SUMMIT FINANCIAL GROUP, INC. - Quarter Report: 2021 September (Form 10-Q)

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, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.

Commission File Number 0-16587

Summit Financial Group, Inc.

(Exact name of registrant as specified in its charter)


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


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

(304) 530-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☑			No			☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes			☑			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes			☐			No			☑

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $2.50 per share	SMMF	NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.

Common Stock, $2.50 par value

13,003,145 shares outstanding as of November 3, 2021

Table of Contents


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets September 30, 2021 (unaudited) and December 31, 2020	4

		Consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5

		Consolidated statements of comprehensive income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6

		Consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	7

		Consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 (unaudited)	9

		Notes to consolidated financial statements (unaudited)	11

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	48

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61

	Item 4.	Controls and Procedures	66
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	67

	Item 1A.	Risk Factors	63

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None

	Item 3.	Defaults upon Senior Securities	None

	Item 4.	Mine Safety Disclosures	None

	Item 5.	Other Information	None

	Item 6.	Exhibits	68

EXHIBIT INDEX			69

SIGNATURES			70

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)


	September 30, 2021		December 31, 2020
Dollars in thousands, except per share amounts	(unaudited)		(*)
ASSETS
Cash and due from banks	$	21,247	$	19,522
Interest bearing deposits with other banks	189,862		80,265
Cash and cash equivalents	211,109		99,787
Debt securities available for sale (at fair value)	424,741		286,127
Debt securities held to maturity (at amortized cost; estimated fair value - $100,793 - 2021, $103,157 - 2020)	98,528		99,914
Less: allowance for credit losses	—		—
Debt securities held to maturity, net	98,528		99,914
Other investments	10,649		14,185
Loans held for sale	1,393		1,998
Loans, net of unearned fees	2,554,110		2,412,153
Less: allowance for credit losses	(32,406)		(32,246)
Loans, net	2,521,704		2,379,907
Property held for sale	12,450		15,588
Premises and equipment, net	56,818		52,537
Accrued interest and fees receivable	10,484		11,989
Goodwill and other intangible assets, net	63,977		55,123
Cash surrender value of life insurance policies and annuities	60,241		59,438
Other assets	36,857		29,791
Total assets	$	3,508,951	$	3,106,384

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	575,542	$	440,818
Interest bearing	2,380,398		2,154,833
Total deposits	2,955,940		2,595,651
Short-term borrowings	140,146		140,146
Long-term borrowings	684		699
Subordinated debentures	29,466		29,364
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589
Other liabilities	39,837		39,355
Total liabilities	3,185,662		2,824,804
Commitments and Contingencies

Shareholders' Equity



Preferred stock, $1.00 par value, authorized 250,000 shares; issued: 2021 - 1,500	14,920		—
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2021 - 13,003,145 shares and 2020 - 12,985,708 shares; outstanding: 2021 - 12,976,693 shares and 2020 - 12,942,004	95,863		94,964
Unallocated common stock held by Employee Stock Ownership Plan - 2021 - 26,452 shares and 2020 - 43,704 shares	(285)		(472)
Retained earnings	207,703		181,643
Accumulated other comprehensive income	5,088		5,445
Total shareholders' equity	323,289		281,580

Total liabilities and shareholders' equity	$	3,508,951	$	3,106,384

(*) - Derived from audited consolidated financial statements

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Income (unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands, except per share amounts	2021		2020		2021		2020
Interest income
Interest and fees on loans
Taxable	$	28,340	$	26,656	$	83,352	$	77,211
Tax-exempt	76		151		299		455
Interest and dividends on securities
Taxable	1,432		1,445		4,078		4,656
Tax-exempt	916		937		2,629		2,288
Interest on interest bearing deposits with other banks	118		57		240		216
Total interest income	30,882		29,246		90,598		84,826
Interest expense
Interest on deposits	1,832		3,552		6,464		13,088
Interest on short-term borrowings	470		734		1,404		1,863
Interest on long-term borrowings and subordinated debentures	543		194		1,631		600
Total interest expense	2,845		4,480		9,499		15,551
Net interest income	28,037		24,766		81,099		69,275
Provision for credit losses	—		3,250		2,500		11,500
Net interest income after provision for credit losses	28,037		21,516		78,599		57,775
Noninterest income

Trust and wealth management fees	718		622		2,039		1,870
Mortgage origination revenue	742		780		2,638		1,636
Service charges on deposit accounts	1,338		1,138		3,530		3,283
Bank card revenue	1,509		1,237		4,369		3,257
Realized securities gains (losses), net	(68)		1,522		534		2,560

Bank owned life insurance and annuities income	160		795		733		1,334
Other	168		113		413		367
Total noninterest income	4,567		6,207		14,256		14,307
Noninterest expenses
Salaries, commissions and employee benefits	8,745		8,108		25,410		23,709
Net occupancy expense	1,254		1,057		3,559		2,917
Equipment expense	1,908		1,474		5,088		4,263
Professional fees	374		364		1,140		1,168
Advertising and public relations	254		145		482		389
Amortization of intangibles	390		412		1,176		1,251
FDIC premiums	354		320		1,119		595
Bank card expense	705		589		1,964		1,652
Foreclosed properties expense	370		607		1,342		1,815



Acquisition-related expenses	273		28		1,167		1,453
Other	2,716		2,405		8,365		6,493
Total noninterest expenses	17,343		15,509		50,812		45,705
Income before income tax expense	15,261		12,214		42,043		26,377
Income tax expense	3,023		2,594		8,886		5,302
Net income	12,238		9,620		33,157		21,075
Dividends on preferred shares	225		—		364		—
Net income applicable to common shares	$	12,013	$	9,620	$	32,793	$	21,075

Basic earnings per common share	$	0.93	$	0.74	$	2.53	$	1.63
Diluted earnings per common share	$	0.92	$	0.74	$	2.52	$	1.62

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Comprehensive Income (unaudited)


	For the Three Months Ended September 30,
Dollars in thousands	2021		2020
Net income	$	12,238	$	9,620
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedge of: 2021 - $907, net of deferred taxes of $218; 2020 - $555, net of deferred taxes of $133	689		422
Net unrealized (loss) gain on securities available for sale of: 2021 - $(3,555), net of deferred taxes of $(853) and reclassification adjustment for net realized losses included in net income of $(68), net of tax of $(16); 2020 - $587, net of deferred taxes of $141 and reclassification adjustment for net realized gains included in net income of $1,522, net of tax of $365	(2,702)		446


Total other comprehensive (loss) income	(2,013)		868
Total comprehensive income	$	10,225	$	10,488


	For the Nine Months Ended September 30,
Dollars in thousands	2021		2020
Net income	$	33,157	$	21,075
Other comprehensive (loss) income:
Net unrealized gain (loss) on cashflow hedge of: 2021 - $5,242, net of deferred taxes of $1,258; 2020 - $1,943, net of deferred taxes of $(466)	3,984		(1,477)
Net unrealized (loss) gain on securities available for sale of: 2021 - $(5,712), net of deferred taxes of $(1,371) and reclassification adjustment for net realized gains included in net income of $534, net of tax of $128; 2020 - $4,121, net of deferred taxes of $989 and reclassification adjustment for net realized gains included in net income of $2,560, net of tax of $614	(4,341)		3,132


Total other comprehensive (loss) income	(357)		1,655
Total comprehensive income	$	32,800	$	22,730

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)


Dollars in thousands, except per share amounts	Preferred Stock and Related Surplus		Common Stock and Related Surplus		Unallocated Common Stock Held by ESOP		Retained Earnings		Accumulated Other Compre- hensive Income		Total Share- holders' Equity

Balance June 30, 2021	$	14,920	$	95,511	$	(347)	$	198,022	$	7,101	$	315,207

Three Months Ended September 30, 2021

Net income	—		—		—		12,238		—		12,238
Other comprehensive loss	—		—		—		—		(2,013)		(2,013)
Exercise of stock options - 5,000 shares	—		13		—		—		—		13

Share-based compensation expense	—		195		—		—		—		195







Unallocated ESOP shares committed to be released - 5,751 shares	—		72		62		—		—		134


Common stock issuances from reinvested dividends - 2,885 shares	—		72		—		—		—		72
Preferred stock cash dividends declared	—		—		—		(225)		—		(225)
Common stock cash dividends declared ($0.18 per share)	—		—		—		(2,332)		—		(2,332)
Balance, September 30, 2021	$	14,920	$	95,863	$	(285)	$	207,703	$	5,088	$	323,289

Balance June 30, 2020	$	—	$	94,539	$	(593)	$	166,163	$	3,322	$	263,431

Three Months Ended September 30, 2020

Net income	—		—		—		9,620		—		9,620
Other comprehensive income			—		—		—		868		868


Share-based compensation expense	—		79		—		—		—		79




Unallocated ESOP shares committed to be released - 5,599 shares	—		27		61		—		—		88


Common stock issuances from reinvested dividends - 4,771 shares	—		72		—		—		—		72
Common stock cash dividends declared ($0.17 per share)	—		—		—		(2,195)		—		(2,195)


Balance, September 30, 2020	$	—	$	94,717	$	(532)	$	173,588	$	4,190	$	271,963

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)


Dollars in thousands, except per share amounts	Preferred Stock and Related Surplus		Common Stock and Related Surplus		Unallocated Common Stock Held by ESOP		Retained Earnings		Accumulated Other Compre- hensive Income		Total Share- holders' Equity

Balance December 31, 2020	$	—	$	94,964	$	(472)	$	181,643	$	5,445	$	281,580

Nine Months Ended September 30, 2021

Net income	—		—		—		33,157		—		33,157
Other comprehensive loss	—		—		—		—		(357)		(357)
Exercise of stock options and SARs - 5,380 shares	—		13		—		—		—		13
Vesting of RSUs - 3,400 shares	—		—		—		—		—		—
Share-based compensation expense	—		448		—		—		—		448






Issuance of 1,500 shares of preferred stock, net of issuance costs	14,920		—		—		—		—		14,920
Unallocated ESOP shares committed to be released - 17,252 shares	—		225		187		—		—		412


Common stock issuances from reinvested dividends - 8,657 shares	—		213		—		—		—		213
Preferred stock cash dividends declared	—		—		—		(364)		—		(364)
Common stock cash dividends declared ($0.52 per share)	—		—		—		(6,733)		—		(6,733)
Balance, September 30, 2021	$	14,920	$	95,863	$	(285)	$	207,703	$	5,088	$	323,289

Balance December 31, 2019	$	—	$	80,084	$	(714)	$	165,859	$	2,535	$	247,764

Nine Months Ended September 30, 2020
Impact of adoption of ASC 326	—		—		—		(6,756)		—		$	(6,756)
Net income	—		—		—		21,075		—		21,075
Other comprehensive income	—		—		—		—		1,655		1,655

Vesting of RSUs - 651 shares	—		—		—		—		—		—
Share-based compensation expense	—		402		—		—		—		402




Unallocated ESOP shares committed to be released - 16,797 shares	—		128		182		—		—		310
Retirement of 75,333 shares of common stock	—		(1,444)		—		—		—		(1,444)
Acquisition of Cornerstone Financial Services, Inc. - 570,000 shares, net of issuance costs	—		15,354		—		—		—		15,354
Common stock issuances from reinvested dividends - 11,758 shares	—		193		—		—		—		193
Common stock cash dividends declared ($0.51 per share)	—		—		—		(6,590)		—		(6,590)


Balance, September 30, 2020	$	—	$	94,717	$	(532)	$	173,588	$	4,190	$	271,963

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended
Dollars in thousands	September 30, 2021		September 30, 2020
Cash Flows from Operating Activities
Net income	$	33,157	$	21,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,650		2,359
Provision for credit losses	2,500		11,500
Share-based compensation expense	448		402
Deferred income tax benefit	44		(3,459)
Loans originated for sale	(94,025)		(64,279)
Proceeds from sale of loans	96,519		64,195
Gains on loans held for sale	(1,890)		(1,135)
Realized securities gains, net	(534)		(2,560)
Loss (gain) on disposal of assets	113		(167)

Write-downs of foreclosed properties	1,006		1,719
Amortization of securities premiums, net	3,163		2,135
Accretion related to acquisitions, net	(1,271)		(1,133)
Amortization of intangibles	1,176		1,251
Earnings on bank owned life insurance and annuities	(803)		(1,413)
Decrease (increase) in accrued interest receivable	1,657		(1,617)
Increase in other assets	(207)		(48)
Increase (decrease) in other liabilities	642		(1,225)
Net cash provided by operating activities	44,345		27,600
Cash Flows from Investing Activities
Proceeds from maturities and calls of debt securities available for sale	6,455		2,810
Proceeds from maturities and calls of held to maturity securities	—		1,000
Proceeds from sales of debt securities available for sale	15,704		105,597
Principal payments received on debt securities available for sale	22,925		17,952
Purchases of debt securities available for sale	(190,653)		(52,783)
Purchases of held to maturity securities	—		(93,234)
Purchases of other investments	(343)		(14,245)

Proceeds from redemptions of other investments	3,139		16,461
Net loan originations	(90,086)		(264,600)
Purchases of premises and equipment	(3,683)		(8,077)
Proceeds from disposal of premises and equipment	59		9
Improvements to property held for sale	100		(1,249)
Proceeds from sales of repossessed assets & property held for sale	2,457		2,007
Purchase of life insurance contracts and annuities	—		(9,298)

Cash and cash equivalents from acquisitions, net of cash consideration paid 2021 - $9,807 2020 - $27,215	95,699		183,688
Net cash used in investing activities	(138,227)		(113,962)
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts	275,730		307,957
Net decrease in time deposits	(78,560)		(130,841)
Net decrease in short-term borrowings	—		(59,199)

Repayment of long-term borrowings	(15)		(14)
Proceeds from subordinated debt, net of issuance costs	—		29,336

Purchase of interest rate cap	—		(5,850)
Proceeds from issuance of common stock, net of issuance costs	213		105
Proceeds from issuance of preferred stock, net of issuance costs	14,920		—
Purchase and retirement of common stock	—		(1,444)

Exercise of stock options	13		—
Dividends paid on common stock	(6,733)		(6,590)
Dividends paid on preferred stock	(364)		—
Net cash provided by financing activities	205,204		133,460
Increase in cash and cash equivalents	111,322		47,098
continued
See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited) - continued



	Nine Months Ended
Dollars in thousands	September 30, 2021		September 30, 2020
Cash and cash equivalents:
Beginning	99,787		61,888
Ending	$	211,109	$	108,986


Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	9,671	$	15,887
Income taxes	$	9,017	$	9,145

Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	$	532	$	902
Right of use assets obtained in exchange for lease obligations	$	1,950	$	3,293

Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired	$	58,054	$	171,645
Liabilities assumed	$	164,085	$	365,379

See Notes to Consolidated Financial Statements

Table of Contents

NOTE 1. BASIS OF PRESENTATION

We, Summit Financial Group, Inc. and subsidiaries, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Certain amounts in the prior financial statements have been reclassified to conform to the current year presentation. Such reclassifications were immaterial and had no impact on total shareholders’ equity or net income for any period.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our 2020 audited financial statements and Annual Report on Form 10-K.

NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs which clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on our consolidated financial statements.

Pending Adoption

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.

Table of Contents

NOTE 3. FAIR VALUE MEASUREMENTS

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


	Balance at		Fair Value Measurements Using:
Dollars in thousands	September 30, 2021		Level 1		Level 2		Level 3
Debt securities available for sale
U.S. Government sponsored agencies	$	38,510	$	—	$	38,510	$	—
Mortgage backed securities:
Government sponsored agencies	63,328		—		63,328		—
Nongovernment sponsored entities	19,906		—		19,906		—
State and political subdivisions	147,189		—		147,189		—
Corporate debt securities	30,837		—		30,837		—
Asset-backed securities	46,492		—		46,492		—

Tax-exempt state and political subdivisions	78,479		—		78,479		—
Total debt securities available for sale	$	424,741	$	—	$	424,741	$	—

Derivative financial assets
Interest rate caps	$	10,380	$	—	$	10,380	$	—

Derivative financial liabilities
Interest rate swaps	$	1,349	$	—	$	1,349	$	—


	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2020		Level 1		Level 2		Level 3
Debt securities available for sale
U.S. Government sponsored agencies	$	35,157	$	—	$	35,157	$	—
Mortgage backed securities:
Government sponsored agencies	59,046		—		59,046		—
Nongovernment sponsored entities	16,687		—		16,687		—
State and political subdivisions	50,905		—		50,905		—
Corporate debt securities	26,427		—		26,427		—
Asset-backed securities	46,126		—		46,126		—

Tax-exempt state and political subdivisions	51,779		—		51,779		—
Total debt securities available for sale	$	286,127	$	—	$	286,127	$	—

Derivative financial assets
Interest rate caps	$	6,653	$	—	$	6,653	$	—

Derivative financial liabilities
Interest rate swaps	$	2,747	$	—	$	2,747	$	—

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

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	Balance at		Fair Value Measurements Using:
Dollars in thousands	September 30, 2021		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	1,393	$	—	$	1,393	$	—

Collateral-dependent loans with an ACLL

Commercial real estate	$	2,417	$	—	$	2,417	$	—
Construction and development	318		—		318		—
Residential real estate	526		—		304		222

Total collateral-dependent loans with an ACLL	$	3,261	$	—	$	3,039	$	222

Property held for sale

Commercial real estate	$	1,548	$	—	$	1,548	$	—
Construction and development	9,636		—		9,142		494
Residential real estate	27		—		27		—
Total property held for sale	$	11,211	$	—	$	10,717	$	494


	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2020		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	1,998	$	—	$	1,998	$	—

Collateral-dependent impaired loans
Commercial	$	8	$	—	$	8	$	—
Commercial real estate	9,914		—		9,914		—
Construction and development	1,576		—		1,576		—
Residential real estate	597		—		597		—

Total collateral-dependent impaired loans	$	12,095	$	—	$	12,095	$	—

Property held for sale

Commercial real estate	$	1,557	$	—	$	1,557	$	—
Construction and development	11,595		—		10,974		621
Residential real estate	476		—		476		—
Total property held for sale	$	13,628	$	—	$	13,007	$	621

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


	September 30, 2021				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	211,109	$	211,109	$	—	$	211,109	$	—
Debt securities available for sale	424,741		424,741		—		424,741		—
Debt securities held to maturity	98,528		100,793		—		100,793		—
Other investments	10,649		10,649		—		10,649		—
Loans held for sale, net	1,393		1,393		—		1,393		—
Loans, net	2,521,704		2,519,969		—		3,039		2,516,930
Accrued interest receivable	10,484		10,484		—		10,484		—
Cash surrender value of life insurance policies and annuities	60,241		60,241		—		60,241		—
Derivative financial assets	10,380		10,380		—		10,380		—
	$	3,349,229	$	3,349,759	$	—	$	832,829	$	2,516,930
Financial liabilities
Deposits	$	2,955,940	$	2,956,162	$	—	$	2,956,162	$	—
Short-term borrowings	140,146		140,146		—		140,146		—
Long-term borrowings	684		820		—		820		—
Subordinated debentures	29,466		31,719		—		—		31,719
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	557		557		—		557		—
Derivative financial liabilities	1,349		1,349		—		1,349		—
	$	3,147,731	$	3,150,342	$	—	$	3,118,623	$	31,719


	December 31, 2020				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	99,787	$	99,787	$	—	$	99,787	$	—
Debt securities available for sale	286,127		286,127		—		286,127		—
Debt securities held to maturity	99,914		103,157		—		103,157		—
Other investments	14,185		14,185		—		14,185		—
Loans held for sale, net	1,998		1,998		—		1,998		—
Loans, net	2,379,907		2,384,275		—		12,095		2,372,180
Accrued interest receivable	11,989		11,989		—		11,989		—
Cash surrender value of life insurance policies and annuities	59,438		59,438		—		59,438		—
Derivative financial assets	6,653		6,653		—		6,653		—
	$	2,959,998	$	2,967,609	$	—	$	595,429	$	2,372,180
Financial liabilities
Deposits	$	2,595,651	$	2,597,326	$	—	$	2,597,326	$	—
Short-term borrowings	140,146		140,146		—		140,146		—
Long-term borrowings	699		866		—		866		—
Subordinated debentures	29,364		29,364		—		29,364		—
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	745		745		—		745		—
Derivative financial liabilities	2,747		2,747		—		2,747		—
	$	2,788,941	$	2,790,783	$	—	$	2,790,783	$	—

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NOTE 4. EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:


	For the Three Months Ended September 30,
	2021					2020
Dollars in thousands,except per share amounts	Net Income (Numerator)		Common Shares (Denominator)	Per Share		Net Income (Numerator)		Common Shares (Denominator)	Per Share
Net income	$	12,238				$	9,620
Less preferred stock dividends	(225)					—

Basic earnings per share	$	12,013	12,964,575	$	0.93	$	9,620	12,922,158	$	0.74

Effect of dilutive securities:
Stock options			789					4,182
Stock appreciation rights ("SARs")			48,827					23,244
Restricted stock units ("RSUs")			4,481					—



Diluted earnings per share	$	12,013	13,018,672	$	0.92	$	9,620	12,949,584	$	0.74


	For the Nine Months Ended September 30,
	2021					2020
Dollars in thousands,except per share amounts	Net Income (Numerator)		Common Shares (Denominator)	Per Share		Net Income (Numerator)		Common Shares (Denominator)	Per Share
Net income	$	33,157				$	21,075
Less preferred stock dividends	(364)					—

Basic earnings per share	$	32,793	12,953,053	$	2.53	$	21,075	12,934,401	$	1.63

Effect of dilutive securities:
Stock options			3,278					4,308
Stock appreciation rights ("SARs")			49,951					33,082
Restricted stock units ("RSUs")			5,244					122



Diluted earnings per share	$	32,793	13,011,526	$	2.52	$	21,075	12,971,913	$	1.62

Stock option, SAR and RSU grants are disregarded in this computation if they are determined to be anti-dilutive. All stock options were dilutive for the three and nine months ended September 30, 2021 and the nine months ended September 30, 2020. Our anti-dilutive stock options for the quarter ended September 30, 2020 were 300 shares. Our anti-dilutive SARs for the three and nine months ended September 30, 2021 and September 30, 2020 were 222,740. All RSUs were dilutive for the three and nine months ended September 30, 2021. Our anti-dilutive RSUs for the three and nine months ended September 30, 2020 were 15,082 and 13,780, respectively.

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NOTE 5. DEBT SECURITIES

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at September 30, 2021 and December 31, 2020 are summarized as follows:


	September 30, 2021
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	38,611	$	242	$	343	$	38,510
Residential mortgage-backed securities:
Government-sponsored agencies	62,313		1,482		467		63,328
Nongovernment-sponsored entities	20,061		67		222		19,906
State and political subdivisions
General obligations	81,480		431		1,497		80,414
Water and sewer revenues	15,958		360		64		16,254
Lease revenues	5,811		240		33		6,018
Income tax revenues	6,489		293		5		6,777


Sales tax revenues	7,337		22		128		7,231



Other revenues	29,988		835		328		30,495
Corporate debt securities	30,973		97		233		30,837
Asset-backed securities	46,291		286		85		46,492
Total taxable debt securities	345,312		4,355		3,405		346,262
Tax-exempt debt securities
State and political subdivisions
General obligations	48,494		1,479		632		49,341
Water and sewer revenues	7,474		488		—		7,962
Lease revenues	5,635		521		—		6,156







Other revenues	14,565		576		121		15,020
Total tax-exempt debt securities	76,168		3,064		753		78,479

Total debt securities available for sale	$	421,480	$	7,419	$	4,158	$	424,741

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	December 31, 2020
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	35,190	$	361	$	394	$	35,157
Residential mortgage-backed securities:
Government-sponsored agencies	57,399		1,996		349		59,046
Nongovernment-sponsored entities	16,799		132		244		16,687
State and political subdivisions
General obligations	15,065		804		4		15,865
Water and sewer revenues	10,176		620		—		10,796
Lease revenues	4,825		341		—		5,166
College and university revenues	3,022		315		—		3,337
Income tax revenues	5,052		376		—		5,428
Other revenues	9,406		907		—		10,313
Corporate debt securities	26,483		56		112		26,427
Asset-backed securities	46,579		172		625		46,126
Total taxable debt securities	229,996		6,080		1,728		234,348
Tax-exempt debt securities
State and political subdivisions
General obligations	22,213		2,416		9		24,620
Water and sewer revenues	8,266		709		—		8,975
Lease revenues	7,195		799		—		7,994





Other revenues	9,487		711		8		10,190
Total tax-exempt debt securities	47,161		4,635		17		51,779

Total debt securities available for sale	$	277,157	$	10,715	$	1,745	$	286,127

Accrued interest receivable on debt securities available for sale totaled $2.2 million and $1.7 million at September 30, 2021 and December 31, 2020 and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our available for sale portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.


	September 30, 2021
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value


California	$	44,932	$	797	$	809	$	44,920
Texas	26,731		564		410		26,885
Oregon	14,760		—		269		14,491
Florida	13,630		391		109		13,912




Michigan	12,498		155		214		12,439

Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.

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The maturities, amortized cost and estimated fair values of debt securities available for sale at September 30, 2021, are summarized as follows:


Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	36,859	$	37,229
Due from one to five years	87,349		89,178
Due from five to ten years	84,030		84,348
Due after ten years	213,242		213,986

Total	$	421,480	$	424,741

The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the nine months ended September 30, 2021 and 2020 are as follows:


	Proceeds from						Gross realized
Dollars in thousands	Sales		Calls and Maturities		Principal Payments		Gains		Losses
For the Nine Months Ended September 30,
2021	$	15,704	$	6,455	$	22,925	$	628	$	94

2020	$	105,597	$	2,810	$	17,952	$	2,560	$	—

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, 2021 and December 31, 2020.


	September 30, 2021
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	39	$	4,979	$	13	$	22,296	$	330	$	27,275	$	343
Residential mortgage-backed securities:
Government-sponsored agencies	17	15,256		258		7,598		209		22,854		467
Nongovernment-sponsored entities	7	9,505		90		2,923		132		12,428		222
State and political subdivisions:
General obligations	44	66,087		1,497		—		—		66,087		1,497
Water and sewer revenues	3	5,548		64		—		—		5,548		64
Lease revenues	2	1,460		33		—		—		1,460		33



Income tax revenues	1	720		5		—		—		720		5
Sales tax revenues	2	6,451		128		—		—		6,451		128

Other revenues	11	13,335		328		—		—		13,335		328
Corporate debt securities	10	10,631		220		986		13		11,617		233
Asset-backed securities	9	8,680		34		9,333		51		18,013		85
Tax-exempt debt securities
State and political subdivisions:
General obligations	15	30,345		617		902		15		31,247		632








Other revenues	7	5,846		120		156		1		6,002		121
Total	167	$	178,843	$	3,407	$	44,194	$	751	$	223,037	$	4,158

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	December 31, 2020
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	36	$	12,611	$	54	$	14,384	$	340	$	26,995	$	394
Residential mortgage-backed securities:
Government-sponsored agencies	10	3,127		34		8,593		315		11,720		349
Nongovernment-sponsored entities	6	6,770		35		2,751		209		9,521		244
State and political subdivisions:
General obligations	1	362		4		—		—		362		4




Corporate debt securities	6	3,952		16		1,904		96		5,856		112
Asset-backed securities	16	2,010		2		31,862		623		33,872		625
Tax-exempt debt securities
State and political subdivisions:
General obligations	1	924		9		—		—		924		9






Other revenues	2	415		1		151		7		566		8
Total	78	$	30,171	$	155	$	59,645	$	1,590	$	89,816	$	1,745

We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.

Debt Securities Held to Maturity

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at September 30, 2021 and December 31, 2020 are summarized as follows:


	September 30, 2021
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
















Tax-exempt debt securities
State and political subdivisions
General obligations	$	72,154	$	1,928	$	15	$	74,067
Water and sewer revenues	8,238		135		7		8,366
Lease revenues	4,336		21		—		4,357


Sales tax revenues	4,599		68		19		4,648




Other revenues	9,201		184		30		9,355


Total debt securities held to maturity	$	98,528	$	2,336	$	71	$	100,793


	December 31, 2020
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
















Tax-exempt debt securities
State and political subdivisions
General obligations	$	73,179	$	2,524	$	—	$	75,703
Water and sewer revenues	8,375		256		—		8,631
Lease revenues	4,395		88		—		4,483


Sales tax revenues	4,649		94		3		4,740




Other revenues	9,316		309		25		9,600


Total debt securities held to maturity	$	99,914	$	3,271	$	28	$	103,157

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Accrued interest receivable on debt securities held to maturity totaled $937,000 and $1.2 million at September 30, 2021 and December 31, 2020, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.


	September 30, 2021
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Texas	$	15,475	$	439	$	7	$	15,907
California	9,927		262		4		10,185
Pennsylvania	8,672		253		—		8,925
Florida	7,628		139		—		7,767
Michigan	7,065		130		24		7,171

The following table displays the amortized cost of held to maturity debt securities by credit rating at September 30, 2021 and December 31, 2020.


	September 30, 2021
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	15,522	$	75,490	$	7,516	$	—	$	—

	December 31, 2020
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	15,735	$	76,585	$	7,594	$	—	$	—

We owned no past due or nonaccrual held to maturity debt securities at September 30, 2021 or December 31, 2020.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at September 30, 2021, are summarized as follows:


Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due from one to five years	—		—
Due from five to ten years	2,006		2,024
Due after ten years	96,522		98,769

Total	$	98,528	$	100,793

There were no proceeds from calls and maturities of debt securities held to maturity for the nine months ended September 30, 2021.

The proceeds from calls and maturities of debt securities held to maturity totaled $1.0 million for the nine month ended September 30, 2020.

At September 30, 2021, no allowance for credit losses on debt securities held to maturity has been recognized.

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NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

Loans

The following table presents the amortized cost of loans held for investment:


Dollars in thousands	September 30, 2021		December 31, 2020
Commercial	$	317,855	$	306,885
Commercial real estate - owner occupied
Professional & medical	132,500		107,151
Retail	163,350		126,451
Other	143,352		118,258
Commercial real estate - non-owner occupied
Hotels & motels	121,765		121,502
Mini-storage	56,992		60,550
Multifamily	233,401		175,988
Retail	154,120		135,405
Other	268,793		192,120
Construction and development
Land & land development	99,718		107,342
Construction	127,432		91,100
Residential 1-4 family real estate
Personal residence	270,951		305,093
Rental - small loan	123,937		120,426
Rental - large loan	71,977		74,185
Home equity	71,496		81,588
Mortgage warehouse lines	161,628		251,810
Consumer	32,285		33,906
Other
Credit cards	1,783		1,855
Overdrafts	775		538
Total loans, net of unearned fees	2,554,110		2,412,153
Less allowance for credit losses - loans	32,406		32,246
Loans, net	$	2,521,704	$	2,379,907

Accrued interest and fees receivable on loans totaled $6.1 million and $9.1 million at September 30, 2021 and December 31, 2020, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

COVID-19 Loan Deferments. In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. Certain borrowers continue to be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At September 30, 2021, we had 1 loan in COVID-19 related deferment with an aggregate outstanding balance of approximately $7.2 million.

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The following table presents the contractual aging of the amortized cost basis of past due loans by class as of September 30, 2021 and December 31, 2020.


	At September 30, 2021
	Past Due										90 days or more and Accruing
Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	$	298	$	42	$	385	$	725	$	317,130	$	—
Commercial real estate - owner occupied
Professional & medical	—		—		—		—		132,500		—
Retail	—		—		146		146		163,204		—
Other	—		124		150		274		143,078		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		—		—		121,765		—
Mini-storage	—		—		—		—		56,992		—
Multifamily	101		56		—		157		233,244		—
Retail	—		—		337		337		153,783		—
Other	—		—		—		—		268,793		—
Construction and development
Land & land development	1,215		—		—		1,215		98,503		—
Construction	—		—		—		—		127,432		—
Residential 1-4 family real estate
Personal residence	2,086		979		843		3,908		267,043		—
Rental - small loan	197		228		1,270		1,695		122,242		—
Rental - large loan	—		—		—		—		71,977		—
Home equity	211		64		173		448		71,048		—
Mortgage warehouse lines	—		—		—		—		161,628		—
Consumer	110		89		40		239		32,046		—
Other
Credit cards	1		—		2		3		1,780		2
Overdrafts	—		—		—		—		775		—
Total	$	4,219	$	1,582	$	3,346	$	9,147	$	2,544,963	$	2

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	At December 31, 2020
	Past Due										90 days or more and Accruing
Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	$	60	$	—	$	318	$	378	$	306,507	$	—
Commercial real estate - owner occupied
Professional & medical	220		—		457		677		106,474		—
Retail	54		—		2,259		2,313		124,138		—
Other	—		—		150		150		118,108		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		—		—		121,502		—
Mini-storage	—		—		—		—		60,550		—
Multifamily	—		—		—		—		175,988		—
Retail	—		—		657		657		134,748		—
Other	—		—		315		315		191,805		—
Construction and development
Land & land development	47		—		70		117		107,225		—
Construction	—		—		—		—		91,100		—
Residential 1-4 family real estate
Personal residence	3,750		1,071		1,656		6,477		298,616		—
Rental - small loan	1,129		487		719		2,335		118,091		—
Rental - large loan	769		—		—		769		73,416		—
Home equity	758		—		197		955		80,633		—
Mortgage warehouse lines	—		—		—		—		251,810		—
Consumer	190		44		72		306		33,600		—
Other
Credit cards	5		—		2		7		1,848		2
Overdrafts	—		—		—		—		538		—
Total	$	6,982	$	1,602	$	6,872	$	15,456	$	2,396,697	$	2

The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2021 and December 31, 2020.

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	September 30,				December 31,
	2021				2020
Dollars in thousands	Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans		Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans
Commercial	$	459	$	35	$	525	$	—
Commercial real estate - owner occupied
Professional & medical	—		—		536		—
Retail	789		146		12,193		2,258
Other	340		—		384		—
Commercial real estate - non-owner occupied
Hotels & motels	3,160		—		—		—
Mini-storage	—		—		—		—
Multifamily	—		—		—		—
Retail	337		207		809		657
Other	17		—		315		—
Construction and development
Land & land development	448		448		70		—
Construction	—		—		165		—
Residential 1-4 family real estate
Personal residence	2,334		—		3,424		—
Rental - small loan	2,981		110		1,603		108
Rental - large loan	—		—		—		—
Home equity	199		131		236		—
Mortgage warehouse lines	—		—		—		—
Consumer	46		—		73		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	11,110	$	1,077	$	20,333	$	3,023

At September 30, 2021, we had troubled debt restructurings ("TDRs") of $21.7 million, of which $19.4 million were current with respect to restructured contractual payments. At December 31, 2020, our TDRs totaled $24.5 million, of which $20.5 million were current with respect to restructured contractual payments. There were no commitments to lend additional funds under these restructurings at either balance sheet date.

The following table presents by class the TDRs that were restructured during the three and nine months ended September 30, 2021 and September 30, 2020. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. TDRs are evaluated individually for allowance for credit loss purposes if the loan balance exceeds $500,000, otherwise, smaller balance TDR loans are included in the pools to determine ACLL.


	For the Three Months Ended September 30, 2021					For the Three Months Ended September 30, 2020
Dollars in thousands	Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment		Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment














Residential 1-4 family real estate
Personal residence	—	$	—	$	—	1	$	48	$	48
Rental - small loan	—	—		—		1	399		399




Total	—	$	—	$	—	2	$	447	$	447

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	For the Nine Months Ended September 30, 2021					For the Nine Months Ended September 30, 2020
Dollars in thousands	Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment		Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment

Commercial real estate - owner occupied


Other	—	$	—	$	—	1	$	361	$	361









Residential 1-4 family real estate
Personal residence	—	—		—		1	48		48
Rental - small loan	—	—		—		1	399		399




Total	—	$	—	$	—	3	$	808	$	808

The following tables present defaults during the stated period of TDRs that were restructured during the prior 12 months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.


	For the Three Months Ended September 30, 2021			For the Three Months Ended September 30, 2020
Dollars in thousands	Number of Defaults	Recorded Investment at Default Date		Number of Defaults	Recorded Investment at Default Date

Commercial real estate - owner occupied


Other	—	$	—	1	$	361









Residential 1-4 family real estate
Personal residence	—	—		1	49





Total	—	$	—	2	$	410


	For the Nine Months Ended September 30, 2021			For the Nine Months Ended September 30, 2020
Dollars in thousands	Number of Defaults	Recorded Investment at Default Date		Number of Defaults	Recorded Investment at Default Date

Commercial real estate - owner occupied


Other	—	$	—	1	$	361









Residential 1-4 family real estate
Personal residence	—	—		1	49





Total	—	$	—	2	$	410

Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $5.0 million, at which time these loans are re-graded. We use the following definitions for our risk grades:

Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.

Special Mention: Commercial loans categorized as Special Mention are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.

Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.

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Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.

Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of September 30, 2021 and December 31, 2020, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:


	September 30, 2021
Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		Revolvi- ng		Revolving- Term		Total

Commercial	Pass	$	90,931	$	40,069	$	34,789	$	6,605	$	9,970	$	14,940	$	112,577	$	—	$	309,881
	Special Mention	486		980		31		43		71		549		4,988		—		7,148
	Substandard	137		—		111		53		26		15		484		—		826

Total Commercial		91,554		41,049		34,931		6,701		10,067		15,504		118,049		—		317,855

Commercial Real Estate - Owner Occupied

Professional & medical	Pass	37,987		26,127		7,293		4,747		23,338		23,806		2,779		—		126,077
	Special Mention	—		1,153		—		—		—		4,980		—		—		6,133
	Substandard	—		71		—		—		219		—		—		—		290

Total Professional & Medical		37,987		27,351		7,293		4,747		23,557		28,786		2,779		—		132,500

Retail	Pass	44,833		30,499		34,141		9,207		9,517		29,277		2,471		—		159,945
	Special Mention	—		—		—		—		—		740		—		—		740
	Substandard	—		—		1,876		—		555		234		—		—		2,665

Total Retail		44,833		30,499		36,017		9,207		10,072		30,251		2,471		—		163,350

Other	Pass	30,324		31,332		14,335		16,870		7,631		39,879		1,946		—		142,317
	Special Mention	60		45		—		—		—		590		—		—		695
	Substandard	—		—		—		—		—		301		39		—		340

Total Other		30,384		31,377		14,335		16,870		7,631		40,770		1,985		—		143,352

Total Commercial Real Estate - Owner Occupied		113,204		89,227		57,645		30,824		41,260		99,807		7,235		—		439,202

Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass	1,747		3,342		32,325		16,029		7,024		20,657		444		—		81,568
	Special Mention	—		—		37,037		—		—		—		—		—		37,037
	Substandard	—		2,896		—		—		—		264		—		—		3,160

Total Hotels & Motels		1,747		6,238		69,362		16,029		7,024		20,921		444		—		121,765

Mini-storage	Pass	8,836		7,493		10,911		14,568		4,552		10,544		40		—		56,944
	Special Mention	—		—		—		—		—		48		—		—		48
	Substandard	—		—		—		—		—		—		—		—		—

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	September 30, 2021
Dollars in thousands	Risk Rating	2021	2020	2019	2018	2017	Prior	Revolvi- ng	Revolving- Term	Total
Total Mini-storage		8,836	7,493	10,911	14,568	4,552	10,592	40	—	56,992

Multifamily	Pass	49,770	38,286	45,966	24,370	15,828	53,811	4,681	—	232,712
	Special Mention	—	588	—	—	—	101	—	—	689
	Substandard	—	—	—	—	—	—	—	—	—

Total Multifamily		49,770	38,874	45,966	24,370	15,828	53,912	4,681	—	233,401


Retail	Pass	35,227	42,582	24,122	8,821	9,055	26,324	6,610	—	152,741
	Special Mention	—	—	—	—	—	979	—	—	979
	Substandard	—	—	—	—	—	400	—	—	400

Total Retail		35,227	42,582	24,122	8,821	9,055	27,703	6,610	—	154,120

Other	Pass	100,701	75,164	14,409	8,557	11,516	53,083	1,910	—	265,340
	Special Mention	—	—	—	575	—	—	—	—	575
	Substandard	—	—	—	—	—	2,878	—	—	2,878

Total Other		100,701	75,164	14,409	9,132	11,516	55,961	1,910	—	268,793

Total Commercial Real Estate - Non-Owner Occupied		196,281	170,351	164,770	72,920	47,975	169,089	13,685	—	835,071

Construction and Development

Land & land development	Pass	18,045	16,385	22,360	7,128	3,555	22,752	6,745	—	96,970
	Special Mention	—	157	119	—	—	662	—	—	938
	Substandard	—	—	—	—	—	1,810	—	—	1,810

Total Land & land development		18,045	16,542	22,479	7,128	3,555	25,224	6,745	—	99,718

Construction	Pass	51,372	57,903	7,188	2,067	—	—	8,401	—	126,931
	Special Mention	—	—	—	—	—	—	—	—	—
	Substandard	—	—	—	330	—	171	—	—	501

Total Construction		51,372	57,903	7,188	2,397	—	171	8,401	—	127,432

Total Construction and Development		69,417	74,445	29,667	9,525	3,555	25,395	15,146	—	227,150

Residential 1-4 Family Real Estate

Personal residence	Pass	34,742	36,393	19,820	20,253	16,399	122,763	—	—	250,370
	Special Mention	—	—	184	172	279	10,971	—	—	11,606
	Substandard	—	—	487	750	455	7,283	—	—	8,975

Total Personal Residence		34,742	36,393	20,491	21,175	17,133	141,017	—	—	270,951

Rental - small loan	Pass	25,763	15,405	15,210	11,898	7,850	35,733	4,980	—	116,839
	Special Mention	—	107	57	252	2	1,928	—	—	2,346
	Substandard	—	370	140	380	513	3,112	237	—	4,752

Total Rental - Small Loan		25,763	15,882	15,407	12,530	8,365	40,773	5,217	—	123,937

Rental - large loan	Pass	23,163	14,161	5,071	6,430	3,954	14,127	1,456	—	68,362

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	September 30, 2021
Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		Revolvi- ng		Revolving- Term		Total
	Special Mention	—		—		—		—		—		30		—		—		30
	Substandard	—		—		—		—		—		3,585		—		—		3,585

Total Rental - Large Loan		23,163		14,161		5,071		6,430		3,954		17,742		1,456		—		71,977

Home equity	Pass	142		115		12		23		19		1,333		67,557		—		69,201
	Special Mention	—		—		—		—		—		94		1,541		—		1,635
	Substandard	—		—		—		—		—		404		256		—		660

Total Home Equity		142		115		12		23		19		1,831		69,354		—		71,496

Total Residential 1-4 Family Real Estate		83,810		66,551		40,981		40,158		29,471		201,363		76,027		—		538,361

Mortgage warehouse lines	Pass	—		—		—		—		—		—		161,628		—		161,628
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Mortgage Warehouse Lines		—		—		—		—		—		—		161,628		—		161,628

Consumer	Pass	11,005		7,681		5,397		2,405		700		1,896		1,131		—		30,215
	Special Mention	670		513		254		94		112		56		12		—		1,711
	Substandard	102		133		46		9		3		38		28		—		359

Total Consumer		11,777		8,327		5,697		2,508		815		1,990		1,171		—		32,285

Other

Credit cards	Pass	1,783		—		—		—		—		—		—		—		1,783
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Credit Cards		1,783		—		—		—		—		—		—		—		1,783

Overdrafts	Pass	775		—		—		—		—		—		—		—		775
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Overdrafts		775		—		—		—		—		—		—		—		775

Total Other		2,558		—		—		—		—		—		—		—		2,558

Total		$	568,601	$	449,950	$	333,691	$	162,636	$	133,143	$	513,148	$	392,941	$	—	$	2,554,110


	December 31, 2020
Dollars in thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total

Commercial	Pass	$	112,335	$	46,323	$	20,936	$	16,723	$	11,087	$	12,336	$	78,107	$	—	$	297,847
	Special Mention	9		38		1,956		77		201		909		407		—		3,597
	Substandard	1,039		177		215		29		40		56		3,885		—		5,441

Total Commercial		113,383		46,538		23,107		16,829		11,328		13,301		82,399		—		306,885

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	December 31, 2020
Dollars in thousands	Risk Rating	2020	2019	2018	2017	2016	Prior	Revolvi- ng	Revolving- Term	Total
Commercial Real Estate - Owner Occupied

Professional & medical	Pass	19,454	16,414	2,540	26,578	3,322	28,905	3,079	—	100,292
	Special Mention	1,171	—	—	—	—	5,152	—	—	6,323
	Substandard	79	321	—	—	136	—	—	—	536

Total Professional & Medical		20,704	16,735	2,540	26,578	3,458	34,057	3,079	—	107,151

Retail	Pass	28,351	28,547	5,238	10,288	6,041	31,087	2,199	—	111,751
	Special Mention	—	—	—	432	3	824	—	—	1,259
	Substandard	—	10,524	—	157	—	2,360	400	—	13,441

Total Retail		28,351	39,071	5,238	10,877	6,044	34,271	2,599	—	126,451

Other	Pass	28,712	13,722	17,699	9,845	13,119	32,486	1,496	—	117,079
	Special Mention	—	—	—	—	—	694	—	—	694
	Substandard	—	—	—	—	—	444	41	—	485

Total Other		28,712	13,722	17,699	9,845	13,119	33,624	1,537	—	118,258

Total Commercial Real Estate - Owner Occupied		77,767	69,528	25,477	47,300	22,621	101,952	7,215	—	351,860

Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass	3,428	23,821	18,894	9,880	7,389	14,252	3,160	—	80,824
	Special Mention	2,994	37,398	—	—	—	286	—	—	40,678
	Substandard	—	—	—	—	—	—	—	—	—

Total Hotels & Motels		6,422	61,219	18,894	9,880	7,389	14,538	3,160	—	121,502

Mini-storage	Pass	10,159	19,022	15,046	3,986	6,228	4,780	170	—	59,391
	Special Mention	—	—	—	—	—	50	—	—	50
	Substandard	—	—	—	—	—	1,109	—	—	1,109

Total Mini-storage		10,159	19,022	15,046	3,986	6,228	5,939	170	—	60,550

Multifamily	Pass	39,814	27,090	27,198	19,294	10,762	47,751	2,844	—	174,753
	Special Mention	—	—	—	—	—	48	—	—	48
	Substandard	—	1,187	—	—	—	—	—	—	1,187

Total Multifamily		39,814	28,277	27,198	19,294	10,762	47,799	2,844	—	175,988


Retail	Pass	44,359	27,357	11,169	9,361	4,414	30,381	6,502	—	133,543
	Special Mention	—	—	—	—	446	540	—	—	986
	Substandard	—	—	—	152	—	724	—	—	876

Total Retail		44,359	27,357	11,169	9,513	4,860	31,645	6,502	—	135,405

Other	Pass	75,272	20,483	24,663	10,626	26,989	28,293	1,794	—	188,120
	Special Mention	—	—	—	—	—	142	—	—	142
	Substandard	—	—	—	—	—	—	—	—	—
	Doubtful	—	—	576	—	—	3,282	—	—	3,858
Total Other		75,272	20,483	25,239	10,626	26,989	31,717	1,794	—	192,120

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	December 31, 2020
Dollars in thousands	Risk Rating	2020	2019	2018	2017	2016	Prior	Revolvi- ng	Revolving- Term	Total

Total Commercial Real Estate - Non-Owner Occupied		176,026	156,358	97,546	53,299	56,228	131,638	14,470	—	685,565

Construction and Development

Land & land development	Pass	27,084	25,468	10,943	4,149	6,370	21,882	9,320	—	105,216
	Special Mention	—	70	12	—	—	644	—	—	726
	Substandard	—	—	6	—	11	1,383	—	—	1,400

Total Land & land development		27,084	25,538	10,961	4,149	6,381	23,909	9,320	—	107,342

Construction	Pass	50,060	34,480	2,833	885	—	—	1,325	—	89,583
	Special Mention	—	—	—	—	—	—	—	—	—
	Substandard	—	1,352	—	—	—	165	—	—	1,517

Total Construction		50,060	35,832	2,833	885	—	165	1,325	—	91,100

Total Construction and Development		77,144	61,370	13,794	5,034	6,381	24,074	10,645	—	198,442

Residential 1-4 Family Real Estate

Personal residence	Pass	51,120	31,415	27,052	23,069	23,759	126,293	—	—	282,708
	Special Mention	—	242	131	267	254	12,020	—	—	12,914
	Substandard	—	46	849	540	126	7,910	—	—	9,471

Total Personal Residence		51,120	31,703	28,032	23,876	24,139	146,223	—	—	305,093

Rental - small loan	Pass	18,762	20,113	14,512	10,705	10,941	34,643	4,047	—	113,723
	Special Mention	110	253	251	3	192	1,749	62	—	2,620
	Substandard	—	1,163	—	—	46	2,874	—	—	4,083

Total Rental - Small Loan		18,872	21,529	14,763	10,708	11,179	39,266	4,109	—	120,426

Rental - large loan	Pass	16,926	5,484	9,456	5,323	9,133	20,515	2,188	—	69,025
	Special Mention	—	1,430	—	—	—	32	—	—	1,462
	Substandard	—	—	—	—	—	3,698	—	—	3,698

Total Rental - Large Loan		16,926	6,914	9,456	5,323	9,133	24,245	2,188	—	74,185

Home equity	Pass	429	565	347	502	89	2,174	74,974	—	79,080
	Special Mention	—	—	—	40	—	96	1,596	—	1,732
	Substandard	—	—	32	28	—	424	292	—	776

Total Home Equity		429	565	379	570	89	2,694	76,862	—	81,588

Total Residential 1-4 Family Real Estate		87,347	60,711	52,630	40,477	44,540	212,428	83,159	—	581,292

Mortgage warehouse lines	Pass	—	—	—	—	—	—	251,810	—	251,810
	Special Mention	—	—	—	—	—	—	—	—	—
	Substandard	—	—	—	—	—	—	—	—	—

Total Mortgage Warehouse Lines		—	—	—	—	—	—	251,810	—	251,810

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	December 31, 2020
Dollars in thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total
Consumer	Pass	12,785		9,257		4,239		1,609		1,237		1,516		822		—		31,465
	Special Mention	991		454		214		155		70		49		18		—		1,951
	Substandard	245		127		31		6		51		4		26		—		490

Total Consumer		14,021		9,838		4,484		1,770		1,358		1,569		866		—		33,906

Other

Credit cards	Pass	1,855		—		—		—		—		—		—		—		1,855
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Credit Cards		1,855		—		—		—		—		—		—		—		1,855

Overdrafts	Pass	538		—		—		—		—		—		—		—		538
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Overdrafts		538		—		—		—		—		—		—		—		538

Total Other		2,393		—		—		—		—		—		—		—		2,393

Total		$	548,081	$	404,343	$	217,038	$	164,709	$	142,456	$	484,962	$	450,564	$	—	$	2,412,153

Allowance for Credit Losses - Loans

The following tables presents the activity in the ACLL by portfolio segment during the three and nine months ended September 30, 2021 and the twelve months ended December 31, 2020:

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	For the Three Months Ended September 30, 2021
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	2,709	$	46	$	—	$	—	$	4	$	2,759
Commercial real estate - owner occupied
Professional & medical	986		(46)		71		—		—		1,011
Retail	3,519		(1,791)		—		—		—		1,728
Other	556		46		—		—		—		602
Commercial real estate - non-owner occupied
Hotels & motels	2,569		29		—		—		—		2,598
Mini-storage	157		19		—		—		—		176
Multifamily	1,637		457		—		(233)		4		1,865
Retail	1,471		107		—		—		—		1,578
Other	1,425		330		—		—		—		1,755
Construction and development
Land & land development	3,705		(166)		—		—		2		3,541
Construction	6,217		(241)		—		—		—		5,976
Residential 1-4 family real estate
Personal residence	3,050		(31)		—		(189)		21		2,851
Rental - small loan	2,546		143		20		—		48		2,757
Rental - large loan	2,431		(144)		—		—		—		2,287
Home equity	551		(15)		—		—		3		539
Mortgage warehouse lines	—		—		—		—		—		—
Consumer	172		(5)		—		(24)		26		169
Other
Credit cards	16		4		—		(4)		1		17
Overdrafts	168		58		—		(78)		49		197
Total	$	33,885	$	(1,200)	$	91	$	(528)	$	158	$	32,406

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	For the Nine Months Ended September 30, 2021
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	2,304	$	655	$	—	$	(222)	$	22	$	2,759
Commercial real estate - owner occupied
Professional & medical	954		(11)		71		(3)		—		1,011
Retail	3,173		(1,446)		—		—		1		1,728
Other	610		(8)		—		—		—		602
Commercial real estate - non-owner occupied
Hotels & motels	2,135		463		—		—		—		2,598
Mini-storage	337		(161)		—		—		—		176
Multifamily	1,547		544		—		(233)		7		1,865
Retail	981		597		—		—		—		1,578
Other	1,104		651		—		—		—		1,755
Construction and development
Land & land development	4,084		(552)		—		—		9		3,541
Construction	4,648		1,328		—		—		—		5,976
Residential 1-4 family real estate
Personal residence	3,559		(515)		—		(298)		105		2,851
Rental - small loan	2,736		13		20		(89)		77		2,757
Rental - large loan	3,007		(720)		—		—		—		2,287
Home equity	713		(161)		—		(26)		13		539
Mortgage warehouse lines	—		—		—		—		—		—
Consumer	216		(39)		—		(100)		92		169
Other
Credit cards	17		11		—		(16)		5		17
Overdrafts	121		181		—		(237)		132		197
Total	$	32,246	$	830	$	91	$	(1,224)	$	463	$	32,406

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	For the Twelve Months Ended December 31, 2020
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Impact of Adoption of ASC 326		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	1,221	$	1,064	$	85	$	—	$	(99)	$	33	$	2,304
Commercial real estate - owner occupied
Professional & medical	1,058		(390)		1,290		1		(1,005)		—		954
Retail	820		(272)		2,311		152		—		162		3,173
Other	821		(137)		(104)		1		—		29		610
Commercial real estate - non-owner occupied
Hotels & motels	1,235		(936)		1,836		—		—		—		2,135
Mini-storage	485		(311)		48		115		—		—		337
Multifamily	1,534		8		(155)		122		—		38		1,547
Retail	964		279		(22)		101		(343)		2		981
Other	1,721		(1,394)		700		58		—		19		1,104
Construction and development
Land & land development	600		2,136		1,202		111		(7)		42		4,084
Construction	242		996		3,159		251		—		—		4,648
Residential 1-4 family real estate
Personal residence	1,275		1,282		980		182		(252)		92		3,559
Rental - small loan	532		1,453		657		96		(140)		138		2,736
Rental - large loan	49		2,884		58		16		—		—		3,007
Home equity	138		308		246		—		(24)		45		713
Mortgage warehouse lines	—		—		—		—		—		—		—
Consumer	379		(238)		166		—		(239)		148		216
Other
Credit cards	—		12		35		—		(40)		10		17
Overdrafts	—		182		251		—		(460)		148		121
Total	$	13,074	$	6,926	$	12,743	$	1,206	$	(2,609)	$	906	$	32,246

The following tables presents, as of September 30, 2021 and December 31, 2020 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above.

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	September 30, 2021
	Loan Balances						Allowance for Credit Losses - Loans
Dollars in thousands	Loans Individually Evaluated		Loans Collectively Evaluated (1)		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
Commercial	$	180	$	317,675	$	317,855	$	—	$	2,759	$	2,759
Commercial real estate - owner occupied
Professional & medical	2,100		130,400		132,500		207		804		1,011
Retail	6,290		157,060		163,350		—		1,728		1,728
Other	—		143,352		143,352		—		602		602
Commercial real estate - non-owner occupied
Hotels & motels	3,160		118,605		121,765		743		1,855		2,598
Mini-storage	1,069		55,923		56,992		—		176		176
Multifamily	—		233,401		233,401		—		1,865		1,865
Retail	3,066		151,054		154,120		—		1,578		1,578
Other	5,676		263,117		268,793		68		1,687		1,755
Construction and development
Land & land development	2,300		97,418		99,718		653		2,888		3,541
Construction	—		127,432		127,432		—		5,976		5,976
Residential 1-4 family real estate
Personal residence	—		270,951		270,951		—		2,851		2,851
Rental - small loan	1,571		122,366		123,937		212		2,545		2,757
Rental - large loan	3,189		68,788		71,977		—		2,287		2,287
Home equity	523		70,973		71,496		—		539		539
Mortgage warehouse lines	—		161,628		161,628		—		—		—
Consumer	—		32,285		32,285		—		169		169
Other
Credit cards	—		1,783		1,783		—		17		17
Overdrafts	—		775		775		—		197		197
Total	$	29,124	$	2,524,986	$	2,554,110	$	1,883	$	30,523	$	32,406

(1) Included in the loans collectively evaluated are $30.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

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	December 31, 2020
	Loan Balances						Allowance for Credit Losses - Loans
Dollars in thousands	Loans Individually Evaluated		Loans Collectively Evaluated (1)		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
Commercial	$	4,851	$	302,034	$	306,885	$	8	$	2,296	$	2,304
Commercial real estate - owner occupied
Professional & medical	2,171		104,980		107,151		223		731		954
Retail	17,458		108,993		126,451		2,258		915		3,173
Other	—		118,258		118,258		—		610		610
Commercial real estate - non-owner occupied
Hotels & motels	—		121,502		121,502		—		2,135		2,135
Mini-storage	1,109		59,441		60,550		111		226		337
Multifamily	1,187		174,801		175,988		135		1,412		1,547
Retail	3,473		131,932		135,405		—		981		981
Other	5,857		186,263		192,120		129		975		1,104
Construction and development
Land & land development	1,891		105,451		107,342		623		3,461		4,084
Construction	1,352		89,748		91,100		135		4,513		4,648
Residential 1-4 family real estate
Personal residence	—		305,093		305,093		—		3,559		3,559
Rental - small loan	1,300		119,126		120,426		102		2,634		2,736
Rental - large loan	3,288		70,897		74,185		—		3,007		3,007
Home equity	523		81,065		81,588		—		713		713
Consumer	—		33,906		33,906		—		216		216
Other
Credit cards	—		1,855		1,855		—		17		17
Overdrafts	—		538		538		—		121		121
Mortgage warehouse lines	—		251,810		251,810		—		—		—
Total	$	44,460	$	2,367,693	$	2,412,153	$	3,724	$	28,522	$	32,246

(1) Included in the loans collectively evaluated are $83.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:

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	September 30, 2021
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - Loans
Commercial	$	—	$	180	$	180	$	—
Commercial real estate - owner occupied
Professional & medical	2,100		—		2,100		207
Retail	6,290		—		6,290		—
Other	—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels	3,160		—		3,160		743
Mini-storage	1,069		—		1,069		—
Multifamily	—		—		—		—
Retail	3,066		—		3,066		—
Other	5,676		—		5,676		68
Construction and development
Land & land development	2,300		—		2,300		653
Construction	—		—		—		—
Residential 1-4 family real estate
Personal residence	—		—		—		—
Rental - small loan	1,571		—		1,571		212
Rental - large loan	3,189		—		3,189		—
Home equity	523		—		523		—
Consumer	—		—		—		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	28,944	$	180	$	29,124	$	1,883


	December 31, 2020
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - Loans
Commercial	$	—	$	4,851	$	4,851	$	8
Commercial real estate - owner occupied
Professional & medical	2,171		—		2,171		223
Retail	17,458		—		17,458		2,258
Other	—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		—		—
Mini-storage	1,109		—		1,109		111
Multifamily	1,187		—		1,187		135
Retail	3,473		—		3,473		—
Other	5,857		—		5,857		129
Construction and development
Land & land development	1,891		—		1,891		623
Construction	1,352		—		1,352		135
Residential 1-4 family real estate
Personal residence	—		—		—		—
Rental - small loan	1,300		—		1,300		102
Rental - large loan	3,288		—		3,288		—
Home equity	523		—		523		—
Consumer	—		—		—		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	39,609	$	4,851	$	44,460	$	3,724

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NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during third quarter 2021, we performed the qualitative assessment of goodwill and determined that the fair value was more likely than not greater than its carrying value. In performing the qualitative assessment, we considered certain events, and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value is less than the carrying value. No indicators of impairment were noted as of September 30, 2021.

The following tables present our goodwill activity for the quarter ending September 30, 2021 and the balance of other intangible assets at September 30, 2021 and December 31, 2020.



Dollars in thousands	Goodwill Activity
Balance, January 1, 2021	$	45,495
Reclassifications from goodwill	(479)
Acquired goodwill	10,331

Balance, September 30, 2021	$	55,347


	Other Intangible Assets
Dollars in thousands	September 30, 2021		December 31, 2020





Identifiable intangible assets
Gross carrying amount	$	15,828		$	15,650
Less: accumulated amortization	(7,198)			(6,022)

Net carrying amount	$	8,630		$	9,628

We recorded amortization expense of $390,000 and $1,176,000 for the three and nine months ended September 30, 2021 and $412,000 and $1,251,000 for the three and nine months ended September 30, 2020, relative to our identifiable intangible assets.

Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:


	Core Deposit
Dollars in thousands	Intangible




Three month period ending December 31, 2021	$	388
Year ending December 31, 2022	1,440
Year ending December 31, 2023	1,299
Year ending December 31, 2024	1,158
Year ending December 31, 2025	1,019
Thereafter	3,256

NOTE 8. DEPOSITS

The following is a summary of interest bearing deposits by type as of September 30, 2021 and December 31, 2020:


Dollars in thousands	September 30, 2021		December 31, 2020
Demand deposits, interest bearing	$	1,121,028	$	934,185
Savings deposits	693,686		621,168
Time deposits	565,684		599,480
Total	$	2,380,398	$	2,154,833

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $14.7 million and $55.5 million at September 30, 2021 and December 31, 2020, respectively.

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A summary of the scheduled maturities for all time deposits as of September 30, 2021 is as follows:


Dollars in thousands
Three month period ending December 31, 2021	$	109,130
Year ending December 31, 2022	330,840
Year ending December 31, 2023	69,604
Year ending December 31, 2024	22,645
Year ending December 31, 2025	14,555
Thereafter	18,910
Total	$	565,684

The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $104.1 million at September 30, 2021 and $81.4 million at December 31, 2020.

NOTE 9. BORROWED FUNDS

Short-term borrowings: A summary of short-term borrowings is presented below:


	Nine Months Ended September 30,
	2021						2020
Dollars in thousands	Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit			Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit
Balance at September 30	$	140,000		$	146		$	140,000		$	145
Average balance outstanding for the period	140,000			146			126,964			145
Maximum balance outstanding at any month end during period	140,000			146			215,700			145
Weighted average interest rate for the period	0.34		%	0.25		%	0.79		%	0.64		%
Weighted average interest rate for balances
outstanding at September 30	0.32		%	0.25		%	0.36		%	0.25		%


	Year Ended December 31, 2020
Dollars in thousands	Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit
Balance at December 31	$	140,000		146
Average balance outstanding for the period	130,241			170
Maximum balance outstanding at any month end during period	215,700			146
Weighted average interest rate for the period	0.67		%	0.50	%
Weighted average interest rate for balances
outstanding at December 31	0.35		%	0.25	%

Long-term borrowings: Our long-term borrowings of $684,000 and $699,000 at September 30, 2021 and December 31, 2020, respectively, consisted of a 5.34% fixed rate advance from the Federal Home Loan Bank (“FHLB”), maturing in 2026. This FHLB advance is collateralized by a blanket lien of $1.48 billion of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U.S. Government agencies and corporations.

Subordinated debentures: We issued $30 million of subordinated debentures, net of $664,000 debt issuance costs, during third quarter 2020 in a private placement transaction. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter the amount qualifying as Tier 2 capital is reduced by 20 percent each year until maturity. This subordinated debt bears interest at a fixed rate of 5.00% per year, from and including September 22, 2020 to, but excluding, September 30, 2025, payable quarterly in arrears. From and including September 30, 2025 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as published by the Federal Reserve Bank of New York, plus 487 basis points, payable quarterly in arrears. This debt has a 10 years term and generally, is not prepayable by us within the first five years.

Subordinated debentures owed to unconsolidated subsidiary trusts: We have three statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the

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“debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $19.6 million at September 30, 2021 and December 31, 2020.

The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.

A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:


Dollars in thousands		Long-term borrowings		Subordinated debentures		Subordinated debentures owed to unconsolidated subsidiary trusts
Year Ending December 31,	2021	$	5	$	—	$	—
	2022	21		—		—
	2023	22		—		—
	2024	23		—		—
	2025	24		—		—
	Thereafter	589		30,000		19,589
		$	684	$	30,000	$	19,589

NOTE 10. SHARE-BASED COMPENSATION

Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), stock options, SARs and RSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees.

The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant.

During third quarter 2021, we granted 54,947 SARs with a $8.97 grant date fair value per SAR that become exercisable ratably over seven years (14.3% per year) and expire ten years after the grant date. Also during 2021, we granted 122,542 SARs with an $8.40 grant date fair value per SAR that become exercisable ratably over five years (20% per year) and expire ten years after the grant date. There were no grants of SARs or stock options during 2020.


	2021 grant with 7 year expiration		2021 grant with 5 year expiration
Risk-free interest rate	1.06	%	0.74	%
Expected dividend yield	3.00	%	3.00	%
Expected common stock volatility	55.59	%	55.59	%
Expected life	7 years		5.5 years

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A summary of our SAR and stock option activity during the first nine months of 2021 and 2020 is as follows:


	For the Nine Months Ended September 30,
	2021
	Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	329,203				$	20.47
Granted	177,489				21.85
Exercised	(5,800)				3.85
Forfeited	—				—
Expired	—				—
Outstanding, September 30	500,892	$	1,808	7.12	$	21.15

Exercisable, September 30	213,216	$	1,287	5.00	$	18.90


	For the Nine Months Ended September 30,
	2020
	Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	330,703				$	20.44
Granted	—				—
Exercised	—				—
Forfeited	—				—
Expired	—				—
Outstanding, September 30	330,703	$	349	6.58	$	20.44

Exercisable, September 30	179,375	$	349	5.52	$	17.03

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years. During second quarter 2020, we granted 10,995 RSUs which will vest ratably over 4 years. During first quarter 2020, we granted 1,846 RSUs which will fully vest on the 2nd anniversary of the grant date.


	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2020	15,686	$	20.40
Granted	—	—
Forfeited	—	—
Vested	(3,400)	19.61
Nonvested, September 30, 2021	12,286	$	20.62

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	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2019	2,892	$	25.93
Granted	12,841	18.19
Forfeited	—	—
Vested	(651)	25.60
Nonvested, September 30, 2020	15,082	$	20.45

We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first nine months of 2021 and 2020, total stock compensation expense for all share-based arrangements was $448,000 and $402,000 and the related deferred tax benefits were approximately $108,000 and $96,000. At September 30, 2021 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $2.41 million and is expected to be recognized over the next 2.46 years.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet Arrangements

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

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

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


Dollars in thousands	September 30, 2021
Commitments to extend credit:
Revolving home equity and credit card lines	$	95,601
Construction loans	198,224
Other loans	333,636
Standby letters of credit	25,025
Total	$	652,486

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

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

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

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures

The provision for credit losses on unfunded commitments was $1.67 million and $1.09 million for the nine months ended September 30, 2021 and 2020 and $1.2 million and $48,000 for the three months ended September 30, 2021 and 2020. The

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ACL on off-balance-sheet credit exposures totaled $5.86 million at September 30, 2021 compared to $4.19 million at December 31, 2020.

Litigation

We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability, if any, with respect to these contingent matters, in the opinion of management, after consultation with legal counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.

NOTE 12. PREFERRED STOCK

In April 2021, we sold through a private placement 1,500 shares or $15.0 million of Series 2021 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, $1.00 par value, with a liquidation preference of $10,000 per share (the “Preferred Stock”). The Preferred Stock is non-convertible and will pay noncumulative dividends, if and when declared by the Summit board of directors, at a rate of 6.0% per annum. Dividends declared will be payable quarterly in arrears on the 15th day of March, June, September and December of each year.

NOTE 13. REGULATORY MATTERS

Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of September 30, 2021, that our bank subsidiary met all capital adequacy requirements to which they were subject.

The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.

In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.

The following tables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of September 30, 2021 and December 31, 2020.

Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.

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	Actual				Minimum Required Capital - Basel III			Minimum Required To Be Well Capitalized
Dollars in thousands	Amount		Ratio		Amount	Ratio		Amount	Ratio
As of September 30, 2021
CET1 (to risk weighted assets)
Summit	$	252,581	9.0	%	N/A	N/A		N/A	N/A
Summit Community	313,549		11.2	%	195,968	7.0	%	181,970	6.5	%
Tier I Capital (to risk weighted assets)
Summit	286,501		10.2	%	N/A	N/A		N/A	N/A
Summit Community	313,549		11.2	%	237,961	8.5	%	223,964	8.0	%
Total Capital (to risk weighted assets)
Summit	341,088		12.1	%	N/A	N/A		N/A	N/A
Summit Community	338,670		12.1	%	293,887	10.5	%	279,893	10.0	%
Tier I Capital (to average assets)
Summit	286,501		8.4	%	N/A	N/A		N/A	N/A
Summit Community	313,549		9.2	%	136,326	4.0	%	170,407	5.0	%


	Actual			Minimum Required Capital - Basel III			Minimum Required To Be Well Capitalized
Dollars in thousands	Amount	Ratio		Amount	Ratio		Amount	Ratio
As of December 31, 2020
CET1 (to risk weighted assets)
Summit	233,768	9.3	%	N/A	N/A		N/A	N/A
Summit Community	279,540	11.1	%	176,286	7.0	%	163,695	6.5	%
Tier I Capital (to risk weighted assets)
Summit	252,768	10.0	%	N/A	N/A		N/A	N/A
Summit Community	279,540	11.1	%	214,062	8.5	%	201,470	8.0	%
Total Capital (to risk weighted assets)
Summit	305,309	12.1	%	N/A	N/A		N/A	N/A
Summit Community	302,716	12.0	%	264,877	10.5	%	252,263	10.0	%
Tier I Capital (to average assets)
Summit	252,768	8.6	%	N/A	N/A		N/A	N/A
Summit Community	279,540	9.5	%	117,701	4.0	%	147,126	5.0	%

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

Cash flow hedges

We have entered into three pay-fixed/receive LIBOR interest rate swaps as follows:

•A $40 million notional interest rate swap expiring on October 18, 2021, was designated as a cash flow hedge of $40 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.19% and receive a variable rate equal to three month LIBOR.

•A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2023, was designated as a cash flow hedge of $20 million of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 1.07% and receive a variable rate equal to three month LIBOR.

•A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2024, was designated as a cash flow hedge of $20 million of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 1.1055% and receive a variable rate equal to three month LIBOR.

In addition, we have entered into two interest rate caps as follows:

•A $100 million notional interest rate cap with an effective date of July 20, 2020 and expiring on April 18, 2030, was designated as a cash flow hedge of $100 million of forecasted fixed rate Federal Home Loan Bank advances. Under the terms of this cap we will hedge the variability of cash flows when three month LIBOR is above .75%.

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•A $100 million notional interest rate cap with an effective date of December 29, 2020 and expiring on December 18, 2025, was designated as a cash flow hedge of $100 million of certain indexed interest bearing demand deposit accounts. Under the terms of this cap we will hedge the variability of cash flows when the indexed rate of SOFR is above 0.50%.

Fair value hedges

We have entered into two pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges with a total original notional amount of $21.3 million.

A summary of our derivative financial instruments as of September 30, 2021 and December 31, 2020 follows:


	September 30, 2021
	Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	80,000	$	—	$	569	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	8,290	$	—	$	—
Indexed interest bearing demand deposit accounts	100,000		2,090		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	17,712	$	—	$	780	$	—


	December 31, 2020
	Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	80,000	$	—	$	1,457	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	5,652	$	—	$	—
Indexed interest bearing demand deposit accounts	100,000		1,001		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	18,192	$	—	$	1,290	$	—

Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.

NOTE 15. ACQUISITIONS

MVB Bank Branches Acquisition

On July 10, 2021, SCB acquired four MVB Bank locations located in southern West Virginia: one in Kanawha County, one in Putnam County, and two in Cabell County. In addition, SCB acquired two MVB Bank drive-up banking locations in Cabell County. Summit assumed certain deposits and loans totaling approximately $164 million and $54 million, respectively.

The purchase price was $9.8 million equaling the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 6.00%.

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This acquisition was determined to constitute a business combination in accordance with ASC 805, Business Combinations,and accordingly we accounted for the acquisition using the acquisition method of accounting, recording the assets and liabilities of MVB Bank at their acquisition date respective fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. We recognized preliminary goodwill of $10.33 million in connection with the acquisition (deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on July 10, 2021 in connection with the acquisition of the MVB Bank branches, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill.


(Dollars in thousands)	As Recorded by MVB		Estimated Fair Value Adjustments		Estimated Fair Values as Recorded by Summit
Cash consideration					$	9,807
Total consideration					9,807

Identifiable assets acquired:
Cash and cash equivalents	$	946	$	—	$	946
Loans
Purchased performing	53,440		478		53,918
Purchased credit deteriorated	488		(91)		397
Premises and equipment	3,431		(129)		3,302
Core deposit intangibles	—		178		178
Other assets	260		—		260
Total identifiable assets acquired	$	58,565	$	436	$	59,001

Identifiable liabilities assumed:
Deposits	163,081		959		164,040
Other liabilities	45		—		45
Total identifiable liabilities assumed	$	163,126	$	959	$	164,085

Net liabilities assumed	$	(104,561)	$	(523)	$	(105,084)

Net cash received from MVB					94,753

Preliminary goodwill resulting from acquisition					$	10,331

NOTE 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ending September 30, 2021 and 2020.


	For the Three Months Ended September 30, 2021
Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	$	(199)	$	(40)	$	2,163	$	5,177	$	7,101
Other comprehensive income (loss) before reclassification	—		—		689		(2,754)		(2,065)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		52		52
Net current period other comprehensive income (loss)	—		—		689		(2,702)		(2,013)
Ending balance	$	(199)	$	(40)	$	2,852	$	2,475	$	5,088

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	For the Three Months Ended September 30, 2020
Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	$	(140)	$	48	$	(2,417)	$	5,831	$	3,322
Other comprehensive income before reclassification	—		—		422		1,603		2,025
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(1,157)		(1,157)
Net current period other comprehensive income	—		—		422		446		868
Ending balance	$	(140)	$	48	$	(1,995)	$	6,277	$	4,190


	For the Nine Months Ended September 30, 2021
Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	$	(199)	$	(40)	$	(1,132)	$	6,816	$	5,445
Other comprehensive income (loss) before reclassification	—		—		3,984		(3,935)		49
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(406)		(406)
Net current period other comprehensive income (loss)	—		—		3,984		(4,341)		(357)
Ending balance	$	(199)	$	(40)	$	2,852	$	2,475	$	5,088


	For the Nine Months Ended September 30, 2020
Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	$	(140)	$	48	$	(518)	$	3,145	$	2,535
Other comprehensive income (loss) before reclassification	—		—		(1,477)		5,078		3,601
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(1,946)		(1,946)
Net current period other comprehensive income (loss)	—		—		(1,477)		3,132		1,655
Ending balance	$	(140)	$	48	$	(1,995)	$	6,277	$	4,190

NOTE 17. INCOME TAXES

Our income tax expense for the three and nine months ended September 30, 2021 and September 30, 2020 totaled $3.0 million and $8.9 million and $2.6 million and $5.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three and nine months ended September 30, 2021 and 2020 was 19.8% and 21.1% and 21.2% and 20.1% , respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and nine months ended September 30, 2021 and 2020 is as follows:

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
	Percent		Percent		Percent		Percent
Applicable statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
Increase (decrease) in rate resulting from:
Tax-exempt interest and dividends, net	(1.3)	%	(1.9)	%	(1.4)	%	(2.2)	%
State income taxes, net of Federal income tax benefit	2.08	%	1.9	%	2.12	%	1.6	%
Low-income housing and rehabilitation tax credits	(0.1)	%	(0.1)	%	(0.2)	%	(0.6)	%
Other, net	(1.9)	%	0.3	%	(0.4)	%	0.3	%
Effective income tax rate	19.8	%	21.2	%	21.1	%	20.1	%

The components of applicable income tax expense for the three and nine months ended September 30, 2021 and 2020 are as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020
Current
Federal	$	2,350	$	2,697	$	7,720	$	7,689
State	351		372		1,122		1,072
	2,701		3,069		8,842		8,761
Deferred
Federal	282		(416)		38		(3,025)
State	40		(59)		6		(434)
	322		(475)		44		(3,459)
Total	$	3,023	$	2,594	$	8,886	$	5,302

NOTE 18. REVENUE FROM CONTRACTS WITH CUSTOMERS

Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.

The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020
Service fees on deposit accounts	$	1,338	$	1,138	$	3,530	$	3,283
Bank card revenue	1,509		1,237		4,369		3,257
Trust and wealth management fees	718		622		2,039		1,870

Other	163		113		432		367
Net revenue from contracts with customers	3,728		3,110		10,370		8,777
Non-interest income within the scope of other ASC topics	839		3,097		3,886		5,530
Total noninterest income	$	4,567	$	6,207	$	14,256	$	14,307

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis focuses on significant changes in our financial condition and results of operations of Summit Financial Group, Inc. (“Company” or “Summit”) and its operating subsidiary, Summit Community Bank (“Summit Community”), for the periods indicated. This discussion and analysis should be read in conjunction with our 2020 audited consolidated financial statements and Annual Report on Form 10-K.

The Private Securities Litigation Act of 1995 indicates that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by us. This Quarterly Report on Form 10-Q contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.

Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: the effect of the COVID-19 crisis, including the negative impacts and disruptions on the communities we serve, and the domestic and global economy, which may have an adverse effect on our business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations of our acquisitions; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements following the date of this filing.

OVERVIEW

On April 24, 2020, we acquired four MVB Bank ("MVB") branches in the eastern panhandle of West Virginia, on December 14, 2020, we acquired WinFirst Financial Corp. ("WinFirst") and its subsidiary WinFirst Bank, headquartered in Winchester, Kentucky and on July 12, 2021 we acquired four full-service MVB branch banking offices and two MVB drive-up banking locations in southern West Virginia. MVB's and WinFirst's results are included in our financial statements from the acquisition dates forward, impacting comparisons to the prior-year periods.

Our primary source of income is net interest income from loans and deposits. Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.

Primarily due to our recent acquisitions and organic loan growth, average interest earning assets increased by 21.5% for the first nine months in 2021 compared to the same period of 2020 while our net interest earnings on a tax equivalent basis increased 17.0%. Our tax equivalent net interest margin decreased 13 basis points as our yield on interest earning assets decreased 54 basis points while our cost of interest bearing funds decreased 50 basis points.

COVID-19 IMPACTS

Overview

Our business has been, and continues to be, impacted by the ongoing COVID-19 pandemic. As further discussed in “Results of Operations,” the current interest rate environment, borrower credit quality and market volatility, among other factors, continue to impact our performance. Although we are unable to estimate the magnitude, we expect the pandemic and the resulting economic environment will continue to affect our future operating results.

Impact on our Operations

Summit continues to address the issues arising as a result of COVID-19 as we have implemented various plans, strategies and protocols to protect our employees, maintain services for clients, assure the functional continuity of our operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. While governmental entities have generally eased temporary business closures and all of our offices are now open as normal without restriction and approved

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vaccines are being administered throughout our footprint, it remains unknown when, or if, there will be a return to historical norms of economic and social activity.

Impact on our Financial Position and Results of Operations

Lending and Credit Risks

While we have not experienced any material charge-offs related to COVID-19, our allowance for credit losses ACL computation and resulting provision for credit losses are significantly impacted by the estimated potential future economic impact of the COVID-19 crisis. Refer to the Credit Experience section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for further details regarding Q3 2021 provision for credit losses.

We took actions to identify and assess our COVID-19 related credit exposures by asset classes and borrower types. Depending on the demonstrated need of the client, in certain cases, we either modified to interest only or deferred the full loan payment. Accordingly, the following tables summarize the aggregate balances of loans the Company has modified as result of COVID-19 as of September 30, 2021 and December 31, 2020 classified by types of loans and impacted borrowers.


			Loan Balances Modified Due to COVID-19 as of September 30, 2021
Dollars in thousands	Total Loan Balance as of 9/30/2021		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified
Hospitality industry	$	121,765	$	—	$	—	$	—	—	%
Non-owner occupied retail stores	154,120		7,223		—		7,223		4.7	%
Owner-occupied retail stores	163,350		—		—		—		—	%
Restaurants	12,200		—		—		—		—	%
Oil & gas industry	18,657		—		—		—		—	%
Other commercial	1,349,187		—		—		—		—	%
Total Commercial Loans	1,819,279		7,223		—		7,223		0.4	%
Residential 1-4 family personal	270,951		—		—		—		—	%
Residential 1-4 family rentals	195,914		—		—		—		—	%
Home equity	71,496		—		—		—		—	%
Total Residential Real Estate Loans	538,361		—		—		—		—	%
Consumer	32,285		—		—		—		—	%
Mortgage warehouse lines	161,627		—		—		—		0.0	%
Credit cards and overdrafts	2,558		—		—		—		0.0	%
Total Loans	$	2,554,110	$	7,223	$	—	$	7,223	0.3	%

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			Loan Balances Modified Due to COVID-19 as of December 31, 2020
Dollars in thousands	Total Loan Balance as of 12/31/2020		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified
Hospitality industry	$	121,502	$	40,513	$	12,930	$	53,443	44.0	%
Non-owner occupied retail stores	135,405		7,223		447		7,670		5.7	%
Owner-occupied retail stores	126,451		2,317		1,246		3,563		2.8	%
Restaurants	7,481		—		—		—		—	%
Oil & gas industry	17,152		—		—		—		—	%
Other commercial	1,134,759		12,006		286		12,292		1.1	%
Total Commercial Loans	1,542,750		62,059		14,909		76,968		5.0	%
Residential 1-4 family personal	305,093		159		1,754		1,913		0.6	%
Residential 1-4 family rentals	194,612		148		73		221		0.1	%
Home equity	81,588		—		—		—		—	%
Total Residential Real Estate Loans	581,293		307		1,827		2,134		0.4	%
Consumer	33,906		48		143		191		0.6	%
Mortgage warehouse lines	251,810		—		—		—		0.0	%
Credit cards and overdrafts	2,394		—		—		—		0.0	%
Total Loans	$	2,412,153	$	62,414	$	16,879	$	79,293	3.3	%

Modified loans with deferred payments continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with bank regulatory guidance and Section 4013 of the CARES Act, as modified by the CAA, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral periods. COVID-19 related loan modifications are also deemed to be insignificant borrower concessions, and therefore, such modified loans were not classified as troubled-debt restructured loans as of September 30, 2021.

Capital and Liquidity

Our capital management activities, coupled with our historically strong earnings performance and prudent dividend practices, have allowed us to build and maintain strong capital reserves. At September 30, 2021, all of Summit’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company bank subsidiary’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 9.2% at September 30, 2021, which is well in excess of the well-capitalized regulatory minimum of 5.0%.

In addition, management believes the Company’s liquidity position is strong. The Company’s bank subsidiary maintains a funding base largely comprised of core noninterest bearing demand deposit accounts and low cost interest-bearing transactional deposit accounts with clients that operate or reside within the footprint of its branch bank network. At September 30, 2021, the Company’s cash and cash equivalent balances were $211.1 million. In addition, Summit maintains an available-for-sale debt securities portfolio, comprised primarily of highly liquid U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities, which serves as a ready source of liquidity. At September 30, 2021, the Company’s available-for-sale debt securities portfolio totaled $424.7 million, $307.9 million of which was unpledged as collateral. The Company bank subsidiary’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at September 30, 2021 was $893.2 million, and it maintained $258.1 million of borrowing availability at the Federal Reserve Bank of Richmond’s discount window.

The COVID-19 crisis is expected to continue to impact our financial results, as well as demand for our services and products during the remainder of 2021 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future revenues, earnings results, allowance for credit losses, capital reserves and liquidity are unknown at present.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the

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financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2020 Annual Report on Form 10-K. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, we have identified the determination of ACL, fair value measurements and accounting for acquired loans to be the accounting areas that require the most subjective or complex judgments and as such could be most subject to revision as new information becomes available. Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2020 Form 10-K for a discussion of the methodology we employ regarding the ACL.

For additional information regarding critical accounting policies, refer to Critical Accounting Policies section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2020 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2020.

RESULTS OF OPERATIONS

Earnings Summary

Net income applicable to common shares for the three months ended September 30, 2021 was $12.2 million, or $0.92 per diluted share, compared to $9.6 million, or $0.74 per diluted share for the same period of 2020. Net income applicable to common shares for the nine months ended September 30, 2021 was $32.8 million or $2.52 per diluted share compared to $21.1 million or $1.62 per diluted share for the same period of 2020. The increased earnings for the three months ended September 30, 2021 were primarily attributable to increased net interest income due to our growth and decreased provision for credit losses partially offset by higher salaries, commissions and employee benefits. The increased earnings for the nine months ended September 30, 2021 were primarily attributable to increased net interest income due to our growth, higher bank card revenue and decreased provision for credit losses partially offset by higher salaries, commissions and employee benefits, decreased realized securities gains and higher other operating expenses. Returns on average equity and assets for the first nine months of 2021 were 14.51% and 1.34%, respectively, compared with 10.72% and 1.04% for the same period of 2020.

MVB's and WinFirst's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our 2021 results reflect increased levels of average balances, income and expense as compared to the same periods of 2020 results. At consummation (prior to fair value acquisition adjustments), the MVB eastern panhandle branch transaction consisted primarily of $33.9 million loans acquired and $188.7 million deposits assumed; WinFirst had total assets of $143.4 million, $122.8 million net loans and deposits of $104.7 million; and MVB southern West Virginia branch transaction consisted primarily of $54.4 million loans acquired and $164.0 million deposits assumed.

Net Interest Income

Net interest income is the principal component of our earnings and represents the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can materially impact net interest income.

Q3 2021 compared to Q2 2021

For the quarter ended September 30, 2021, our net interest income on a fully taxable-equivalent basis increased $1.2 million to $28.3 million compared to $27.1 million for the quarter end June 30, 2021. Our taxable-equivalent earnings on interest earning assets increased $935,000, while the cost of interest bearing liabilities decreased $299,000 (see Tables I and II).

For the three months ended September 30, 2021 average interest earning assets increased to $3.23 billion compared to $3.05 billion for the three months ended June 30, 2021, while average interest bearing liabilities increased to $2.55 billion for the three months ended September 30, 2021 from $2.41 billion for the three months ended June 30, 2021.

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For the quarter ended September 30, 2021, our net interest margin decreased to 3.47%, compared to 3.55% for the linked quarter, as the yields on earning assets declined 15 basis points and the cost of our interest bearing funds decreased by 8 basis points.

Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.41% and 3.50% for the three months ended September 30, 2021 and June 30, 2021.

Q3 2021 compared to Q3 2020

For the quarter ended September 30, 2021, our net interest income on a fully taxable-equivalent basis increased $3.2 million to $28.3 million compared to $25.1 million for the quarter end September 30, 2020. Our taxable-equivalent earnings on interest earning assets increased $1.6 million, while the cost of interest bearing liabilities decreased $1.6 million (see Tables I and II).

For the three months ended September 30, 2021 average interest earning assets increased 18.0% to $3.23 billion compared to $2.74 billion for the three months ended September 30, 2020, while average interest bearing liabilities increased 15.0% from $2.21 billion for the three months ended September 30, 2020 to $2.55 billion for the three months ended September 30, 2021.

For the quarter ended September 30, 2021, our net interest margin decreased to 3.47%, compared to 3.64% for the same period of 2020, as the yields on earning assets decreased 47 basis points, while the cost of our interest bearing funds decreased by 37 basis points.

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Table I - Average Balance Sheet and Net Interest Income Analysis

	For the Quarter Ended
	September 30, 2021						June 30, 2021						September 30, 2020
Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	2,495,880	$	28,340	4.50	%	$	2,455,757	$	27,593	4.51	%	$	2,251,722	$	26,656	4.71	%
Tax-exempt (2)	7,871		96		4.84	%	11,370		132		4.66	%	16,245		191		4.68	%
Securities
Taxable	315,082		1,432		1.80	%	285,092		1,351		1.90	%	261,231		1,445		2.20	%
Tax-exempt (2)	166,285		1,159		2.77	%	147,703		1,078		2.93	%	150,350		1,186		3.17	%
Federal funds sold and interest bearing deposits with other banks	248,315		118		0.19	%	154,677		56		0.15	%	60,639		57		0.37	%
Total interest earning assets	3,233,433		31,145		3.82	%	3,054,599		30,210		3.97	%	2,740,187		29,535		4.29	%
Noninterest earning assets
Cash & due from banks	20,077						19,095						16,603
Premises and equipment	55,908						53,210						52,329
Property held for sale	12,727						13,631						17,801
Other assets	163,248						156,839						136,777
Allowance for loan losses	(33,911)						(34,674)						(28,144)
Total assets	$	3,451,482					$	3,262,700					$	2,935,553
Interest bearing liabilities
Interest bearing demand deposits	$	1,092,392	$	325	0.12	%	$	995,673	$	371	0.15	%	$	850,281	$	380	0.18	%
Savings deposits	691,411		602		0.35	%	665,735		634		0.38	%	588,085		925		0.63	%
Time deposits	571,445		905		0.63	%	562,605		1,131		0.81	%	585,092		2,247		1.53	%
Short-term borrowings	140,146		470		1.33	%	140,146		464		1.33	%	165,555		734		1.76	%
Long-term borrowings and capital trust securities	49,724		543		4.33	%	49,694		544		4.39	%	23,230		194		3.32	%
Total interest bearing liabilities	2,545,118		2,845		0.44	%	2,413,853		3,144		0.52	%	2,212,243		4,480		0.81	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits	547,627						503,116						421,741
Other liabilities	38,789						36,842						33,978
Total liabilities	3,131,534						2,953,811						2,667,962

Shareholders' equity - preferred	14,920						11,254						—
Shareholders' equity - common	305,028						297,635						267,591
Total liabilities and shareholders' equity	$	3,451,482					$	3,262,700					$	2,935,553
Net interest earnings			$	28,300					$	27,066					$	25,055
Net yield on interest earning assets					3.47	%					3.55	%					3.64	%

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

(2)- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented. The tax equivalent adjustment resulted in an increase in interest income of $263,000, $255,000, and $289,000 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.

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Table II - Changes in Net Interest Income Attributable to Rate and Volume

	For the Quarter Ended						For the Quarter Ended
	September 30, 2021 vs. June 30, 2021						September 30, 2021 vs. September 30, 2020
	Increase (Decrease) Due to Change in:						Increase (Decrease) Due to Change in:
Dollars in thousands	Volume		Rate		Net		Volume		Rate		Net
Interest earned on:
Loans
Taxable	$	751	$	(4)	$	747	$	2,860	$	(1,176)	$	1,684
Tax-exempt	(41)		5		(36)		(102)		7		(95)
Securities
Taxable	149		(68)		81		272		(285)		(13)
Tax-exempt	140		(59)		81		120		(147)		(27)
Federal funds sold and interest bearing deposits with other banks	41		21		62		102		(41)		61
Total interest earned on interest earning assets	1,040		(105)		935		3,252		(1,642)		1,610

Interest paid on:
Interest bearing demand deposits	35		(81)		(46)		92		(147)		(55)
Savings deposits	26		(58)		(32)		143		(466)		(323)
Time deposits	19		(245)		(226)		(52)		(1,290)		(1,342)
Short-term borrowings	—		6		6		(102)		(162)		(264)
Long-term borrowings and capital trust securities	—		(1)		(1)		276		73		349
Total interest paid on interest bearing liabilities	80		(379)		(299)		357		(1,992)		(1,635)

Net interest income	$	960	$	274	$	1,234	$	2,895	$	350	$	3,245

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Table III - Average Balance Sheet and Net Interest Income Analysis

	For the Nine Months Ended
	September 30, 2021						September 30, 2020
Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	2,436,295	$	83,352	4.57	%	$	2,102,331	$	77,211	4.91	%
Tax-exempt (2)	10,622		377		4.75	%	16,121		576		4.77	%
Securities
Taxable	288,999		4,079		1.89	%	256,322		4,657		2.43	%
Tax-exempt (2)	153,035		3,328		2.91	%	113,793		2,897		3.4	%
Federal funds sold and interest bearing deposits with other banks	190,154		241		0.17	%	46,074		215		0.62	%
Total interest earning assets	3,079,105		91,377		3.97	%	2,534,641		85,556		4.51	%
Noninterest earning assets
Cash & due from banks	19,093						15,901
Premises and equipment	54,154						49,655
Property held for sale	13,731						18,423
Other assets	157,137						120,228
Allowance for loan losses	(33,765)						(25,618)
Total assets	$	3,289,455					$	2,713,230
Interest bearing liabilities
Interest bearing demand deposits	$	1,016,569	$	1,090	0.14	%	$	753,384	$	1,830	0.32	%
Savings deposits	666,642		1,881		0.38	%	516,841		3,462		0.89	%
Time deposits	572,547		3,493		0.82	%	608,551		7,796		1.71	%
Short-term borrowings	140,146		1,403		1.34	%	127,109		1,863		1.96	%
Long-term borrowings and capital trust securities	49,694		1,632		4.39	%	21,284		600		3.77	%
Total interest bearing liabilities	2,445,598		9,499		0.52	%	2,027,169		15,551		1.02	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits	501,309						393,128
Other liabilities	37,856						30,741
Total liabilities	2,984,763						2,451,038

Shareholders' equity - preferred	8,780						—
Shareholders' equity - common	295,912						262,192
Total liabilities and shareholders' equity	$	3,289,455					$	2,713,230
Net interest earnings			$	81,878					$	70,005
Net yield on interest earning assets					3.56	%					3.69	%

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

(2)- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21%. The tax equivalent adjustment resulted in an increase in interest income of $779,000 and $730,000 for the nine months ended September 30, 2021 and 2020, respectively.

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Table IV - Changes in Net Interest Income Attributable to Rate and Volume

	For the Nine Months Ended
	September 30, 2021 versus September 30, 2020
	Increase (Decrease) Due to Change in:
Dollars in thousands	Volume		Rate		Net
Interest earned on:
Loans
Taxable	$	11,623	$	(5,482)	$	6,141
Tax-exempt	(195)		(4)		(199)
Securities
Taxable	543		(1,121)		(578)
Tax-exempt	894		(463)		431
Federal funds sold and interest bearing deposits with other banks	275		(249)		26
Total interest earned on interest earning assets	13,140		(7,319)		5,821

Interest paid on:
Interest bearing demand deposits	501		(1,241)		(740)
Savings deposits	808		(2,389)		(1,581)
Time deposits	(437)		(3,866)		(4,303)
Short-term borrowings	176		(636)		(460)
Long-term borrowings and capital trust securities	918		114		1,032
Total interest paid on interest bearing liabilities	1,966		(8,018)		(6,052)

Net interest income	$	11,174	$	699	$	11,873

Credit Experience

For purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which is comprised of loans 90 days or more past due and still accruing interest and nonaccrual loans. Performing TDRs are excluded from nonperforming loans.

The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance to cover an estimate of the full amount of expected credit losses relative to loans. Our determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, change in the composition and risk characteristics of the loan portfolio, and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary.

Our asset quality and mix of new loans required no provision for credit losses for the three months ended September 30, 2021 compared to $3.25 million for the three months ended September 30, 2020. We recorded $2.50 million and $11.50 million provisions for credit losses (for both funded loans and unfunded commitments) for the first nine months of 2021 and 2020. The following tables summarizes the changes in the various factors that comprise the provisions for credit losses.

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Table V - Provision for Credit Losses
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020
Provision for credit losses-loans
Due to changes in:
Volume, mix and loss experience	$	176	$	1,060	$	4,180	$	309
Reasonable and supportable economic forecasts	—		—		(2,301)		6,063
Individually evaluated credits	(2,169)		2,142		(1,842)		3,059
Acquired loans	793		—		793		977
Total provision for loan credit losses	(1,200)		3,202		830		10,408

Provision for credit losses-unfunded commitments
Due to changes in:
Volume, mix and loss experience	1,060		48		2,103		(126)
Reasonable and supportable economic forecasts	—		—		(573)		1,137
Individually evaluated credits	—		—		—		—
Acquired loan commitments	140		—		140		81
Total provision for unfunded commitment credit losses	1,200		48		1,670		1,092

Total provision for credit losses	$	—	$	3,250	$	2,500	$	11,500

Our reasonable and supportable economic forecasts at September 30, 2021 compared to September 30, 2020 improved markedly as our forecasts for unemployment and GDP now reflect 2021's strengthening economic recovery while early 2020 economic forecasts were extraordinarily negative as result of the COVID-19 pandemic.

At September 30, 2021 and December 31, 2020, our allowance for loan credit losses totaled $32.4 million, or 1.27% of total loans and $32.2 million, or 1.34% of total loans. The allowance for loan credit losses is considered adequate to cover an estimate of the full amount of expected credit losses relative to loans.

We incurred net loan charge-offs of $761,000 in first nine months of 2021 (0.04 percent of average loans annualized), compared to $1.5 million net loan charge-offs during first nine months of 2020. Net loan charge-offs totaled $370,000 and $1.0 million for the three months ended September 30, 2021 and 2020.

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As illustrated in Table VI below, our non-performing assets have decreased since year end 2020.


Table VI - Summary of Non-Performing Assets
	September 30,						December 31,
Dollars in thousands	2021			2020			2020
Accruing loans past due 90 days or more	$	2		$	2		$	2
Nonaccrual loans
Commercial	459			553			525
Commercial real estate	4,643			4,313			14,237
Commercial construction and development	—			—			—
Residential construction and development	448			2			235
Residential real estate	5,514			5,104			5,264
Consumer	47			29			72
Other	—			—			—
Total nonaccrual loans	11,111			10,001			20,333
Foreclosed properties
Commercial	—			—			—
Commercial real estate	2,192			2,499			2,581
Commercial construction and development	2,925			4,154			4,154
Residential construction and development	6,711			10,330			7,791
Residential real estate	622			847			1,062
Total foreclosed properties	12,450			17,830			15,588
Repossessed assets	—			—			—
Total nonperforming assets	$	23,563		$	27,833		$	35,923
Total nonperforming loans as a percentage of total loans	0.44		%	0.44		%	0.84		%
Total nonperforming assets as a percentage of total assets	0.67		%	0.94		%	1.16		%
Allowance for credit losses-loans as a percentage of nonperforming loans	291.64		%	293.45		%	158.57		%
Allowance for credit losses-loans as a percentage of period end loans	1.27		%	1.30		%	1.34		%

A commercial real estate loan relationship totaling $9.5 million was impacted by the COVID-19 pandemic and on nonaccrual at year end 2020, was restored to full accrual status in third quarter 2021.

The following table details the activity regarding our foreclosed properties for the three and nine months ended September 30, 2021 and 2020.


Table VII - Foreclosed Property Activity
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020
Beginning balance	$	13,170	$	17,954	$	15,588	$	19,276
Acquisitions	190		725		532		888
Improvements	—		177		—		1,249
Disposals	(645)		(470)		(2,664)		(1,863)
Writedowns to fair value	(265)		(555)		(1,006)		(1,719)
Balance March 31	$	12,450	$	17,831	$	12,450	$	17,831

Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2020 Form 10-K for a discussion of the methodology information regarding our past due loans, nonaccrual loans, troubled debt restructurings and information regarding our methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for credit losses.

At September 30, 2021 and December 31, 2020 we had approximately $12.5 million and $15.6 million in foreclosed properties which were obtained as the result of foreclosure proceedings. Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.

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Noninterest Income

Total noninterest income for the three months and nine months ended September 30, 2021 decreased 26.4% and 0.4%, respectively, compared to the same periods of 2020 principally due to fewer realized securities gains which more than offset the higher bank card revenue due to increased customer usage. We recorded higher mortgage origination revenue for the nine months ended September 30, 2021 compared to 2020 due to higher volumes of secondary market loans driven primarily by historically low interest rates; however, most recently, volumes are lower as mortgage refinance opportunities have become more limited. Further detail regarding noninterest income is reflected in the following table.


Table VIII - Noninterest Income
	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020

Trust and wealth management fees	718		622		2,039		1,870
Mortgage origination revenue	742		780		2,638		1,636
Service charges on deposit accounts	1,338		1,138		3,530		3,283
Bank card revenue	1,509		1,237		4,369		3,257
Realized securities gains	(68)		1,522		534		2,560
Bank owned life insurance income	160		795		733		1,334
Other	168		113		413		367
Total	$	4,567	$	6,207	$	14,256	$	14,307

Noninterest Expense

Total noninterest expense increased 11.8% for the three months ended September 30, 2021 compared to the same period of 2020 primarily due to higher salaries, commissions, and employee benefits and higher equipment expense. Total noninterest expense increased 11.2% for the nine months ended September 30, 2021 compared to the same period of 2020 primarily due to higher salaries, commissions, and employee benefits and other expenses that more than offset the lower foreclosed properties expense. Table IX below shows the breakdown of the changes.


Table IX- Noninterest Expense
	For the Quarter Ended September 30,								For the Nine Months Ended September 30,
			Change								Change
Dollars in thousands	2021		$		%		2020		2021		$		%		2020
Salaries, commissions, and employee benefits	$	8,745	$	637	7.9	%	$	8,108	$	25,410	$	1,701	7.2	%	$	23,709
Net occupancy expense	1,254		197		18.6	%	1,057		3,559		642		22.0	%	2,917
Equipment expense	1,908		434		29.4	%	1,474		5,088		825		19.4	%	4,263
Professional fees	374		10		2.7	%	364		1,140		(28)		(2.4)	%	1,168
Advertising and public relations	254		109		75.2	%	145		482		93		23.9	%	389
Amortization of intangibles	390		(22)		(5.3)	%	412		1,176		(75)		(6.0)	%	1,251
FDIC premiums	354		34		10.6	%	320		1,119		524		88.1	%	595
Bank card expense	705		116		19.7	%	589		1,964		312		18.9	%	1,652
Foreclosed properties expense	370		(237)		(39.0)	%	607		1,342		(473)		(26.1)	%	1,815

Acquisition-related expenses	273		245		875.0	%	28		1,167		(286)		(19.7)	%	1,453
Other	2,716		311		12.9	%	2,405		8,365		1,872		28.8	%	6,493
Total	$	17,343	$	1,834	11.8	%	$	15,509	$	50,812	$	5,107	11.2	%	$	45,705

Salaries, commissions, and employee benefits: The increases in these expenses for the three and nine months ended September 30, 2021 compared to the same periods of 2020 is primarily due to an increase in number of employees, resulting from the MVB branches and WinFirst acquisitions, and general merit raises.

Equipment expense: Equipment expenses have increased primarily due to depreciation and amortization related to various technological upgrades, both hardware and software, including interactive teller machine upgrades and recent acquisitions.

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FDIC premiums: For the 2021 periods, FDIC premiums increased primarily due to a higher assessment base resulting from our balance sheet growth.

Foreclosed properties expense: The decrease in foreclosed properties expense, net of gains/losses, for the three and nine months ended September 30, 2021 is primarily due to lower writedowns of foreclosed properties to their estimated fair value.

Acquisition-related expenses: Acquisition-related expenses during 2021 are related to WinFirst and the MVB Bank branches (southern West Virginia) and related to the Cornerstone and MVB branch (Eastern Panhandle West Virginia) acquisitions during 2020.

Other: The increase in other expenses for the nine months ended September 30, 2021 compared to the same period of 2020 is largely due to the following:

•Deferred director compensation plan expense of $498,000 in 2021 compared to $190,000 in the comparable period of 2020 as a result of the stock market's overall positive performance during Q1 2021. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments

•During the first nine months of 2021, we incurred $289,000 in fraud/counterfeit losses compared to $99,000 during same period of 2020

•Secondary loan underwriting expenses were $130,000 higher during first nine months of 2021 due to higher volumes of secondary market loans driven primarily by historically low interest rates

•Debit card expense increased $207,000 for the nine months ended September 30, 2021 compared to the same period of 2020 due to increased card usage by customers

•Internet banking expense increased $216,000 due to increased internet banking activity by clients

Income Taxes

Our income tax expense for the three months ended September 30, 2021 and September 30, 2020 totaled $3.0 million and $2.6 million, respectively. For the nine months ended September 30, 2021 and September 30, 2020 our income tax expense totaled $8.9 million and $5.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended September 30, 2021 and 2020 was 19.8% and 21.2%, respectively and for the nine months ended September 30, 2021 and 2020 was 21.1% and 20.1%, respectively. Refer to Note 17 of the accompanying financial statements for further information regarding our income taxes.

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FINANCIAL CONDITION

Our total assets were $3.51 billion at September 30, 2021 and $3.11 billion at December 31, 2020. Table X below is a summary of significant changes in our financial position between December 31, 2020 and September 30, 2021.


Table X - Summary of Significant Changes in Financial Position

	Balance at December 31, 2020		Impact of MVB Branches Acquisition		Increase (Decrease)		Balance at September 30, 2021
Dollars in thousands
Assets
Cash and cash equivalents	$	99,787	95,699		$	15,623	$	211,109
Debt securities available for sale	286,127		—		138,614		424,741
Debt securities held to maturity	99,914		—		(1,386)		98,528
Other investments	14,185		—		(3,536)		10,649
Loans, net	2,379,907		54,315		87,482		2,521,704
Property held for sale	15,588		—		(3,138)		12,450
Premises and equipment	52,537		3,302		979		56,818
Goodwill and other intangibles	55,123		10,509		(1,655)		63,977
Cash surrender value of life insurance policies and annuities	59,438		—		803		60,241
Other assets	43,778		260		4,696		48,734
Total assets	$	3,106,384	$	164,085	$	238,482	$	3,508,951

Liabilities
Deposits	$	2,595,651	164,040		$	196,249	$	2,955,940
Short-term borrowings	140,146		—		—		140,146
Long-term borrowings	699		—		(15)		684
Subordinated debentures	29,364		—		102		29,466
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		—		—		19,589
Other liabilities	39,355		45		437		39,837

Shareholders' Equity - preferred	—				14,920		14,920
Shareholders' Equity - common	281,580		—		26,789		308,369

Total liabilities and shareholders' equity	$	3,106,384	164,085		$	238,482	$	3,508,951

The following is a discussion of the significant changes in our financial position during the first nine months of 2021:

Cash and cash equivalents: Net increase of $15.6 million is primarily attributable to increased customer deposits.

Debt securities available for sale: The net increase of $138.6 million in debt securities available for sale is principally a result of purchases of taxable municipal securities and tax-exempt municipal securities.

Loans: Mortgage warehouse lines of credit declined $90.2 million during the first nine months of 2021 due to a reduction in size of our participation arrangement with a regional bank to fund residential mortgage warehouse lines of medium- and large-sized mortgage originators located throughout the United States. Excluding mortgage warehouse lines of credit, loan growth was $232.1 million during the first nine months of 2021, which included $54 million acquired loans and net PPP loans declining $52.2 million.

Deposits: During the first nine months of 2021, noninterest bearing checking deposits increased $134.7 million (which includes $39.7 million acquired deposits), interest bearing checking deposits grew $186.8 million (which includes $62.5 million acquired deposits), and savings deposits grew $72.5 million (which includes $16.1 million acquired deposits), while brokered CDs declined $40.8 million, retail CDs increased $6.6 million, net of $44.7 million acquired time deposits and Direct CDs decreased $0.4 million as we increased new commercial account relationships and also consumers received two Economic Incentive Payments during early 2021.

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Shareholders' equity - preferred: In April 2021, we sold through private placement 1,500 shares of 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series 2021, $1.00 par value, with a liquidation preference of $10,000 per share for net proceeds of $14.9 million.

Shareholders' equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income and common dividends.

Refer to Notes 5, 6, 8, and 9 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between September 30, 2021 and December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements. Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which totaled approximately $1.6 billion or 45.95% of total consolidated assets at September 30, 2021.

Our liquidity strategy is to fund loan growth with deposits and other borrowed funds while maintaining an adequate level of short- and medium-term investments to meet normal daily loan and deposit activity. As a member of the FHLB, we have access to approximately $1.03 billion. As of September 30, 2021 and December 31, 2020, these advances totaled approximately $141 million. At September 30, 2021, we had additional borrowing capacity of $893 million through FHLB programs. We have established a line with the Federal Reserve Bank to be used as a contingency liquidity vehicle. The amount available on this line at September 30, 2021 was approximately $259 million, which is secured by a pledge of certain consumer and our commercial and industrial loan portfolios. We have a $6 million unsecured line of credit with a correspondent bank. Also, we have a $425 million portfolio of available for sale debt securities which can be liquidated to meet liquidity needs.

Liquidity risk represents the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, customer or creditor perception of financial strength, and events unrelated to Summit such as war, terrorism, pandemic or financial institution market specific issues. The Asset/Liability Management Committee (“ALCO”), comprised of members of senior management and certain members of the Board of Directors, oversees our liquidity risk management process. The ALCO develops and recommends policies and limits governing our liquidity to the Board of Directors for approval with the objective of ensuring that we can obtain cost-effective funding to meet current and future obligations, as well as maintain sufficient levels of on-hand liquidity, under both normal and “stressed” circumstances.

We continuously monitor our liquidity position to ensure that day-to-day as well as anticipated funding needs are met. We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity.

One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders’ equity at September 30, 2021 totaled $323.3 million compared to $281.6 million at December 31, 2020.

Refer to Note 13 of the notes to the accompanying consolidated financial statements for additional information regarding regulatory restrictions on our capital as well as our subsidiaries’ capital.

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CONTRACTUAL CASH OBLIGATIONS

During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at September 30, 2021.


Table XI - Contractual Cash Obligations
Dollars in thousands	Long Term Debt		Subordinated Debentures		Capital Trust Securities		Operating Leases
2021	$	5	$	—	$	—	$	240
2022	21		—		—		967
2023	22		—		—		769
2024	23		—		—		719
2025	24		—		—		645
Thereafter	589		30,000		19,589		2,833
Total	$	684	$	30,000	$	19,589	$	6,173

OFF-BALANCE SHEET ARRANGEMENTS

We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at September 30, 2021 are presented in the following table.


Table XII - Off-Balance Sheet Arrangements	September 30,
Dollars in thousands	2021
Commitments to extend credit:
Revolving home equity and credit card lines	$	95,601
Construction loans	198,224
Other loans	333,636
Standby letters of credit	25,025
Total	$	652,486

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk Management

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Interest rate risk is our primary market risk and results from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, changes in relationships between rate indices and the potential exercise of imbedded options. The principal objective of asset/liability management is to minimize interest rate risk and our actions in this regard are taken under the guidance of our Asset/Liability Management Committee (“ALCO”), which is comprised of members of senior management and members of the Board of Directors. The ALCO actively formulates the economic assumptions that we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds.

Some amount of interest rate risk is inherent and appropriate to the banking business. Our net income is affected by changes in the absolute level of interest rates. Our interest rate risk position is asset sensitive. That is, absent any changes in the volumes of our interest earning assets or interest bearing liabilities, assets are likely to reprice faster than liabilities, resulting in an increase in net income in a rising rate environment. Net income would decrease in a falling interest rate environment. Net income is also subject to changes in the shape of the yield curve. In general, a flattening yield curve would decrease our earnings due to the compression of earning asset yields and funding rates, while a steepening would increase earnings as margins widen.

Several techniques are available to monitor and control the level of interest rate risk. We control interest rate risk principally by matching the maturities of our interest earning assets with similar maturing interest bearing liabilities and by hedging adverse risk exposures with derivative financial instruments such as interest rate swaps and caps. We primarily use earnings simulations modeling to monitor interest rate risk. The earnings simulation model forecasts the effects on net interest income under a variety of interest rate scenarios that incorporate changes in the absolute level of interest rates and changes in the shape of the yield curve. Each increase or decrease in interest rates is assumed to gradually take place over either the next 12 months or the next 24 months (as footnoted in table below), and then remain stable. Assumptions used to project yields and rates for new loans and deposits are derived from historical analysis. Securities portfolio maturities and prepayments are reinvested in like instruments. Mortgage loan prepayment assumptions are developed from industry estimates of prepayment speeds. Noncontractual deposit repricings are modeled on historical patterns.

The following table presents the estimated sensitivity of our net interest income to changes in interest rates, as measured by our earnings simulation model as of September 30, 2021. The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates (change over 12 months, stable thereafter or change over 24 months, stable thereafter, see footnotes below) compared to net interest income with rates unchanged in the same period. The estimated changes set forth below are dependent on the assumptions discussed above.


	Estimated % Change in Net Interest Income over:
Change in	0 - 12 Months		13 - 24 Months
Interest Rates	Actual		Actual
Down 100 basis points (1)	-0.9	%	-5.7	%
Up 200 basis points (1)	0.4	%	4.2	%
Up 200 basis points (2)	0.3	%	1.8	%

(1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
(2) assumes a parallel shift in the yield curve over 24 months, with no change thereafter

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Item 4. Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of September 30, 2021, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of September 30, 2021 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

Refer to Note 11 of the Notes to the Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings not reportable under this Item.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2020, the Board of Directors authorized the open market repurchase of up to 750,000 shares of the issued and outstanding shares of Summit's common stock ("February 2020 Repurchase Plan"). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan may be discontinued, suspended, or restarted at any time at the Company's discretion.

The following table sets forth certain information regarding Summit's purchases of its common stock under the Repurchase Plan and for the benefit of Summits Employee Stock Ownership Plan for the quarter ended September 30, 2021.


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2021 - July 31, 2021	—	$	—	—	674,667
Aug. 1, 2021 - Aug. 31, 2021	11,522	23.85		—	663,145
Sept. 1, 2021 - Sept. 30, 2021	14,856	24.07		—	648,289

(a) All shares purchased for the benefit of Summit's Employee Stock Ownership Plan

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Item 6. Exhibits


Exhibit 2.1			Purchase and Assumption Agreement dated April 22, 2021, by and between MVB Bank, Inc. and Summit Community Bank, Inc.

Exhibit 3.i			Amended and Restated Articles of Incorporation of Summit Financial Group, Inc.

Exhibit 3.ii			Articles of Amendment 2009

Exhibit 3.iii			Articles of Amendment 2011

Exhibit 3.iv			Amended and Restated Articles of Amendment 2021

Exhibit 3.v			Amended and Restated By-Laws of Summit Financial Group, Inc.

Exhibit 11			Statement re: Computation of Earnings per Share – Information contained in Note 4 to the Consolidated Financial Statements on page 13 of this Quarterly Report is incorporated herein by reference.

Exhibit 31.1			Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer

Exhibit 31.2			Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer

Exhibit 32.1			Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer

Exhibit 32.2			Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer

Exhibit 101			Interactive Data File (Inline XBRL)

Exhibit 104			Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

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EXHIBIT INDEX


Exhibit No.	Description	Page Number
2.1	Purchase and Assumption Agreement dated April 22, 2021, by and between MVB Bank, Inc. and Summit Community Bank, Inc.	(a)

(3)	Articles of Incorporation and By-laws:
	(i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc.	(b)
	(ii) Articles of Amendment 2009	(c)
	(iii) Articles of Amendment 2011	(d)
	(iv) Amended and Restated Articles of Amendment 2021	(e)
	(v) Amended and Restated By-laws of Summit Financial Group, Inc.	(f)

11	Statement re: Computation of Earnings per Share	14

31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer

31.2	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer

32.1*	Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer

32.2*	Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer

101**	Interactive data file (Inline XBRL)

104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

*Furnished, not filed.

** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

(a)Incorporated by reference to Exhibit 2.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 23, 2021.

(b)Incorporated by reference to Exhibit 3.2 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021.

(c)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated September 30, 2009.

(d)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated November 3, 2011.

(e)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021.

(f)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 10-Q dated March 26, 2020.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SUMMIT FINANCIAL GROUP, INC.
		(registrant)




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



		By:	/s/ Robert S. Tissue
			Robert S. Tissue,
			Executive Vice President and Chief Financial Officer



		By:	/s/ Julie R. Markwood
			Julie R. Markwood,
			Senior Vice President and Chief Accounting Officer


Date:	November 4, 2021

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