SUMMIT FINANCIAL GROUP, INC. - Quarter Report: 2022 September (Form 10-Q)

smmf20220930_10q.htm

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, 2022

☐ 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 ☐ Accelerated filer ☑ Non-accelerated filer ☐

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. ☐

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

12,780,554 shares outstanding as of November 2, 2022

Table of Contents

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets September 30, 2022 (unaudited) and December 31, 2021	3

		Consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4

		Consolidated statements of comprehensive income for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5

		Consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6

		Consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 (unaudited)	8

		Notes to consolidated financial statements (unaudited)	10

	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	62

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	63

	Item 1A.	Risk Factors	63

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

	Item 3.	Defaults upon Senior Securities	None

	Item 4.	Mine Safety Disclosures	None

	Item 5.	Other Information	None

	Item 6.	Exhibits	64

EXHIBIT INDEX			65

SIGNATURES			66

Table of Contents

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)

	*September 30,*			*December 31,*
	*2022*			*2021*
Dollars in thousands (except per share amounts)	*(unaudited)*			**()***
ASSETS
Cash and due from banks	$	16,141		$	21,006
Interest bearing deposits with other banks		29,510			57,452
Cash and cash equivalents		45,651			78,458
Debt securities available for sale (at fair value)		383,965			401,103
Debt securities held to maturity (at amortized cost; estimated fair value - $84,085 - 2022, $101,242 - 2021)		96,640			98,060
Less: allowance for credit losses		—			—
Debt securities held to maturity, net		96,640			98,060
Equity investments (at fair value)		25,118			20,202
Other investments		18,105			11,304
Loans held for sale		362			227
Loans, net of unearned fees		3,075,127			2,761,391
Less: allowance for credit losses		(36,750	)		(32,298	)
Loans, net		3,038,377			2,729,093
Property held for sale		5,193			9,858
Premises and equipment, net		54,628			56,371
Accrued interest and fees receivable		13,242			10,578
Goodwill and other intangible assets, net		62,502			63,590
Cash surrender value of life insurance policies and annuities		71,216			60,613
Derivative financial instruments		42,179			11,187
Other assets		30,121			26,075
Total assets	$	3,887,299		$	3,576,719

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	619,067		$	568,986
Interest bearing		2,489,005			2,374,103
Total deposits		3,108,072			2,943,089
Short-term borrowings		273,148			140,146
Long-term borrowings		663			679
Subordinated debentures, net		103,175			102,891
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		40,978			42,852
Total liabilities		3,545,625			3,249,246
Commitments and Contingencies

Shareholders' Equity
Preferred stock, $1.00 par value, authorized 250,000 shares; issued: 2022 and 2021- 1,500		14,920			14,920
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2022 - 12,779,820 shares and 2021 - 12,763,827 shares; outstanding: 2022 - 12,774,645 shares and 2021 - 12,743,125		90,401			89,525
Unallocated common stock held by Employee Stock Ownership Plan - 2022 - 5,175 shares and 2021 - 20,702 shares		(56	)		(224	)
Retained earnings		248,084			217,770
Accumulated other comprehensive (loss) income		(11,675	)		5,482
Total shareholders' equity		341,674			327,473

Total liabilities and shareholders' equity	$	3,887,299		$	3,576,719

(*) - 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)	*2022*			*2021*			*2022*			*2021*
Interest income
Loans, including fees
Taxable	$	38,741		$	28,340		$	101,640		$	83,352
Tax-exempt		43			76			134			299
Securities
Taxable		2,273			1,432			5,694			4,078
Tax-exempt		1,224			916			3,177			2,629
Interest on interest bearing deposits with other banks		170			118			262			240
Total interest income		42,451			30,882			110,907			90,598
Interest expense
Deposits		6,140			1,832			10,489			6,464
Short-term borrowings		850			470			1,918			1,404
Long-term borrowings and subordinated debentures		1,348			543			3,867			1,631
Total interest expense		8,338			2,845			16,274			9,499
Net interest income		34,113			28,037			94,633			81,099
Provision for credit losses		1,500			—			5,450			2,500
Net interest income after provision for credit losses		32,613			28,037			89,183			78,599
Noninterest income
Trust and wealth management fees		725			718			2,228			2,039
Mortgage origination revenue		538			742			1,194			2,638
Service charges on deposit accounts		1,550			1,338			4,625			3,530
Bank card revenue		1,639			1,509			4,748			4,369
Realized (losses) gains on debt securities available for sale, net		(242	)		(68	)		(684	)		534
Gain (loss) on equity investments		283			—			(14	)		—
Bank owned life insurance and annuities income		229			160			843			733
Other		165			168			348			413
Total noninterest income		4,887			4,567			13,288			14,256
Noninterest expenses
Salaries, commissions and employee benefits		10,189			8,745			29,920			25,410
Net occupancy expense		1,301			1,254			3,801			3,559
Equipment expense		1,851			1,908			5,484			5,088
Professional fees		372			374			1,242			1,140
Advertising and public relations		276			254			613			482
Amortization of intangibles		354			390			1,088			1,176
FDIC premiums		292			354			872			1,119
Bank card expense		726			705			2,249			1,964
Foreclosed properties expense, net of (gains)/losses		26			370			77			1,342
Acquisition-related expenses		—			273			33			1,167
Other		3,834			2,716			8,651			8,365
Total noninterest expenses		19,221			17,343			54,030			50,812
Income before income tax expense		18,279			15,261			48,441			42,043
Income tax expense		3,856			3,023			10,311			8,886
Net income		14,423			12,238			38,130			33,157
Preferred stock dividends		225			225			675			364
Net income applicable to common shares	$	14,198		$	12,013		$	37,455		$	32,793

Basic earnings per common share	$	1.11		$	0.93		$	2.94		$	2.53
Diluted earnings per common share	$	1.11		$	0.92		$	2.92		$	2.52

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	*2022*			*2021*
Net income	$	14,423		$	12,238
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedges of:
2022 - $7,508, net of deferred taxes of $(1,802); 2021 - $907, net of deferred taxes of $(218)		5,706			689
Net unrealized gain on fair value hedge of debt securities available for sale of:
2022 - $2,962, net of deferred taxes of $(711)		2,251			—
Net unrealized loss on debt securities available for sale of:
2022 - $(15,997), net of deferred taxes of $3,839 and reclassification adjustment for net realized losses included in net income of $(242), net of tax of $58; 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		(12,158	)		(2,702	)
Total other comprehensive loss		(4,201	)		(2,013	)
Total comprehensive income	$	10,222		$	10,225

	*For the Nine Months Ended*
	*September 30,*
Dollars in thousands	*2022*			*2021*
Net income	$	38,130		$	33,157
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedges of:
2022 - $23,155, net of deferred taxes of $(5,557); 2021 - $5,242, net of deferred taxes of $(1,258)		17,598			3,984
Net unrealized gain on fair value hedge of debt securities available for sale of:
2022 - $8,141, net of deferred taxes of $(1,954)		6,187			—
Net unrealized loss on debt securities available for sale of:
2022 - $(53,871), net of deferred taxes of $12,929 and reclassification adjustment for net realized losses included in net income of $(684), net of tax of $164; 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)		(40,942	)		(4,341	)
Total other comprehensive loss		(17,157	)		(357	)
Total comprehensive income	$	20,973		$	32,800

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

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

Balance June 30, 2022	$	14,920	$	90,119	$	(112	)	$	236,438		$	(7,474	)	$	333,891

Three Months Ended September 30, 2022
Net income		—		—		—			14,423			—			14,423
Other comprehensive loss		—		—		—			—			(4,201	)		(4,201	)
Exercise of SARs - 4,428 shares		—		—		—			—			—			—
Share-based compensation expense		—		145		—			—			—			145
Unallocated ESOP shares committed to be released - 5,176 shares		—		92		56			—			—			148
Common stock issuances from reinvested dividends - 1,619 shares		—		45		—			—			—			45
Preferred stock cash dividends declared		—		—		—			(225	)		—			(225	)
Common stock cash dividends declared ($0.20 per share)		—		—		—			(2,552	)		—			(2,552	)
Balance, September 30, 2022	$	14,920	$	90,401	$	(56	)	$	248,084		$	(11,675	)	$	341,674

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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

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

Balance December 31, 2021	$	14,920	$	89,525	$	(224	)	$	217,770		$	5,482		$	327,473

Nine Months Ended September 30, 2022
Net income		—		—		—			38,130			—			38,130
Other comprehensive loss		—		—		—			—			(17,157	)		(17,157	)
Exercise of SARs - 5,107 shares		—		—		—			—			—			—
Vesting of RSUs - 5,246 shares		—		—		—			—			—			—
Share-based compensation expense		—		469		—			—			—			469
Unallocated ESOP shares committed to be released - 15,527 shares		—		257		168			—			—			425
Common stock issuances from reinvested dividends - 5,640 shares		—		150		—			—			—			150
Preferred stock cash dividends declared		—		—		—			(675	)		—			(675	)
Common stock cash dividends declared ($0.56 per share)		—		—		—			(7,141	)		—			(7,141	)
Balance, September 30, 2022	$	14,920	$	90,401	$	(56	)	$	248,084		$	(11,675	)	$	341,674

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 dividend 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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)

	*Nine Months Ended*
	*September 30,*			*September 30,*
Dollars in thousands	*2022*			*2021*
Cash Flows from Operating Activities
Net income	$	38,130		$	33,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,727			2,650
Provision for credit losses		5,450			2,500
Share-based compensation expense		469			448
Deferred income tax expense		487			44
Loans originated for sale		(18,857	)		(94,025	)
Proceeds from sale of loans		19,048			96,519
Gains on loans held for sale		(326	)		(1,890	)
Realized losses (gains) on debt securities, net		684			(534	)
Loss on equity investments		14			—
Loss on disposal of assets		7			113
Write-downs of foreclosed properties		42			1,006
Amortization of securities premiums, net		3,626			3,163
Accretion related to acquisition adjustments, net		(973	)		(1,271	)
Amortization of intangibles		1,088			1,176
Earnings on bank owned life insurance and annuities		(603	)		(803	)
(Increase) decrease in accrued interest receivable		(2,664	)		1,657
Decrease (increase) in other assets		1,491			(207	)
Increase in other liabilities		526			642
Net cash provided by operating activities		50,366			44,345
Cash Flows from Investing Activities
Proceeds from maturities and calls of debt securities available for sale		1,795			6,455
Proceeds from sales of debt securities available for sale		61,471			15,704
Principal payments received on debt securities available for sale		29,023			22,925
Purchases of debt securities available for sale		(131,913	)		(190,653	)
Purchase of equity investments		(4,930	)
Purchases of other investments		(17,699	)		(343	)
Proceeds from redemptions of other investments		10,009			3,139
Net loan originations		(315,676	)		(90,086	)
Purchases of premises and equipment		(1,111	)		(3,683	)
Proceeds from disposal of premises and equipment		55			59
Improvements to property held for sale		(17	)		100
Proceeds from sales of repossessed assets & property held for sale		4,732			2,457
Purchase of life insurance contracts and annuities		(10,000	)		—
Cash and cash equivalents from acquisitions, net of cash consideration paid 2021 - $9,807		—			95,699
Net cash used in investing activities		(374,261	)		(138,227	)
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts		283,192			275,730
Net decrease in time deposits		(117,424	)		(78,560	)
Net increase in short-term borrowings		133,002			—
Repayment of long-term borrowings		(16	)		(15	)
Proceeds from issuance of common stock		150			213
Proceeds from issuance of preferred stock, net of issuance costs		—			14,920
Exercise of stock options		—			13
Dividends paid on common stock		(7,141	)		(6,733	)
Dividends paid on preferred stock		(675	)		(364	)
Net cash provided by financing activities		291,088			205,204
(Decrease) increase in cash and cash equivalents		(32,807	)		111,322

continued

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)(continued)

	*Nine Months Ended*
	*September 30,*		*September 30,*
Dollars in thousands	*2022*		*2021*
Cash and cash equivalents:
Beginning		78,458		99,787
Ending	$	45,651	$	211,109


Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	14,089	$	9,671
Income taxes	$	9,195	$	9,017

Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	$	6	$	532
Right of use assets obtained in exchange for lease obligations	$	—	$	1,950

Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired	$	—	$	58,054
Liabilities assumed	$	—	$	164,085

See Notes to Consolidated Financial Statements

Table of Contents

NOTE 1. BASIS OF PRESENTATION

We, Summit Financial Group, Inc. and subsidiary, 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, 2021.

The results of operations for the three and nine months ended September 30, 2022 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 2021 audited financial statements and Annual Report on Form 10-K.

NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Recently Adopted

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.

In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.

In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method. ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We do not expect the adoption of ASU 2022-01 to have a material impact on our consolidated financial statements.

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In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective for us on January 1, 2023 though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. We do not expect the adoption of ASU 2022-03 to have a material impact on our consolidated financial statements.

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, 2022*		*Level 1*		*Level 2*		*Level 3*
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	21,659	$	—	$	21,659	$	—
Residential mortgage-backed securities:
Government sponsored agencies		52,004		—		52,004		—
Nongovernment sponsored entities		48,680		—		48,680		—
State and political subdivisions		94,001		—		94,001		—
Corporate debt securities		31,111		—		27,431		3,680
Asset-backed securities		22,401		—		22,401		—
Tax-exempt state and political subdivisions		114,109		—		114,109		—
Total debt securities available for sale	$	383,965	$	—	$	380,285	$	3,680

Derivative financial assets
Interest rate caps	$	31,659	$	—	$	31,659	$	—
Interest rate swaps		10,520		—		10,520		—

	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2021		Level 1		Level 2		Level 3
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	36,629	$	—	$	36,629	$	—
Residential mortgage-backed securities:
Government sponsored agencies		62,211		—		62,211		—
Nongovernment sponsored entities		26,586		—		26,586		—
State and political subdivisions		137,786		—		137,786		—
Corporate debt securities		30,278		—		30,278		—
Asset-backed securities		24,883		—		24,883		—
Tax-exempt state and political subdivisions		82,730		—		82,730		—
Total debt securities available for sale	$	401,103	$	—	$	401,103	$	—

Derivative financial assets
Interest rate caps	$	11,187	$	—	$	11,187	$	—

Derivative financial liabilities
Interest rate swaps	$	1,124	$	—	$	1,124	$	—

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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.

	*Balance at*		*Fair Value Measurements Using:*
Dollars in thousands	*September 30, 2022*		*Level 1*		*Level 2*		*Level 3*
Residential mortgage loans held for sale	$	362	$	—	$	362	$	—

Collateral-dependent loans with an ACLL
Commercial real estate	$	3,051	$	—	$	3,051	$	—
Construction and development		350		—		350		—
Residential real estate		700		—		182		518
Total collateral-dependent loans with an ACLL	$	4,101	$	—	$	3,583	$	518

Property held for sale
Commercial real estate	$	297	$	—	$	297	$	—
Construction and development		4,625		—		4,625		—
Residential real estate		—		—		—		—
Total property held for sale	$	4,922	$	—	$	4,922	$	—

	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2021		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	227	$	—	$	227	$	—

Collateral-dependent loans with an ACLL
Commercial real estate	$	2,417	$	—	$	2,417	$	—
Construction and development		693		—		693		—
Residential real estate		528		—		528		—
Total collateral-dependent loans with an ACLL	$	3,638	$	—	$	3,638	$	—

Property held for sale
Commercial real estate	$	1,170	$	—	$	1,170	$	—
Construction and development		7,893		—		7,893		—
Residential real estate		27		—		27		—
Total property held for sale	$	9,090	$	—	$	9,090	$	—

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

	*September 30, 2022*				*Fair Value Measurements Using:*
			*Estimated*
	*Carrying*		*Fair*
Dollars in thousands	*Value*		*Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets
Cash and cash equivalents	$	45,651	$	45,651	$	16,141	$	29,510	$	—
Debt securities available for sale		383,965		383,965		—		380,285		3,680
Debt securities held to maturity		96,640		84,085		—		84,085		—
Equity investments		25,118		25,118		4,803		20,315		—
Other investments		18,105		18,105		—		18,105		—
Loans held for sale		362		362		—		362		—
Loans, net		3,038,377		3,015,381		—		3,583		3,011,798
Accrued interest receivable		13,242		13,242		—		13,242		—
Cash surrender value of life insurance policies and annuities		71,216		71,216		—		71,216		—
Derivative financial assets		42,179		42,179		—		42,179		—
	$	3,734,855	$	3,699,304	$	20,944	$	662,882	$	3,015,478
Financial liabilities
Deposits	$	3,108,072	$	3,108,049	$	—	$	3,108,049	$	—
Short-term borrowings		273,148		273,148		—		273,148		—
Long-term borrowings		663		679		—		679		—
Subordinated debentures		103,175		93,912		—		93,912		—
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		19,589		—		19,589		—
Accrued interest payable		2,222		2,222		—		2,222		—
	$	3,506,869	$	3,497,599	$	—	$	3,497,599	$	—

	*December 31, 2021*				*Fair Value Measurements Using:*
			*Estimated*
	*Carrying*		*Fair*
Dollars in thousands	*Value*		*Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets
Cash and cash equivalents	$	78,458	$	78,458	$	21,006	$	57,452	$	—
Debt securities available for sale		401,103		401,103		—		401,103		—
Debt securities held to maturity		98,060		101,242		—		101,242		—
Equity investments		20,202		20,202		—		20,202		—
Other investments		11,304		11,304		—		11,304		—
Loans held for sale, net		227		227		—		227		—
Loans, net		2,729,093		2,726,959		—		3,638		2,723,321
Accrued interest receivable		10,578		10,578		—		10,578		—
Cash surrender value of life insurance policies and annuities		60,613		60,613		—		60,613		—
Derivative financial assets		11,187		11,187		—		11,187		—
	$	3,420,825	$	3,421,873	$	21,006	$	677,546	$	2,723,321
Financial liabilities
Deposits	$	2,943,089	$	2,944,722	$	—	$	2,944,722	$	—
Short-term borrowings		140,146		140,146		—		140,146		—
Long-term borrowings		679		795		—		795		—
Subordinated debentures		102,891		103,623		—		103,623		—
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		19,589		—		19,589		—
Accrued interest payable		788		788		—		788		—
Derivative financial liabilities		1,124		1,124		—		1,124		—
	$	3,208,306	$	3,210,787	$	—	$	3,210,787	$	—

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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,*
	*2022*							*2021*
				*Common*							*Common*
	*Net Income*			*Shares*		*Per*		*Net Income*			*Shares*		*Per*
Dollars in thousands,except per share amounts	*(Numerator)*			*(Denominator)*		*Share*		*(Numerator)*			*(Denominator)*		*Share*
Net income	$	14,423						$	12,238
Less preferred stock dividends		(225	)						(225	)

Basic earnings per share	$	14,198			12,766,473	$	1.11	$	12,013			12,964,575	$	0.93

Effect of dilutive securities:
Stock options					—							789
Stock appreciation rights ("SARs")					65,915							48,827
Restricted stock units ("RSUs")					3,372							4,481

Diluted earnings per share	$	14,198			12,835,760	$	1.11	$	12,013			13,018,672	$	0.92

	*For the Nine Months Ended September 30,*
	*2022*							*2021*
				*Common*							*Common*
	*Net Income*			*Shares*		*Per*		*Net Income*			*Shares*		*Per*
Dollars in thousands,except per share amounts	*(Numerator)*			*(Denominator)*		*Share*		*(Numerator)*			*(Denominator)*		*Share*
Net income	$	38,130						$	33,157
Less preferred stock dividends		(675	)						(364	)

Basic earnings per share	$	37,455			12,755,576	$	2.94	$	32,793			12,953,053	$	2.53

Effect of dilutive securities:
Stock options					—							3,278
Stock appreciation rights ("SARs")					56,035							49,951
Restricted stock units ("RSUs")					4,371							5,244

Diluted earnings per share	$	37,455			12,815,982	$	2.92	$	32,793			13,011,526	$	2.52

Stock option and SAR grants are disregarded in this computation if they are determined to be anti-dilutive. All stock options were dilutive for thethree and nine months ended September 30, 2021. Our anti-dilutive SARs were 105,467 for the three and nine months ended September 30, 2022 and totaled 222,740 for thethree and nine months ended September 30, 2021. All RSUs were dilutive for all periods presented.

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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, 2022 and December 31, 2021 are summarized as follows:

	*September 30, 2022*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Available for Sale
Taxable debt securities
U.S. Government sponsored agencies and corporations	$	21,874	$	91	$	306	$	21,659
Residential mortgage-backed securities:
Government-sponsored agencies		55,924		84		4,004		52,004
Nongovernment-sponsored entities		51,342		2		2,664		48,680
State and political subdivisions
General obligations		82,029		3		19,151		62,881
Sales tax revenues		6,896		—		1,766		5,130
Various tax revenues		10,707		—		2,462		8,245
Utility revenues		5,302		—		1,293		4,009
Other revenues		16,856		—		3,120		13,736
Corporate debt securities		32,658		—		1,547		31,111
Asset-backed securities		22,696		—		295		22,401
Total taxable debt securities		306,284		180		36,608		269,856
Tax-exempt debt securities
State and political subdivisions
General obligations		90,512		—		9,624		80,888
Water and sewer revenues		15,142		—		1,682		13,460
Lease revenues		6,326		—		659		5,667
Various tax revenues		7,885		—		1,445		6,440
Other revenues		9,227		—		1,573		7,654
Total tax-exempt debt securities		129,092		—		14,983		114,109
Total debt securities available for sale	$	435,376	$	180	$	51,591	$	383,965

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	*December 31, 2021*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Available for Sale
Taxable debt securities
U.S. Government sponsored agencies and corporations	$	36,820	$	169	$	360	$	36,629
Residential mortgage-backed securities:
Government-sponsored agencies		61,646		1,153		588		62,211
Nongovernment-sponsored entities		26,839		26		279		26,586
State and political subdivisions
General obligations		78,627		377		1,323		77,681
Water and sewer revenues		9,839		294		—		10,133
Lease revenues		6,401		215		26		6,590
Income tax revenues		6,487		250		3		6,734
Sales tax revenues		6,909		19		99		6,829
Various tax revenues		13,031		218		203		13,046
Utility revenues		7,153		137		130		7,160
Other revenues		9,291		331		9		9,613
Corporate debt securities		30,524		78		324		30,278
Asset-backed securities		24,873		97		87		24,883
Total taxable debt securities		318,440		3,364		3,431		318,373
Tax-exempt debt securities
State and political subdivisions
General obligations		47,583		1,526		270		48,839
Water and sewer revenues		10,618		375		15		10,978
Lease revenues		7,974		553		31		8,496
Other revenues		14,028		405		16		14,417
Total tax-exempt debt securities		80,203		2,859		332		82,730
Total debt securities available for sale	$	398,643	$	6,223	$	3,763	$	401,103

Accrued interest receivable on debt securities available for sale totaled $2.9 million at September 30, 2022 and $2.3 million at December 31, 2021, 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 available for sale portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.

	*September 30, 2022*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*

California	$	47,597	$	—	$	10,650	$	36,947
Texas		35,726		—		5,621		30,105
Washington		20,736		—		2,286		18,450
Michigan		21,440		—		3,099		18,341
Oregon		15,766		—		3,997		11,769

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, 2022, are summarized as follows:

	*Amortized*		*Estimated*
Dollars in thousands	*Cost*		*Fair Value*
Due in one year or less	$	34,660	$	33,530
Due from one to five years		80,286		76,508
Due from five to ten years		62,393		57,655
Due after ten years		258,037		216,272
Total	$	435,376	$	383,965

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, 2022 and 2021 are as follows:

	*Proceeds from*						*Gross realized*
			*Calls and*		*Principal*
Dollars in thousands	*Sales*		*Maturities*		*Payments*		*Gains*		*Losses*
For the Nine Months Ended
September 30,
2022	$	61,471	$	1,795	$	29,023	$	218	$	902

2021	$	15,704	$	6,455	$	22,925	$	628	$	94

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, 2022 and December 31, 2021.

	*September 30, 2022*
			*Less than 12 months*				*12 months or more*				*Total*
	*# of securities*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*
Dollars in thousands	*in loss position*		*Fair Value*		*Loss*		*Fair Value*		*Loss*		*Fair Value*		*Loss*
Taxable debt securities
U.S. Government sponsored agencies and corporations		26	$	5,744	$	100	$	10,544	$	206	$	16,288	$	306
Residential mortgage-backed securities:
Government-sponsored agencies		58		26,975		1,929		14,902		2,075		41,877		4,004
Nongovernment-sponsored entities		20		28,811		1,596		8,882		1,068		37,693		2,664
State and political subdivisions:
General obligations		56		18,116		3,420		43,770		15,731		61,886		19,151
Sales tax revenues		4		1,842		498		3,289		1,268		5,131		1,766
Various tax revenues		7		3,253		704		4,992		1,758		8,245		2,462
Utility revenues		3		1,542		459		2,466		834		4,008		1,293
Other revenues		16		12,588		2,792		1,148		328		13,736		3,120
Corporate debt securities		20		11,579		773		10,071		774		21,650		1,547
Asset-backed securities		15		21,781		283		620		12		22,401		295
Tax-exempt debt securities
State and political subdivisions:
General obligations		58		59,699		4,542		21,189		5,082		80,888		9,624
Water and sewer revenues		14		12,298		1,457		682		225		12,980		1,682
Lease revenues		3		3,762		138		1,874		521		5,636		659
Various tax revenues		4		6,312		1,417		128		28		6,440		1,445
Other revenues		7		6,475		1,324		1,034		249		7,509		1,573
Total		311	$	220,777	$	21,432	$	125,591	$	30,159	$	346,368	$	51,591

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	*December 31, 2021*
			*Less than 12 months*				*12 months or more*				*Total*
	*# of securities*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*
Dollars in thousands	*in loss position*		*Fair Value*		*Loss*		*Fair Value*		*Loss*		*Fair Value*		*Loss*
Taxable debt securities
U.S. Government sponsored agencies and corporations		41	$	6,630	$	23	$	21,061	$	337	$	27,691	$	360
Residential mortgage-backed securities:
Government-sponsored agencies		19		19,828		376		6,886		212		26,714		588
Nongovernment-sponsored entities		6		4,345		61		7,591		218		11,936		279
State and political subdivisions:
General obligations		41		62,543		1,286		1,055		37		63,598		1,323
Lease revenues		2		1,564		14		494		12		2,058		26
Income tax revenues		1		721		3		—		—		721		3
Sales tax revenues		2		6,052		99		—		—		6,052		99
Various tax revenues		5		8,389		203		—		—		8,389		203
Utility revenues		3		5,175		130		—		—		5,175		130
Other revenues		1		744		9		—		—		744		9
Corporate debt securities		10		10,534		314		990		10		11,524		324
Asset-backed securities		8		10,522		86		751		1		11,273		87
Tax-exempt debt securities
State and political subdivisions:
General obligations		13		25,555		261		853		9		26,408		270
Water and sewer revenues		1		904		15		—		—		904		15
Lease revenues		1		2,396		31		—		—		2,396		31
Other revenues		3		3,558		15		156		1		3,714		16
Total		157	$	169,460	$	2,926	$	39,837	$	837	$	209,297	$	3,763

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, 2022 and December 31, 2021 are summarized as follows:

	*September 30, 2022*
	*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	$	70,755	$	—	$	8,607	$	62,148
Water and sewer revenues		8,053		—		836		7,217
Lease revenues		4,254		—		698		3,556
Sales tax revenues		4,532		—		809		3,723
Various tax revenues		5,532		—		1,217		4,315
Other revenues		3,514		—		388		3,126
Total debt securities held to maturity	$	96,640	$	—	$	12,555	$	84,085

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	December 31, 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	$	71,807	$	2,583	$	—	$	74,390
Water and sewer revenues		8,192		210		—		8,402
Lease revenues		4,316		74		—		4,390
Sales tax revenues		4,582		106		—		4,688
Other revenues		9,163		214		5		9,372
Total debt securities held to maturity	$	98,060	$	3,187	$	5	$	101,242

Accrued interest receivable on debt securities held to maturity totaled $937,000 at September 30, 2022 and $1.1 million December 31, 2021, 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, 2022*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Texas	$	15,176	$	—	$	1,713	$	13,463
California		9,718		—		980		8,738
Pennsylvania		8,519		—		1,017		7,502
Florida		7,498		—		1,183		6,315
Michigan		6,937		—		1,003		5,934

The following table displays the amortized cost of held to maturity debt securities by credit rating at September 30, 2022 and December 31, 2021.

	*September 30, 2022*
Dollars in thousands	*AAA*		AA		A		*BBB*		*Below Investment Grade*
Tax-exempt state and political subdivisions	$	12,905	$	76,324	$	7,411	$	—	$	—

	December 31, 2021
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	15,450	$	75,119	$	7,491	$	—	$	—

We owned no past due or nonaccrual held to maturity debt securities at September 30, 2022 or December 31, 2021.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at September 30, 2022, are summarized as follows:

	*Amortized*		*Estimated*
Dollars in thousands	*Cost*		*Fair Value*
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		2,826		2,527
Due after ten years		93,814		81,558
Total	$	96,640	$	84,085

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There were no proceeds from calls and maturities of debt securities held to maturity for the nine months ended September 30, 2022 or 2021.

At September 30, 2022, no allowance for credit losses on debt securities held to maturity has been recognized.

NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)

Loans

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

	*September 30,*		*December 31,*
Dollars in thousands	*2022*		*2021*
Commercial	$	512,771	$	365,301
Commercial real estate - owner occupied
Professional & medical		120,480		150,759
Retail		190,196		190,304
Other		162,622		143,645
Commercial real estate - non-owner occupied
Hotels & motels		145,739		128,450
Mini-storage		51,508		59,045
Multifamily		271,015		233,157
Retail		191,676		162,758
Other		300,689		282,621
Construction and development
Land & land development		104,437		100,805
Construction		248,564		146,038
Residential 1-4 family real estate
Personal residence		258,590		262,805
Rental - small loan		123,612		121,989
Rental - large loan		87,449		79,108
Home equity		72,756		72,112
Mortgage warehouse lines		194,740		227,869
Consumer		35,116		31,923
Other
Credit cards		2,032		1,891
Overdrafts		1,135		811
Total loans, net of unearned fees		3,075,127		2,761,391
Less allowance for credit losses - loans		36,750		32,298
Loans, net	$	3,038,377	$	2,729,093

Accrued interest and fees receivable on loans totaled $8.6 million and $7.2 million at September 30, 2022 and December 31, 2021, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

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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, 2022 and December 31, 2021.

	*At September 30, 2022*
	*Past Due*										*90 days or more and*
Dollars in thousands	*30-59 days*		*60-89 days*		*90 days or more*		*Total*		*Current*		*Accruing*
Commercial	$	1,279	$	57	$	138	$	1,474	$	511,297	$	—
Commercial real estate - owner occupied
Professional & medical		336		—		—		336		120,144		—
Retail		—		—		878		878		189,318		—
Other		464		113		—		577		162,045		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—		145,739		—
Mini-storage		—		—		—		—		51,508		—
Multifamily		71		446		112		629		270,386		—
Retail		264		—		—		264		191,412		—
Other		—		—		—		—		300,689		—
Construction and development
Land & land development		1,000		105		33		1,138		103,299		—
Construction		—		—		—		—		248,564		—
Residential 1-4 family real estate
Personal residence		1,533		595		2,298		4,426		254,164		—
Rental - small loan		1,029		103		584		1,716		121,896		—
Rental - large loan		—		—		—		—		87,449		—
Home equity		347		8		57		412		72,344		—
Mortgage warehouse lines		—		—		—		—		194,740		—
Consumer		145		73		2		220		34,896		—
Other
Credit cards		1		3		4		8		2,024		4
Overdrafts		—		—		—		—		1,135		—
Total	$	6,469	$	1,503	$	4,106	$	12,078	$	3,063,049	$	4

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	December 31, 2021
	Past Due										90 days or more and
Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current		Accruing
Commercial	$	736	$	15	$	613	$	1,364	$	363,937	$	—
Commercial real estate - owner occupied
Professional & medical		409		—		—		409		150,350		—
Retail		—		405		144		549		189,755		—
Other		208		—		150		358		143,287		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—		128,450		—
Mini-storage		2		—		—		2		59,043		—
Multifamily		—		—		55		55		233,102		—
Retail		66		—		338		404		162,354		—
Other		—		—		—		—		282,621		—
Construction and development
Land & land development		38		7		962		1,007		99,798		—
Construction		—		—		—		—		146,038		—
Residential 1-4 family real estate
Personal residence		2,283		1,211		1,384		4,878		257,927		—
Rental - small loan		429		247		1,093		1,769		120,220		—
Rental - large loan		—		—		—		—		79,108		—
Home equity		236		80		175		491		71,621		—
Mortgage warehouse lines		—		—		—		—		227,869		—
Consumer		98		101		7		206		31,717		—
Other
Credit cards		12		10		4		26		1,865		4
Overdrafts		—		—		—		—		811		—
Total	$	4,517	$	2,076	$	4,925	$	11,518	$	2,749,873	$	4

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The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2022 and December 31, 2021.

	*September 30,*				*December 31,*
	*2022*				*2021*
			*Nonaccrual*				*Nonaccrual*
			*with No*				*with No*
			*Allowance for*				*Allowance for*
			*Credit Losses*				*Credit Losses*
Dollars in thousands	*Nonaccrual*		*- Loans*		*Nonaccrual*		*- Loans*
Commercial	$	347	$	64	$	740	$	96
Commercial real estate - owner occupied
Professional & medical		—		—		—		—
Retail		1,010		656		775		—
Other		298		—		341		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		3,085		—
Mini-storage		—		—		—		—
Multifamily		112		—		55		—
Retail		440		—		338		—
Other		—		—		9		—
Construction and development
Land & land development		902		—		1,560		—
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		3,479		—		2,504		—
Rental - small loan		2,437		257		3,094		—
Rental - large loan		—		—		—		—
Home equity		167		—		174		—
Mortgage warehouse lines		—		—		—		—
Consumer		4		—		17		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	9,196	$	977	$	12,692	$	96

At September 30, 2022, we had troubled debt restructurings ("TDRs") of $20.1 million, of which $18.1 million were current with respect to restructured contractual payments. At December 31, 2021, our TDRs totaled $20.9 million, of which $18.7 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, 2022 and September 30, 2021. 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*						*For the Three Months Ended*
	*September 30, 2022*						*September 30, 2021*
			*Pre-*		*Post-*				*Pre-*		*Post-*
			*modification*		*modification*				*modification*		*modification*
	*Number of*		*Recorded*		*Recorded*		*Number of*		*Recorded*		*Recorded*
Dollars in thousands	*Modifications*		*Investment*		*Investment*		*Modifications*		*Investment*		*Investment*
Residential 1-4 family real estate
Personal residence		1	$	41	$	41		—	$	—	$	—
Total		1	$	41	$	41	$	—	$	—	$	—

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	*For the Nine Months Ended*						*For the Nine Months Ended*
	*September 30, 2022*						*September 30, 2021*
			*Pre-*		*Post-*				*Pre-*		*Post-*
			*modification*		*modification*				*modification*		*modification*
	*Number of*		*Recorded*		*Recorded*		*Number of*		*Recorded*		*Recorded*
Dollars in thousands	*Modifications*		*Investment*		*Investment*		*Modifications*		*Investment*		*Investment*
Residential 1-4 family real estate
Personal residence		7	$	377	$	377		—	$	—	$	—
Home equity		1		132		132		—		—		—
Total		8	$	509	$	509	$	—	$	—	$	—

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*				*For the Three Months Ended*
	*September 30, 2022*				*September 30, 2021*
	*Number*		*Recorded*		*Number*		*Recorded*
	of		*Investment*		of		*Investment*
Dollars in thousands	*Defaults*		*at Default Date*		*Defaults*		*at Default Date*
Residential 1-4 family real estate
Personal residence		8	$	531		—	$	—
Home equity		1		110		—		—
Consumer		1		12		—		—
Total		10	$	653		—	$	—

	*For the Nine Months Ended*				*For the Nine Months Ended*
	*September 30, 2022*				*September 30, 2021*
	*Number*		*Recorded*		*Number*		*Recorded*
	of		*Investment*		of		*Investment*
Dollars in thousands	*Defaults*		*at Default Date*		*Defaults*		*at Default Date*
Residential 1-4 family real estate
Personal residence		8	$	531		—	$	—
Home equity		1		110		—		—
Consumer		1		12		—		—
Total		10	$	653		—	$	—

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.

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.

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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, 2022 and December 31, 2021, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:

	*September 30, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*

Commercial	Pass	$	135,917	$	101,025	$	28,697	$	21,553	$	3,672	$	12,748	$	205,118	$	—	$	508,730
	Special Mention		708		527		272		57		13		154		1,995		—		3,726
	Substandard		54		87		3		64		29		2		76		—		315
Total Commercial			136,679		101,639		28,972		21,674		3,714		12,904		207,189		—		512,771

Commercial Real Estate - Owner Occupied

Professional & medical	Pass		11,421		47,226		10,535		6,720		4,134		36,560		2,237		—		118,833
	Special Mention		—		—		1,128		—		—		237		—		—		1,365
	Substandard		—		—		72		—		—		210		—		—		282
Total Professional & Medical			11,421		47,226		11,735		6,720		4,134		37,007		2,237		—		120,480

Retail	Pass		18,462		74,289		28,666		29,502		8,298		27,350		2,002		—		188,569
	Special Mention		—		—		—		—		—		617		—		—		617
	Substandard		—		—		—		—		—		1,010		—		—		1,010
Total Retail			18,462		74,289		28,666		29,502		8,298		28,977		2,002		—		190,196

Other	Pass		42,328		27,709		25,198		8,689		15,512		37,715		4,456		—		161,607
	Special Mention		—		57		—		—		113		547		—		—		717
	Substandard		—		—		—		—		—		298		—		—		298
Total Other			42,328		27,766		25,198		8,689		15,625		38,560		4,456		—		162,622

*Total Commercial Real Estate - Owner Occupied*			72,211		149,281		65,599		44,911		28,057		104,544		8,695		—		473,298

Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass		32,185		1,706		3,223		32,911		15,462		20,899		55		—		106,441
	Special Mention		—		—		—		36,337		—		—		—		—		36,337
	Substandard		—		—		2,731		—		—		230		—		—		2,961
Total Hotels & Motels			32,185		1,706		5,954		69,248		15,462		21,129		55		—		145,739

Mini-storage	Pass		2,474		13,285		7,786		3,890		13,159		10,545		190		—		51,329
	Special Mention		—		134		—		—		—		45		—		—		179
	Substandard		—		—		—		—		—		—		—		—		—
Total Mini-storage			2,474		13,419		7,786		3,890		13,159		10,590		190		—		51,508

Multifamily	Pass		54,139		59,080		49,287		29,671		21,515		55,196		1,483		—		270,371
	Special Mention		—		—		592		—		—		—		—		—		592
	Substandard		—		—		—		—		—		52		—		—		52
Total Multifamily			54,139		59,080		49,879		29,671		21,515		55,248		1,483		—		271,015

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	*September 30, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*

Retail	Pass		43,750		52,890		40,028		5,719		7,148		25,925		6,964		—		182,424
	Special Mention		—		—		—		—		—		984		—		—		984
	Substandard		—		—		—		7,828		—		440		—		—		8,268
Total Retail			43,750		52,890		40,028		13,547		7,148		27,349		6,964		—		191,676

Other	Pass		44,314		126,190		53,016		12,458		5,540		54,192		1,581		—		297,291
	Special Mention		—		—		—		—		564		—		—		—		564
	Substandard		—		—		—		—		—		2,834		—		—		2,834
Total Other			44,314		126,190		53,016		12,458		6,104		57,026		1,581		—		300,689

*Total Commercial Real Estate - Non-Owner Occupied*			176,862		253,285		156,663		128,814		63,388		171,342		10,273		—		960,627

Construction and Development

Land & land development	Pass		24,859		24,169		10,740		13,475		5,204		17,576		5,796		—		101,819
	Special Mention		—		—		256		111		—		488		—		—		855
	Substandard		—		—		—		—		—		1,763		—		—		1,763
Total Land & land development			24,859		24,169		10,996		13,586		5,204		19,827		5,796		—		104,437

Construction	Pass		66,592		111,514		63,393		317		1,368		—		5,054		—		248,238
	Special Mention		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		—		326		—		—		—		326
Total Construction			66,592		111,514		63,393		317		1,694		—		5,054		—		248,564

*Total Construction and Development*			91,451		135,683		74,389		13,903		6,898		19,827		10,850		—		353,001

Residential 1-4 Family Real Estate

Personal residence	Pass		27,666		38,585		30,420		16,218		17,191		109,624		—		—		239,704
	Special Mention		1		—		—		180		61		9,357		—		—		9,599
	Substandard		—		—		—		626		816		7,845		—		—		9,287
Total Personal Residence			27,667		38,585		30,420		17,024		18,068		126,826		—		—		258,590

Rental - small loan	Pass		19,240		27,689		12,473		11,588		8,352		33,311		5,281		—		117,934
	Special Mention		—		225		104		—		—		1,225		—		—		1,554
	Substandard		—		—		—		165		428		3,380		151		—		4,124
Total Rental - Small Loan			19,240		27,914		12,577		11,753		8,780		37,916		5,432		—		123,612

Rental - large loan	Pass		20,848		33,504		11,246		3,649		3,972		9,442		1,323		—		83,984
	Special Mention		—		—		—		—		—		27		—		—		27
	Substandard		—		—		—		—		—		3,438		—		—		3,438
Total Rental - Large Loan			20,848		33,504		11,246		3,649		3,972		12,907		1,323		—		87,449

Home equity	Pass		66		416		30		29		52		1,226		68,910		—		70,729
	Special Mention		—		—		—		—		—		48		1,397		—		1,445
	Substandard		—		—		—		—		57		300		225		—		582
Total Home Equity			66		416		30		29		109		1,574		70,532		—		72,756

*Total Residential 1-4 Family Real Estate*			67,821		100,419		54,273		32,455		30,929		179,223		77,287		—		542,407

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	*September 30, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*

Mortgage warehouse lines	Pass		—		—		—		—		—		—		194,740		—		194,740
*Total Mortgage Warehouse Lines*			—		—		—		—		—		—		194,740		—		194,740

Consumer	Pass		14,718		9,067		3,592		2,188		894		1,417		860		—		32,736
	Special Mention		1,059		469		218		98		26		108		11		—		1,989
	Substandard		234		86		38		2		4		—		27		—		391
Total Consumer			16,011		9,622		3,848		2,288		924		1,525		898		—		35,116

Other

Credit cards	Pass		2,032		—		—		—		—		—		—		—		2,032
Total Credit Cards			2,032		—		—		—		—		—		—		—		2,032

Overdrafts	Pass		1,135		—		—		—		—		—		—		—		1,135
Total Overdrafts			1,135		—		—		—		—		—		—		—		1,135

Total Other			3,167		—		—		—		—		—		—		—		3,167

Total		$	564,202	$	749,929	$	383,744	$	244,045	$	133,910	$	489,365	$	509,932	$	—	$	3,075,127

	*December 31, 2021*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2021*		*2020*		*2019*		*2018*		*2017*		*Prior*		ng		*Term*		*Total*

Commercial	Pass	$	123,890	$	36,339	$	31,116	$	5,549	$	8,831	$	14,061	$	141,003	$	—	$	360,789
	Special Mention		693		279		69		41		60		539		1,984		—		3,665
	Substandard		135		45		110		48		18		7		484		—		847
Total Commercial			124,718		36,663		31,295		5,638		8,909		14,607		143,471		—		365,301

Commercial Real Estate - Owner Occupied

Professional & medical	Pass		72,417		11,869		7,046		4,595		22,939		27,905		2,366		—		149,137
	Special Mention		—		1,146		—		—		—		187		—		—		1,333
	Substandard		—		72		—		—		217		—		—		—		289
Total Professional & Medical			72,417		13,087		7,046		4,595		23,156		28,092		2,366		—		150,759

Retail	Pass		78,780		29,749		33,114		8,813		9,318		25,296		2,464		—		187,534
	Special Mention		—		—		—		—		—		671		—		—		671
	Substandard		—		—		1,324		—		549		226		—		—		2,099
Total Retail			78,780		29,749		34,438		8,813		9,867		26,193		2,464		—		190,304

Other	Pass		32,805		30,897		13,216		16,716		7,501		38,796		2,782		—		142,713
	Special Mention		59		—		—		—		—		532		—		—		591
	Substandard		—		—		—		—		—		303		38		—		341
Total Other			32,864		30,897		13,216		16,716		7,501		39,631		2,820		—		143,645

Total Commercial Real Estate - Owner Occupied			184,061		73,733		54,700		30,124		40,524		93,916		7,650		—		484,708

Table of Contents

	December 31, 2021
														Revolvi-		Revolving-
Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		ng		Term		Total
Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass		1,736		3,313		32,634		15,949		6,953		20,308		7,531		—		88,424
	Special Mention		—		—		36,941		—		—		—		—		—		36,941
	Substandard		—		2,830		—		—		—		255		—		—		3,085
Total Hotels & Motels			1,736		6,143		69,575		15,949		6,953		20,563		7,531		—		128,450

Mini-storage	Pass		13,294		7,641		9,218		14,209		4,506		10,109		21		—		58,998
	Special Mention		—		—		—		—		—		47		—		—		47
	Substandard		—		—		—		—		—		—		—		—		—
Total Mini-storage			13,294		7,641		9,218		14,209		4,506		10,156		21		—		59,045

Multifamily	Pass		55,367		39,105		45,016		23,665		14,629		51,155		3,372		—		232,309
	Special Mention		—		582		—		—		—		43		169		—		794
	Substandard		—		—		—		—		—		54		—		—		54
Total Multifamily			55,367		39,687		45,016		23,665		14,629		51,252		3,541		—		233,157

Retail	Pass		52,533		42,177		20,763		7,653		6,778		24,958		6,586		—		161,448
	Special Mention		—		—		—		—		—		972		—		—		972
	Substandard		—		—		—		—		—		338		—		—		338
Total Retail			52,533		42,177		20,763		7,653		6,778		26,268		6,586		—		162,758

Other	Pass		107,962		82,846		14,211		8,443		11,421		51,587		2,620		—		279,090
	Special Mention		—		—		—		572		—		—		—		—		572
	Substandard		—		—		—		—		—		2,959		—		—		2,959
Total Other			107,962		82,846		14,211		9,015		11,421		54,546		2,620		—		282,621

Total Commercial Real Estate - Non-Owner Occupied			230,892		178,494		158,783		70,491		44,287		162,785		20,299		—		866,031

Construction and Development

Land & land development	Pass		26,671		14,050		20,275		5,627		2,927		21,875		6,721		—		98,146
	Special Mention		—		155		117		—		—		591		—		—		863
	Substandard		—		—		—		—		—		1,796		—		—		1,796
Total Land & land development			26,671		14,205		20,392		5,627		2,927		24,262		6,721		—		100,805

Construction	Pass		64,352		64,022		7,438		1,407		—		—		8,320		—		145,539
	Special Mention		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		329		—		170		—		—		499
Total Construction			64,352		64,022		7,438		1,736		—		170		8,320		—		146,038

Total Construction and Development			91,023		78,227		27,830		7,363		2,927		24,432		15,041		—		246,843

Residential 1-4 Family Real Estate

Personal residence	Pass		39,637		34,962		18,974		18,784		14,597		115,384		—		—		242,338
	Special Mention		—		—		184		62		534		10,377		—		—		11,157
	Substandard		—		—		475		847		456		7,532		—		—		9,310
Total Personal Residence			39,637		34,962		19,633		19,693		15,587		133,293		—		—		262,805

Table of Contents

	December 31, 2021
														Revolvi-		Revolving-
Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		ng		Term		Total
Rental - small loan	Pass		30,342		13,990		14,093		11,524		6,567		33,936		4,630		—		115,082
	Special Mention		229		107		57		250		1		1,579		9		—		2,232
	Substandard		—		132		133		374		513		3,388		135		—		4,675
Total Rental - Small Loan			30,571		14,229		14,283		12,148		7,081		38,903		4,774		—		121,989

Rental - large loan	Pass		34,558		14,069		5,971		5,283		2,790		11,776		1,078		—		75,525
	Special Mention		—		—		—		—		—		29		—		—		29
	Substandard		—		—		—		—		—		3,554		—		—		3,554
Total Rental - Large Loan			34,558		14,069		5,971		5,283		2,790		15,359		1,078		—		79,108

Home equity	Pass		27		115		11		50		78		1,380		68,293		—		69,954
	Special Mention		—		—		—		—		—		94		1,399		—		1,493
	Substandard		—		—		—		—		—		407		258		—		665
Total Home Equity			27		115		11		50		78		1,881		69,950		—		72,112

Total Residential 1-4 Family Real Estate			104,793		63,375		39,898		37,174		25,536		189,436		75,802		—		536,014

Mortgage warehouse lines	Pass		—		—		—		—		—		—		227,869		—		227,869
Total Mortgage Warehouse Lines			—		—		—		—		—		—		227,869		—		227,869

Consumer	Pass		14,134		6,333		4,444		1,767		540		1,691		902		—		29,811
	Special Mention		904		381		210		66		87		53		11		—		1,712
	Substandard		199		96		40		11		3		22		29		—		400
Total Consumer			15,237		6,810		4,694		1,844		630		1,766		942		—		31,923

Other

Credit cards	Pass		1,891		—		—		—		—		—		—		—		1,891
Total Credit Cards			1,891		—		—		—		—		—		—		—		1,891

Overdrafts	Pass		811		—		—		—		—		—		—		—		811
Total Overdrafts			811		—		—		—		—		—		—		—		811

Total Other			2,702		—		—		—		—		—		—		—		2,702

Total		$	753,426	$	437,302	$	317,200	$	152,634	$	122,813	$	486,942	$	491,074	$	—	$	2,761,391

Table of Contents

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, 2022 and 2021 and the twelve months ended December 31, 2021:

	*For the Three Months Ended September 30, 2022*
	*Allowance for Credit Losses - Loans*
			*Provision*
			*for*
			*Credit*
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	4,545	$	531		$	(35	)	$	77	$	5,118
Commercial real estate - owner occupied
Professional & medical		1,180		(231	)		—			—		949
Retail		1,597		82			(108	)		—		1,571
Other		457		(4	)		—			—		453
Commercial real estate - non-owner occupied
Hotels & motels		1,159		93			—			—		1,252
Mini-storage		97		(11	)		—			—		86
Multifamily		2,330		(118	)		—			—		2,212
Retail		1,891		(560	)		—			52		1,383
Other		2,103		48			—			30		2,181
Construction and development
Land & land development		3,600		(95	)		—			2		3,507
Construction		8,208		1,644			—			—		9,852
Residential 1-4 family real estate
Personal residence		2,669		4			(21	)		13		2,665
Rental - small loan		2,097		(124	)		(4	)		12		1,981
Rental - large loan		2,181		442			—			—		2,623
Home equity		399		17			—			11		427
Mortgage warehouse lines		—		—			—			—		—
Consumer		254		(61	)		(47	)		30		176
Other
Credit cards		17		(7	)		(6	)		13		17
Overdrafts		279		45			(44	)		17		297
Total	$	35,063	$	1,695		$	(265	)	$	257	$	36,750

Table of Contents

	For the Three Months Ended September 30, 2021
	Allowance for Credit Losses - Loans
			Provision
			for			Adjustment
			Credit			for PCD
	*Beginning*		*Losses -*			*Acquired*		*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*Loans*		*offs*			*Recoveries*		*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

Table of Contents

	*For the Nine Months Ended September 30, 2022*
	*Allowance for Credit Losses - Loans*
			*Provision*
			*for*
			*Credit*
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	3,218	$	1,990		$	(237	)	$	147	$	5,118
Commercial real estate - owner occupied
Professional & medical		1,092		(143	)		—			—		949
Retail		1,362		316			(108	)		1		1,571
Other		575		(122	)		—			—		453
Commercial real estate - non-owner occupied
Hotels & motels		2,532		(1,280	)		—			—		1,252
Mini-storage		133		(47	)		—			—		86
Multifamily		1,821		387			—			4		2,212
Retail		1,074		254			—			55		1,383
Other		1,820		325			—			36		2,181
Construction and development
Land & land development		3,468		104			(72	)		7		3,507
Construction		6,346		3,506			—			—		9,852
Residential 1-4 family real estate
Personal residence		2,765		(38	)		(105	)		43		2,665
Rental - small loan		2,834		(683	)		(196	)		26		1,981
Rental - large loan		2,374		249			—			—		2,623
Home equity		497		(82	)		(8	)		20		427
Mortgage warehouse lines		—		—			—			—		—
Consumer		163		55			(121	)		79		176
Other
Credit cards		17		9			(24	)		15		17
Overdrafts		207		328			(318	)		80		297
Total	$	32,298	$	5,128		$	(1,189	)	$	513	$	36,750

Table of Contents

	For the Nine Months Ended September 30, 2021
	Allowance for Credit Losses - Loans
			Provision
			for			Adjustment
			Credit			for PCD
	*Beginning*		*Losses -*			*Acquired*		*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*Loans*		*offs*			*Recoveries*		*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
Overdraftss		121		181			—		(237	)		132		197
Total	$	32,246	$	830		$	91	$	(1,224	)	$	463	$	32,406

Table of Contents

	For the Twelve Months Ended December 31, 2021
	Allowance for Credit Losses - Loans
			Provision
			for			Adjustment
			Credit			for PCD
	*Beginning*		*Losses -*			*Acquired*		*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*Loans*		*offs*			*Recoveries*		*Balance*
Commercial	$	2,304	$	1,112		$	—	$	(222	)	$	24	$	3,218
Commercial real estate - owner occupied
Professional & medical		954		71			71		(4	)		—		1,092
Retail		3,173		(1,812	)		—		—			1		1,362
Other		610		(35	)		—		—			—		575
Commercial real estate - non-owner occupied
Hotels & motels		2,135		397			—		—			—		2,532
Mini-storage		337		(204	)		—		—			—		133
Multifamily		1,547		265			—		—			9		1,821
Retail		981		93			—		—			—		1,074
Other		1,104		947			—		(233	)		2		1,820
Construction and development
Land & land development		4,084		(628	)		—		—			12		3,468
Construction		4,648		1,698			—		—			—		6,346
Residential 1-4 family real estate
Personal residence		3,559		(548	)		—		(365	)		119		2,765
Rental - small loan		2,736		177			20		(189	)		90		2,834
Rental - large loan		3,007		(633	)		—		—			—		2,374
Home equity		713		(206	)		—		(26	)		16		497
Mortgage warehouse lines		—		—			—		—			—		—
Consumer		216		(44	)		—		(131	)		122		163
Other
Credit cards		17		10			—		(16	)		6		17
Overdrafts		121		255			—		(321	)		152		207
Total	$	32,246	$	915		$	91	$	(1,507	)	$	553	$	32,298

Table of Contents

The following tables presents, as of September 30, 2022 and December 31, 2021 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans.

	*September 30, 2022*
	*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	$	123	$	512,648	$	512,771	$	—	$	5,118	$	5,118
Commercial real estate - owner occupied
Professional & medical		1,998		118,482		120,480		222		727		949
Retail		5,227		184,969		190,196		—		1,571		1,571
Other		—		162,622		162,622		—		453		453
Commercial real estate - non-owner occupied
Hotels & motels		2,962		142,777		145,739		—		1,252		1,252
Mini-storage		—		51,508		51,508		—		86		86
Multifamily		—		271,015		271,015		—		2,212		2,212
Retail		9,978		181,698		191,676		97		1,286		1,383
Other		5,526		295,163		300,689		292		1,889		2,181
Construction and development
Land & land development		1,428		103,009		104,437		520		2,987		3,507
Construction		—		248,564		248,564		—		9,852		9,852
Residential 1-4 family real estate
Personal residence		—		258,590		258,590		—		2,665		2,665
Rental - small loan		1,412		122,200		123,612		284		1,697		1,981
Rental - large loan		3,061		84,388		87,449		—		2,623		2,623
Home equity		472		72,284		72,756		—		427		427
Mortgage warehouse lines		—		194,740		194,740		—		—		—
Consumer		—		35,116		35,116		—		176		176
Other
Credit cards		—		2,032		2,032		—		17		17
Overdrafts		—		1,135		1,135		—		297		297
Total	$	32,187	$	3,042,940	$	3,075,127	$	1,415	$	35,335	$	36,750

(1) Included in the loans collectively evaluated are $9.7 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, 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	$	177	$	365,124	$	365,301	$	—	$	3,218	$	3,218
Commercial real estate - owner occupied
Professional & medical		2,073		148,686		150,759		199		893		1,092
Retail		5,559		184,745		190,304		—		1,362		1,362
Other		—		143,645		143,645		—		575		575
Commercial real estate - non-owner occupied
Hotels & motels		3,085		125,365		128,450		669		1,863		2,532
Mini-storage		1,058		57,987		59,045		—		133		133
Multifamily		—		233,157		233,157		—		1,821		1,821
Retail		2,693		160,065		162,758		—		1,074		1,074
Other		5,726		276,895		282,621		69		1,751		1,820
Construction and development
Land & land development		2,004		98,801		100,805		723		2,745		3,468
Construction		—		146,038		146,038		—		6,346		6,346
Residential 1-4 family real estate
Personal residence		—		262,805		262,805		—		2,765		2,765
Rental - small loan		1,463		120,526		121,989		436		2,398		2,834
Rental - large loan		3,162		75,946		79,108		—		2,374		2,374
Home equity		523		71,589		72,112		—		497		497
Mortgage warehouse lines		—		227,869		227,869		—		—		—
Consumer		—		31,923		31,923		—		163		163
Other
Credit cards		—		1,891		1,891		—		17		17
Overdrafts		—		811		811		—		207		207
Total	$	27,523	$	2,733,868	$	2,761,391	$	2,096	$	30,202	$	32,298

(1) Included in the loans collectively evaluated are $19.8 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

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The following tables 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:

	*September 30, 2022*
	*Real Estate*						*Allowance for*
	*Secured*		*Non-Real Estate*				*Credit Losses*
Dollars in thousands	*Loans*		*Secured Loans*		*Total Loans*		*- Loans*
Commercial	$	—	$	123	$	123	$	—
Commercial real estate - owner occupied
Professional & medical		1,998		—		1,998		222
Retail		5,227		—		5,227		—
Other		—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels		2,962		—		2,962		—
Mini-storage		—		—		—		—
Multifamily		—		—		—		—
Retail		9,978		—		9,978		97
Other		5,526		—		5,526		292
Construction and development
Land & land development		1,428		—		1,428		520
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		—		—		—		—
Rental - small loan		1,412		—		1,412		284
Rental - large loan		3,061		—		3,061		—
Home equity		472		—		472		—
Consumer		—		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	32,064	$	123	$	32,187	$	1,415

	December 31, 2021
	Real Estate						Allowance for
	Secured		Non-Real Estate				Credit Losses
Dollars in thousands	Loans		Secured Loans		Total Loans		- Loans
Commercial	$	—	$	177	$	177	$	—
Commercial real estate - owner occupied
Professional & medical		2,073		—		2,073		199
Retail		5,559		—		5,559		—
Other		—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels		3,085		—		3,085		669
Mini-storage		1,058		—		1,058		—
Multifamily		—		—		—		—
Retail		2,693		—		2,693		—
Other		5,726		—		5,726		69
Construction and development
Land & land development		2,004		—		2,004		723
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		—		—		—		—
Rental - small loan		1,463		—		1,463		436
Rental - large loan		3,162		—		3,162		—
Home equity		523		—		523		—
Consumer		—		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	27,346	$	177	$	27,523	$	2,096

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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 2022, 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, 2022.

The following tables present our goodwill activity for the nine months ending September 30, 2022 and the balance of other intangible assets at September 30, 2022 and December 31, 2021.

Dollars in thousands	Goodwill Activity
Balance, January 1, 2022	$	55,347
Reclassifications from goodwill		—
Acquired goodwill		—
Balance, September 30, 2022	$	55,347

	*Other Intangible Assets*
Dollars in thousands	*September 30, 2022*		*December 31, 2021*
Identifiable intangible assets
Gross carrying amount	$	15,827	$	15,828
Less: accumulated amortization		8,672		7,585
Net carrying amount	$	7,155	$	8,243

We recorded amortization expense of $354,000 and $1,088,000 for the three and nine months ended September 30, 2022 and $390,000 and $1,176,000 for the three and nine months ended September 30, 2021, 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, 2022	$	353
Year ending December 31, 2023		1,299
Year ending December 31, 2024		1,158
Year ending December 31, 2025		1,019
Year ending December 31, 2026		878
Thereafter		2,378

NOTE 8. DEPOSITS

The following is a summary of interest bearing deposits by type as of September 30, 2022 and December 31, 2021:

	*September 30,*		*December 31,*
Dollars in thousands	*2022*		*2021*
Demand deposits, interest bearing	$	1,475,643	$	1,127,298
Savings deposits		582,922		698,156
Time deposits		430,440		548,649
Total	$	2,489,005	$	2,374,103

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $32.8 million and $14.7 million at September 30, 2022 and December 31, 2021, respectively.

A summary of the scheduled maturities for all time deposits as of September 30, 2022 is as follows:

Dollars in thousands
Three month period ending December 31, 2022	$	115,414
Year ending December 31, 2023		188,640
Year ending December 31, 2024		64,031
Year ending December 31, 2025		33,637
Year ending December 31, 2026		15,051
Thereafter		13,667
Total	$	430,440

The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $97.9 million at September 30, 2022 and $98.9 million at December 31, 2021.

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NOTE 9. BORROWED FUNDS

Short-term borrowings: Federal funds purchased mature the next business day and totaled $148,000 at September 30, 2022 and $146,000 at December 31, 2021. A summary of short-term FHLB advances is presented below:


	*Nine Months Ended September 30,*
Dollars in thousands		2022			2021
Balance at September 30	$	273,000		$	140,000
Average balance outstanding for the period		179,667			140,000
Maximum balance outstanding at any month end during period		291,300			140,000
Weighted average interest rate for the period		1.48	%		0.34	%
Weighted average interest rate for balances outstanding at September 30		3.06	%		0.32	%


Dollars in thousands		*Year Ended December 31, 2021*
Balance at December 31	$	140,000
Average balance outstanding for the period		140,000
Maximum balance outstanding at any month end during period		140,000
Weighted average interest rate for the period		0.33	%
Weighted average interest rate for balances outstanding at December 31		0.26	%

Long-term borrowings: Our long-term borrowings of $663,000 and $679,000 at September 30, 2022 and December 31, 2021, 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 $1.81 billion of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U.S. Government agencies and corporations.

Subordinated debentures: We issued $75 million of subordinated debentures, net of $1.74 million debt issuance costs, during fourth quarter 2021 in a private placement transaction, which had a net balance of $73.6 million at September 30, 2022 and $73.4 million at December 31, 2021. 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 3.25% per year, from and including November 16, 2021 to, but excluding, December 1, 2026, payable semi-annually in arrears. From and including December 1, 2026 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 230 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.

We issued $30 million of subordinated debentures, net of $681,000 debt issuance costs, during third quarter 2020 in a private placement transaction, which had a net balance of $29.6 million at September 30, 2022 and $29.5 million at December 31, 2021. 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.

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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 “debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $19.6 million at September 30, 2022 and December 31, 2021.

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:

						*Subordinated*
						*debentures owed*
		*Long-term*		*Subordinated*		*to unconsolidated*
Dollars in thousands		*borrowings*		*debentures*		*subsidiary trusts*
Year Ending December 31,	2022	$	5	$	—	$	—
	2023		22		—		—
	2024		23		—		—
	2025		24		—		—
	2026		589		—		—
	Thereafter		—		105,000		19,589
		$	663	$	105,000	$	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.

There were no grants of SARs or stock options during the first nine months of 2022. During third quarter 2021, we granted 54,947 SARs with an $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.

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. The assumptions used to value SARs granted in 2021 are as follows:

	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 (in years)		7			5.5

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A summary of our SAR and stock option activity during the first nine months of 2022 and 2021 is as follows:

	*For the Nine Months Ended September 30, 2022*
				*Aggregate*		*Remaining*		*Weighted-*
				*Intrinsic Value*		*Contractual*		*Average*
	*Options/SARs*			*(in thousands)*		*Term (Yrs.)*		*Exercise Price*
Outstanding, January 1		491,792						$	21.32
Granted		—							—
Exercised		(14,996	)						19.46
Forfeited		—							—
Expired		—							—
Outstanding, September 30		476,796		$	2,651		6.24	$	21.38

Exercisable, September 30		262,622		$	1,724		4.86	$	20.38

	*For the Nine Months Ended September 30, 2021*
				*Aggregate*		*Remaining*		*Weighted-*
				*Intrinsic Value*		*Contractual*		*Average*
	*Options/SARs*			*(in thousands)*		*Term (Yrs.)*		*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

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years. A summary of our RSU activity during the first nine months of 2022 and 2021 is as follows:

	*RSUs*			*Weighted Average Grant Date Fair Value*
Nonvested, December 31, 2021		13,015		$	21.24
Granted		—			—
Forfeited		(313	)		26.63
Vested		(5,246	)		22.24
Nonvested, September 30, 2022		7,456		$	20.31

	*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

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 2022 and 2021, total stock compensation expense for all share-based arrangements was $469,000 and $448,000 and the related deferred tax benefits were approximately $113,000 and $108,000. At September 30, 2022 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $1.70 million and on a weighted average basis, will be recognized over the next 2.12 years.

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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:

	*September 30,*
Dollars in thousands	*2022*
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,374
Construction loans		279,861
Other loans		449,459
Standby letters of credit		56,160
Total	$	889,854

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 $(195,000) and $1.2 million for the three months ended September 30, 2022 and 2021 and $322,000 and $1.67 million for the nine months ended September 30, 2022 and 2021. The ACL on off-balance-sheet credit exposures totaled $7.59 million at September 30, 2022 compared to $7.28 million at December 31, 2021 and is included in other liabilities on the accompanying consolidated balance sheets.

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.

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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, 2022, 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, 2022 and December 31, 2021.

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

	*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, 2022
CET1 (to risk weighted assets)
Summit	$	286,938		8.2	%	$	244,648		7.0	%		N/A		N/A
Summit Community		392,969		11.3	%		244,249		7.0	%		226,802		6.5	%
Tier I Capital (to risk weighted assets)
Summit		320,858		9.2	%		297,073		8.5	%		N/A		N/A
Summit Community		392,969		11.3	%		296,588		8.5	%		279,141		8.0	%
Total Capital (to risk weighted assets)
Summit		458,252		13.1	%		366,973		10.5	%		N/A		N/A
Summit Community		427,189		12.2	%		366,373		10.5	%		348,927		10.0	%
Tier I Capital (to average assets)
Summit		320,858		8.4	%		152,601		4.0	%		N/A		N/A
Summit Community		392,969		10.3	%		151,891		4.0	%		189,863		5.0	%

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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 December 31, 2021
CET1 (to risk weighted assets)
Summit		257,122		8.4	%		214,268		7.0	%		N/A		N/A
Summit Community		364,125		11.9	%		214,191		7.0	%		198,892		6.5	%
Tier I Capital (to risk weighted assets)
Summit		291,042		9.5	%		260,406		8.5	%		N/A		N/A
Summit Community		364,125		11.9	%		260,089		8.5	%		244,790		8.0	%
Total Capital (to risk weighted assets)
Summit		420,045		13.8	%		319,599		10.5	%		N/A		N/A
Summit Community		390,236		12.8	%		320,115		10.5	%		304,872		10.0	%
Tier I Capital (to average assets)
Summit		291,042		8.3	%		140,261		4.0	%		N/A		N/A
Summit Community		364,125		10.4	%		140,048		4.0	%		175,060		5.0	%

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

Cash flow hedges

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

•

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 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 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 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%.

•

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.

We have also entered into a pay fixed/receive variable interest rate swap to hedge the fair value variability of certain available for sale taxable muncipal securities, which is designated as a fair value hedge with a total original notional amount of $71.2 million.

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A summary of our derivative financial instruments as of September 30, 2022 and December 31, 2021 follows:

	*September 30, 2022*
			*Derivative Fair Value*				*Net Ineffective*
Dollars in thousands	*Notional Amount*		*Asset*		*Liability*		*Hedge Gains/(Losses)*
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	40,000	$	1,975	$	—	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	21,321	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		10,338		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	17,047	$	945	$	—	$	—
Available for sale taxable municipal securities		71,245		7,600		—		(12	)

	December 31, 2021
			Derivative Fair Value				Net Ineffective
Dollars in thousands	Notional Amount		Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	40,000	$	—	$	83	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	8,336	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		2,851		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	17,548	$	—	$	512	$	—
Available for sale taxable municipal securities		71,245		—		529		22

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. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following is changes in accumulated other comprehensive (loss) income by component, net of tax, for the three and nine months ending September 30, 2022 and 2021.

	*For the Three Months Ended September 30, 2022*
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*			*Unrealized Gains on Securities Fair Value Hedge*		*Total*
Beginning balance	$	30	$	9	$	15,885	$	(26,916	)	$	3,518	$	(7,474	)
Other comprehensive (loss) income before reclassification		—		—		5,706		(12,342	)		2,251		(4,385	)
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax		—		—		—		184			—		184
Net current period other comprehensive (loss) income		—		—		5,706		(12,158	)		2,251		(4,201	)
Ending balance	$	30	$	9	$	21,591	$	(39,074	)	$	5,769	$	(11,675	)

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	*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 (loss) income before reclassification		—			—			689		(2,754	)		(2,065	)
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax		—			—			—		52			52
Net current period other comprehensive (loss) income		—			—			689		(2,702	)		(2,013	)
Ending balance	$	(199	)	$	(40	)	$	2,852	$	2,475		$	5,088

	*For the Nine Months Ended September 30, 2022*
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*			*Unrealized Gains on Securities Fair Value Hedge*			*Total*
Beginning balance	$	30	$	9	$	3,993	$	1,868		$	(418	)	$	5,482
Other comprehensive (loss) income before reclassification		—		—		17,598		(41,462	)		6,187			(17,677	)
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax		—		—		—		520			—			520
Net current period other comprehensive (loss) income		—		—		17,598		(40,942	)		6,187			(17,157	)
Ending balance	$	30	$	9	$	21,591	$	(39,074	)	$	5,769		$	(11,675	)

	*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 (loss) income, net of tax		—			—			—			(406	)		(406	)
Net current period other comprehensive (loss) income		—			—			3,984			(4,341	)		(357	)
Ending balance	$	(199	)	$	(40	)	$	2,852		$	2,475		$	5,088

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NOTE 16. INCOME TAXES

Our income tax expense for the three and nine months ended September 30, 2022 and September 30, 2021 totaled $3.9 million and $3.0 million, and $10.3 million and $8.9 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, 2022 and 2021 was 21.1% and 19.8% and 21.3% and 21.1%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and nine months ended September 30, 2022 and 2021 is as follows:

	*For the Three Months Ended September 30,*						*For the Nine Months Ended September 30,*
	*2022*			*2021*			*2022*			*2021*
	*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		(1.5	)%		(1.3	)%		(1.4	)%		(1.4	)%
State income taxes, net of Federal income tax benefit		1.9	%		2.1	%		2.0	%		2.1	%
Low-income housing and rehabilitation tax credits		(0.3	)%		(0.1	)%		(0.3	)%		(0.2	)%
Other, net		—	%		(1.9	)%		—	%		(0.4	)%
Effective income tax rate		21.1	%		19.8	%		21.3	%		21.1	%

The components of applicable income tax expense for the three and nine months ended September 30, 2022 and 2021 are as follows:

	*For the Three Months Ended September 30,*					*For the Nine Months Ended September 30,*
Dollars in thousands	*2022*			*2021*		*2022*		*2021*
Current
Federal	$	3,617		$	2,350	$	8,644	$	7,720
State		480			351		1,180		1,122
		4,097			2,701		9,824		8,842
Deferred
Federal		(211	)		282		426		38
State		(30	)		40		61		6
		(241	)		322		487		44
Total	$	3,856		$	3,023	$	10,311	$	8,886

NOTE 17. 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	*2022*		*2021*		*2022*		*2021*
Service fees on deposit accounts	$	1,550	$	1,338	$	4,625	$	3,530
Bank card revenue		1,639		1,509		4,748		4,369
Trust and wealth management fees		725		718		2,228		2,039
Other		165		163		348		432
Net revenue from contracts with customers		4,079		3,728		11,949		10,370
Non-interest income within the scope of other ASC topics		808		839		1,339		3,886
Total noninterest income	$	4,887	$	4,567	$	13,288	$	14,256

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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 2021 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: 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 July 12, 2021 we acquired four full-service MVB branch banking offices and two MVB drive-up banking locations in southern West Virginia whose 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 2021 acquisition and organic loan growth, average interest earning assets increased by 11.9% for the first nine months in 2022 compared to the same period of 2021 while our net interest earnings on a tax equivalent basis increased 16.7%. Our tax equivalent net interest margin increased 15 basis points as our yield on interest earning assets increased 37 basis points while our cost of interest bearing funds increased 28 basis points.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2021 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 2021 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 2021 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2021.

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RESULTS OF OPERATIONS

Earnings Summary

Net income applicable to common shares for the three months ended September 30, 2022 was $14.2 million, or $1.11 per diluted share, compared to $12.0 million, or $0.92 per diluted share for the same period of 2021. Net income applicable to common shares for the nine months ended September 30, 2022 was $37.5 million, or $2.92 per diluted share, compared to $32.8 million, or $2.52 per diluted share for the same period of 2021. The increased earnings for the three and nine months ended September 30, 2022 were primarily attributable to increased net interest income due to our growth. Returns on average equity and assets for the first nine months of 2022 were 15.26% and 1.37%, respectively, compared with 14.51% and 1.34% for the same period of 2021.

MVB's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our 2022 results reflect increased levels of average balances, income and expense as compared to the same periods of 2021 results. At consummation (prior to fair value acquisition adjustments), the MVB 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 2022 compared to Q2 2022

For the quarter ended September 30, 2022, our net interest income on a fully taxable-equivalent basis increased $3.2 million to $34.4 million compared to $31.2 million for the quarter end June 30, 2022. Our taxable-equivalent earnings on interest earning assets increased $7.0 million, while the cost of interest bearing liabilities increased $3.7 million (see Tables I and II).

For the three months ended September 30, 2022, average interest earning assets increased to $3.56 billion compared to $3.42 billion for the three months ended June 30, 2022, while average interest bearing liabilities increased to $2.84 billion for the three months ended September 30, 2022 from $2.71 billion for the three months ended June 30, 2022.

For the quarter ended September 30, 2022, our net interest margin increased to 3.84%, compared to 3.66% for the linked quarter, as the yields on earning assets increased 57 basis points and the cost of our interest bearing funds increased by 48 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 3.81% and 3.62% for the three months ended September 30, 2022 and June 30, 2022.

Q3 2022 compared to Q3 2021

For the quarter ended September 30, 2022, our net interest income on a fully taxable-equivalent basis increased $6.1 million to $34.4 million compared to $28.3 million for the quarter ended September 30, 2021. Our taxable-equivalent earnings on interest earning assets increased $11.6 million, while the cost of interest bearing liabilities increased $5.5 million (see Tables I and II).

For the three months ended September 30, 2022, average interest earning assets increased 10.1% to $3.56 billion compared to $3.23 billion for the three months ended September 30, 2021, while average interest bearing liabilities increased 11.7% from $2.55 billion for the three months ended September 30, 2021 to $2.84 billion for the three months ended September 30, 2022.

For the quarter ended September 30, 2022, our net interest margin increased to 3.84%, compared to 3.47% for the same period of 2021, as the yields on earning assets increased 95 basis points, while the cost of our interest bearing funds increased by 72 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% for the three months ended September 30, 2021.

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Table I - Average Balance Sheet and Net Interest Income Analysis
	For the Quarter Ended
	September 30, 2022								June 30, 2022								September 30, 2021
	Average			Earnings/		Yield/			Average			Earnings/		Yield/			Average			Earnings/		Yield/
Dollars in thousands	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	3,018,219		$	38,741		5.09	%	$	2,902,370		$	32,721		4.52	%	$	2,495,880		$	28,340		4.50	%
Tax-exempt (2)		4,834			54		4.43	%		5,127			57		4.46	%		7,871			96		4.84	%
Securities
Taxable		283,645			2,273		3.18	%		297,701			1,765		2.38	%		315,082			1,432		1.80	%
Tax-exempt (2)		203,951			1,549		3.01	%		178,043			1,249		2.81	%		166,285			1,159		2.77	%
Federal funds sold and interest bearing deposits with other banks		49,048			170		1.38	%		37,757			45		0.48	%		248,315			118		0.19	%
Total interest earning assets		3,559,697			42,787		4.77	%		3,420,998			35,837		4.20	%		3,233,433			31,145		3.82	%
Noninterest earning assets
Cash & due from banks		17,455								16,351								20,077
Premises and equipment		54,976								55,449								55,908
Property held for sale		5,243								6,032								12,727
Intangible assets		62,705								63,058								62,944
Other assets		166,166								159,756								100,304
Allowance for credit losses-loans		(35,381	)							(33,232	)							(33,911	)
Total assets	$	3,830,861							$	3,688,412							$	3,451,482
Interest bearing liabilities
Interest bearing demand deposits	$	1,454,815		$	4,276		1.17	%	$	1,189,324		$	1,274		0.43	%	$	1,092,392		$	325		0.12	%
Savings deposits		611,075			1,243		0.81	%		672,353			689		0.41	%		691,411			602		0.35	%
Time deposits		461,134			621		0.53	%		517,360			659		0.51	%		571,445			905		0.63	%
Short-term borrowings		191,421			850		1.76	%		207,227			696		1.35	%		140,146			470		1.33	%
Long-term borrowings, subordinated debentures and capital trust securities		123,368			1,348		4.34	%		123,263			1,280		4.17	%		49,724			543		4.33	%
Total interest bearing liabilities		2,841,813			8,338		1.16	%		2,709,527			4,598		0.68	%		2,545,118			2,845		0.44	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits		609,424								605,724								547,627
Other liabilities		41,339								41,307								38,789
Total liabilities		3,492,576								3,356,558								3,131,534

Shareholders' equity - preferred		14,920								14,920								14,920
Shareholders' equity - common		323,365								316,934								305,028
Total liabilities and shareholders' equity	$	3,830,861							$	3,688,412							$	3,451,482
Net interest earnings				$	34,449							$	31,239							$	28,300
Net yield on interest earning assets							3.84	%							3.66	%							3.47	%

(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 $336,000, $274,000, and $263,000 for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, 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, 2022 vs. June 30, 2022									September 30, 2022 vs. September 30, 2021
	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	$	1,446		$	4,574		$	6,020		$	6,408		$	3,993		$	10,401
Tax-exempt		(2	)		(1	)		(3	)		(34	)		(8	)		(42	)
Securities
Taxable		(85	)		593			508			(156	)		997			841
Tax-exempt		202			98			300			280			110			390
Federal funds sold and interest bearing deposits with other banks		18			107			125			(162	)		214			52
Total interest earned on interest earning assets		1,579			5,371			6,950			6,336			5,306			11,642

Interest paid on:
Interest bearing demand deposits		346			2,656			3,002			142			3,809			3,951
Savings deposits		(68	)		622			554			(77	)		718			641
Time deposits		(69	)		31			(38	)		(160	)		(124	)		(284	)
Short-term borrowings		(56	)		210			154			202			178			380
Long-term borrowings, subordinated debentures and capital trust securities		1			67			68			804			1			805
Total interest paid on interest bearing liabilities		154			3,586			3,740			911			4,582			5,493

Net interest income	$	1,425		$	1,785		$	3,210		$	5,425		$	724		$	6,149

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Table III - Average Balance Sheet and Net Interest Income Analysis
	For the Nine Months Ended
	September 30, 2022								September 30, 2021
	Average			Earnings/		Yield/			Average			Earnings/		Yield/
Dollars in thousands	Balance			Expense		Rate			Balance			Expense		Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	2,898,380		$	101,640		4.69	%	$	2,436,295		$	83,352		4.57	%
Tax-exempt (2)		5,108			170		4.45	%		10,622			377		4.75	%
Securities
Taxable		300,371			5,695		2.53	%		288,999			4,079		1.89	%
Tax-exempt (2)		187,575			4,021		2.87	%		153,035			3,328		2.91	%
Federal funds sold and interest bearing deposits with other banks		53,142			262		0.66	%		190,154			240		0.17	%
Total interest earning assets		3,444,576			111,788		4.34	%		3,079,105			91,376		3.97	%
Noninterest earning assets
Cash & due from banks		17,671								19,093
Premises and equipment		55,486								54,154
Property held for sale		6,464								13,731
Intangible assets		63,061								—
Other assets		153,448								157,137
Allowance for credit losses-loans		(33,705	)							(33,765	)
Total assets	$	3,707,001							$	3,289,455
Interest bearing liabilities
Interest bearing demand deposits	$	1,260,907		$	6,015		0.64	%	$	1,016,569		$	1,090		0.14	%
Savings deposits		660,855			2,505		0.51	%		666,642			1,881		0.38	%
Time deposits		506,654			1,969		0.52	%		572,547			3,493		0.82	%
Short-term borrowings		179,813			1,918		1.43	%		140,146			1,403		1.34	%
Long-term borrowings, subordinated debentures and capital trust securities		123,279			3,867		4.19	%		49,694			1,632		4.39	%
Total interest bearing liabilities		2,731,508			16,274		0.80	%		2,445,598			9,499		0.52	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits		600,766								501,309
Other liabilities		41,541								37,856
Total liabilities		3,373,815								2,984,763

Shareholders' equity - preferred		14,920								8,780
Shareholders' equity - common		318,266								295,912
Total liabilities and shareholders' equity	$	3,707,001							$	3,289,455
Net interest earnings				$	95,514							$	81,877
Net yield on interest earning assets							3.71	%							3.56	%

(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 $881,000 and $778,000 for the nine months ended September 30, 2022 and 2021, respectively.

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Table IV - Changes in Net Interest Income Attributable to Rate and Volume
	For the Nine Months Ended
	September 30, 2022 versus September 30, 2021
	Increase (Decrease) Due to Change in:
Dollars in thousands	Volume			Rate			Net
Interest earned on:
Loans
Taxable	$	16,158		$	2,130		$	18,288
Tax-exempt		(185	)		(22	)		(207	)
Securities
Taxable		167			1,449			1,616
Tax-exempt		741			(48	)		693
Federal funds sold and interest bearing deposits with other banks		(274	)		294			20
Total interest earned on interest earning assets		16,607			3,803			20,410

Interest paid on:
Interest bearing demand deposits		321			4,604			4,925
Savings deposits		(16	)		640			624
Time deposits		(367	)		(1,157	)		(1,524	)
Short-term borrowings		418			97			515
Long-term borrowings, subordinated debentures and capital trust securities		2,312			(77	)		2,235
Total interest paid on interest bearing liabilities		2,668			4,107			6,775

Net interest income	$	13,939		$	(304	)	$	13,635

Provision for Credit Losses

Provision for credit losses is determined by management as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.

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We recorded $1.5 million provision for credit losses for the three months ended September 30, 2022 and $5.5 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively. We recorded no provision for credit losses for the three months ended September 30, 2021. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.

Table V - Provision for Credit Losses
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2022			2021			2022			2021
Provision for credit losses-loans
Due to changes in:
Volume, mix and loss experience	$	1,422		$	176		$	5,194		$	4,180
Reasonable and supportable economic forecasts & other qualitative adjustments		573			—			614			(2,301	)
Individually evaluated credits		(300	)		(2,169	)		(680	)		(1,842	)
Acquired loans		—			793			—			793
Total provision for credit losses - loans		1,695			(1,200	)		5,128			830

Provision for credit losses-unfunded commitments
Due to changes in:
Volume, mix and loss experience		(438	)		1,060			629			2,103
Reasonable and supportable economic forecasts & other qualitative adjustments		243			—			(307	)		(573	)
Individually evaluated credits		—			—			—			—
Acquired loan commitments		—			140			—			140
Total provision for credit losses - unfunded commitments		(195	)		1,200			322			1,670

Total provision for credit losses - debt securities		—			—			—			—

Total provision for credit losses	$	1,500		$	—		$	5,450		$	2,500

Noninterest Income

Total noninterest income for the three and nine months ended September 30, 2022 increased 7.0% and decreased 6.8%, respectively, compared to the same periods of 2021. The quarterly increase was principally due to increased service charges on deposit accounts and realized gains on equity investments in 2022. The decrease for the nine months period was primarily due to realized losses on debt securities in 2022 compared to gains in 2021 and lower mortgage origination revenue in 2022 as mortgage refinance opportunities have become more limited which more than offset the higher service charges on deposit accounts. Included in 2022 mortgage origination revenue was $318,000 increase in fair value of mortgage servicing rights during third quarter. Further detail regarding noninterest income is reflected in the following table.

Table VI - Noninterest Income
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2022			2021			2022			2021
Trust and wealth management fees		725			718			2,228			2,039
Mortgage origination revenue		538			742			1,194			2,638
Service charges on deposit accounts		1,550			1,338			4,625			3,530
Bank card revenue		1,639			1,509			4,748			4,369
Realized (losses) gains on debt securities available for sale, net		(242	)		(68	)		(684	)		534
Gain/(loss) on equity investments		283			—			(14	)		—
Bank owned life insurance and annuities income		229			160			843			733
Other		165			168			348			413
Total	$	4,887		$	4,567		$	13,288		$	14,256

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Noninterest Expense

Total noninterest expense increased 10.8% and 6.3% for the three and nine months ended September 30, 2022 compared to the same periods of 2021, respectively, primarily due to higher salaries, commissions, and employee benefits that more than offset the lower foreclosed properties expense, acquisition-related expenses and other expenses. Table VII below shows the breakdown of the changes.

Table VII- Noninterest Expense

	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
			Change										Change
Dollars in thousands	2022		$			%			2021		2022		$			%			2021
Salaries, commissions, and employee benefits	$	10,189	$	1,444			16.5	%	$	8,745	$	29,920	$	4,510			17.7	%	$	25,410
Net occupancy expense		1,301		47			3.7	%		1,254		3,801		242			6.8	%		3,559
Equipment expense		1,851		(57	)		(3.0	)%		1,908		5,484		396			7.8	%		5,088
Professional fees		372		(2	)		(0.5	)%		374		1,242		102			8.9	%		1,140
Advertising and public relations		276		22			8.7	%		254		613		131			27.2	%		482
Amortization of intangibles		354		(36	)		(9.2	)%		390		1,088		(88	)		(7.5	)%		1,176
FDIC premiums		292		(62	)		(17.5	)%		354		872		(247	)		(22.1	)%		1,119
Bank card expense		726		21			3.0	%		705		2,249		285			14.5	%		1,964
Foreclosed properties expense, net of (gains)/losses		26		(344	)		(93.0	)%		370		77		(1,265	)		(94.3	)%		1,342
Acquisition-related expenses		—		(273	)		(100.0	)%		273		33		(1,134	)		(97.2	)%		1,167
Other		3,834		1,118			41.2	%		2,716		8,651		286			3.4	%		8,365
Total	$	19,221	$	1,878			10.8	%	$	17,343	$	54,030	$	3,218			6.3	%	$	50,812

Salaries, commissions, and employee benefits: The increases in these expenses for the three and nine months ended September 30, 2022 compared to the same periods of 2021 are primarily due to general merit raises and the following:

•

Higher group health insurance premiums which were $841,000 during third quarter 2022 compared to $544,000 during third quarter 2021 and $2.5 million for the first nine months of 2022 compared to $1.6 million for the comparable period of 2021; and

•

Accrued expenses related to employee bonus plans increased from $821,000 during third quarter 2021 to $1.5 million in third quarter 2022 and from $2.2 million for the nine months ended September 30, 2021 to $4.1 million for the comparable period of 2022.

Equipment expense: The increase in equipment expenses for the nine months ended September 30 2022 compared to the same period of 2021 is primarily due to depreciation and amortization related to various technological upgrades, both hardware and software, including interactive teller machine upgrades and recent acquisitions.

Foreclosed properties expense, net of (gains)/losses: The decrease in foreclosed properties expense, net of (gains)/losses, for the three and nine months ended September 30, 2022 is primarily due to fewer writedowns of foreclosed properties to their estimated fair values.

Acquisition-related expenses: Acquisition-related expenses decreased during 2022 as no transactions occurred during 2022.

Other: The increase in other expenses for the three and nine months ended September 30, 2022 compared to the same periods of 2021 is largely due to the following:

•

Deferred director compensation plan-related income of $296,000 for the nine months ended September 30, 2022 compared to plan-related expense of $498,000 in the comparable period of 2021 and expense of $830,000 during third quarter 2022 compared to $72,000 during third quarter 2021 as a result of the stock market's overall declined performance during 2022. 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 Q3 2022, we purchased investments to hedge the changes in the Plan participants’ phantom investments which should serve to significantly reduce period-to-period volatility of the Plan’s impact on our statements of income

•

Fraud and robbery losses were $2,000 and $235,000 for the three and nine months ended September 30, 2022 compared to $36,000 and $169,000 for the three and nine months ended September 30, 2021

•

During the three months ended September 30, 2022, Virginia franchise tax increased to $214,000 compared to $137,000 for the same period of 2021 and was $533,000 and $335,000 for the nine months ended September 30, 2022 and 2021 primarily due to our balance sheet growth

•

Internet banking expense increased to $341,000 for the three months ended September 30, 2022 compared to $306,000 for the same period of 2021 and was $1.0 million and $881,000 for the nine months ended September 30, 2022 and 2021 due to increased internet banking activity by clients

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Income Taxes

Our income tax expense for the three months ended September 30, 2022 and September 30, 2021 totaled $3.9 million and $3.0 million, respectively. For the nine months ended September 30, 2022 and September 30, 2021, our income tax expense totaled $10.3 million and $8.9 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended September 30, 2022 and 2021 was 21.1% and 19.8%, respectively and for the nine months ended September 30, 2022 and 2021 was 21.3% and 21.1%. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.

FINANCIAL CONDITION

Our total assets were $ 3.89 billion at September 30, 2022 and $ 3.58 billion at December 31, 2021. Table VIII below is a summary of significant changes in our financial position between December 31, 2021 and September 30, 2022.

Table VIII - Summary of Significant Changes in Financial Position

Dollars in thousands	Balance at December 31, 2021		Increase (Decrease)			Balance at September 30, 2022
Assets
Cash and cash equivalents	$	78,458	$	(32,807	)	$	45,651
Debt securities available for sale		401,103		(17,138	)		383,965
Debt securities held to maturity		98,060		(1,420	)		96,640
Equity investments		20,202		4,916			25,118
Other investments		11,304		6,801			18,105
Loans, net		2,729,093		309,284			3,038,377
Property held for sale		9,858		(4,665	)		5,193
Premises and equipment		56,371		(1,743	)		54,628
Accrued interest and fees receivable		10,578		2,664			13,242
Goodwill and other intangibles		63,590		(1,088	)		62,502
Cash surrender value of life insurance policies and annuities		60,613		10,603			71,216
Derivative financial instruments		11,187		30,992			42,179
Other assets		26,302		4,181			30,483
Total assets	$	3,576,719	$	310,580		$	3,887,299

Liabilities
Deposits	$	2,943,089	$	164,983		$	3,108,072
Short-term borrowings		140,146		133,002			273,148
Long-term borrowings		679		(16	)		663
Subordinated debentures		102,891		284			103,175
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		—			19,589
Other liabilities		42,852		(1,874	)		40,978

Shareholders' Equity - preferred		14,920		—			14,920
Shareholders' Equity - common		312,553		14,201			326,754

Total liabilities and shareholders' equity	$	3,576,719	$	310,580		$	3,887,299

The following is a discussion of the significant changes in our financial position during the first nine months of 2022:

Cash and cash equivalents: Net decrease of $32.8 million is primarily attributable to increased customer loans.

Debt securities available for sale: The net decrease of $17.1 million in debt securities available for sale is principally attributable to a $53.9 million decrease in the fair value of the portfolio, sales of agencies, municipals and mortgage-backed securities of $61.5 million and principal paydowns on mortgage-backed securities of $29.0 million partially offset by purchases of $131.9 million securities.

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Loans: Mortgage warehouse lines of credit declined $33.1 million during the first nine months of 2022 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 $346.9 million during the first nine months of 2022, which included PPP loans declining $10.8 million.

Derivative financial instruments: The 2022 increase in derivative financial instruments is due to the increase in the fair value of our cash flow and interest rate hedges.

Deposits: During the first nine months of 2022, noninterest bearing checking deposits increased $47.2 million and interest bearing checking deposits grew $348.4 million, as we increased new commercial account relationships while brokered CDs increased $18.1 million, savings deposits declined $115.2 million, retail CDs decreased $135.5 million and Direct CDs decreased $0.8 million.

Shareholders' equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income and common dividends. Refer to the Consolidated Statements of Shareholders' Equity of the accompanying financial statements for further details. Tangible book value per common share (“TBVPCS”) increased $0.62 to $20.69 during the quarter, despite unrealized net losses on debt securities available for sale of $0.95 per common share (net of deferred income taxes) recorded in Other Comprehensive Income (“OCI”), partially offset by increases in the fair values of derivative financial instruments hedging against higher interest rates totaling $0.62 per common share (net of deferred income taxes) also recorded in OCI. Year-to-date for 2022, Summit’s TBVPCS has increased 5.89 percent.

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, 2022 and December 31, 2021.

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.

At September 30, 2022 and December 31, 2021, our allowance for loan credit losses totaled $36.8 million, or 1.19% of total loans and $32.3 million, or 1.17% 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 $676,000 in first nine months of 2022 (0.03 percent of average loans annualized), compared to $761,000 net loan charge-offs during first nine months of 2021 (0.04 percent of average loans annualized) . Net loan charge-offs totaled $8,000 and $370,000 for the three months ended September 30, 2022 and 2021, respectively.

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As illustrated in Table IX below, our non-performing assets have decreased since year end 2021.

Table IX - Summary of Non-Performing Assets
	September 30,						December 31,
Dollars in thousands	2022			2021			2021
Accruing loans past due 90 days or more	$	4		$	2		$	4
Nonaccrual loans
Commercial		347			459			740
Commercial real estate		1,860			4,643			4,603
Commercial construction and development		—			—			—
Residential construction and development		902			448			1,560
Residential real estate		6,083			5,514			5,772
Consumer		4			47			17
Other		—			—			—
Total nonaccrual loans		9,196			11,111			12,692
Foreclosed properties
Commercial		—			—			—
Commercial real estate		297			2,192			1,389
Commercial construction and development		2,332			2,925			2,332
Residential construction and development		2,293			6,711			5,561
Residential real estate		271			622			576
Total foreclosed properties		5,193			12,450			9,858
Repossessed assets		—			—			—
Total nonperforming assets	$	14,393		$	23,563		$	22,554
Total nonperforming loans as a percentage of total loans		0.30	%		0.44	%		0.46	%
Total nonperforming assets as a percentage of total assets		0.37	%		0.67	%		0.63	%
Allowance for credit losses-loans as a percentage of nonperforming loans		399.46	%		291.64	%		254.40	%
Allowance for credit losses-loans as a percentage of period end loans		1.19	%		1.27	%		1.17	%
Total nonaccrual loans as a percentage of total loans		0.30	%		0.44	%		0.46	%
Allowance for credit losses on loans as a percentage of nonaccrual loans		399.63	%		291.66	%		254.48	%

The decline in residential construction and development foreclosed properties during 2022 was due to the sale of two residential subdivisions.

Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2021 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.

The following table details the activity regarding our foreclosed properties for the three and nine months ended September 30, 2022 and 2021.

Table X - Foreclosed Property Activity
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2022			2021			2022			2021
Beginning balance	$	5,319		$	13,170		$	9,858		$	15,588
Acquisitions		6			190			6			532
Improvements		17			—			17			—
Disposals		(149	)		(645	)		(4,646	)		(2,664	)
Writedowns to fair value		—			(265	)		(42	)		(1,006	)
Balance June 30	$	5,193		$	12,450		$	5,193		$	12,450

At September 30, 2022 and December 31, 2021 we had approximately $5.2 million and $9.9 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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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 $1.5 billion or 39.47% of total consolidated assets at September 30, 2022.

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 $1.27 billion. As of September 30, 2022 and December 31, 2021, these advances totaled approximately $274 million and $141 million, respectively. At September 30, 2022, we had additional borrowing capacity of $999 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, 2022 was approximately $286 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 $384 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, 2022 totaled $341.7 million compared to $327.5 million at December 31, 2021.

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.

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, 2022.

Table XI - Contractual Cash Obligations
	Long				Capital
	Term		Subordinated		Trust		Operating
Dollars in thousands	Debt		Debentures		Securities		Leases
2022	$	5	$	—	$	—	$	252
2023		22		—		—		805
2024		23		—		—		740
2025		24		—		—		664
2026		589		—		—		634
Thereafter		—		105,000		19,589		2,217
Total	$	663	$	105,000	$	19,589	$	5,312

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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, 2022 are presented in the following table.

Table XII - Off-Balance Sheet Arrangements	September 30,
Dollars in thousands	2022
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,374
Construction loans		279,861
Other loans		449,459
Standby letters of credit		56,160
Total	$	889,854

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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, 2022. 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)		-1.3	%		3.1	%
Up 200 basis points (1)		0.0	%		10.8	%
Up 200 basis points (2)		0.1	%		9.4	%

(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, 2022, 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, 2022 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022, 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, 2021.

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, 2022.

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, 2022 - July 31, 2022		—	$	—		—		426,423
August 1, 2022 - August 31, 2022		15,000		30.01		—		426,423
September 1, 2022 - September 30, 2022		—		—		—		426,423

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

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Item 6. Exhibits

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)

Table of Contents

EXHIBIT INDEX

Exhibit No.	Description	Page Number
(3)	Articles of Incorporation and By-laws:
	(i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc.	(a)
	(ii) Articles of Amendment 2009	(b)
	(iii) Articles of Amendment 2011	(c)
	(iv) Amended and Restated Articles of Amendment 2021	(d)
	(v) Amended and Restated By-laws of Summit Financial Group, Inc.	(e)

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 3.2 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021.

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

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

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

(e)	Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated March 2, 2022.

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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,
			Executive Vice President and Chief Accounting Officer


Date:	November 4, 2022