**UNITED STATES**
 **SECURITIES AND EXCHANGE COMMISSION**
 Washington, D.C. 20549
   **FORM 10-Q**
 **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**
 **OF THE SECURITIES EXCHANGE ACT OF 1934**
 
 For The Quarterly Period Ended September 30, 2003
 
 Commission File Number 000-19235
  
  SUMMIT FINANCIAL CORPORATION
  
 SOUTH CAROLINA
(State or other jurisdiction
of incorporation or organization)
57-0892056
(I.R.S. Employer
Identification No.) 
 
 Post Office Box 1087
 937 North Pleasantburg Drive
 Greenville, South Carolina 29602
 (Address, including zip code, of principal executive offices)
 
 (864) 242-2265
 (Registrants telephone number, including area code)
 
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
 
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
 
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
 
 As of October 30, 2003, 4,089,180 shares of $1.00 par value common stock were outstanding.
 1
   SUMMIT FINANCIAL CORPORATION
 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2003
 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
 
 
 PART I. FINANCIAL INFORMATION
 Item 1.
 
 Consolidated Balance SheetsSeptember 30, 2003 and December 31, 2002
3Consolidated Statements of IncomeThree months and nine months ended September 30, 2003 and 2002
4Consolidated Statements of Shareholders' Equity and Comprehensive IncomeNine months ended September 30, 2003 and 2002
5Consolidated Statements of Cash FlowsNine months ended September 30, 2003 and 2002
6Condensed Notes to Consolidated Financial Statements September 30, 2003
7Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
11Item 3.Quantitative and Qualitative Disclosures About Market Risk
24Item 4.Controls and Procedures
24PART II. OTHER INFORMATION
25SIGNATURES
27 
 EXHIBITS:
 
 Exhibit 31.1 - Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
 Exhibit 31.2 - Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
 Exhibit 32.1 - Section 1350 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 Exhibit 32.2 - Section 1350 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 2
  **SUMMIT FINANCIAL CORPORATION AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****(Dollars in Thousands, Except Per Share Data)****(Unaudited)******
****
****
********
****
**September 30,**
**December 31,******
****
**2003**
**2002**ASSETSCash and due from banks

$
7,705

$
6,929Interest-bearing bank balances


2,859


2,176Federal funds sold


1,009


2,491Investments available for sale


79,489


63,464Investment in Federal Home Loan Bank and other stock


2,543


2,418Loans, net of unearned income and net ofallowance for loan losses of $3,517 and $3,369


219,920


215,431Premises and equipment, net


4,066


4,197Accrued interest receivable


1,514


1,418Other assets


6,012


3,682$
325,117

$
302,206LIABILITIES AND SHAREHOLDERS' EQUITYDeposits:Noninterest-bearing demand

$
31,294

$
33,342Interest-bearing demand


22,734


24,943Savings and money market


72,308


73,933Time deposits, $100,000 and over


66,959


48,791Other time deposits


55,415


49,506248,710


230,515FHLB advances


43,100


40,600Accrued interest payable


622


1,006Other liabilities


1,538


1,343293,970


273,464Shareholders' equity:Common stock, $1.00 par value; 20,000,000shares authorized; issued andoutstanding 4,089,180 and 4,013,486 shares


4,089


4,013Additional paid-in capital


21,606


21,322Retained earnings


5,800


2,862Accumulated other comprehensive (loss) income, net of tax


(312
)

600Nonvested resticted stock


(36
)

(55
)Total shareholders' equity


31,147


28,742$
325,117

$
302,206SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




3








|**SUMMIT FINANCIAL CORPORATION AND SUBSIDIARIES** **************** 
|-------------------------------------------------------------------
|**CONSOLIDATED STATEMENTS OF INCOME** ****************             
|**(Dollars, except per share data, in Thousands)** ****************
|**(Unaudited)** ****************                                   
|****                                                               
|****                                                               
|****                                                               
|****                                                               
|                                                                   
|                                                                   
|Interest Income:                                                   
|Loans                                                              
|Taxable investment securities                                      
|Nontaxable investment securities                                   
|Federal funds sold                                                 
|Other                                                              
|                                                                   
|                                                                   
|                                                                   
|Interest Expense:                                                  
|Deposits                                                           
|Other                                                              
|                                                                   
|                                                                   
|                                                                   
|Net interest income                                                
|Provision for loan losses                                          
|                                                                   
|Net interest income after                                          
|provision for loan losses                                          
|                                                                   
|Noninterest income:                                                
|Service charges and fees on deposit accounts                       
|Credit card service fees and income                                
|Insurance commission fee income                                    
|Gain on sale of securities                                         
|Other income                                                       
|                                                                   
|                                                                   
|                                                                   
|Noninterest expense:                                               
|Salaries, wages and benefits                                       
|Occupancy                                                          
|Furniture, fixtures and equipment                                  
|Other expenses                                                     
|                                                                   
|                                                                   
|                                                                   
|Income before income taxes                                         
|Provision for income taxes                                         
|                                                                   
|Net income                                                         
|                                                                   
|                                                                   
|Net income per share:                                              
|Basic                                                              
|Diluted                                                            
|Average shares outstanding:                                        
|Basic                                                              
|Diluted                                                            
|                                                                   
|SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                     

4





SUMMIT FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOMEFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002(Dollars in Thousands)(Unaudited)AccumulatedotherAdditional

comprehensive
Nonvested
TotalCommon
paid-in
Retained
(loss)
restricted
shareholders'stock
capital
earnings
income, net
stock
equityBalance at December 31, 2001
$3,793
$18,409
$2,379
$203
($183)
$24,601Net income for the nine monthsended September 30, 2002
-
-
2,481
-
-
2,481Other comprehensive income:Unrealized gain on securities:Unrealized holding gains arisingduring the period, netof tax of $359
-
-
-
588
-
-Less: reclassification adjustmentfor gains included in netincome, net of tax of ($32)
-
-
-
(53)
-
-Other comprehensive income
-
-
-
535
-
535Comprehensive income
-
-
-
-
-
3,016Employee stock options exercised
18
73
-
-
-
91Amortization of deferredcompensation on restricted stock
-
-
-
-
96
96Balance at September 30, 2002
$3,811
$18,482
$4,860
$738
($87)
$27,804Balance at December 31, 2002
$4,013
$21,322
$2,862
$600
($55)
$28,742Net income for the nine monthsended September 30, 2003
-
-
2,938
-
-
2,938Other comprehensive loss:Unrealized loss on securities:Unrealized holding losses arisingduring the period, netof tax of ($418)
-
-
-
(685)
-
-Less: reclassification adjustmentfor gains included in netincome, net of tax of ($140)
-
-
-
(227)
-
-Other comprehensive loss
-
-
-
(912)
-
(912)Comprehensive income
-
-
-
-
-
2,026Stock options exercised
76
284
-
-
-
360Amortization of deferredcompensation on restricted stock
-
-
-
-
19
19Balance at September 30, 2003
$4,089
$21,606
$5,800
($312)
($36)
$31,147SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




5




**SUMMIT FINANCIALCORPORATION AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS****(Dollars in Thousands)****(Unaudited)******
****
****
********
****
**For the Nine Months Ended******
****
**September 30,******
****
********
****
**2003**
**2002**Cash flows from operating activities:Net income

$
2,938

$
2,481Adjustments to reconcile net income to net cashprovided by operating activities:Provision for loan losses


502


546Depreciation and amortization


333


385Gain on sale of equipment and vehicles


(30
)

-Gain on sale of securities available for sale


(367
)

(85
)Net amortization of net premium on investments


257


131Amortization of deferred compensation on restricted stock


19


96Increase in other assets


(233
)

(254
)(Decrease) increase in other liabilities


(189
)

225Deferred income taxes


(135
)

(221
)Net cash provided by operating activities


3,095


3,304Cash flows from investing activities:Purchases of securities available for sale


(76,773
)

(25,717
)Proceeds from maturities of securities available for sale


29,878


8,299Proceeds from sales of securities available for sale


29,510


10,074Purchases of investments in FHLB and other stock


(400
)

(350
)Redemption of FHLB stock


275


-Purchases of investments in bank-owned life insurance


(1,500
)

-Net increase in loans


(4,991
)

(3,244
)Purchases of premises and equipment


(221
)

(212
)Proceeds from sale of equipment and vehicles


49


-Net cash used in investing activities


(24,173
)

(11,150
)Cash flows from financing activities:Net increase in deposit accounts


18,195


16,981Net decrease in other short-term borrowings


-


(500
)Proceeds from FHLB advances


18,500


13,000Repayments of FHLB advances


(16,000
)

(7,500
)Proceeds from employee stock options exercised


360


91Net cash provided by financing activities


21,055


22,072Net (decrease) increase in cash and cash equivalents


(23
)

14,226Cash and cash equivalents, beginning of period


11,596


10,449Cash and cash equivalents, end of period

$
11,573

$
24,675SUPPLEMENTAL INFORMATION:Cash paid during the period for interest

$
4,322

$
5,099Cash paid during the period for income taxes

$
1,590

$
1,132Change in fair market value of investment securitiesavailable for sale, net of income taxes


($912
)
$
535SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6






SUMMIT FINANCIAL CORPORATION


CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER 30, 2003





NOTE 1 - BASIS OF PRESENTATION:


The unaudited consolidated financial statements include the accounts of Summit Financial Corporation (the "Company"), a South Carolina corporation, and its wholly-owned subsidiaries, Summit National Bank (the "Bank"), a nationally chartered bank, and Freedom Finance, Inc. (the "Finance Company"), a consumer finance company. Also included are the accounts of Summit Investment Services, Inc. (the "Investment Company") which is a wholly-owned subsidiary of the Bank. All significant intercompany items related to the consolidated subsidiaries have been eliminated.





Through its bank subsidiary, which commenced operations in July 1990, the Company provides a full range of banking services, including the taking of demand and time deposits and the making of commercial and consumer loans. The Bank currently has four full service branch locations in Greenville and Spartanburg, South Carolina. In 1997, the Bank incorporated the Investment Company as a wholly-owned subsidiary to offer nondeposit products and financial management services. The Finance Company commenced operations in November 1994 and makes and services small installment loans to individuals from its eleven offices throughout South Carolina.





The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, the estimates affect the reported income and expense during the reporting period. Actual results could differ from these estimates and assumptions.





The significant accounting policies followed by the Company for interim reporting are consistent with the accounting policies followed for annual financial reporting. The unaudited consolidated financial statements of the Company at September 30, 2003 and for the three month and nine month periods ended September 30, 2003 and 2002 were prepared in accordance with the instructions for Form 10-Q. In the opinion of management, all adjustments (consisting only of items of a normal recurring nature) necessary for a fair presentation of the financial position at September 30, 2003, and the results of operations and cash flows for the periods ended September 30, 2003 and 2002 have been included. The information contained in the footnotes included in the Company's latest annual report on Form 10-K for the year ended December 31, 2002 should be referred to in connection with the reading of these unaudited interim consolidated financial statements. Certain interim 2002 amounts have been reclassified to conform with the statement presentations for the interim 2003 period and to reflect the effect of the 5% stock dividend paid in December 2002.





The results for the three month and nine month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the full year or any other interim period.





NOTE 2 - CASH FLOW INFORMATION:


For the purposes of reporting cash flows, cash includes currency and coin, cash items in process of collection and due from banks. Included in cash and cash equivalents are federal funds sold and overnight investments. The Company considers the amounts included in the balance sheet line items, "Cash and due from banks", "Interest-bearing bank balances" and "Federal funds sold" to be cash and cash equivalents. These accounts totaled $11,573,000 and $24,675,000 at September 30, 2003 and 2002, respectively.







|
|
|
|
|

NOTE 3  NONPERFORMING ASSETS:


Loans past due in excess of 90 days and still accruing interest amounted to approximately $169,000, $187,000, and $216,000 at September 30, 2003, December 31, 2002, and September 30, 2002, respectively. Non-accrual loans at September 30, 2003 totaled $527,000 compared to $293,000 at December 31, 2002, and $203,000 at September 30, 2002. There were no impaired loans or other real estate acquired in full or partial satisfaction of loans outstanding at September 30, 2003, December 31, 2002 or September 30, 2002.





NOTE 4  STOCK COMPENSATION PLANS:


At September 30, 2003, the Company had three stock-based employee and director option plans, which are described more fully in Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for December 31, 2002. The Company reports stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion 25, " Accounting for Stock Issued to Employees ", which measures compensation expense as the excess, if any, of the quoted market price of the Companys stock at the date of the grant over the amount an employee must pay to acquire the stock. SFAS 123, " Accounting for Stock-Based Compensation ", encourages but does not require companies to record compensation cost for stock-based compensation plans at fair value. The Company follows the disclosure-only provisions of SFAS 123. Accordingly, no compensation cost has been recognized for the stock-based option plans as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.







|                                                                                                              |  | **For the QuarterEnded**
**September 30,** | **For the Nine MonthsEnded**
**September 30,**
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ----------------------------------------------
|(dollars, except per share, in thousands)                                                                     |  | **2003**                                   | **2002**                                      
|                                                                                                              |  |                                            |                                               
|Net income, as reported                                                                                       |  | $                                          | 970                                           
|Less - total stock-based employee
compensation expense determined under
fair value based method, net of taxes |  |                                            | 42                                            
|                                                                                                              |  |                                            |                                               
|Proforma net income                                                                                           |  | $                                          | 928                                           
|                                                                                                              |  |                                            |                                               
|Earnings per share:                                                                                           |  |                                            |                                               
|Basic  as reported                                                                                           |  | $                                          | 0.24                                          
|Basic  proforma                                                                                              |  | $                                          | 0.23                                          
|Diluted - as reported                                                                                         |  | $                                          | 0.21                                          
|Diluted  proforma                                                                                            |  | $                                          | 0.20                                          




NOTE 5  INTANGIBLE ASSETS:


As of January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible Assets" . SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS 142. The Companys intangible assets consist of goodwill resulting from the Finance Companys branch acquisitions and are included in "Other assets" on the accompanying consolidated balance sheets. The balance of goodwill at September 30, 2003 and December 31, 2002 was $187,000. There was no amortization expense charged in any period presented.







|
|
|
|
|

NOTE 6  PER SHARE INFORMATION:


The following is a reconciliation of the denominators of the basic and diluted per share computations for net income for the three and nine months ended September 30, 2003 and 2002. There is no required reconciliation of the numerator from the net income reported on the accompanying statements of income. All average share and per share data have been restated to reflect all stock dividends as of the earliest period presented.







|                               |      | **For the Quarter Ended September 30,**
|------------------------------ | ---- | ---------------------------------------
|****                           | **** | ****                                   
|****                           | **** | **2003**                               
|****                           | **** | ****                                   
|****                           | **** | **BASIC**                              
|                               |      |                                        
|                               |      |                                        
|Net Income                     |      | $                                      
|                               |      |                                        
|                               |      |                                        
|Average shares outstanding     |      |                                        
|Effect of Dilutive Securities: |      |                                        
|Stock options                  |      |                                        
|Unvested restricted stock      |      |                                        
|                               |      |                                        
|                               |      |                                        
|                               |      |                                        
|Per-share amount               |      | $                                      
|                               |      |                                        









|                               |      | **For the Nine Months Ended September 30,**
|------------------------------ | ---- | -------------------------------------------
|****                           | **** | ****                                       
|****                           | **** | **2003**                                   
|****                           | **** | ****                                       
|****                           | **** | **BASIC**                                  
|                               |      |                                            
|                               |      |                                            
|Net Income                     |      | $                                          
|                               |      |                                            
|                               |      |                                            
|Average shares outstanding     |      |                                            
|Effect of Dilutive Securities: |      |                                            
|Stock options                  |      |                                            
|Unvested restricted stock      |      |                                            
|                               |      |                                            
|                               |      |                                            
|                               |      |                                            
|Per-share amount               |      | $                                          
|                               |      |                                            



|
|
|
|
|

NOTE 7  SEGMENT INFORMATION:


The Company reports information about its operating segments in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". Summit Financial Corporation is the parent holding company for Summit National Bank ("Bank"), a nationally chartered bank, and Freedom Finance, Inc. ("Finance"), a consumer finance company. The Company considers the Bank and the Finance Company separate business segments.





Financial performance for each segment is detailed in the following tables. Included in the "Corporate" column are amounts for general corporate activities and eliminations of intersegment transactions.









**For the quarter ended September 30, 2003**
**At and for the Nine months ended**
**September 30, 2003******
****
**Bank**
**Finance**
**Corporate**
**Total**
**Bank**
**Finance**
**Corporate**
**Total**Interest income

$
3,820

$
467


($7
)
$
4,280

$
11,655

$
1,397


($19
)
$
13,033Interest expense


1,207


36


(36
)

1,207


3,938


112


(112
)

3,938Net interest income


2,613


431


29


3,073


7,717


1,285


93


9,095Provision for loan losses


30


70


-


100


300


202


-


502Other income


689


84


(15
)

758


2,165


254


(45
)

2,374Other expenses


1,975


336


5


2,316


5,638


1,028


21


6,687Income before taxes


1,297


109


9


1,415


3,944


309


27


4,280Income taxes


401


41


3


445


1,216


116


10


1,342Net income

$
896

$
68

$
6

$
970

$
2,728

$
193

$
17

$
2,938Net loans













$
217,461

$
3,124


($665
)
$
219,920Total assets













$
322,210

$
3,631


($724
)
$
325,117












**For the quarter ended September 30, 2002**
**At and for the Nine months ended**
**September 30, 2002******
****
**Bank**
**Finance**
**Corporate**
**Total**
**Bank**
**Finance**
**Corporate**
**Total**Interest income

$
4,050

$
476


($11
)
$
4,515

$
12,001

$
1,456


($25
)
$
13,432Interest expense


1,562


48


(48
)

1,562


4,705


139


(132
)

4,712Net interest income


2,488


428


37


2,953


7,296


1,317


107


8,720Provision for loan losses


140


56


-


196


335


211


-


546Other income


611


86


(15
)

682


1,816


254


(45
)

2,025Other expenses


1,764


337


5


2,106


5,500


1,045


12


6,557Income before taxes


1,195


121


17


1,333


3,277


315


50


3,642Income taxes


372


46


6


424


1,025


118


18


1,161Net income

$
823

$
75

$
11

$
909

$
2,252

$
197

$
32

$
2,481Net loans













$
204,694

$
3,207


($1,099
)
$
206,802Total assets













$
294,811

$
3,849


($154
)
$
298,506












|
|
|
|
|

SUMMIT FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The following information presents managements discussion and analysis of the financial condition and results of operations of Summit Financial Corporation ("the Company" or "Summit Financial"), a financial holding company, and its wholly-owned subsidiaries, Summit National Bank ("the Bank" or "Summit") and Freedom Finance, Inc. ("the Finance Company" or "Freedom"). The Bank, which is the principal subsidiary, owns all the outstanding shares of Summit Investment Services, Inc. Throughout this discussion and analysis, the term "the Company" refers to Summit Financial Corporation and its subsidiaries.
 
 This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Annual Report of Summit Financial Corporation (the "Company") on Form 10K for the year ended December 31, 2002. Certain reclassifications have been made to prior years financial data to conform to current financial statement presentations as well as to reflect the effect of the 5% stock dividend paid in December 2002. Results of operations for the three month and nine month periods ended September 30, 2003 are not necessarily indicative of results to be attained for any other period.
 
 FORWARD-LOOKING STATEMENTS
 Certain statements contained herein are "forward-looking statements" identified as such for purposes of the safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements as to industry trends, future results of operations or financial position, borrowing capacity and future liquidity, future investment results, future credit exposure, future loan losses and plans and objectives for future operations, and other statements that do not relate strictly to historical facts. These statements are not historical facts, but instead are based on current expectations, estimates and projections about the Company, are subject to numerous assumptions, risks and uncertainties, and represent only managements belief regarding future events, many of which, by their nature, are inherently uncertain and outside the Companys control. Any forward-looking statements made speak only as of the date on which such statements are made. The Company disclaims any obligation to update any forward-looking statements. Forward-looking statements are not guarantees of future performance and it is possible that actual results and financial position may differ, possibly materially, from the anticipated results and financial condition indicated in or implied by these forward-looking statements.
 
 Factors that could cause actual results to differ from those indicated by any forward-looking statements include, but are not limited to, the following:
 Inflation, interest rates, market and monetary fluctuations;Geopolitical developments and any future acts or threats of war or terrorism;The effects of, and changes in trade, monetary and fiscal policies and laws, including interest policies of the Federal Reserve;A decline in general economic conditions and the strength of the local economies in which the Company operates;The financial condition of the Companys borrowers and potential deterioration of credit quality; 11 
 Competitive pressures on loan and deposit pricing and demand;Changes in technology and their impact on the marketing of products and services;The timely development and effective marketing of competitive new products and services;The impact of changes in financial service laws and regulations, including laws concerning taxes, banking, securities and insurance;Changes in accounting principles, policies, and guidelines;The Companys success at managing the risks involved in the foregoing as well as other risks and uncertainties detailed from time to time in press releases and other public filings. CRITICAL ACCOUNTING POLICIES
 The preparation of consolidated financial statements requires management to make estimates and assumptions in the application of certain of its accounting policies about the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues and expenses. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The Company considers its policies regarding the allowance for loan losses to be its most critical accounting policy due to the significant degree of management judgment involved. This significant accounting policy is detailed in the "Allowance for Loan Losses" section of this discussion and analysis and in Note 1 of the Notes to Consolidated Financial Statements included in the Company's 10-K for December 31, 2002.
 
 OVERVIEW
 Summit Financial Corporation (the "Company") is a financial institution holding company headquartered in Greenville, South Carolina. The Company offers a broad range of financial services through its wholly-owned subsidiary, Summit National Bank (the "Bank," or "Summit"). The Bank is a nationally chartered commercial bank which operates principally in the Upstate of South Carolina. The Bank received its charter and commenced operations in July 1990. In 1997, the Bank incorporated Summit Investment Services, Inc. as a wholly-owned subsidiary to provide a wider range of investment products and financial planning services. The Bank currently has four full service offices in Greenville and Spartanburg, South Carolina. Summit provides a full range of banking services to individuals and businesses, including the taking of time and demand deposits, making loans, and offering nondeposit investment services. The Bank emphasizes close personal contact with its customers and strives to provide a consistently high level of service to both individual and corporate customers.
 
 Freedom Finance, Inc. (the "Finance Company" or "Freedom,") is a wholly-owned subsidiary of the Company which is operating as a consumer finance company headquartered in Greenville, South Carolina. The Finance Company primarily makes and services installment loans to individuals with loan principal amounts generally not exceeding $2,000 and with maturities ranging from three to eighteen months. Freedom operates eleven branches throughout South Carolina.
 
 BALANCE SHEET ACTIVITY
 Total assets increased $22.9 million or 8% from December 31, 2002 to September 30, 2003 to total $325.1 million. Deposits increased approximately $18.2 million or 8% during the period to total $248.7 million. A majority of the increase in deposits was in the time deposit categories which increased $24.1 million. The increase in deposits, combined with higher advances from the Federal Home Loan Bank, funded the net loan originations of $4.5 million and the $16.0 million increase in investment securities during the period.
 
 12 ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
 The allowance for loan losses is established through charges in the form of a provision for loan losses based on managements periodic evaluation of the loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. The amount of the allowance reflects managements opinion of an adequate level to absorb probable losses inherent in the loan portfolio at September 30, 2003. The amount charged to the provision and the level of the allowance is based on managements judgment and is dependent upon growth in the loan portfolio, the total amount of past due loans and nonperforming loans, known loan deteriorations, and concentrations of credit. Other factors affecting the allowance are trends in portfolio volume, maturity and composition, collateral values, and general economic conditions. Finally, managements assessment of probable losses based upon internal credit grading of the loans and periodic reviews and assessments of credit risk associated with particular loans is considered in establishing the allowance amount. The Company considers its policies regarding the allowance for loan losses to be its most critical accounting policy due to the significant degree of management judgment involved.
 
 In assessing the adequacy of the allowance and the amount charged to the provision, management relies predominately on its ongoing review of the loan portfolio, which is undertaken both to ascertain whether there are losses which must be charged-off, and to assess the risk characteristics of the portfolio in the aggregate as well as the credit risk associated with particular loans. The Companys methodology for evaluating the adequacy of the allowance for loan losses incorporates managements current judgments about the credit quality of the loan portfolio through a disciplined and consistently applied process. The methodology includes segmentation of the loan portfolio into reasonable components based on loan purpose for calculation of the most accurate reserve. Appropriate reserve estimates are determined for each segment based on a review of individual loans, application of historical loss factors for each segment, and adjustment factors applied as considered necessary. The adjustment factors are applied consistently and are quantified for consideration of national and local economic conditions; exposure to concentrations that may exist in the portfolio; impact of off-balance sheet risk; alterations of lending policies and procedures; the total amount of and changes in trends of past due loans, nonperforming loans, problem loans and charge-offs; the total amount of and changes in trends of the Banks internally graded "watch list" loans which include classified loans and OAEM; variations in the nature, maturity, composition, and growth of the loan portfolio; changes in trends of collateral value; entry into new markets; and other factors which may impact the current credit quality of the loan portfolio.
 
 Management maintains an allowance for loan losses which it believes adequate to cover probable losses in the loan portfolio. It must be emphasized, however, that the determination of the allowance for loan losses using the Companys procedures and methods rests upon various judgments and assumptions about future economic conditions, events, and other factors affecting loans which are believed to be reasonable, but which may or may not prove valid. While it is the Companys policy to provide for the loan losses in the current period in which a loss is considered probable, there are additional risks of future losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy, industry trends, and conditions affecting individual borrowers, managements judgment of the allowance is necessarily approximate and imprecise. No assurance can be given that the Company will not in any particular period sustain loan losses which would be sizable in relationship to the amount reserved or that subsequent evaluation of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings. The allowance for loan losses is also subject to review by various regulatory agencies through their periodic examinations of the Companys subsidiaries. Such examination could result in required changes to the allowance for loan losses. No adjustment in the allowance or significant adjustments to the Banks internal classified loans were made as a result of the Banks most recent examination performed by the Office of the Comptroller of the Currency.
 13 
 The allowance for loan losses totaled $3.5 million, or 1.57% of total loans, at September 30, 2003. This is compared to an allowance of $3.4 million, or 1.54% of total loans, at December 31, 2002. For the nine months ended September 30, 2003, the Company reported net charge-offs of $354,000, or 0.21% of average gross loans, which is compared to net charge-offs of $332,000, or 0.21% of average gross loans, for the comparable period of 2002.
 
 The Companys nonperforming assets consist of loans on nonaccrual basis, loans which are contractually past due 90 days or more on which interest is still being accrued, and other real estate owned ("OREO"). Loans past due in excess of 90 days and still accruing interest amounted to $169,000, $187,000, and $216,000 at September 30, 2003, December 31, 2002, and September 30, 2002, respectively. Non-accrual loans at September 30, 2003 totaled $527,000 compared to $293,000 at December 31, 2002, and $203,000 at September 30, 2002. There were no impaired loans or other real estate acquired in full or partial satisfaction of loans outstanding at September 30, 2003, December 31, 2002 or September 30, 2002. Generally, loans of the Bank are placed on non-accrual status at the earlier of when they are 90 days past due or when the collection of the loan becomes doubtful. Loans of the Finance Company are not classified as nonaccrual, but are charged-off when such become 150 days contractually past due or earlier if the loan is deemed uncollectible.
 
 Management maintains a list of potential problem loans which includes non-accrual loans, loans past due in excess of 90 days which are still accruing interest, and other loans which are credit graded (either internally, by independent review or regulatory examinations) as "substandard", "doubtful", or "loss". A loan is added to the list when management becomes aware of information about possible credit problems of borrowers that causes doubts as to the ability of such borrowers to comply with the current loan repayment terms. The total amount of loans outstanding at September 30, 2003 determined to be potential problem loans based upon managements internal designations, was $5.2 million or 2.3% of the loan portfolio at September 30, 2003, compared to $3.1 million or 1.4% of the loan portfolio at December 31, 2002, and $2.3 million or 1.1% of the loan portfolio at September 30, 2002. The amount of potential problem loans at September 30, 2003 does not represent managements estimate of potential losses since the majority of such loans are considered adequately secured by real estate or other collateral. Management believes that the allowance for loan losses as of September 30, 2003 was adequate to absorb any losses related to the nonperforming loans and potential problem loans as of that date. Management continues to monitor closely the levels of nonperforming and potential problem loans, and will address the weaknesses in these credits to enhance the amount of ultimate collection or recovery on these assets. Should increases in the overall level of nonperforming and potential problem loans accelerate from the current trend, management will adjust the methodology for determining the allowance for loan losses and will increase the provision for loan losses accordingly. This would likely decrease net income.
 
 
 EARNINGS REVIEW FOR THE QUARTERS ENDED SEPTEMBER 30, 2003 AND 2002
 
 GENERAL
 The Company reported consolidated net income for the quarter ended September 30, 2003 of $970,000, compared to net income of $909,000 for the quarter ended September 30, 2002, or an improvement of approximately $61,000 or 7%. Contributors to increased earnings for the third quarter of 2003 were the 10% growth in average earning assets, the 23% reduction in interest expense due to lower cost of funds, the reduction in loan loss provision due to lower net loan originations, and the 11% increase in noninterest income which was primarily related to higher volume of mortgage referral fees. Offsetting the increase in income was higher overhead expense, related primarily to the $166,000 prepayment penalty resulting from the early payoff of several higher rate FHLB advances.
 14 
 NET INTEREST INCOME
 Net interest income, the difference between the interest earned and interest paid, is the largest component of the Companys earnings and changes in it have the greatest impact on net income. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements determine changes in net interest income. During the quarter ended September 30, 2003, the Company recorded net interest income of $3.1 million, a 4% increase from the net interest income of $3.0 million for the quarter ended September 30, 2002. The increase in this amount is related to the increase in the average earning asset and interest-bearing liability volume of the Company of 10.0% and 9.3% respectively, offset by the 22 basis point decrease in the net interest margin for the Company.
 
 For the quarters ended September 30, 2003 and 2002, the Companys net interest margin was 4.13% and 4.35%, respectively. The net interest margin is calculated as annualized net interest income divided by year-to-date average earning assets. The decrease in net interest margin is related primarily to the 88 basis point reduction in the average yield on assets related to the continued low rate environment throughout 2002 and 2003. The lower yields were offset somewhat by the 78 basis point reduction in the average cost of funds related to maturity of higher priced deposits and borrowings which were renewed at lower current market rates. During the period between the third quarter of 2002 and 2003, the average prime rate decreased 75 basis points resulting in an average prime rate of 4.00% for the third quarter of 2003 compared to 4.75% for the third quarter of the prior year.
 
 INTEREST INCOME
 For the quarter ended September 30, 2003, the Companys earning assets averaged $305.7 million and had an average tax-equivalent yield of 5.70%. This compares to average earning assets of $277.8 million for the third quarter of 2002, yielding approximately 6.58%. Thus, the 88 basis point decrease in average yield, offset somewhat by the 10.0% increase in volume of average earning assets, accounts for the $235,000 (5%) decrease in interest income between the third quarters of 2002 and 2003.
 
 Gross loans comprised approximately 73% of the Companys average earning assets for the third quarter of 2003 compared to 77% for the third quarter of 2002. The majority of the Companys loans are tied to the prime rate (over 60% of the Banks loan portfolio is at floating rates at September 30, 2003), which averaged 4.00% and 4.75% for the quarters ended September 30, 2003 and 2002, respectively. During the third quarter of 2003, loans averaged $223.1 million, yielding an average of 6.13%, compared to $214.4 million, yielding an average of 7.02% for the third quarter of 2002. The 89 basis point decrease in the average yield on loans is directly related to the reductions in the general interest rate environment, the lower prime lending rate during 2002 and 2003, and the renewal and refinancing of fixed rate loans at lower current market rates. The higher level of average loans (which increased 4%), was more than offset by the lower average yields and resulted in the reduction in interest income on loans of $344,000 or 9%.
 
 Investment securities averaged $77.0 million or 25% of average earning assets and yielded 4.67% (tax equivalent basis) during the third quarter of 2003, compared to average securities of $51.0 million yielding 5.79% (tax equivalent basis) for the quarter ended September 30, 2002. The decrease in the average yield of the investment portfolio is related to the general decline in market interest rates, the timing and volume of security calls and maturities which were reinvested in instruments with lower current market rates, and the portfolio mix. The 51% increase in average securities, offset somewhat by the decrease in yield, resulted in the increase of interest income on securities of $144,000 or 22%.
 
   15 INTEREST EXPENSE
 The Companys interest expense for the quarter ended September 30, 2003 was $1.2 million. The decrease in interest expense of $355,000, or 23%, from the comparable quarter in 2002 of $1.6 million was related primarily to the 78 basis point decrease in the average rate on liabilities, offset somewhat by the 9.3% increase in the level of average interest-bearing liabilities. Interest-bearing liabilities averaged $255.1 million for the third quarter of 2003 with an average rate of 1.88%. This is compared to average interest-bearing liabilities of $233.3 million with an average rate of 2.66% for the quarter ended September 30, 2002. The decrease in average rate on liabilities is directly related to the general reductions in market interest rates and the maturities of fixed rate deposits and Federal Home Loan Bank advances which were renewed at lower current market rates.
 
 PROVISION FOR LOAN LOSSES
 The provision for loan losses was $100,000 for the third quarter of 2003, compared to $196,000 for the comparable period of 2002. As discussed further under the "Allowance for Loan Losses" section above, in addition to the level of net originations, other factors influencing the amount charged to the provision each period include (1) trends in and the total amount of past due, classified, nonperforming, and "watch list" loans; (2) trends in and the total amount of net chargeoffs, (3) concentrations of credit risk in the loan portfolio, and (4) local and national economic conditions and anticipated trends. Thus, the primary reason for the lower provision for the third quarter of 2003 was the lower level of net loan originations which were $1.2 million for the third quarter of 2003 as compared to $6.1 million during the prior year. The other primary factor in determining the level of provision required for the 2003 quarter was related to the increasing trend of nonperforming assets which amounted to 0.24%, 0.14%, and 0.10% of gross loans at September 30, 2003, December 31, 2002, and September 30, 2002, respectively. Further, the Banks total "watch list" loans, which include classified loans, non-accrual loans, and other assets especially mentioned ("OAEM") in the Banks internal credit grading procedures and periodic reviews, have increased from 7.4% of gross loans at September 30, 2002 to 8.2% as of the third quarter end of 2003. Estimates charged to the provision for loan losses are based on managements judgment as to the amount required to cover probable losses in the loan portfolio and are adjusted as necessary based on a calculated model quantifying the estimated required balance in the allowance.
 
 NONINTEREST INCOME AND EXPENSES
 Noninterest income, which is primarily related to service charges on customers deposit accounts; credit card merchant discount fees; commissions on nondeposit investment product sales and insurance product sales; mortgage origination fees; and gains on sales of investment securities, was $758,000 for the quarter ended September 30, 2003 compared to $682,000 for the third quarter of 2002, or an increase of 11%. The increase is primarily related to higher level of mortgage referral fees and earnings on additional investment in bank-owned life insurance purchased in the third quarter of 2003.
 
 For the quarter ended September 30, 2003, noninterest expense was $2.3 million which is an increase of 10% from the amount incurred for the quarter ended September 30, 2002 of $2.1 million. The most significant item included in other expenses is salaries, wages and benefits which totaled $1.3 million for both the quarters ended September 30, 2003 and 2002. Increases related to normal annual raises were offset by lower commissions on nondeposit product sales due to the lower volume of sale transactions.
 
 Occupancy and furniture, fixtures, and equipment ("FFE") expenses decreased a total of $9,000 between the third quarter of 2002 and 2003. The decrease was primarily related to lower depreciation as numerous assets became fully depreciated in 2002. Lower depreciation was offset somewhat by normal increases in computer maintenance and other occupancy expenses. There were no significant changes in or additions to property and premises between the two quarterly periods.
 16 
 Included in the line item "other operating expenses", which increased $216,000 or 44% from the comparable period of 2002, are charges for OCC assessments; property and bond insurance; ATM switch fees; credit card expenses; professional services; education and seminars; advertising and public relations; and other branch and customer related expenses. The increase is primarily due to the $166,000 prepayment penalty resulting from the early payoff of several higher rate FHLB advances. Fluctuations in other expense categories are primarily related to deposit related expenses and are a result of normal activity of the Company and normal changes in the volume and nature of transactions.
 
 INCOME TAXES
 For the quarter ended September 30, 2003, the Company reported $445,000 in income tax expense, or an effective tax rate of 31.5%. This is compared to income tax expense of $424,000 for the same period of the prior year, or an effective tax rate of 31.8%. The slight reduction in effective tax rate is primarily related to the level of tax-free municipal securities in each period.
 
 
 RESULTS OF OPERATIONS -- COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
 
 GENERAL
 The Company reported consolidated net income for the nine months ended September 30, 2003 of $2,938,000, compared to net income of $2,481,000 for the nine months ended September 30, 2002, or an improvement of approximately $457,000 or 18%. The primary factor in the increased earnings from the same period of the prior year was the earning asset growth of 12% and the continued reduction in interest expense due to the lower cost of funds as time deposits and FHLB advances have matured and renewed at lower current market rates. The other primary contributors to higher net income for the nine months ended September 30, 2003 as compared with the prior year were the decrease in provision for loan losses due to lower net originations in 2003, and the 17% increase in noninterest income, primarily in gains on sales of investment securities and higher mortgage referral fees.
 
 NET INTEREST INCOME
 Net interest income, the difference between the interest earned and interest paid, is the largest component of the Company's earnings and changes in it have the greatest impact on net income. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements determine changes in net interest income. During the nine months ended September 30, 2003, the Company recorded consolidated net interest income of $9.1 million, a 4% increase from the net interest income of $8.7 million for the nine months ended September 30, 2002. The increase in this amount is primarily related to the increase in the average earning asset and interest-bearing liability volume of the Company of 12% and 11%, respectively, offset somewhat by the 30 basis point reduction in net interest margin between the comparable periods.
 
 For the nine months ended September 30, 2003 and 2002, the Company's consolidated net interest margin was 4.15% and 4.45%, respectively. The net interest margin is calculated as annualized net interest income divided by year-to-date average earning assets. The decline in net interest margin between the 2002 and 2003 periods is directly related to the reduction in the average yield on assets exceeding the decrease in average cost of funds resulting from the declining interest rate environment.
 
 17 INTEREST INCOME
 For the nine months ended September 30, 2003, the Company's earning assets averaged $302.2 million and had an average tax-equivalent yield of 5.89%. This compares to average earning assets of $270.5 million for the first nine months of 2002, yielding approximately 6.78%. Thus, the 89 basis point decrease in average yield, offset somewhat by the 12% increase in volume of average earning assets, accounts for the $399,000 (3%) decrease in interest income between 2003 and 2002.
 
 Consolidated loans averaged approximately 74% and 78% of the Company's average earning assets for the first nine months of 2003 and 2002, respectively. The majority of the Company's loans are tied to the prime rate (over 60% of the Banks portfolio is at floating rates at September 30, 2003), which averaged 4.16% and 4.75% for the nine months ended September 30, 2003 and 2002, respectively. During the first nine months of 2003, consolidated loans averaged $222.4 million, yielding an average of 6.36%, compared to $211.3 million, yielding an average of 7.17% for the first nine months of 2002. The 81 basis point decrease in the average yield on loans is primarily related to the lower prime lending rate which decreased 59 basis points between 2002 and 2003, combined with the renewal and refinancing of fixed rate loans to lower current market rates. The decrease in average rate, offset somewhat by the higher average loans (which increased 5%), resulted in a decrease in interest income on loans of $752,000 or 7%.
 
 Investment securities averaged $71.2 million or 24% of average earning assets and yielded 4.91% (tax equivalent basis) during the first nine months of 2003, compared to average securities of $48.3 million yielding 6.06% (tax equivalent basis) for the nine months ended September 30, 2002. The decrease in average yield on the investment portfolio of 115 basis points is related to the general decline in market interest rates, the timing and volume of security maturities, calls, and sales which were reinvested in instruments with lower current market rates, and the portfolio mix. The 48% increase in volume of investment securities, offset somewhat by the reduction in average rate, resulted in the increase in interest income on securities of $412,000 or 21%.
 
 INTEREST EXPENSE
 The Company's interest expense for the nine months ended September 30, 2003 was $3.9 million. The decrease of 16% from the comparable nine months in 2002 of $4.7 million was directly related to the 69 basis point decrease in the average rate on liabilities, offset somewhat by the 11% increase in the volume of average interest-bearing liabilities. Interest-bearing liabilities averaged $253.5 million for the first nine months of 2003 with an average rate of 2.08%. This is compared to average interest-bearing liabilities of $227.6 million with an average rate of 2.77% for the nine months ended September 30, 2002. The decrease in average rate on liabilities is directly related to the general decreasing interest rate environment and the repricing of deposits at lower current market rates.
 
 PROVISION FOR LOAN LOSSES
 As previously discussed under the quarterly analysis, the amount charged to the provision for loan losses by the Bank and the Finance Company is based on management's judgment as to the amounts required to maintain an allowance adequate to provide for probable losses inherent in the loan portfolio.
 
 Included in the net income for the nine months ended September 30, 2003 is a provision for loan losses of $502,000 compared to a provision of $546,000 for the same period of 2002. As discussed further under the "Allowance for Loan Losses" section above, in addition to the level of net originations, other factors influencing the amount charged to the provision each period include (1) trends in and the total amount of past due, classified, nonperforming, and "watch list" loans; (2) trends in and the total amount of net chargeoffs, (3) concentrations of credit risk in the loan portfolio, and (4) local and national economic conditions and anticipated trends. Thus, in addition to the level of net originations for each period, the other primary factors in determining the level of provision required for the 2003 quarter was related to the trends of nonperforming assets and the Banks total "watch list" loans, which include classified loans, non-accrual loans, and other assets especially mentioned ("OAEM") in the Banks internal credit grading procedures and periodic reviews. Estimates charged to the provision for loan losses are based on managements judgment as to the amount required to cover probable losses in the loan portfolio and are adjusted as necessary based on a calculated model quantifying the estimated required balance in the allowance.
 
 NONINTEREST INCOME AND EXPENSES
 Noninterest income, which is primarily related to service charges on customers deposit accounts; credit card merchant discount fees; commissions on nondeposit investment product sales and insurance product sales; and mortgage origination fees, was $2.4 million for the nine months ended September 30, 2003 compared to $2.0 million for the first nine months of 2002, or an increase of 17%. The increase is primarily related to higher levels of transactions in the available for sale investment portfolio generating gains on sales and higher volume of mortgage referral fees. Increases in other income were offset somewhat by reductions in nondeposit insurance product sales commissions and credit card merchant discount income based on a lower level of activity in 2003.
 
 For the nine months ended September 30, 2003, total noninterest expenses were $6.7 million which is an increase of 2% over the amount incurred for the nine months ended September 30, 2002 of $6.6 million. The most significant item included in other expenses is salaries, wages and benefits, which amounted to approximately $3.9 million and $4.0 million, respectively, for the nine months ended September 30, 2003 and 2002. The decrease of $105,000 or 3% is primarily a result of lower commission on nondeposit product sales due to the reduced volume of activity and lower bonus accrual for 2003. These decreases were partially offset by normal annual raises and annual increases in the cost of benefit plans.
 
 Occupancy and furniture, fixtures, and equipment ("FFE") expenses decreased a total of $23,000 between the first nine months of 2002 and 2003. The decrease was primarily related to lower depreciation as numerous assets became fully depreciated in 2002. Lower depreciation was offset somewhat by normal increases in computer maintenance and other occupancy expenses. There were no significant changes in or additions to property and premises between the two comparable periods.
 
 Included in the line item "other expenses", which increased $258,000 or 16% from the comparable period of 2002, are charges for OCC assessments; property and bond insurance; ATM switch fees; credit card expenses; professional services; education and seminars; advertising and public relations; and other branch and customer related expenses. The increase is primarily due to the $166,000 prepayment penalty resulting from the early payoff of several higher rate FHLB advances. Fluctuations in other expense categories are primarily related to deposit related expenses and are a result of normal activity of the Company and normal changes in the volume and nature of transactions.
 
 INCOME TAXES
 For the nine months ended September 30, 2003, the Company reported $1.3 million in income tax expense, or an effective tax rate of 31.4%. This is compared to income tax expense of $1.2 million for the same period of the prior year, or an effective tax rate of 31.9%. The slight reduction in effective tax rate is primarily related to the level of tax-free municipal securities in each period.
 
 
 18 CAPITAL MANAGEMENT
 The Companys capital serves to support asset growth and provide protection against loss to depositors and creditors. The Company strives to maintain an optimal level of capital, commensurate with its risk profile, on which an attractive return to shareholders will be realized over both the short and long-term, while serving depositors, creditors and regulatory needs. Total shareholders equity amounted to $31.1 million, or 9.6% of total assets, at September 30, 2003. This is compared to $28.7 million, or 9.5% of total assets, at December 31, 2002. The $2.4 million increase in total shareholders equity resulted principally from retention of earnings, and stock issued pursuant to the Companys stock option plans. The increases in equity are offset by the decline in unrealized gain on investment securities available for sale during the year. Book value per share at September 30, 2003 and December 31, 2002 was $7.62 and $7.16, respectively. Tangible book value per share at September 30, 2003 and December 31, 2002 was $7.57 and $7.12, respectively. Tangible book value was less than book value as a result of the purchase premiums associated with branch acquisitions of Freedom Finance.
 
 On December 5, 2002, the Company issued its eleventh consecutive 5% stock dividend to shareholders of record as of November 22, 2002. This dividend resulted in the issuance of approximately 190,000 shares of the Companys $1.00 par value common stock. Weighted average share and per share data has been restated to reflect all stock dividends issued.
 
 To date, the capital needs of the Company have been met through the retention of earnings, from the proceeds of its initial offering of common stock, and from the proceeds of stock issued pursuant to the Companys stock option plans. The Company believes that the rate of asset growth will not negatively impact the capital base. The Company has no commitments or immediate plans for any significant capital expenditures outside of the normal course of business. The Companys management does not know of any trends, events or uncertainties that may result in the Companys capital resources materially increasing or decreasing.
 
 The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. The purpose of these regulations is to quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of total capital and establish minimum ratios for capital adequacy purposes. To be categorized as "well capitalized", as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), Summit Financial and its banking subsidiary must maintain a risk-based Total Capital ratio of at least 10%, a risk-based Tier 1 Capital ratio of at least 6%, and a Tier 1 Leverage ratio of at least 5%, and not be subject to a written agreement, order, or capital directive with any of its regulators. At September 30, 2003, the Company and the Bank exceeded all regulatory required minimum capital ratios, and satisfied the requirements of the well capitalized category established by FDICIA. There are no current conditions or events that management believes would change the Companys or the Banks category. The following table summarizes capital ratios for the Company and the Bank at September 30, 2003 and December 31, 2002.
 19 
 **RISK-BASED CAPITAL CALCULATION******
****
****
****
****
****
****
********
****
****
****
**TO BE CATEGORIZED**
********
****
****
**"ADEQUATELY**
**TO BE CATEGORIZED******
****
**ACTUAL**
**CAPITALIZED"**
**"WELL-CAPITALIZED"******
****
**AMOUNT**
**RATIO**
**AMOUNT**
**RATIO**
**AMOUNT**
**RATIO****As of September 30, 2003**THE COMPANYTotal capital to risk-weighted assets

$
34,359


14.10
%
$
19,494


8.00
%

N.A.Tier 1 capital to risk-weighted assets

$
31,307


12.85
%
$
9,747


4.00
%

N.A.Tier 1 capital to average assets

$
31,307


9.85
%
$
12,711


4.00
%

N.A.THE BANKTotal capital to risk-weighted assets

$
29,943


12.43
%
$
19,275


8.00
%
$
24,094


10.00
%Tier 1 capital to risk-weighted assets

$
26,928


11.18
%
$
9,637


4.00
%
$
14,456


6.00
%Tier 1 capital to average assets

$
26,928


8.57
%
$
12,570


4.00
%
$
15,713


5.00
%**As of December 31, 2002**THE COMPANYTotal capital to risk-weighted assets

$
30,946


13.20
%
$
18,754


8.00
%

N.A.Tier 1 capital to risk-weighted assets

$
28,010


11.95
%
$
9,377


4.00
%

N.A.Tier 1 capital to average assets

$
28,010


9.70
%
$
11,555


4.00
%

N.A.THE BANKTotal capital to risk-weighted assets

$
27,099


11.69
%
$
18,543


8.00
%
$
23,179


10.00
%Tier 1 capital to risk-weighted assets

$
24,199


10.44
%
$
9,271


4.00
%
$
13,907


6.00
%Tier 1 capital to average assets

$
24,199


8.48
%
$
11,411


4.00
%
$
14,263


5.00
%
 
 
 LIQUIDITY
 Liquidity risk is defined as the risk of loss arising from the Companys inability to meet known near-term and projected long-term funding commitments and cash flow requirements. The objective of liquidity risk management is to ensure the ability of the Company to meet its financial obligations. These obligations are the payment of deposits on demand or at their contractual maturity; the repayment of borrowings as they mature; the payment of lease obligations as they become due; the ability to fund new and existing loan and other commitments; the payment of operating expenses; and the ability to take advantage of new business opportunities. Liquidity is achieved by the maintenance of assets which can easily be converted to cash; a strong base of core customer deposits; maturing short-term assets; the ability to sell marketable securities; and access to borrowed funds and capital markets. Liquidity is measured and monitored frequently at both the parent company and the Bank levels, allowing management to better understand and react to balance sheet trends. A comprehensive liquidity analysis provides a summary of anticipated changes in loans, core deposits, and wholesale funds. Management also maintains a detailed liquidity contingency plan designed to respond to an overall decline in the condition of the banking industry or a problem specific to the Company.
 
 20 Liquid assets consist primarily of cash and due from banks, interest-bearing deposits at banks, federal funds sold, and unpledged investment securities available for sale, which accounted for 18% and 15%, respectively, of average assets for each of the periods ended September 30, 2003 and 2002. Investment securities are an important tool to the Companys liquidity management. Securities classified as available for sale may be sold in response to changes in interest rates, liquidity needs, and/or significant prepayment risk. The Companys primary sources of liquidity include cash flow from operations, core deposits, borrowings, and short-term liquid assets. In managements opinion, the Company maintains adequate levels of liquidity by retaining sufficient liquid assets and assets which can be easily converted into cash and by maintaining access to various sources of funds. The primary sources of funds available through the Bank include advances from the Federal Home Loan Bank, purchasing federal funds from other financial institutions, lines of credit through the Federal Reserve Bank, and increasing deposits by raising rates paid. At September 30, 2003, based on its approved line of credit equal to 20% of total assets and eligible collateral available, the Bank had additional available credit of approximately $15.2 million from the FHLB. Further, the Bank had short-term lines of credit to purchase unsecured federal funds from unrelated correspondent banks with available balances of $19.8 million at September 30, 2003.
 
 Summit Financial, the parent holding company, has limited liquidity needs required to pay operating expenses and to provide funding to its consumer finance subsidiary, Freedom Finance. Summit Financial has approximately $3.9 million in available liquidity remaining from its initial public offering and the retention of earnings. A total of $2.2 million of this liquidity was advanced to the Finance Company, in the form of an intercompany loan, to fund its operations as of September 30, 2003. Summit Financial also has an available line of credit totaling $2.5 million from an unaffiliated financial institution, all of which was available at September 30, 2003. Additional sources of liquidity for Summit Financial include borrowing funds from unrelated correspondent banks, borrowing from individuals, and payments for management fees and debt service which are made by the Companys subsidiary on a monthly basis.
 
 Liquidity needs of Freedom Finance, primarily for the funding of loan originations, paying operating expenses, and servicing debt, have been met to date through the initial capital investment of $500,000 made by Summit Financial, retention of earnings, borrowings from unrelated private investors, and line of credit facilities provided by Summit Financial and Summit National Bank. The Companys management believes its liquidity sources are adequate to meet its operating needs.
 
 
 OFF-BALANCE SHEET COMMITMENTS
 The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the liquidity, credit enhancement, and financing needs of its customers. These financial instruments include legally binding commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. Credit risk is the principal risk associated with these instruments. The contractual amounts of these instruments represent the amount of credit risk should the instruments be fully drawn upon and the customer defaults.
 
 To control the credit risk associated with entering into commitments and issuing letters of credit, the Company uses the same credit quality, collateral policies, and monitoring controls in making commitments and letters of credit as it does with its lending activities. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation.
 
 21 Legally binding 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. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit obligate the Company to meet certain financial obligations of its customers, if, under the contractual terms of the agreement, the customers are unable to do so. The financial standby letters of credit issued by the Company are irrevocable. Payment is only guaranteed under these letters of credit upon the borrowers failure to perform its obligations to the beneficiary. As such, there are no "stand-ready obligations" in any of the letters of credit issued by the Company and the contingent obligations are accounted for in accordance with SFAS 5, "Accounting for Contingencies" .
 
 At September 30, the Companys total contractual amounts of commitments and letters of credit are as follows:
 
 (dollars in thousands)

2003
2002Legally binding commitments to extend credit:Commercial and industrial

$
15,488

$
14,399Residential real estate, including
prime equity lines


17,851


17,282Construction and development


18,547


12,232Consumer and overdraft protection


2,510


2,64154,396


46,554Standby letters of credit


3,713


4,761Total commitments

$
58,109

$
51,315 
 
 EFFECT OF INFLATION AND CHANGING PRICES
 The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and results of operations in terms of historical dollars, without consideration of changes in the relative purchasing power over time due to inflation. Unlike most industries, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect in the financial institutions performance than does the effect of inflation.
 
 The yield on a majority of the Companys earning assets adjusts simultaneously with changes in the general level of interest rates. Given the Companys asset-sensitive balance sheet position, assets reprice faster than liabilities, which generally results in decreases in net interest income during periods of declining interest rates. This may cause a decrease in the net interest margin until the fixed rate deposits mature and are repriced at lower current market rates, thus narrowing the difference between what the Company earns on its assets and what it pays on its liabilities. The opposite effect (that is, an increase in net interest income) is generally realized in a rising rate environment. The degree of interest rate sensitivity of the Companys assets and liabilities and the differences in timing of repricing assets and liabilities provides an indication of the extent to which the Companys net interest income may be affected by interest rate movements.
 
 22 MARKET RISK AND ASSET-LIABILITY MANAGEMENT
 The Companys primary earnings source is its net interest income; therefore, the Company devotes significant time and has invested in resources to assist in the management of market risk. The Companys net interest income is affected by changes in market interest rates, and by the level and composition of earning assets and interest-bearing liabilities. The Companys objectives in its asset-liability management are to utilize its capital effectively, to provide adequate liquidity and enhance net interest income, without taking undue risks or subjecting the Company unduly to interest rate fluctuations. The Company takes a coordinated approach to the management of its capital, liquidity, and interest rate risk.
 
 Market risk is the risk of loss from adverse changes in market prices and rates. The Companys market risk arises principally from interest rate risk inherent in its lending, investment, deposit, and borrowing activities. Management actively monitors and manages its interest rate risk exposure. Other types of market risks, such as foreign currency exchange rate risk, and equity and commodity price risk, do not arise in the normal course of the Companys business.
 
 Interest rate risk is the exposure to changes in market interest rates. The major source of the Companys interest rate risk is the difference in the maturity and repricing characteristics between core banking assets and liabilities  loans and deposits. This difference, or mismatch, poses a risk to net interest income. The Company attempts to control the mix and maturities of assets and liabilities to maintain a reasonable balance between exposure to interest rate fluctuations and earnings and to achieve consistent growth in net interest income, while maintaining adequate liquidity and capital. A sudden and substantial increase or decrease in interest rates may adversely impact the Companys earnings to the extent that the interest rates on earning assets and interest-bearing liabilities do not change at the same speed, to the same extent, or on the same basis.
 
 The Company monitors the interest rate sensitivity of its balance sheet position and controls this risk by identifying and quantifying exposures in its near-term sensitivity through the use of simulation and valuation models, as well as its long-term gap position, reflecting the known or assumed maturity, repricing, and other cash flow characteristics of assets and liabilities. The Companys simulation analysis involves dynamically modeling interest income and expense from current assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures, primarily to measure the sensitivity of net interest income over relatively short (e.g., less than 2-year) time horizons. As the future path of interest rates cannot be known in advance, management uses simulation analysis to project earnings under various interest rate scenarios including reasonable or "most likely", as well as deliberately extreme and perhaps unlikely, scenarios. Key assumptions in these simulation analyses relate to the behavior of interest rates and spreads, changes in the mix and volume of assets and liabilities, repricing and/or runoff of deposits, and, most importantly, the relative sensitivity of the Companys assets and liabilities to changes in market interest rates. This relative sensitivity is important to consider as the Companys core deposit base has not been subject to the same degree of interest rate sensitivity as its assets, the majority of which are based on external indices and change in concert with market interest rates. According to the model, the Company is presently positioned so that net interest income will increase in the short-term if interest rates rise and will decrease in the short-term if interest rates decline.
 
 A traditional gap analysis is also prepared based on the maturity and repricing characteristics of earning assets and interest-bearing liabilities for selected time bands. The mismatch between repricings or maturities within a time band is commonly referred to as the "gap" for that period. A positive gap (asset sensitive) where interest rate sensitive assets exceed interest rate sensitive liabilities generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite result on net interest income. However, the traditional gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and other factors that could have an impact on interest rate sensitivity or net interest income, and is thus not, in managements opinion, a true indicator of the Companys interest rate sensitivity position.
 
 The Companys balance sheet structure is primarily short-term in nature with a substantial portion of assets and liabilities maturing within one year. The Companys gap analysis indicates a negative 12 month gap as of September 30, 2003 of $45.8 million. However, when the "effective change ratio" (the historical relative movement of each assets and liabilitys rates in relation to a 100 basis point change in the prime rate) is applied to the interest gap position, the Company is actually asset sensitive over a 12 month period and the entire repricing lives of the assets and liabilities. This is primarily due to the fact that in excess of 60% of the loan portfolio moves immediately on a one-to-one ratio with a change in the prime lending rate, while the deposit rates do not increase or decrease as much or as quickly relative to a prime rate movement. The Companys asset sensitive position means that assets reprice faster than the liabilities, which causes a decrease in the short-term in the net interest income and net interest margin in periods of declining rates until the fixed rate deposits mature and are repriced at then lower current market rates, thus narrowing the difference between what the Company earns on its assets and what it pays on its liabilities. Given the Companys current balance sheet structure, the opposite effect (that is, an increase in net interest income and net interest margin) is realized in the short-term in a rising rate environment.
 
 The Company monitors and considers methods of managing the rate sensitivity and repricing characteristics of the balance sheet components in order to minimize the impact of sudden and sustained changes in interest rates. Accordingly, the Company also performs a valuation analysis involving projecting future cash flows from current assets and liabilities to determine the Economic Value of Equity ("EVE") which is the estimated net present value of those discounted cash flows. EVE represents the market value of equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for certain off-balance sheet items, over a range of assumed changes in market interest rates. The sensitivity of EVE to changes in the level of interest rates is a measure of the sensitivity of long-term earnings to changes in interest rates, and is used primarily to measure the exposure of earnings and equity to changes in interest rates over a relatively long (e.g., greater than 2 years) time horizon.
 
 The Companys market risk exposure is measured using interest rate sensitivity analysis by computing estimated changes in EVE in the event of a range of assumed changes in market interest rates. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 - 300 basis points increase or decrease in the market interest rates. The Companys Board of Directors has adopted an interest rate risk policy which establishes maximum allowable decreases in EVE in the event of a sudden and sustained increase or decrease in market interest rates.
 
 At December 31, 2002, the Companys estimated changes in EVE were within the limits established by the Board. As of September 30, 2003, there was no substantial change from the interest rate sensitivity analysis or the market value of portfolio equity for various changes in interest rates calculated as of December 31, 2002. The foregoing disclosures related to the market risk of the Company should be read in conjunction with the Companys audited consolidated financial statements, related notes and managements discussion and analysis of financial condition and results of operations for the year ended December 31, 2002 included in the Companys 2002 Annual Report on Form 10-K.
 
 
 23 ACCOUNTING, REPORTING AND REGULATORY MATTERS
 In September 2002, SFAS 146, " Accounting for Costs Associated with Exit or Disposal Activities ," was issued which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, " Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ". SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144, " Accounting for the Impairment or Disposal of Long-Lived Assets ". Those costs include, but are not limited to, the following: a) termination benefits provided to current employees that are involuntarily terminated under the terms of a benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract; b) costs to terminate a contract that is not a capital lease; and c) costs to consolidate facilities or relocate employees. SFAS 146 does not apply to costs associated with the retirement of a long-lived asset covered by SFAS 143, " Accounting for Asset Retirement Obligations ". A liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred. A liability for a cost associated with an exit or disposal activity is incurred when the definition of a liability is met. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company adopted SFAS 146 on January 1, 2003 with no effect on the Company.
 
 In November 2002, the FASB issued Interpretation No. 45, " Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others " ("FIN 45"). FIN 45 elaborates on the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 clarifies that a guarantor is required to disclose (a) the nature of the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the obligation it has undertaken in issuing the guarantee at its inception. The Company adopted FIN 45 on January 1, 2003 with no material effect on the Company.
 
 In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which addresses consolidation by business enterprises of variable interest entities. Under FIN 46, an enterprise that holds significant variable interest in a variable interest entity but is not the primary beneficiary is required to disclose the nature, purpose, size, and activities of the variable interest entity, its exposure to loss as a result of the variable interest holders involvement with the entity, and the nature of its involvement with the entity and date when the involvement began. The primary beneficiary of a variable interest entity is required to disclose the nature, purpose, size, and activities of the variable interest entity, the carrying amount and classification of consolidated assets that are collateral for the variable interest entitys obligations, and any lack of recourse by creditors (or beneficial interest holders) of a consolidated variable interest entity to the general credit of the primary beneficiary. FIN 46 is effective for the first fiscal year or interim period beginning after December 15, 2003. The Company does not expect the adoption to have an impact since it has no interest in entities which it considers to be within the scope of FIN 46.
 
 Effective July 1, 2003, the Company adopted SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires an issuer to classify certain financial instruments that include certain obligations, such as mandatory redemption, repurchase of the issuer's equity, or settlement by issuing equity, as liabilities or assets in some circumstances. Forward contracts to repurchase an issuer's equity shares that require physical settlement in exchange for cash are initially measured at the fair value of the shares at inception, adjusted for any consideration or unstated rights or privileges, which is the same as the amount that would be paid under the conditions specified in the contract if settlement occurred immediately. Those contracts and mandatorily redeemable financial instruments are subsequently measured at the present value of the amount to be paid at settlement, if both the amount of cash and the settlement date are fixed, or, other wise at the amount that would be paid under the conditions specified in the contract if settlement occurred at the reporting date. Other financial instruments are initially and subsequently measured at fair value, unless required by SFAS 150 or other generally accepted accounting principles to be measured differently. The Company had no impact upon adoption since it had no financial instruments which is considers to be included within the scope of SFAS 150.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 See "Market Risk and Asset-Liability Management" in Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations for quantitative and qualitative disclosures about market risk, which information is incorporated herein by reference.
 
 
 ITEM 4. CONTROLS AND PROCEDURES
 
 (a) Evaluation of Disclosure Controls and Procedures
 
 The Companys principal executive officer and principal financial officer have evaluated the effectiveness of the Companys "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures are designed and effective to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Companys management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
 (b) Changes in Internal Controls
 
 There was no change in the Companys "internal control over financial reporting" (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
 
 24 SUMMIT FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1.  Legal Proceedings.
 
 The Corporation and its subsidiaries from time to time may be involved as plaintiff or defendant in various legal actions incident to its business. There are no material actions currently pending.
 
 Item 2.  Changes in Securities.
 
 None.
 
 Item 3.  Defaults Upon Senior Securities.
 
 None.
 
 Item 4.  Submission of Matters to a Vote of Security Holders.
 
 None
 
 Item 5.  Other Information.
 
 None.
 
 25 Item 6.  Exhibits and Reports on Form 8-K.
 
 (a)  Exhibits:
 
 31.1  Rule 13a  14(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 31.2  Rule 13a  14(a) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 32.1  Section 1350 Certificate of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 32.2  Section 1350 Certificate of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 
 (b)  Reports on Form 8-K:
 
 On October 21, 2003, the Company filed a Form 8-K related to the earnings press release dated October 21, 2003, which included selected financial data for the quarter ended September 30, 2003 and for other selected periods.
 
 
 26   SUMMIT FINANCIAL CORPORATION
 
 SIGNATURES
 
 
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 SUMMIT FINANCIAL CORPORATION
 
 
 Dated: November 5, 2003
 
 /s/ J. Randolph Potter
 J. Randolph Potter, President
 and Chief Executive Officer
 
 
 Dated: November 5, 2003
 
 /s/ Blaise B. Bettendorf
 Blaise B. Bettendorf, Senior Vice President
 and Chief Financial Officer