt securities 970 (30 ) - - 970 (30 )
Tax-exempt:
State and political subdivisions 12,049 (320 ) 2,419 (15 ) 14,468 (335 )
Other equity securties 5,378 (862 ) 173 (58 ) 5,551 (920 )
     Total temporarily impaired securities $ 62,895 $ (1,480 ) $ 71,508 $ (1,233 ) $ 134,403 $ (2,713 )

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	2009
	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
Dollars in thousands	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Temporarily impaired securities
Taxable debt securities
U. S. Government agencies
and corporations	$	26,607	$	(581	)	$	138	$	(1	)	$	26,745	$	(582	)
Residential mortgage-backed securities:
Government-sponsored agencies		9,612		(91	)		68		(1	)		9,680		(92	)
Nongovernment-sponsored entities		24,500		(1,530	)		21,485		(4,637	)		45,985		(6,167	)
Tax-exempt debt securities
State and political subdivisions		12,100		(138	)		3,748		(288	)		15,848		(426	)
Total temporarily impaired securities		72,819		(2,340	)		25,439		(4,927	)		98,258		(7,267	)
Other-than-temporarily impaired securities
Taxable debt securities
Residential mortgage-backed securities:
Nongovernment-sponsored entities		-		-			1,670		(244	)		1,670		(244	)
Total other-than-temporarily
impaired securities		-		-			1,670		(244	)		1,670		(244	)
Total	$	72,819	$	(2,340	)	$	27,109	$	(5,171	)	$	99,928	$	(7,511	)

	2008
	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
Dollars in thousands	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Temporarily impaired securities
Taxable debt securities
U. S. Government agencies
and corporations	$	1,240	$	(3	)	$	-	$	-		$	1,240	$	(3	)
Residential mortgage-backed securities:
Government-sponsored agencies		7,542		(33	)		5,327		(38	)		12,869		(71	)
Nongovernment-sponsored entities		45,940		(6,612	)		16,932		(3,408	)		62,872		(10,020	)
Tax-exempt debt securities
State and political subdivisions		19,797		(1,004	)		2,481		(455	)		22,278		(1,459	)
Total temporarily impaired securities	$	74,519	$	(7,652	)	$	24,740	$	(3,901	)	$	99,259	$	(11,553	)

The largest component of the unrealized loss at December 31, ~~2008~~2009 was ~~$10.0~~$6.4 million related to residential ~~mortgage backed~~mortgage-backed securities issued by ~~nongovernment sponsored~~nongovernment-sponsored entities. We monitor the performance of the mortgages underlying these bonds. Although there has been some deterioration in collateral performance, we only hold the most senior traunches of each issue which provides protection against defaults. We attribute the unrealized loss on these ~~mortgage backed~~mortgage-backed securities held largely to the current absence of liquidity in the credit markets and not to deterioration in credit quality. We expect to receive all contractual principal and interest payments due on our debt securities and have the ability and intent to hold these investments until their fair value recovers or until maturity. The mortgages in these asset pools have been made to borrowers with strong credit history and significant equity invested in their homes. They are well diversified geographically. Nonetheless, significant further weakening of economic fundamentals coupled with significant increases

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in unemployment and substantial deterioration in the value of ~~high end~~ residential properties could extend distress to this borrower population. This could continue to increase default rates and put additional pressure on property values. Should these conditions ~~occur,~~persist, the value of these securities could decline further and trigger the recognition of anadditional other-than-temporary impairment ~~charge.~~

~~The proceeds from sales, calls and maturities of securities, including principal payments received on mortgage-backed obligations and the related gross gains and losses realized are as follows:~~

Dollars in thousands Proceeds from Gross realized
Calls and Principal
Years ended December 31, Sales Maturities Payments Gains Losses
2008
Securities available for sale $ 1,141 $ 22,944 $ 30,858 $ 6 $ 12
$ 1,141 $ 22,944 $ 30,858 $ 6 $ 12
2007
Securities available for sale $ 12,099 $ 28,611 $ 28,137 $ - $ -
$ 12,099 $ 28,611 $ 28,137 $ - $ -
2006
Securities available for sale $ 18,264 $ 14,370 $ 25,363 $ - $ -
$ 18,264 $ 14,370 $ 25,363 $ - $ -

Residential mortgage-backed obligations having contractual maturities ranging from 1 to 30 years are reflected in the following maturity distribution schedules based on their anticipated average life to maturity, which ranges from 1 to 7 years. Accordingly, discounts are accreted and premiums are amortized over the anticipated average life to maturity of the specific obligation.

~~The maturities, amortized cost and estimated fair values of securities at December 31, 2008, are summarized as follows:~~

Amortized Estimated
Dollars in thousands Cost Fair Value

Due in one year or less $ 72,955 $ 73,027
Due from one to five years 119,808 119,712
Due from five to ten years 79,115 78,329
Due after ten years 58,425 56,143
Equity securities 395 395
Total $ 330,698 $ 327,606

At December 31, 2008 and 2007, securities with estimated fair values of $170,635,130 and $170,938,718, respectively, were pledged to secure public deposits, and for other purposes required or permitted by law.

charges.

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NOTE 7. LOANS

Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and allowance for loan losses. Interest on loans is accrued daily on the outstanding balances. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life.

Generally, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest is accrued daily on impaired loans unless the loan is placed on nonaccrual status. Impaired loans are placed on nonaccrual status when the payments of principal and interest are in default for a period of 90 days, unless the loan is both well-secured and in the process of collection. Interest on nonaccrual loans is recognized primarily using the cost-recovery method. Loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loans.

Commercial-related loans (which are risk-rated) are charged off to the allowance for loan losses when the loss has been confirmed. This determination includes many factors, including the prioritization of our claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity.

Consumer-related loans are generally charged off to the allowance for loan losses upon reaching specified stages of delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For example, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), which ever is earlier. Residential mortgage loans are generally charged off to net realizable value no later than when the account becomes 180 days past due. Other consumer loans, if collateralized, are generally charged off to net realizable value at 120 days past due.

Loans are summarized as follows:


Dollars in thousands	2008		2007		2009		2008
Commercial	$	130,106	$	92,599	$	122,508	$	130,106
Commercial real estate		452,264		384,478		465,037		452,264
Construction and development		215,465		225,270		162,080		215,465
Residential real estate		376,026		322,640		372,867		376,026
Consumer		31,519		31,956		28,203		31,519
Other		6,061		6,641		5,652		6,061
Total loans		1,211,441		1,063,584		1,156,347		1,211,441
Less unearned income		2,351		1,903		2,011		2,351
Total loans net of unearned income		1,209,090		1,061,681		1,154,336		1,209,090
Less allowance for loan losses		16,933		9,192		17,000		16,933
Loans, net	$	1,192,157	$	1,052,489	$	1,137,336	$	1,192,157

The following presents loan maturities at December 31, ~~2008:~~2009:

			After 1
	Within		but within		After
Dollars in thousands	1Year		5 Years		5 Years
Commercial	$	31,885	$	69,589	$	21,034
Commercial real estate		52,361		71,077		341,599
Construction and development		129,558		3,309		29,213
Residential real estate		38,830		22,476		311,561
Consumer		3,491		21,230		3,482
Other		334		1,943		3,375
	$	256,459	$	189,624	$	710,264

Loans due after one year with:
Variable rates			$	266,641
Fixed rates				633,247
			$	899,888

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Dollars in thousands	2009		2008
Deferred tax assets
Allowance for loan losses	$	6,290	$	6,265
Deferred compensation		1,166		1,067
Other deferred costs and accrued expenses		744		869
WV net operating loss carryforward		373		-
Nonaccrual loan interest		353		-
Net unrealized loss on securities and
other financial instruments		1,931		4,781
		10,857		12,982
Deferred tax liabilities
Depreciation		204		265
Accretion on tax-exempt securities		21		87
Purchase accounting adjustments
and goodwill		1,121		1,185
		1,346		1,537
Net deferred tax assets	$	9,511	$	11,445

Dollars in thousands 2008 2007
Deferred tax assets
     Allowance for loan losses $ 6,265 $ 3,402
     Deferred compensation 1,067 993
     Other deferred costs and accrued expenses 869 704
     Net unrealized loss on securities and
         other financial instruments 4,781 844
12,982 5,943
Deferred tax liabilities
     Depreciation 265 268
     Accretion on tax-exempt securities 87 73
     Purchase accounting adjustments
        and goodwill 1,185 1,248
1,537 1,589
Net deferred tax assets $ 11,445 $ 4,354

In accordance with ~~FIN 48,~~ASC Topic 740, we concluded that there were no significant uncertain tax positions requiring recognition in the consolidated financial statements. The evaluation was performed for the tax years ended ~~2005,~~ 2006, 2007, 2008, and ~~2008,~~2009, the tax years which remain subject to examination by major tax jurisdictions.

We may from time to time be assessed interest or penalties associated with tax liabilities by major tax jurisdictions, although any such assessments are estimated to be minimal and immaterial. To the extent we have received an assessment for interest and/or penalties, it has been classified in the consolidated statements of income as a component of other noninterest expense.

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We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, ~~2005~~2006 through ~~2007.~~2008. The West Virginia State Tax Department concluded their examination of our 2003, 2004, and 2005 state tax returns during 2007 with no adjustments. Tax years 2006, 2007, and ~~2007~~2008 remain subject to West Virginia State examination.

NOTE 15. EMPLOYEE BENEFITS

Retirement Plans: We have defined contribution profit-sharing plans with 401(k) provisions covering substantially all employees. Contributions to the plans are at the discretion of the Board of Directors. Contributions made to the plans and charged to expense were $317,000, $498,000, ~~$450,000,~~ and ~~$505,000~~$450,000, for the years ended December 31, 2009, 2008, ~~2007~~ and ~~2006,~~2007, respectively.

Employee Stock Ownership Plan: We have an Employee Stock Ownership Plan (“ESOP”), which enables eligible employees to acquire shares of our common stock. The cost of the ESOP is borne by us through annual contributions to an Employee Stock Ownership Trust in amounts determined by the Board of Directors.

The expense recognized by us is based on cash contributed or committed to be contributed by us to the ESOP during the year. There were no contributions to the ESOP for 2009. Contributions to the ESOP for the years ended December 31, 2008 ~~2007~~ and ~~2006~~2007 were $384,000 ~~$367,000,~~ and ~~$393,000,~~$367,000, respectively. Dividends paid by us to the ESOP are reported as a reduction to retained earnings. The ESOP owned 279,702 ~~and 254,023~~ shares of our common stock at December 31, ~~2008~~2009 and ~~December 31, 2007, respectively,~~2008, all of which were purchased at the prevailing market price and are considered outstanding for earnings per share computations. The trustees of the Retirement Plans and ESOP are also members of our Board of Directors.

Supplemental Executive Retirement Plan: In May 1999, Summit Community Bank entered into a non-qualified Supplemental Executive Retirement Plan (“SERP”) with certain senior officers, which provides participating officers with an income benefit payable at retirement age or death. During 2000, Shenandoah Valley National Bank adopted a similar plan and during 2002, Summit Financial Group, Inc. adopted a similar plan. The liabilities accrued for the SERP’s at December 31, 2009 and 2008 were $2,192,850 and ~~2007 were~~ $1,853,880, ~~and $1,435,877~~ respectively, which are included in other liabilities. In addition, we purchased certain life insurance contracts to fund the liabilities arising under these plans. At December 31, ~~2008~~2009 and ~~2007,~~2008, the cash surrender value of these insurance contracts was ~~$10,023,178~~$12,604,000 and ~~$9,646,194,~~$10,023,000, respectively, and is included in other assets in the accompanying consolidated balance sheets.

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Stock Option Plan: ~~On January 1, 2006, we adopted SFAS No. 123R,~~ ~~Share-Based Payment (Revised 2004),~~ ~~which is a revision of SFAS No. 123,~~ ~~Accounting for Stock Issued for Employees~~. SFAS No. 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. Prior to the adoption of SFAS No. 123R, we reported employee compensation expense under stock option plans only if options were granted below market prices at

~~grant date in accordance with the intrinsic value method of Accounting Principles Board Opinion (“APB”) No. 25,~~ ~~Accounting for Stock Issued to Employees~~, and related interpretations. In accordance with APB No. 25, we reported no compensation expense on options granted as the exercise price of the options granted always equaled the market price of the underlying stock on the date of grant. SFAS No. 123R eliminated the ability to account for stock-based compensation using APB No. 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant.

We transitioned to SFAS No. 123R using the modified prospective application method ("modified prospective application"). As permitted under modified prospective application, SFAS No. 123R applies to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for non-vested awards that were outstanding as of January 1, 2006 will be recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS No. 123R, adjusted for estimated forfeitures. The recognition of compensation cost for those earlier awards is based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures reported by us for periods prior to January 1, 2006. During 2008, we recognized approximately $12,000 of compensation expense for share-based payment arrangements in our income statement, with a deferred tax asset of $4,000. At December 31, 2008, we had no compensation cost related to nonvested awards not yet recognized.

~~The~~2009 Officer Stock Option Plan ~~which provided~~was adopted by our shareholders in May 2009 and provides for the granting of stock options for up to ~~960,000~~350,000 shares of common stock to our key ~~officers, was adopted in 1998 and expired in 2008.~~officers. Each option granted under the ~~plan~~Plan vests according to a schedule designated at the grant date and ~~shall have~~has a term of no more than 10 years following the vesting date. Also, the option price per share ~~shall~~was not to be less than the fair market value of our common stock on the date of grant. The 2009 Officer Stock Option Plan, which expires in May 2019, replaces the 1998 Officer Stock Option Plan (collectively the “Plans”) that expired in May 2008.

The fair value of our employee stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Because our employee stock options have characteristics significantly different from those of traded options and

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because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options at the time of grant. There were no option grants during 2009 or 2008.

We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. All compensation cost related to nonvested awards was previously recognized prior to January 1, 2009. During 2008, we recognized $12,000 of compensation expense for share-based payment arrangements in ~~2008.~~our income statement, with a deferred tax asset of $4,000.

A summary of activity in our Officer Stock Option Plan during ~~2006,~~ 2007, 2008 and ~~2008~~2009 is as follows:

									Weighted-Average
				Weighted-Average		Options			Exercise Price
	Options			Exercise Price
Outstanding, December 31, 2005		361,740		$	17.41
Granted		-			-
Exercised		(12,660	)		5.75
Forfeited		-			-
Outstanding, December 31, 2006		349,080		$	17.83		349,080		$	17.83
Granted		500			18.26		500			18.26
Exercised		(12,000	)		5.26		(12,000	)		5.26
Forfeited		-			-		-			-
Outstanding, December 31, 2007		337,580		$	18.28		337,580		$	18.28
Granted		-			-		-			-
Exercised		(1,850	)		4.81		(1,850	)		4.81
Forfeited		-			-		-			-
Outstanding, December 31, 2008		335,730		$	18.36		335,730		$	18.36
Granted							-
Exercised							(8,000	)		5.36
Forfeited							(16,950	)		22.46
Expired							(1,600	)		5.21
Outstanding, December 31, 2009							309,180		$	18.54

Exercisable Options:
December 31, 2009							308,880		$	18.54
December 31, 2008		335,330		$	18.36		335,330		$	18.36
December 31, 2007		326,680		$	18.30		326,680		$	18.30
December 31, 2006		321,080		$	18.02

Other information regarding options outstanding and exercisable at December 31, ~~2008~~2009 is as follows:

		Options Outstanding								Options Exercisable
						Wted. Avg.		Aggregate						Aggregate
						Remaining		Intrinsic						Intrinsic
Range of		# of				Contractual		Value		# of				Value
exercise price		shares		WAEP		Life (yrs)		(in thousands)		shares		WAEP		(in thousands)
$	4.63 - $6.00		59,150	$	5.37		3.28	$	-		59,150	$	5.37	$	-
	6.01 - 10.00		30,680		9.49		6.01		-		30,680		9.49		-
	10.01 - 17.50		2,300		17.43		4.17		-		2,300		17.43		-
	17.51 - 20.00		51,300		17.79		7.00		-		51,000		17.79		-
	20.01 - 25.93		165,750		25.15		5.78		-		165,750		25.15		-

			309,180	$	18.54			$	-		308,880	$	18.54	$	-

Options Outstanding Options Exercisable
Wted. Avg. Aggregate Aggregate
Remaining Intrinsic Intrinsic
Range of # of Contractual Value # of Value
exercise price shares WAEP Life (yrs) (in thousands) shares WAEP (in thousands)
$ 4.63 - $6.00 69,750 $ 5.37 4.06 $ 253 69,750 $ 5.37 $ 253
6.01 - 10.00 31,680 9.49 7.00 - 31,680 9.49 -
10.01 - 17.50 3,500 17.43 5.17 - 3,500 17.43 -
17.51 - 20.00 52,300 17.79 8.00 - 51,900 17.79 -
20.01 - 25.93 178,500 25.19 6.57 - 178,500 25.19 -

335,730 $ 18.36 $ 253 335,330 $ 18.36 $ 253

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NOTE 16. COMMITMENTS AND CONTINGENCIES

~~Financial~~Lending related financial instruments with off-balance sheet risk: We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.

Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:

	December 31,
Dollars in thousands	2009		2008
Commitments to extend credit:
Revolving home equity and
credit card lines	$	44,923	$	45,097
Construction loans		25,628		65,271
Other loans		41,462		42,191
Standby letters of credit		5,572		10,584
Total	$	117,585	$	163,143

December 31,
Dollars in thousands 2008 2007
Commitments to extend credit:
    Revolving home equity and
        credit card lines $ 45,097 $ 37,156
    Construction loans 65,271 69,146
    Other loans 42,191 45,324
Standby letters of credit 10,584 12,982
Total $ 163,143 $ 164,608

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

Operating leases: We occupy certain facilities under long-term operating leases for both continuing operations and discontinued operations. The aggregate minimum annual rental commitments under those leases total approximately ~~$632,000 in 2009, $228,000~~$156,000 in 2010, ~~$148,000~~$59,000 in 2011, ~~$149,000~~$60,000 in 2012 and ~~$119,000~~$30,000 in 2013. Total net rent expense included in the accompanying consolidated financial statements in continuing operations was $564,000 in 2009, $460,000 in 2008, and $403,000 in ~~2007, and $292,000 in 2006.~~2007.

Litigation: We are involved in various legal actions arising in the ordinary course of business. ~~In the opinion of counsel, the outcome of these~~To date, no matters ~~will not~~have been specifically identified to management which would have a significant adverse effect on the consolidated financial statements.

Employment Agreements: We have various employment agreements with our chief executive officer and certain other executive officers. These agreements contain change in control provisions that would entitle the officers to receive compensation in the event there is a change in control in the Company (as defined) and a termination of their employment without cause (as defined).

NOTE 17. PREFERRED STOCK

On September 30, 2009, we sold in a private placement 3,710 shares, or $3.7 million, of a new series of 8% Non-Cumulative Convertible Preferred Stock, Series 2009, $1.00 par value, with a liquidation preference of $1,000 per share (the “Preferred Stock”), based on the private placement exemption under Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and Rule 506 of Regulation D. The Preferred Stock will qualify as Tier 1 capital for regulatory capital purposes.

The terms of the Preferred Stock provide that the Preferred Stock may be converted into common stock under three different scenarios. First, the Preferred Stock may be converted at the holder’s option, on any dividend payment date, at the option of the holder,

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into shares of common stock based on a conversion rate determined by dividing $1,000 by $5.50, plus cash in lieu of fractional shares and subject to anti-dilution adjustments. Second, after three years, on or after June 1, 2012, Summit may, at its option, on any dividend payment date, convert some or all of the Preferred Stock into shares of Summit’s common stock at the then applicable conversion rate. Summit may exercise this conversion right if, for 20 trading days within any period of 30 consecutive trading dates during the six months immediately preceding the conversion, the closing price of the common stock exceeds 135% of $5.50. Third, after ten years, on June 1, 2019, all of the Preferred Stock will be converted at the then applicable conversion price. Adjustments to the conversion price will be made in the event of a stock dividend, stock split, reclassification, reorganization, merger or other similar transaction.

The Preferred Stock will pay noncumulative dividends, if and when declared by the Board of Directors, at a rate of 8.0% per annum. Dividends declared will be payable quarterly in arrears on the 1st day of March, June, September and December of each year.

NOTE ~~17.~~18.

REGULATORY MATTERS

The primary source of funds for our dividends paid to our shareholders is dividends received from our ~~subsidiary banks.~~subsidiaries. Dividends paid by the subsidiary ~~banks~~bank are subject to restrictions by banking ~~regulations. The most restrictive provision requires~~law and regulations and require approval by ~~their~~the bank’s regulatory ~~agencies~~agency if dividends declared in any year exceed the ~~year’s~~bank’s current year's net income, as defined, plus ~~the~~its retained net ~~retained~~ profits of the two preceding years. During ~~2009,~~2010, our ~~subsidiaries have $15,039,000~~subsidiary bank has $10,491,000 plus net income for the interim periods through the date of declaration, available for dividends for distribution to us. However, the bank is presently restricted from paying any cash dividends unless it has provided 30 days prior notice to its regulatory authorities, and its regulatory authorities did not object.

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. Our 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. Failure to meet these minimum capital requirements can result in certain mandatory and possible additional discretionary actions by regulators that could have a material impact on our financial position and results of operations.

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 December 31, ~~2008,~~2009, that we and each of our subsidiaries met all capital adequacy requirements to which we were subject.

The most recent notifications from the banking regulatory agencies categorized us and each of our subsidiary banks 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 subsidiary banks are required to maintain ~~noninterest bearing~~ reserve balances with the Federal Reserve Bank. The required reserve balance was $50,000 at December 31, ~~2008.~~2009.

Summit’s and its subsidiary bank, Summit Community Bank’s (“SCB”) actual capital amounts and ratios are also presented in the following table (dollar amounts in thousands).

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To be Well Capitalized
Minimum Required under Prompt Corrective
Actual Regulatory Capital Action Provisions
Dollars in thousands Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2008
Total Capital (to risk weighted assets)
     Summit $ 125,091 10.0 % $ 99,694 8.0 % $ 124,618 10.0 %
     Summit Community 129,369 10.4 % 99,225 8.0 % 124,031 10.0 %
Tier 1 Capital (to risk weighted assets)
     Summit 99,497 8.0 % 49,847 4.0 % 74,771 6.0 %
     Summit Community 113,841 9.2 % 49,612 4.0 % 74,418 6.0 %
Tier 1 Capital (to average assets)
     Summit 99,497 6.3 % 47,707 3.0 % 79,512 5.0 %
     Summit Community 113,841 7.2 % 47,143 3.0 % 78,571 5.0 %

As of December 31, 2007
Total Capital (to risk weighted assets)
     Summit $ 108,167 10.0 % $ 86,162 8.0 % $ 107,703 10.0 %
     Summit Community 109,697 10.3 % 85,488 8.0 % 106,860 10.0 %
Tier 1 Capital (to risk weighted assets)
     Summit 98,975 9.2 % 43,081 4.0 % 64,622 6.0 %
     Summit Community 100,505 9.4 % 42,744 4.0 % 64,116 6.0 %
Tier 1 Capital (to average assets)
     Summit 98,975 7.3 % 40,897 3.0 % 68,161 5.0 %
     Summit Community 100,505 7.4 % 40,520 3.0 % 67,533 5.0 %

7473

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											To be Well Capitalized
						Minimum Required					under Prompt Corrective
	Actual					Regulatory Capital					Action Provisions
Dollars in thousands	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2009
Total Capital (to risk-weighted assets)
Summit	$	133,931		11.3	%	$	95,186		8.0	%	$	118,983		10.0	%
Summit Community		134,874		11.4	%		94,666		8.0	%		118,332		10.0	%
Tier 1 Capital (to risk-weighted assets)
Summit		102,232		8.6	%		47,593		4.0	%		71,390		6.0	%
Summit Community		120,055		10.1	%		47,333		4.0	%		70,999		6.0	%
Tier 1 Capital (to average assets)
Summit		102,232		6.5	%		47,463		3.0	%		79,106		5.0	%
Summit Community		120,055		7.6	%		47,257		3.0	%		78,762		5.0	%

As of December 31, 2008
Total Capital (to risk-weighted assets)
Summit	$	125,091		10.0	%	$	99,694		8.0	%	$	124,618		10.0	%
Summit Community		129,369		10.4	%		99,225		8.0	%		124,031		10.0	%
Tier 1 Capital (to risk-weighted assets)
Summit		99,497		8.0	%		49,847		4.0	%		74,771		6.0	%
Summit Community		113,841		9.2	%		49,612		4.0	%		74,418		6.0	%
Tier 1 Capital (to average assets)
Summit		99,497		6.3	%		47,707		3.0	%		79,512		5.0	%
Summit Community		113,841		7.2	%		47,143		3.0	%		78,571		5.0	%

Summit Financial Group, Inc. (“Summit”) and its bank subsidiary, Summit Community Bank, Inc. (the “Bank”), have entered into informal Memoranda of Understanding (“MOU’s”) with their respective regulatory authorities. A memorandum of understanding is characterized by the regulatory authorities as an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. Among other things, under the MOU’s, Summit’s management team has agreed to:

·	The Bank achieving and maintaining a minimum Tier 1 leverage capital ratio of at least 8% and a total risk-based capital ratio of at least 11%;

·	The Bank providing 30 days prior notice of any declaration of intent to pay cash dividends to provide the Bank’s regulatory authorities an opportunity to object;

·	Summit suspending all cash dividends on its common stock until further notice. Dividends on all preferred stock, as well as interest payments on subordinated notes underlying Summit’s trust preferred securities, continue to be permissible; and,

·	Summit not incurring any additional debt, other than trade payables, without the prior written consent of the principal banking regulators.

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NOTE 19. SEGMENT INFORMATION

We operate two business segments: community banking and an insurance agency. These segments are primarily identified by the products or services offered. The community banking segment consists of our full service banks which offer customers traditional banking products and services through various delivery channels. The insurance agency segment consists of three insurance agency offices that sell insurance products. The accounting policies discussed throughout the notes to the consolidated financial statements apply to each of our business segments.

Intersegment revenue and expense consists of management fees allocated to the bank and Summit Insurance Services, LLC for all centralized functions that are performed at the parent location including data processing, bookkeeping, accounting, treasury management, loan administration, loan review, compliance, risk management and internal auditing. We also provide overall direction in the areas of credit policy and administration, strategic planning, marketing, investment portfolio management and other financial and administrative services. Information for each of our segments is included below:

	December 31, 2009
	Community			Insurance
Dollars in thousands	Banking			Services			Parent			Eliminations			Total

Net interest income	$	45,433		$	-		$	(1,891	)	$	-		$	43,542
Provision for loan losses		20,325			-			-			-			20,325
Net interest income after provision for loan losses		25,108			-			(1,891	)		-			23,217
Other income		1,029			4,938			6,409			(6,576	)		5,800
Other expenses		26,994			4,530			6,950			(6,576	)		31,898
Income (loss) before income taxes		(857	)		408			(2,432	)		-			(2,881	)
Income tax expense (benefit)		(1,420	)		160			(905	)		-			(2,165	)
Net income		563			248			(1,527	)		-			(716	)
Dividends on preferred shares		-			-			74			-			74
Net income applicable to common shares	$	563		$	248		$	(1,601	)	$	-		$	(790	)
Intersegment revenue (expense)	$	(6,462	)	$	(114	)	$	6,576		$	-		$	-
Average assets	$	1,592,969		$	7,323		$	138,003		$	(141,493	)	$	1,596,802

	December 31, 2008
	Community			Insurance
Dollars in thousands	Banking			Services			Parent			Eliminations			Total

Net interest income	$	46,181		$	-		$	(2,106	)	$	-		$	44,075
Provision for loan losses		15,500			-			-			-			15,500
Net interest income after provision for loan losses		30,681			-			(2,106	)		-			28,575
Other income		(1,480	)		5,030			6,283			(6,965	)		2,868
Other expenses		24,201			4,488			7,710			(6,965	)		29,434
Income (loss) before income taxes		5,000			542			(3,533	)		-			2,009
Income tax expense (benefit)		881			212			(1,384	)		-			(291	)
Net income	$	4,119		$	330		$	(2,149	)	$	-		$	2,300
Intersegment revenue (expense)	$	(6,851	)	$	(114	)	$	6,965		$	-		$	-
Average assets	$	1,497,159		$	7,509		$	128,658		$	(115,274	)	$	1,518,052

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	December 31, 2007
	Community			Insurance
Dollars in thousands	Banking			Services			Parent			Eliminations			Total

Net interest income	$	41,106		$	-		$	(2,039	)	$	-		$	39,067
Provision for loan losses		2,055			-			-			-			2,055
Net interest income after provision for loan losses		39,051			-			(2,039	)		-			37,012
Other income		4,587			2,759			6,452			(6,441	)		7,357
Other expenses		21,980			2,595			6,964			(6,441	)		25,098
Income (loss) before income taxes		21,658			164			(2,551	)		-			19,271
Income tax expense (benefit)		6,789			63			(1,118	)		-			5,734
Income from continuing operations		14,869			101			(1,433	)		-			13,537
Income(loss) from discontinued operations		(10,659	)		-			-			-			(10,659	)
Income tax expense (benefit)		(3,578	)		-			-			-			(3,578	)
Net income	$	7,788		$	101		$	(1,433	)	$	-		$	6,456
Intersegment revenue (expense)	$	(6,348	)	$	(93	)	$	6,441		$	-		$	-
Average assets	$	1,287,854		$	3,659		$	114,852		$	(107,323	)	$	1,299,042

NOTE ~~18.~~20.

EARNINGS PER SHARE

The computations of basic and diluted earnings per share (“EPS”) from continuing operations follow:

For the Year Ended December 31,
Dollars in thousands , except per share amounts 2008 2007 2006
Numerator for both basic and diluted earnings per share:
    Income from continuing operations $ 2,300 $ 13,537 $ 11,060
    Income (loss) from discontinued operations - (7,081 ) (2,803 )
Net Income $ 2,300 $ 6,456 $ 8,257

Denominator
    Denominator for basic earnings
    per share-weighted average
    common shares outstanding 7,411,715 7,244,011 7,120,518
Effect of dilutive securities:
    Stock options 35,276 59,380 62,763
35,276 59,380 62,763
Denominator for diluted earnings
    per share-weighted average
    common shares outstanding and
    assumed conversions 7,446,991 7,303,391 7,183,281

Basic earnings per share from continuing operations $ 0.31 $ 1.87 $ 1.55
Basic earnings per share from discontinued operations - (0.98 ) (0.39 )
Basic earnings per share $ 0.31 $ 0.89 $ 1.16

Diluted earnings per share from continuing operations $ 0.31 $ 1.85 $ 1.54
Diluted earnings per share from discontinued operations - (0.97 ) (0.39 )
Diluted earnings per share $ 0.31 $ 0.88 $ 1.15

	For the Year Ended December 31,
	2009								2008						2007
				Common							Common						Common
Dollars in thousands,	Income			Shares		Per			Income		Shares		Per		Income		Shares		Per
except per share amounts	(Numerator)			(Denominator)		Share			(Numerator)		(Denominator)		Share		(Numerator)		(Denominator)		Share
Income from continuting operations	$	(716	)						$	2,300					$	13,537
Less preferred stock dividends		(74	)							-						-

Basic EPS -- continuing operations	$	(790	)		7,421,596	$	(0.11	)	$	2,300		7,411,715	$	0.31	$	13,537		7,244,011	$	1.87

Effect of dilutive securities:
Stock options		-			10,076					-		35,276				-		59,380
Convertible preferred stock		-			-					-		-				-		-

Diluted EPS -- continuing operations	$	(790	)		7,431,672	$	(0.11	)	$	2,300		7,446,991	$	0.31	$	13,537		7,303,391	$	1.85

Stock option grants and the conversion of convertible preferred stock are disregarded in this ~~calculation~~computation if they are determined to be anti-dilutive. ~~At December 31, 2008, our~~Our anti-dilutive stock options ~~totaled 69,750 shares, and~~ at December 31, ~~2007 and 2006, our anti-dilutive stock options totaled 178,500 shares.~~

~~NOTE 19. DERIVATIVE FINANCIAL INSTRUMENTS~~

We use derivative instruments primarily to protect against the risk of adverse interest rate movements on the value of certain liabilities. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based upon a notional amount and an underlying as specified in the contract. A notional amount represents the number of units of a specific item, such as currency units. An underlying represents a variable, such as an interest rate or price index. The amount of cash or other asset delivered from one party to the other is determined based upon the interaction of the notional amount of the contract with the underlying. Derivatives can also be implicit in certain contracts and commitments.

Market risk is the risk of loss arising from an adverse change in interest rates or equity prices. Our primary market risk is interest rate risk. We use interest rate swaps to protect against the risk of interest rate movements on the value of certain funding instruments.

As with any financial instrument, derivative instruments have inherent risks, primarily market and credit risk. Market risk associated with changes in interest rates is managed by establishing and monitoring limits as to the degree of risk that may be undertaken as part of our overall market risk monitoring process. Credit risk occurs when a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Credit risk is managed by monitoring the size and maturity structure of the derivative portfolio, and applying uniform credit standards to all activities with credit risk.

~~Table of Contents~~

~~Fair value hedges:~~ We primarily used receive-fixed interest rate swaps to hedge the fair values of certain fixed rate long term FHLB advances and certificates of deposit against changes in interest rates. These hedges were 100% effective, therefore there is no ineffectiveness reflected in earnings. The net of the amounts earned on the fixed rate leg of the swaps and amounts due on the variable rate leg of the swaps are reflected in interest expense.

~~Other derivative activities:~~ ~~We also have other derivative financial instruments which do not qualify as SFAS 133 hedge relationships.~~

We have entered into receive-fixed interest rate swaps on certain Federal Home Loan Bank ("FHLB") convertible select advances. These swaps are held for risk management purposes and do not qualify for hedge accounting. They are accounted for at fair value with the changes in fair value with the changes in fair value recorded on the income statement in noninterest income. These swaps were unwound in January2009, 2008, and ~~we realized a $727,000 gain as a result of this transaction.~~

We have issued certain certificates of deposit which pay a return based upon changes in the S&P 500 equity index. Under SFAS 133, the equity index feature of these deposits is deemed to be an embedded derivative accounted for separately from the deposit. To hedge the returns paid to the depositors, we have entered into an equity swap indexed to the S&P 500. Both the embedded derivative2007 totaled 250,030 shares, 234,300 shares, and the equity swap are accounted for as other derivative instruments. Gains and losses on both the embedded derivative and the swap are included in other noninterest income on the consolidated statement of income.

We had also entered into receive-fixed interest rate swaps with certain customers (“Customer Swaps”) who have a variable rate commercial real estate loan, but desire a long-term fixed interest rate. The notional amount of each Customer Swap equaled the principal balance of the customer’s related commercial real estate loan. Further, under the terms of each Customer Swap, the variable rate payment we paid the customer equaled the interest payment the customer pays us under the terms of their commercial real estate loan. Accordingly, the customer’s fixed rate payment under the Customer Swap represents the customer’s effective borrowing cost. In addition, to hedge the long-term interest rate risk associated with these transactions, we had entered into receive-variable interest rate swaps with an unrelated counterparty (“Counterparty Swap”) in notional amounts equaling the notional amounts of each related Customer Swap. The amounts we paid to the unrelated counterparty under the fixed rate leg of each Counterparty Swap equaled the amount we receive from each customer under the fixed rate leg of their Customer Swap. Gains and losses associated with both the Customer Swaps and Counterparty Swaps are included in other noninterest income on the consolidated statement of income.

~~A summary of our derivative financial instruments by type of activity follows:~~178,500 shares, respectively. Our anti-dilutive convertible preferred shares totaled 674,545 shares at December 31, 2009.

~~Table of Contents~~

December 31, 2008
Derivative Net Ineffective
Notional Fair Value Hedge Gains
Dollars in thousands Amount Asset Liability (Losses)
FAIR VALUE HEDGES
Receive-fixed interest rate swaps
Brokered deposits $ - $ - $ - $ -
$ - $ - $ - $ -

December 31, 2007
Derivative Net Ineffective
Notional Fair Value Hedge Gains
Dollars in thousands Amount Asset Liability (Losses)
FAIR VALUE HEDGES
Receive-fixed interest rate swaps
Brokered deposits $ 3,000 $ - $ 9 $ -
$ 3,000 $ - $ 9 $ -

December 31, 2008
Derivative Net
Notional Gains
Dollars in thousands Amount Asset Liability (Losses)
OTHER DERIVATIVE INSTRUMENTS
Equity index linked
certificates of deposits $ 143 $ 16 $ - $ 66
Equity index swap 143 - 18 (67 )
Receive-fixed interest rate swaps - - - 659
Receive-variable interest rate swaps - - - 7

$ 286 $ 16 $ 18 $ 665

December 31, 2007
Derivative Net
Notional Gains
Dollars in thousands Amount Asset Liability (Losses)
OTHER DERIVATIVE INSTRUMENTS
Equity index linked
certificates of deposit $ 238 $ 77 $ - $ 77
Equity index swap 238 - 84 (65 )
Receive-fixed interest rate swaps 38,895 - 408 1,507
Receive-variable interest rate swaps 2,895 - 30 (125 )

$ 42,266 $ 77 $ 522 $ 1,394

~~Table of Contents~~

~~NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~The following summarizes the methods and significant assumptions we used in estimating our fair value disclosures for financial instruments.~~

~~Cash and due from banks:~~ ~~The carrying values of cash and due from banks approximate their estimated fair value.~~

~~Interest bearing deposits with other banks:~~ The fair values of interest bearing deposits with other banks are estimated by discounting scheduled future receipts of principal and interest at the current rates offered on similar instruments with similar remaining maturities.

~~Federal funds sold:~~ ~~The carrying values of Federal funds sold approximate their estimated fair values.~~

~~Securities:~~ Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

~~Loans held for sale:~~ ~~The carrying values of loans held for sale approximate their estimated fair values.~~

~~Loans:~~ The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.

~~Accrued interest receivable and payable:~~ ~~The carrying values of accrued interest receivable and payable approximate their estimated fair values.~~

~~Deposits:~~ The estimated fair values of demand deposits (i.e. non-interest bearing checking, NOW, money market and savings accounts) and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

~~Short-term borrowings:~~ ~~The carrying values of short-term borrowings approximate their estimated fair values.~~

~~Long-term borrowings:~~ ~~The fair values of long-term borrowings are estimated by discounting scheduled future~~

~~payments of principal and interest at current rates available on borrowings with similar terms.~~

~~Derivative financial instruments:~~ ~~The fair values of the interest rate swaps are valued using cash flow projection models.~~

~~Off-balance sheet instruments:~~ The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counter parties. The amounts of fees currently charged on commitments and standby letters of credit are deemed

~~insignificant, and therefore, the estimated fair values and carrying values are not shown below.~~

~~The carrying values and estimated fair values of our financial instruments are summarized below:~~

~~Table of Contents~~

2008 2007
Estimated Estimated
Carrying Fair Carrying Fair
Dollars in thousands Value Value Value Value
Financial assets:
     Cash and due from banks $ 11,356 $ 11,356 $ 21,285 $ 21,285
     Interest bearing deposits,
         other banks 108 108 77 77
     Federal funds sold 2 2 181 181
     Securities available for sale 327,606 327,606 283,015 283,015
     Other investments 23,016 23,016 17,051 17,051
     Loans held for sale, net 978 978 1,377 1,377
     Loans, net 1,192,157 1,201,884 1,052,489 1,035,599
     Accrued interest receivable 7,217 7,217 7,191 7,191
     Derivative financial assets 16 16 77 77
$ 1,562,456 $ 1,572,183 $ 1,382,743 $ 1,365,853
Financial liabilities:
     Deposits $ 965,850 $ 1,077,942 $ 828,687 $ 864,792
     Short-term borrowings 153,100 153,100 172,055 172,055
     Long-term borrowings and
        subordinated debentures 412,337 434,172 335,327 337,882
     Accrued interest payable 4,796 4,796 4,808 4,808
     Derivative financial liabilities 18 18 522 522
$ 1,536,101 $ 1,670,028 $ 1,341,399 $ 1,380,059

NOTE 21. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Our investment in our wholly-owned subsidiaries is presented on the equity method of accounting. Information relative to our balance sheets at December 31, ~~2008~~2009 and ~~2007,~~2008, and the related statements of income and cash flows for the years ended December 31, 2009, 2008 ~~2007~~ and ~~2006,~~2007, are presented as follows:

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Balance Sheets
	December 31,
Dollars in thousands	2009			2008
Assets
Cash and due from banks	$	7,164		$	3,496
Investment in subsidiaries, eliminated in consolidation		128,263			121,874
Securities available for sale		114			292
Premises and equipment		5,695			6,243
Accrued interest receivable		19			4
Other assets		1,953			720
Total assets	$	143,208		$	132,629
Liabilities and Shareholders' Equity
Short-term borrowings	$	2,666		$	2,199
Long-term borrowings		12,637			12,637
Subordinated debentures		16,800			10,000
Subordinated debentures owed to
unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		856			960
Total liabilities		52,548			45,385
Preferred stock and related surplus, $1.00 par value, authorized
250,000 shares; 3,710 shares issued 2009		3,519			-
Common stock and related surplus, $2.50 par value, authorized
20,000,000 shares; issued 2009 - 7,425,472 shares;
2008 - 7,415,310 shares		24,508			24,453
Retained earnings		63,474			64,709
Accumulated other comprehensive income		(841	)		(1,918	)
Total shareholders' equity		90,660			87,244

Total liabilities and shareholders' equity	$	143,208		$	132,629

Balance Sheets December 31,
Dollars in thousands 2008 2007
Assets
Cash and due from banks $ 3,496 $ 2,336
Investment in subsidiaries, eliminated in consolidation 121,874 110,795
Securities available for sale 292 844
Premises and equipment 6,243 6,433
Accrued interest receivable 4 5
Other assets 720 2,709
             Total assets $ 132,629 $ 123,122
Liabilities and Shareholders' Equity
Short-term borrowings $ 2,199 $ 2,517
Long-term borrowings 22,637 10,750
Subordinated debentures owed to
    unconsolidated subsidiary trusts 19,589 19,589
Other liabilities 960 846
         Total liabilities 45,385 33,702
Common stock and related surplus, $2.50 par value, authorized
     20,000,000 shares; issued 2008 - 7,415,310 shares;
     2007 - 7,408,941 shares 24,453 24,391
Retained earnings 64,709 65,077
  Accumulated other comprehensive income (1,918 ) (48 )
         Total shareholders' equity 87,244 89,420

             Total liabilities and shareholders' equity $ 132,629 $ 123,122

Statements of Income
	For the Year Ended December 31,
Dollars in thousands	2009			2008			2007
Income
Dividends from bank subsidiaries	$	1,000		$	2,000		$	3,600
Other dividends and interest income		25			40			51
Gain on sale of assets		-			-			11
Other-than-temporary impairment of securities		(215	)		(693	)		-
Management and service fees from bank subsidiaries		6,624			6,976			6,441
Total income		7,434			8,323			10,103
Expense
Interest expense		1,916			2,146			2,091
Operating expenses		6,950			7,710			6,964
Total expenses		8,866			9,856			9,055
Income (loss) before income taxes and equity in
undistributed income of bank subsidiaries		(1,432	)		(1,533	)		1,048
Income tax (benefit)		(905	)		(1,384	)		(1,118	)
Income (loss) before equity in undistributed income
of bank subsidiaries		(527	)		(149	)		2,166
Equity in (distributed) undistributed
income of bank subsidiaries		(189	)		2,449			4,290
Net income (loss)		(716	)		2,300			6,456
Dividends on preferred shares		74			-			-
Net income (loss) applicable to common shares	$	(790	)	$	2,300		$	6,456

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Statements of Income For the Year Ended December 31,
Dollars in thousands 2008 2007 2006
Income
Dividends from bank subsidiaries $ 2,000 $ 3,600 $ 3,200
Other dividends and interest income 40 51 48
Gain on sale of assets - 11 -
Other-than-temporary impairment of securities (693 ) - -
Management and service fees from bank subsidiaries 6,976 6,441 5,848
         Total income 8,323 10,103 9,096
Expense
Interest expense 2,146 2,091 1,752
Operating expenses 7,710 6,964 6,356
         Total expenses 9,856 9,055 8,108
Income (loss) before income taxes and equity in
     undistributed income of bank subsidiaries (1,533 ) 1,048 988
Income tax (benefit) (1,384 ) (1,118 ) (865 )
Income (loss) before equity in undistributed income
     of bank subsidiaries (149 ) 2,166 1,853
Equity in (distributed) undistributed
      income of bank subsidiaries 2,449 4,290 6,404
             Net income $ 2,300 $ 6,456 $ 8,257

~~Table of Contents~~

Statements of Cash Flows
	For the Year Ended December 31,
Dollars in thousands	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	(716	)	$	2,300		$	6,456
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Equity in (undistributed) distributed net income of
bank subsidiaries		189			(2,449	)		(4,290	)
Deferred tax expense (benefit)		(146	)		(242	)		(120	)
Depreciation		612			654			588
Writedown of equity investment		215			-			-
Writedown of GAFC stock		-			693			-
(Gain) on disposal of premises and equipment		-			-			(11	)
Tax benefit of exercise of stock options		-			6			46
Stock compensation expense		-			12			32
(Increase) decrease in other assets		(1,065	)		2,337			(129	)
Increase (decrease) in other liabilities		(178	)		114			(342	)
Net cash provided by operating activities		(1,089	)		3,425			2,230

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries		(5,500	)		(10,500	)		(4,000	)
Purchase of available for sale securities		(37	)		(142	)		(693	)
Proceeds from sales of premises and equipment		-			-			15
Purchases of premises and equipment		(64	)		(463	)		(551	)
Purchase of life insurance contracts		-			-			-
Net cash (used in) investing activities		(5,601	)		(11,105	)		(5,229	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders		(445	)		(2,668	)		(2,462	)
Exercise of stock options		43			9			63
Repurchase of common stock		-			-			(103	)
Reinvested dividends		12			35			-
Net increase (decrease) in short-term borrowings		467			(318	)		1,585
Proceeds from long-term borrowings		-			3,782			6,000
Repayment of long-term borrowings		-			(2,000	)		-
Proceeds from issuance of subordinated debentures		6,762			10,000			-
Net proceeds from issuance of preferred stock		3,519			-			-
Net cash provided by financing activities		10,358			8,840			5,083
Increase (decrease) in cash		3,668			1,160			2,084
Cash:
Beginning		3,496			2,336			252
Ending	$	7,164		$	3,496		$	2,336

SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest	$	1,936		$	2,088		$	2,088

Statements of Cash Flows For the Year Ended December 31,
Dollars in thousands 2008 2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income $ 2,300 $ 6,456 $ 8,257
     Adjustments to reconcile net earnings to
         net cash provided by operating activities:
         Equity in (undistributed) distributed net income of
             bank subsidiaries (2,449 ) (4,290 ) (6,404 )
         Deferred tax expense (benefit) (242 ) (120 ) (41 )
         Depreciation 654 588 602
         Writedown of GAFC stock 693 - -
         (Gain) on disposal of premises and equipment - (11 ) -
         Tax benefit of exercise of stock options 6 46 71
         Stock compensation expense 12 32 44
         (Increase) decrease in other assets 2,337 (129 ) (26 )
         Increase(decrease) in other liabilities 114 (342 ) 126
             Net cash provided by operating activities 3,425 2,230 2,629

CASH FLOWS FROM INVESTING ACTIVITIES
     Investment in subsidiaries (10,500 ) (4,000 ) (3,000 )
     Purchase of available for sale securities (142 ) (693 ) -
     Proceeds from sales of  premises and equipment - 15 -
     Purchases of premises and equipment (463 ) (551 ) (496 )
     Purchase of life insurance contracts - - (710 )
             Net cash (used in) investing activities (11,105 ) (5,229 ) (4,206 )

CASH FLOWS FROM FINANCING ACTIVITIES
     Dividends paid to shareholders (2,668 ) (2,462 ) (2,276 )
     Exercise of stock options 9 63 73
     Repurchase of common stock - (103 ) (1,024 )
     Reinvested dividends 35 - -
     Net increase (decrease) in short-term borrowings (318 ) 1,585 932
     Proceeds from long-term borrowings 13,782 6,000 3,750
     Repayment of long-term borrowings (2,000 ) - -
Net cash provided by financing activities 8,840 5,083 1,455
         Increase (decrease) in cash 1,160 2,084 (122 )
     Cash:
         Beginning 2,336 252 374
         Ending $ 3,496 $ 2,336 $ 252

SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
     Cash payments for:
         Interest $ 2,088 $ 2,088 $ 1,693

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NOTE 22. QUARTERLY FINANCIAL DATA (Unaudited)

A summary of our unaudited selected quarterly financial data is as follows:

	2009
	First		Second			Third			Fourth
Dollars in thousands, except per share amounts	Quarter		Quarter			Quarter			Quarter
Interest income	$	22,991	$	22,761		$	22,417		$	21,367
Net interest income		11,336		11,107			10,896			10,203
Net income (loss)		1,765		(3,450	)		1,403			(434	)
Net income applicable to common shares		1,765		(3,450	)		1,403			(508	)
Basic earnings per share	$	0.24	$	(0.47	)	$	0.19		$	(0.07	)
Diluted earnings per share	$	0.24	$	(0.46	)	$	0.19		$	(0.07	)



	2008
	First		Second			Third			Fourth
Dollars in thousands, except per share amounts	Quarter		Quarter			Quarter			Quarter
Interest income	$	23,859	$	23,340		$	22,637		$	23,649
Net interest income		10,939		11,375			10,384			11,378
Net income (loss)		3,824		2,594			(7,674	)		3,557
Net income applicable to common shares		3,824		2,594			(7,674	)		3,557
Basic earnings per share	$	0.52	$	0.35		$	(1.04	)	$	0.48
Diluted earnings per share	$	0.51	$	0.35		$	(1.03	)	$	0.48

2008
First Second Third Fourth
Dollars in thousands, except per share amounts Quarter Quarter Quarter Quarter
Interest income $ 23,859 $ 23,340 $ 22,637 $ 23,649
Net interest income 10,939 11,375 10,384 11,378
Income (loss) from continuing operations 3,824 2,594 (7,674 ) 3,557
Net income (loss) 3,824 2,594 (7,674 ) 3,557
Basic earnings per share continuing operations $ 0.52 $ 0.35 $ (1.04 ) $ 0.48
Diluted earnings per share continuing operations $ 0.51 $ 0.35 $ (1.03 ) $ 0.48
Basic earnings per share $ 0.52 $ 0.35 $ (1.04 ) $ 0.48
Diluted earnings per share $ 0.51 $ 0.35 $ (1.03 ) $ 0.48

2007
First Second Third Fourth
Dollars in thousands, except per share amounts Quarter Quarter Quarter Quarter
Interest income $ 21,842 $ 22,369 $ 23,376 $ 23,797
Net interest income 9,203 9,527 9,996 10,341
Income from continuing operations 2,935 2,980 3,755 3,868
Net income 2,739 2,862 3,624 (2,769 )
Basic earnings per share continuing operations $ 0.41 $ 0.42 $ 0.51 $ 0.52
Diluted earnings per share continuing operations $ 0.41 $ 0.42 $ 0.50 $ 0.52
Basic earnings per share $ 0.39 $ 0.40 $ 0.49 $ (0.37 )
Diluted earnings per share $ 0.38 $ 0.40 $ 0.49 $ (0.37 )

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A9A.. Controls and Procedures

Disclosure Controls and Procedures: Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted as of December 31, ~~2008,~~2009, 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 December 31, ~~2008~~2009 were effective.

Management’s Report on Internal Control Over Financial Reporting: Information required by this item is set forth on page 41.

Attestation Report of the Registered Public Accounting Firm: Information required by this item is set forth on pages 42 and 43.

Changes in Internal Control Over Financial Reporting: There were no changes in our internal control over financial reporting during the fourth quarter for the year ended December 31, ~~2008,~~2009, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information

None

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PART III.

Item 1010. . Directors, Executive Officers, and Corporate Governance

Information required by this item is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”, under the headings “NOMINEES FOR DIRECTOR WHOSE TERMS EXPIRE IN ~~2012”~~2013”, “DIRECTORS WHOSE TERMS EXPIRE IN ~~2011”~~2012”, and “DIRECTORS WHOSE TERMS EXPIRE IN ~~2010”~~2011”, “EXECUTIVE OFFICERS” and under the captions “Family Relationships” “Director Qualifications and Review of Director Nominees” and “Audit and Compliance Committee” in our ~~2009~~2010 Proxy Statement, and is incorporated herein by reference.

We have adopted a Code of Ethics that applies to our chief executive officer, chief financial officer, chief accounting officer, and all directors, officers and employees. We have posted this Code of Ethics on our internet website at www.summitfgi.com under “Governance Documents”. Any amendments to or waivers from any provision of the Code of Ethics applicable to the chief executive officer, chief financial officer, or chief accounting officer will be disclosed by timely posting such information on our internet website.

There have been no material changes to the procedures by which shareholders may recommend nominees since the disclosure of the procedures in our ~~2008~~2009 proxy statement.

Item 11. Executive Compensation

Information required by this item is set forth under the ~~headings~~heading “EXECUTIVE COMPENSATION”~~, “COMPENSATION DISCUSSION AND ANALYSIS”, and “COMPENSATION AND NOMINATING COMMITTEE REPORT”~~ in our ~~2009~~2010 Proxy Statement, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table provides information on our stock option ~~plan~~plans as of December 31, ~~2008.~~2009.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)		Weighted-average exercise price of outstanding options, warrants and rights ($)		Number of securities remaining available for future issuance under equity compensation plans (#) (1)		Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)		Weighted-average exercise price of outstanding options, warrants and rights ($)		Number of securities remaining available for future issuance under equity compensation plans (#)
Equity compensation plans approved by stockholders		335,730	$	18.36		-		309,180	$	18.54		350,000
Equity compensation plans not approved by stockholders		-		-		-		-		-		-
Total		335,730	$	18.36		-		309,180	$	18.54		350,000

(1) Plan expired May, 2008.

The remaining information required by this item is set forth under the caption “Security Ownership of Directors and Officers” and under the headings “NOMINEES FOR DIRECTOR WHOSE TERMS EXPIRE IN 2013”, “DIRECTORS WHOSE TERMS EXPIRE IN 2012”, “DIRECTORS WHOSE TERMS EXPIRE IN 2011”~~, “DIRECTORS WHOSE TERMS EXPIRE IN 2010”~~, “PRINCIPAL SHAREHOLDER” and “EXECUTIVE OFFICERS” in our ~~2009~~2010 Proxy Statement, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item is set forth under the captions ~~“Review and Approval of and Description of Transactions~~“Transactions with Related Persons” and “Independence of Directors and Nominees” in our ~~2009~~2010 Proxy Statement, and is incorporated herein by reference.

~~Table of Contents~~

Item 14. Principal Accounting Fees and Services

Information required by this item is set forth under the caption “Fees to Arnett & Foster, PLLC” in our ~~2009~~2010 Proxy Statement, and is incorporated herein by reference.

8681

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PART IV.

Item 15. Exhibits, Financial Statement Schedules

All financial statements and financial statement schedules required to be filed by this Form or by Regulation S-X, which are applicable to the Registrant, have been presented in the financial statements and notes thereto in Item 8 in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 or elsewhere in this filing where appropriate. The listing of exhibits follows:

				Page(s) in Form 10-K
Exhibit Number		Description		or Prior Filing Reference
(3)		Articles of Incorporation and By-laws:
		(i)	Amended and Restated Articles of
			Incorporation of Summit Financial Group, Inc.		(a)
		(ii)	Amended and Restated By-laws of
			Summit Financial Group, Inc.		(b)

(10)	Material Contracts
	(i)	Amended and Restated Employment Agreement with H. Charles Maddy, III			(c)
	(ii)	First Amendment to Amended and Restated Employment Agreement with H. Charles Maddy, III			(d)
	(iii)	Change in Control Agreement with H. Charles Maddy, III			(e)
	~~(iii)~~(iv)	Executive Salary Continuation Agreement with H. Charles Maddy, III			(f)
	~~(iv)~~(v)	Form of Amended and Restated Employment Agreement entered into
			with Robert S. Tissue, Patrick N. Frye and Scott C. Jennings		(g)
	~~(v)~~(vi)	Form of Executive Salary Continuation Agreement entered into with
			Robert S. Tissue, Patrick N. Frye and Scott C. Jennings		(h)
	~~(vi)~~(vii)	Amended and Restated Employment Agreement with Ronald F. Miller			(i)
	~~(vii)~~(viii)	Amended and Restated Employment Agreement with C. David Robertson			(j)
	~~(viii)~~(ix)	First Amendment to Amended and Restated Employment Agreement with
			C. David Robertson		~~( c)~~(k)
	~~(ix)~~(x)	Second Amendment to Amended and Restated Employment Agreement with

C. David Robertson

(l)

(xi)	Form of Executive Salary Continuation Agreement entered into with
		Ronald F. Miller and C. David Robertson	(m)
~~(x)~~(xii)	1998 Officers Stock Option Plan		~~(d)~~(n)
~~(xi)~~(xiii)	Board Attendance and Compensation Policy, as amended		~~(e)~~
~~(xii)~~(xiv)	Summit Financial Group, Inc. Directors Deferral Plan		~~(f)~~(o)
~~(xiii)~~(xv)	Amendment No. 1 to Directors Deferral Plan		~~(g)~~(p)
~~(xiv)~~(xvi)	Amendment No. 2 to Directors Deferral Plan		(q)
~~(xv)~~(xvii)	Summit Community Bank, Inc. Amended and Restated Directors Deferral Plan		(r)
~~(xvi)~~(xviii)	Rabbi Trust for The Summit Financial Group, Inc. Directors Deferral Plan		(s)
~~(xvii)~~(xvix)	Amendment No. One to Rabbi Trust for Summit Financial Group, Inc. Directors
		Deferral Plan	(t)
~~(xviii)~~(xx)	Amendment No. One to Rabbi Trust for Summit Community Bank, Inc.
		(successor in interest to Capital State Bank, Inc.) Directors Deferral Plan	(u)
~~(xix)~~(xxi)	Amendment No. One to Rabbi Trust for Summit Community Bank, Inc.
		(successor in interest to Shenandoah Valley National Bank, Inc.) Directors
		Deferral Plan	(v)
~~(xx)~~(xxii)	Amendment No. One to Rabbi Trust for Summit Community Bank, Inc.
		(successor in interest to South Branch Valley National Bank)
		Directors Deferral Plan	(w)
~~(xxi)~~(xxiii)	Summit Financial Group, Inc. Incentive Plan		~~(h)~~(x)
~~(xxii)~~(xxiv)	Summit Community Bank Incentive Compensation Plan		~~(i)~~(y)
~~(xxiii)~~(xxv)	Form of Non-Qualified Stock Option Grant Agreement		~~(j)~~(z)
~~(xxiv)~~(xxvi)	Form of First Amendment to Non-Qualified Stock Option Grant Agreement		~~(k)~~(aa)
(xxvii)	2009 Officer Stock Option Plan		(bb)

8782

Table of Contents

(12)	Statements Re: Computation of Ratios	(cc)
(21)	Subsidiaries of Registrant	(dd)
(23)	Consent of Arnett & Foster, P.L.L.C
(24)	Power of Attorney
(31.1)	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
(31.2)	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
(32.1)	Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer
(32.2)	Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer

(a)

Incorporated by reference to Exhibit 3.i of Summit Financial Group, Inc.’s filing on Form 10-Q dated

March 31, 2006.

(b)

Incorporated by reference to Exhibit 3.2 of Summit Financial Group Inc.’s filing on Form 10-Q dated

June 30, 2006.

	(c)	Incorporated by reference to Exhibit 10.1 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(d)	Incorporated by reference to Exhibit 10.1 of Summit Financial Group Inc.’s filing on Form 8-K dated February 4, 2010.
	(e)	Incorporated by reference to Exhibit 10.2 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(f)	Incorporated by reference to Exhibit 10.3 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(g)	Incorporated by reference to Exhibit 10.4 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(h)	Incorporated by reference to Exhibit 10.5 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(i)	Incorporated by reference to Exhibit 10.6 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(j)	Incorporated by reference to Exhibit 10.7 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(k)	Incorporated by reference to Exhibit 10.8 of Summit Financial Group, Inc.’s filing on Form 8-K dated March 6, 2009.

	~~(d)~~(l)	Incorporated by reference to Exhibit 10.1 of Summit Financial Group Inc.’s filing on Form 8-K dated December 10, 2009.
	(m)	Incorporated by reference to Exhibit 10.9 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(n)	Incorporated by reference to Exhibit 10 of South Branch Valley Bancorp, Inc.’s filing on Form 10-QSB dated June 30, 1998.

~~(e)~~(o)

Incorporated by reference to Exhibit 10.10 of Summit Financial Group Inc.’s filing on Form 10-K dated

~~December 31, 2007.~~

~~(f)~~

~~Incorporated by reference to Exhibit 10.10 of Summit Financial Group Inc.’s filing on Form 10-K dated~~

December 31, 2005.

	~~(g)~~(p)	Incorporated by reference to Exhibit 10.11 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2005.
	(q)	Incorporated by reference to Exhibit 10.14 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(r)	Incorporated by reference to Exhibit 10.15 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(s)	Incorporated by reference to Exhibit 10.16 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(t)	Incorporated by reference to Exhibit 10.17 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.

Table of Contents

(u)

Incorporated by reference to Exhibit 10.18 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, ~~2005.~~2008.

	~~(h)~~(v)	Incorporated by reference to Exhibit 10.19 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(w)	Incorporated by reference to Exhibit 10.20 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(x)	Incorporated by reference to Exhibit 10.2 of Summit Financial Group Inc.’s filing on Form 8-K dated

December 14, 2007.

~~(i)~~ (y)

Incorporated by reference to Exhibit 10.4 of Summit Financial Group Inc.’s filing on Form 8-K dated

December 14, 2007.

~~(j)~~(z)

Incorporated by reference to Exhibit 10.3 of Summit Financial Group Inc.’s filing on Form 10-Q dated

March 31, 2006.

~~(k)~~(aa)

Incorporated by reference to Exhibit 10.4 of Summit Financial Group Inc.’s filing on Form 10-Q dated

	March 31, 2006.
	(bb)	Incorporated by reference to Exhibit 12 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.
	(cc)	Incorporated by reference to Exhibit 10.1 of Summit Financial Group Inc.’s filing on Form 8-K dated May 14, 2009.
	(dd)	Incorporated by reference to Exhibit 21 of Summit Financial Group Inc.’s filing on Form 10-K dated December 31, 2008.

West Virginia	55-0672148
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

300 N. Main Street
Moorefield, West Virginia	26836
(Address of principal executive offices)	(Zip Code)

Table X - Significant Nonperforming Loan Relationships
December 31, 2009
Dollars in thousands
Location	Underlying Collateral	Loan Origination Date	Loan Nonaccrual Date	Loan Balance	Method Used to Measure Impairment	Most Recent Appraised Value		Amount Allocated to Allowance for Loan Losses	Amount Previously Charged-off
Location	Underlying Collateral	Loan Origination Date	Loan Nonaccrual Date	Loan Balance	Method Used to Measure Impairment	Most Recent Appraised Value		Amount Allocated to Allowance for Loan Losses	Amount Previously Charged-off
Front Royal, VA	124 room hotel & 8 commercial lots	Sept. 2007 & Jan 2008	Sept. 2008	$20,679	Collateral value	$21,280	(1) (3)	$1,527	$ -
Winchester, VA	Commercial building & two undeveloped commercial parcels	Dec. 2008	July 2009 and Dec. 2009	$4,878	Collateral value	$4,288	(1)	$915	$ -
Rockingham Co., VA & Moorefield, WV	Residential subdivision & undeveloped acreage	Nov. 2007	Mar. 2009	$3,714	Collateral value	$3,397	(1)	$731	$ -
Winchester, VA	130 room hotel & commercial acreage	Sept. 2008	Dec. 2009	$11,152	Collateral value	$18,828	(4)	$ -	$ -
Berkeley Co., WV & Frederick Co., VA	Three residential subdivisions & undeveloped acreage; single family lots, and 5 single family residences & acreage	Various 2006 - March 2009	Sept. 2009	$8,363	Collateral value	$9,006	(1)	$2,213	$ -
Winchester, VA	Commercial lots & acreage	Nov. 2008	Mar. 2009	$1,884	Collateral value	$1,641	(1)	$408	$ -
Winchester, VA	Mini-storage units & Multi-family unit	July 2006, Feb. 2008, & June 2007	Dec. 2009	$1,955	Collateral value	$2,030	(1)	$ -	$ -
Frederick Co., VA	Commercial condominium under construction, undeveloped acreage, & equipment	July 2005 & May 2008	Mar. 2009	$6,315	Collateral value	$7,189	(1)	$415	$2,012
Front Royal, VA	Residential building lots & undeveloped acreage; 1 single family residence	July & Oct. 2006	Dec. 2008, Mar. 2009, & June 2009	$1,322	Collateral value	$750	(1)	$647	$ -

(1) - Values are based upon recent external appraisal.
(2) - Values for equipment are based upon equipment trader prices and management's estimate of value.
(3) - Value of the 8 commercial lots is also detailed on the 124-room hotel since they share a 1st lien.
(4) - Value is based upon appraisal obtained at loan origination. New appraisal has been ordered.

		Balance
Description	Location	(in millions)
Residential lots	Front Royal, VA	$	2.2
Residential subdivision and acreage	Berkeley County, WV		3.4
Residential subdivision	Berkeley County, WV		9.5

Internally Classified Loans
	Balance at December 31,
Dollars in thousands	2008		2007
Commerical	$	984	$	1,754
Commercial real estate		30,435		10,987
Land development & construction		60,589		41,906
Residential real estate		18,405		10,783
Consumer		633		539
Total	$	111,046	$	65,969

Table XI - Internally Criticized Loans
	Balance at December 31,
Dollars in thousands	2009		2008		2007
Commercial	$	6,413	$	984	$	1,754
Commercial real estate		56,726		30,435		10,987
Land development & construction		38,279		60,589		41,906
Residential real estate		21,854		18,405		10,783
Consumer		-		633		539
Total	$	123,272	$	111,046	$	65,969

PART I.

Item 1.	Business	~~3-10~~1-9

Item 1A.	Risk Factors	~~11-17~~10-19

Item 1B.	Unresolved Staff Comments	1820

Item 2.	Properties	1820

Item 3.	Legal Proceedings	1820

Item 4.	~~Submission of Matters to a Vote of Shareholders~~Removed and Reserved	1820

PART II.

Item 5.	Market for Registrant's Common Equity, Related
	Shareholder Matters, and Issuer Purchases of Equity Securities	~~19-20~~21

Item 6.	Selected Financial Data	~~21-22~~22

Item 7.	Management's Discussion and Analysis of Financial Condition and
	Results of Operations	23-39

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 8.	Financial Statements and Supplementary Data	~~44-83~~43-79

Item 9.	Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure	8480

Item 9A.	Controls and Procedures	8480

Item 9B.	Other Information	8480


PART III.

Item 10.	Directors, Executive Officers, and Corporate Governance	8581

Item 11.	Executive Compensation	8581

Item 12.	Security Ownership of Certain Beneficial Owners
	and Management and Related Shareholder Matters	8581

Item 13.	Certain Relationships and Related Transactions and Director Independence	8581

Item 14.	Principal Accounting Fees and Services	8681


PART IV.

Item 15.	Exhibits, Financial Statement Schedules	~~87-88~~82-84


SIGNATURES		8985

Period	Total Number of Shares Purchased (a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (b)
October 1, 2008 - October 31, 2008		-	$	-		-		165,375
November 1, 2008 - November 30, 2008		14,194		8.86		-		165,375
December 1, 2008 - December 31, 2008		3,985		8.71		-		165,375

Table II - Changes in Interest Margin Attributable to Rate and Volume - Consolidated Basis

	2008 Versus 2007									2007 Versus 2006
	Increase (Decrease)									Increase (Decrease)
	Due to Change in:									Due to Change in:
Dollars in thousands	Volume			Rate			Net			Volume			Rate			Net
Interest earned on:
Loans
Taxable	$	12,191		$	(12,647	)	$	(456	)	$	7,312		$	1,284		$	8,596
Tax-exempt		(60	)		19			(41	)		66			30			96
Securities
Taxable		2,332			152			2,484			1,341			479			1,820
Tax-exempt		157			(66	)		91			87			(25	)		62
Federal funds sold and interest
bearing deposits with other banks		(22	)		(21	)		(43	)		(10	)		(1	)		(11	)
Total interest earned on
interest earning assets		14,598			(12,563	)		2,035			8,796			1,767			10,563

Interest paid on:
Interest bearing demand
deposits		(1,090	)		(4,189	)		(5,279	)		388			(169	)		219
Savings deposits		217			(15	)		202			(1	)		153			152
Time deposits		2,062			(3,938	)		(1,876	)		3,082			2,531			5,613
Short-term borrowings		740			(3,170	)		(2,430	)		(1,786	)		(4	)		(1,790	)
Long-term borrowings and
subordinated debentures		8,316			(1,841	)		6,475			3,731			13			3,744
Total interest paid on
interest bearing liabilities		10,245			(13,153	)		(2,908	)		5,414			2,524			7,938

Net interest income	$	4,353		$	590		$	4,943		$	3,382		$	(757	)	$	2,625

Table IV - Loans by Type
	2008					2007					2006					2005					2004
			Percent					Percent					Percent					Percent					Percent
Dollars in thousands	Amount		of Total			Amount		of Total			Amount		of Total			Amount		of Total			Amount		of Total

Commercial	$	130,106		10.7	%	$	92,599		8.7	%	$	69,470		7.5	%	$	63,206		7.9	%	$	53,226		8.7	%
Commercial real estate, land development, and construction		667,729		55.2	%		609,748		57.4	%		530,018		57.3	%		407,435		50.8	%		283,547		46.6	%
Residential mortgage		376,026		31.0	%		322,640		30.3	%		282,512		30.5	%		285,241		35.6	%		223,690		36.7	%
Consumer		31,519		2.6	%		31,956		3.0	%		36,455		3.9	%	��	36,863		4.6	%		38,948		6.4	%
Other		6,061		0.5	%		6,641		0.6	%		6,969		0.8	%		8,598		1.1	%		9,605		1.6	%

Total loans	$	1,211,441		100.0	%	$	1,063,584		100.0	%	$	925,424		100.0	%	$	801,343		100.0	%	$	609,016		100.0	%

Table VI - Nonperforming Assets

Dollars in thousands	2008			2007			2006			2005			2004
Nonaccrual loans	$	46,930		$	2,917		$	638		$	583		$	532
Accruing loans past due
90 days or more		1,039			7,416			4,638			799			140
Total nonperforming loans		47,969			10,333			5,276			1,382			672

Foreclosed properties and
repossessed assets		8,113			2,058			77			285			646
Nonaccrual securities		-			-			-			-			349
Total nonperforming assets	$	56,082		$	12,391		$	5,353		$	1,667		$	1,667

Total nonperforming loans
as a percentage of total loans		3.97	%		0.97	%		0.57	%		0.17	%		0.11	%

Total nonperforming assets
as a percentage of total assets		3.45	%		0.86	%		0.43	%		0.15	%		0.19	%

Table VIII - Nonperforming Assets

Dollars in thousands	2009			2008			2007			2006			2005
Accruing loans past due 90 days or more:
Commercial	$	23		$	-		$	702		$	34		$	184
Commercial real estate		-			-			2,821			137			86
Commercial construction & development		-			1,015			-			-			-
Residential construction & development		-			-			1,919			3,971			-
Residential real estate		156			2			1,765			425			436
Consumer		20			22			209			70			93
Other		2			-			-			1			-
Total 90+ days past due		201			1,039			7,416			4,638			799
Nonaccrual loans:
Commercial		408			198			14			24			58
Commercial real estate		35,217			24,323			1,524			-			364
Commercial construction & development		11,553			-			-			-			-
Residential construction & development		14,775			17,368			98			-			-
Residential real estate		4,407			4,983			1,247			584			135
Consumer		381			58			34			30			26
Total nonaccrual loans		66,741			46,930			2,917			638			583
Foreclosed properties:
Commercial		-			-			-			-			-
Commercial real estate		4,788			875			430			-			107
Commercial construction & development		2,028			180			525			-			-
Residential construction & development		30,230			6,575			391			-			-
Residential real estate		3,247			480			712			41			161
Consumer		-			-			-			-			-
Total foreclosed properties		40,293			8,110			2,058			41			268
Repossessed assets		269			3			-			36			17
Total nonperforming assets	$	107,504		$	56,082		$	12,391		$	5,353		$	1,667

Total nonperforming loans as a
percentage of total loans		5.79	%		3.97	%		0.97	%		0.57	%		0.17	%

Total nonperforming assets as a
percentage of total assets		6.78	%		3.45	%		0.86	%		0.43	%		0.15	%

Table IX - Loans Past Due 30-89 Days

Dollars in thousands	12/31/2009		12/31/2008
Commercial	$	1,585	$	114
Commercial real estate		3,861		195
Construction and development		1,161		2,722
Residential real estate		8,250		5,009
Consumer		835		824
Total	$	15,692	$	8,864

Loans Past Due 30-89 Days

Dollars in thousands	12/31/2008		12/31/2007

Commercial	$	114	$	264
Commercial real estate		195		1,604
Construction and development		2,722		997
Residential real estate		5,009		4,485
Consumer		824		1,335
Total	$	8,864	$	8,685

Nonperforming Loans by Type

Dollars in thousands	2008		2007
Commercial	$	199	$	716
Commercial real estate		24,323		4,346
Land development and construction		18,382		2,016
Residential real estate		4,986		3,012
Consumer		79		243
Total	$	47,969	$	10,333

Table VII - Allocation of the Allowance for Loan Losses
Table XII - Allocation of the Allowance for Loan Losses																										Table XII - Allocation of the Allowance for Loan Losses

	2008					2007					2006					2005					2004						2009					2008					2007					2006					2005
Dollars in thousands	Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans				Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans
Commercial	$	546		10.7	%	$	543		8.7	%	$	367		7.5	%	$	270		7.9	%	$	187		8.7	%		$	401		10.6	%	$	546		10.7	%	$	543		8.7	%	$	367		7.5	%	$	270		7.9	%
Commercial real estate, land development, and construction		12,241		55.2	%		5,922		57.3	%		5,209		57.3	%		4,232		50.8	%		2,462		46.6	%
Commercial real estate																												3,938		40.2	%		4,705		37.4	%		3,254		36.1	%		3,088		34.0	%		2,765		33.2	%
Construction and development																												8,747		14.0	%		7,536		17.8	%		2,668		21.2	%		2,121		23.3	%		1,467		17.6	%
Residential real estate		3,458		31.0	%		1,991		30.4	%		1,057		30.5	%		979		35.6	%		1,376		36.7	%			3,626		32.3	%		3,458		31.0	%		1,991		30.4	%		1,057		30.5	%		979		35.6	%
Consumer		427		2.6	%		451		3.0	%		561		3.9	%		580		4.6	%		1,016		6.4	%			249		2.4	%		427		2.6	%		451		3.0	%		561		3.9	%		580		4.6	%
Other		261		0.5	%		285		0.6	%		197		0.8	%		47		1.1	%		-		1.6	%			39		0.5	%		261		0.5	%		285		0.6	%		197		0.8	%		47		1.1	%
Unallocated		-		-			-		-			120		-			4		-			32		-				-		0.0	%		-		-			-		-			120		-			4		-
	$	16,933		100.0	%	$	9,192		100.0	%	$	7,511		100.0	%	$	6,112		100.0	%	$	5,073		100.0	%		$	17,000		100.0	%	$	16,933		100.0	%	$	9,192		100.0	%	$	7,511		100.0	%	$	6,112		100.0	%

TABLE XIII - ALLOWANCE FOR LOAN LOSSES

Dollars in thousands	2009		2008		2007		2006		2005

Balance, beginning of year	$	16,933	$	9,192	$	7,511	$	6,112	$	5,073
Losses:
Commercial		479		198		50		32		36
Commercial real estate		469		1,131		154		185		-
Construction and development		16,946		4,529		80
Real estate - mortgage		3,921		1,608		618		35		60
Consumer		214		375		216		200		173
Other		231		203		160		289		364
Total		22,260		8,044		1,278		741		633
Recoveries:
Commercial		129		4		2		1		6
Commercial real estate		23		17		13		46		41
Construction and development		1,615		-		20		-		-
Real estate - mortgage		29		64		15		7		-
Consumer		90		72		58		62		56
Other		116		128		104		179		274
Total		2,002		285		212		295		377
Net losses		20,258		7,759		1,066		446		256
Provision for loan losses		20,325		15,500		2,055		1,845		1,295
Reclassification of reserves related to loans
previously reflected in discontinued operations		-		-		692		-		-

Balance, end of year	$	17,000	$	16,933	$	9,192	$	7,511	$	6,112

TABLE VIII - ALLOWANCE FOR LOAN LOSSES

Dollars in thousands	2008		2007		2006		2005		2004

Balance, beginning of year	$	9,192	$	7,511	$	6,112	$	5,073	$	4,681
Losses:
Commercial		198		50		32		36		142
Commercial real estate		1,131		154		185		-		336
Construction and development		4,529		80
Real estate - mortgage		1,608		618		35		60		5
Consumer		375		216		200		173		208
Other		203		160		289		364		286
Total		8,044		1,278		741		633		977
Recoveries:
Commercial		4		2		1		6		19
Commercial real estate		17		13		46		41		27
Construction and development		-		20		-		-		-
Real estate - mortgage		64		15		7		-		9
Consumer		72		58		62		56		109
Other		128		104		179		274		155
Total		285		212		295		377		319
Net losses		7,759		1,066		446		256		658
Provision for loan losses		15,500		2,055		1,845		1,295		1,050
Reclassification of reserves related to loans
previously reflected in discontinued operations		-		692		-		-		-
Balance, end of year	$	16,933	$	9,192	$	7,511	$	6,112	$	5,073

	Long Term
	Debt and
Table XIV - Contractual Cash Obligations					Table XIV - Contractual Cash Obligations
	Subordinated		Operating
Dollars in thousands	Debentures		Leases			Long Term Debt and Subordinated Debentures		Operating Leases
2009	$	83,911	$	632
2010		76,481		228		$	76,481	$	156
2011		32,459		148			33,589		59
2012		64,915		149			64,915		60
2013		40,080		119			40,080		30
2014							81,610		-
Thereafter		114,491		22			121,206		-
Total	$	412,337	$	1,298		$	417,881	$	305

Commitments to extend credit:
Table XV - Off-Balance Sheet Arrangements			Table XV - Off-Balance Sheet Arrangements

Dollars in thousands
Commitments to extend credit			Commitments to extend credit
Revolving home equity and
credit card lines	$	45,097		$	44,923
Construction loans		65,271			25,628
Other loans		42,191			41,462
Standby letters of credit		10,584			5,572
Total	$	163,143		$	117,585


Change in	Estimated % Change in Net
Interest Rates	Interest Income Over:
(basis points)	0 - 12 Months	13 - 24 Months
Down 100 (1)	0.70%	4.72%
Up 100 (1)	-1.32%	1.19%
Up 200 (1)	-2.40%	-1.07%
Up 400 (2)	-2.39%	-2.94%

(1) assumes a parallel shift in the yield curve
(2) assumes 400 bp increase over 24 months

Change in Interest Rates	Estimated % Change in Net Interest Income Over:
Basis points	0 - 12 Months	13 - 24 Months
Down 100 (1)	0.74%	2.77%
Up 100 (1)	-2.15%	-3.21%
Up 200 (1)	-4.16%	-6.57%
Up 200, flattening yield curve (2)	-4.32%	-3.27%

(1) assumes a parallel shift in the yield curve
(2) assumes flattening curve whereby short term rates increase by 200 basis points while long term
rates increase soas to bear the same average relationship to short term rates that existed
during 2005 thru 2007, the last extended period of a flat yield curve environment.

Consolidated Balance Sheets
Dollars in thousands	December 31,
	2008			2007

ASSETS
Cash and due from banks	$	11,356		$	21,285
Interest bearing deposits with other banks		108			77
Federal funds sold		2			181
Securities available for sale		327,606			283,015
Other investments		23,016			17,051
Loan held for sale, net		978			1,377
Loans, net		1,192,157			1,052,489
Property held for sale, net		8,110			2,058
Premises and equipment, net		22,434			22,130
Accrued interest receivable		7,217			7,191
Intangible assets		9,704			10,055
Other assets		24,428			18,413
Assets related to discontinued operations		-			214
Total assets	$	1,627,116		$	1,435,536

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	69,808		$	65,727
Interest bearing		896,042			762,960
Total deposits		965,850			828,687
Short-term borrowings		153,100			172,055
Long-term borrowings		392,748			315,738
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		8,585			9,241
Liabilities related to discontinued operations		-			806
Total liabilities		1,539,872			1,346,116
Commitments and Contingencies

Shareholders' Equity
Common stock and related surplus, $2.50 par value; authorized 20,000,000;
issued 2008 - 7,415,310 shares; 2007 - 7,408,941 shares		24,453			24,391
Retained earnings		64,709			65,077
Accumulated other comprehensive income		(1,918	)		(48	)
Total shareholders' equity		87,244			89,420

Total liabilities and shareholders' equity	$	1,627,116		$	1,435,536

Consolidated Statements of Shareholders’ Equity
For the Years Ended December 31, 2008, 2007 and 2006

	Common								Accumulated			Total
	Stock and			Retained					Other			Shareholders'
	Related			Earnings			Treasury		Comprehensive			Equity
Dollars in thousands (except per share amounts)	Surplus			(Restated)			Stock		Income			(Restated)
Balance, December 31, 2005	$	18,857		$	55,102		$	-	$	(1,268	)	$	72,691
Comprehensive income:
Net income		-			8,257			-		-			8,257
Other comprehensive income,
net of deferred tax expense of $214:
Net unrealized gain on
securities of $917, net
of reclassification adjustment
for gains included in net
income of ($0)		-			-			-		917			917
Total comprehensive income													9,174
Exercise of stock options		188			-			-		-			188
Repurchase of common stock		(1,024	)		-			-					(1,024	)
Cash dividends declared ($0.32 per share)		-			(2,276	)		-		-			(2,276	)
Balance, December 31, 2006		18,021			61,083			-		(351	)		78,753
Comprehensive income:
Net income		-			6,456			-		-			6,456
Other comprehensive income,
net of deferred tax expense of $186:
Net unrealized gain on
securities of $304, net
of reclassification adjustment
for gains included in net
income of ($0)		-			-			-		303			303
Total comprehensive income													6,759
Issuance of 317,686 shares at $19.93 per share		6,331			-			-		-			6,331
Exercise of stock options		141			-			-		-			141
Repurchase of common stock		(102	)		-			-		-			(102	)
Cash dividends declared ($0.34 per share)		-			(2,462	)		-		-			(2,462	)
Balance, December 31, 2007		24,391			65,077			-		(48	)		89,420
Comprehensive income:
Net income		-			2,300			-		-			2,300
Other comprehensive income,
net of deferred tax (benefit) of ($1,146):
Net unrealized (loss) on
securities of ($1,864), net
of reclassification adjustment
for losses included in net
income of ($6)		-			-			-		(1,870	)		(1,870	)
Total comprehensive income													430
Exercise of stock options		15			-			-		-			15
Stock compensation expense		12			-			-		-			12
Repurchase of common stock		35			-			-		-			35
Cash dividends declared ($0.36 per share)		-			(2,668	)		-		-			(2,668	)
Balance, December 31, 2008	$	24,453		$	64,709		$	-	$	(1,918	)	$	87,244


Dollars in thousands	Securities
Balance Jan. 1, 2008	$	-
Unrealized gains/(losses) recorded in other comprehensive income		(25	)
Purchases, issuances, and settlements		7,369
Transfers in and/or out of Level 3		4,367
Balance Dec. 31, 2008	$	11,711

(dollars in thousands)	2008			2007
Balance, beginning	$	14,130		$	14,874
Additions		3,170			4,409
Amounts collected		(4,037	)		(5,441	)
Other changes, net		138			288
Balance, ending	$	13,401		$	14,130

Dollars in thousands	Goodwill Activity
Balance, January 1, 2009	$	6,198
Acquired goodwill, net		-

Balance, December 31, 2009	$	6,198

	Other Intangible Assets
	December 31,
Dollars in thousands	2009		2008
Unidentifiable intangible assets
Gross carrying amount	$	2,267	$	2,267
Less: accumulated amortization		1,612		1,461
Net carrying amount	$	655	$	806

Identifiable customer intangible assets
Gross carrying amount	$	3,000	$	3,000
Less: accumulated amortization		500		300
Net carrying amount	$	2,500	$	2,700

Dollars in thousands	Goodwill Activity
Balance, January 1, 2008	$	6,198
Acquired goodwill, net		-

Balance, December 31, 2008	$	6,198

	2009
							Federal Funds
	Short-term			Short-term			Purchased
	FHLB			Repurchase			and Lines
Dollars in thousands	Advances			Agreements			of Credit
Balance at December 31	$	45,000		$	1,123		$	3,616
Average balance outstanding
for the year		92,326			1,079			6,092
Maximum balance outstanding
at any month end		184,825			2,433			9,663
Weighted average interest
rate for the year		0.50	%		0.38	%		1.83	%
Weighted average interest
rate for balances
outstanding at December 31		0.32	%		0.49	%		3.01	%

Dollars in thousands			Amount
Year EndingDecember 31,	Amount
2009		83,911
2010		76,481	$	76,481
2011		32,459		33,589
2012		64,915		64,915
2013		40,080		40,080
2014				81,610
Thereafter		114,491		121,206
Total	$	412,337	$	417,881

	For the Year Ended December 31,
Dollars in thousands , except per share amounts	2008		2007			2006
Numerator for both basic and diluted earnings per share:
Income from continuing operations	$	2,300	$	13,537		$	11,060
Income (loss) from discontinued operations		-		(7,081	)		(2,803	)
Net Income	$	2,300	$	6,456		$	8,257

Denominator
Denominator for basic earnings
per share-weighted average
common shares outstanding		7,411,715		7,244,011			7,120,518
Effect of dilutive securities:
Stock options		35,276		59,380			62,763
		35,276		59,380			62,763
Denominator for diluted earnings
per share-weighted average
common shares outstanding and
assumed conversions		7,446,991		7,303,391			7,183,281


Basic earnings per share from continuing operations	$	0.31	$	1.87		$	1.55
Basic earnings per share from discontinued operations		-		(0.98	)		(0.39	)
Basic earnings per share	$	0.31	$	0.89		$	1.16

Diluted earnings per share from continuing operations	$	0.31	$	1.85		$	1.54
Diluted earnings per share from discontinued operations		-		(0.97	)		(0.39	)
Diluted earnings per share	$	0.31	$	0.88		$	1.15


	December 31, 2008
			Derivative				Net Ineffective
	Notional		Fair Value				Hedge Gains
Dollars in thousands	Amount		Asset		Liability		(Losses)
FAIR VALUE HEDGES
Receive-fixed interest rate swaps
Brokered deposits	$	-	$	-	$	-	$	-
	$	-	$	-	$	-	$	-

	December 31, 2007
			Derivative				Net Ineffective
	Notional		Fair Value				Hedge Gains
Dollars in thousands	Amount		Asset		Liability		(Losses)
FAIR VALUE HEDGES
Receive-fixed interest rate swaps
Brokered deposits	$	3,000	$	-	$	9	$	-
	$	3,000	$	-	$	9	$	-