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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 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 o Accelerated filer þ Non-accelerated filer o

Smaller reporting company ☐ Emerging growth company ☐

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

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


Yes			☐			No			☑

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


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

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

Common Stock, $2.50 par value

12,776,460 shares outstanding as of August 2, 2022

Table of Contents


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets June 30, 2022 (unaudited) and December 31, 2021	4

		Consolidated statements of income for the three and six months ended June 30, 2022 and 2021 (unaudited)	5

		Consolidated statements of comprehensive income for the three and six months ended June 30, 2022 and 2021 (unaudited)	6

		Consolidated statements of shareholders’ equity for the three and six months ended June 30, 2022 and 2021 (unaudited)	7

		Consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 (unaudited)	9

		Notes to consolidated financial statements (unaudited)	11

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55

	Item 4.	Controls and Procedures	62
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	63

	Item 1A.	Risk Factors	57

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

	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

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)


	June 30, 2022		December 31, 2021
Dollars in thousands (except per share amounts)	(unaudited)		(*)
ASSETS
Cash and due from banks	$	17,921	$	21,006
Interest bearing deposits with other banks	31,680		57,452
Cash and cash equivalents	49,601		78,458
Debt securities available for sale (at fair value)	368,049		401,103
Debt securities held to maturity (at amortized cost; estimated fair value - $88,442 - 2022, $101,242 - 2021)	97,116		98,060
Less: allowance for credit losses	—		—
Debt securities held to maturity, net	97,116		98,060
Equity investments (at fair value)	19,905		20,202
Other investments	18,329		11,304
Loans held for sale	244		227
Loans, net of unearned fees	2,976,876		2,761,391
Less: allowance for credit losses	(35,063)		(32,298)
Loans, net	2,941,813		2,729,093
Property held for sale	5,319		9,858
Premises and equipment, net	55,034		56,371
Accrued interest and fees receivable	11,794		10,578
Goodwill and other intangible assets, net	62,856		63,590
Cash surrender value of life insurance policies and annuities	71,073		60,613
Derivative financial instruments	31,452		11,187
Other assets	30,214		26,075
Total assets	$	3,762,799	$	3,576,719

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	600,792	$	568,986
Interest bearing	2,374,512		2,374,103
Total deposits	2,975,304		2,943,089
Short-term borrowings	291,447		140,146
Long-term borrowings	669		679
Subordinated debentures, net	103,053		102,891
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589
Other liabilities	38,846		42,852
Total liabilities	3,428,908		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 - 12,773,773 shares and 2021 - 12,763,827 shares; outstanding: 2022 - 12,763,422 shares and 2021 - 12,743,125	90,119		89,525
Unallocated common stock held by Employee Stock Ownership Plan - 2022 - 10,351 shares and 2021 - 20,702 shares	(112)		(224)
Retained earnings	236,438		217,770
Accumulated other comprehensive (loss) income	(7,474)		5,482
Total shareholders' equity	333,891		327,473

Total liabilities and shareholders' equity	$	3,762,799	$	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 June 30,				For the Six Months Ended June 30,
Dollars in thousands (except per share amounts)	2022		2021		2022		2021
Interest income
Loans, including fees
Taxable	$	32,721	$	27,593	$	62,900	$	55,012
Tax-exempt	45		104		91		222
Securities
Taxable	1,765		1,351		3,421		2,646
Tax-exempt	987		851		1,953		1,713
Interest on interest bearing deposits with other banks	45		56		91		123
Total interest income	35,563		29,955		68,456		59,716
Interest expense
Deposits	2,622		2,136		4,349		4,632
Short-term borrowings	696		464		1,068		933
Long-term borrowings and subordinated debentures	1,280		544		2,519		1,089
Total interest expense	4,598		3,144		7,936		6,654
Net interest income	30,965		26,811		60,520		53,062
Provision for credit losses	2,000		1,000		3,950		2,500
Net interest income after provision for credit losses	28,965		25,811		56,570		50,562
Noninterest income

Trust and wealth management fees	745		683		1,503		1,321
Mortgage origination revenue	317		898		656		1,896
Service charges on deposit accounts	1,674		1,093		3,074		2,193
Bank card revenue	1,618		1,519		3,109		2,860
Realized (losses) gains on debt securities available for sale, net	(289)		127		(442)		602
Loss on equity investments	(669)		—		(297)		—

Bank owned life insurance and annuities income	331		275		615		573
Other	129		120		183		244
Total noninterest income	3,856		4,715		8,401		9,689
Noninterest expenses
Salaries, commissions and employee benefits	10,030		8,230		19,731		16,665
Net occupancy expense	1,258		1,131		2,499		2,305
Equipment expense	1,791		1,598		3,634		3,180
Professional fees	507		428		869		766
Advertising and public relations	165		138		337		228
Amortization of intangibles	355		382		734		787
FDIC premiums	190		488		580		765
Bank card expense	810		685		1,524		1,259
Foreclosed properties expense, net of (gains)/losses	141		746		51		972



Acquisition-related expenses	4		454		33		893
Other	2,358		2,756		4,817		5,649
Total noninterest expenses	17,609		17,036		34,809		33,469
Income before income tax expense	15,212		13,490		30,162		26,782
Income tax expense	3,198		2,930		6,455		5,863
Net income	12,014		10,560		23,707		20,919
Preferred stock dividends	225		139		450		139
Net income applicable to common shares	$	11,789	$	10,421	$	23,257	$	20,780

Basic earnings per common share	$	0.92	$	0.80	$	1.82	$	1.61
Diluted earnings per common share	$	0.92	$	0.80	$	1.82	$	1.60

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Comprehensive Income (unaudited)


	For the Three Months Ended June 30,
Dollars in thousands	2022		2021
Net income	$	12,014	$	10,560
Other comprehensive (loss) income:
Net unrealized gain (loss) on cashflow hedges of:
2022 - $4,514, net of deferred taxes of $(1,083); 2021 - $(3,678), net of deferred taxes of $883	3,431		(2,795)
Net unrealized gain on fair value hedge of available for sale securities of:
2022 - $2,455, net of deferred taxes of $(589)	1,866		—
Net unrealized (loss) gain on debt securities available for sale of:
2022 - $(15,392), net of deferred taxes of $3,694 and reclassification adjustment for net realized losses included in net income of $(289), net of tax of $69; 2021 - $1,418, net of deferred taxes of $(340) and reclassification adjustment for net realized gains included in net income of $127, net of tax of $(30)	(11,698)		1,078


Total other comprehensive loss	(6,401)		(1,717)
Total comprehensive income	$	5,613	$	8,843


	For the Six Months Ended June 30,
Dollars in thousands	2022		2021
Net income	$	23,707	$	20,919
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedges of:
2022 - $15,647, net of deferred taxes of $(3,755); 2021 - $4,336, net of deferred taxes of $(1,041)	11,892		3,295
Net unrealized gain on fair value hedge of available for sale securities of:
2022 - $5,179, net of deferred taxes of $(1,243)	3,936		—
Net unrealized loss on debt securities available for sale of:
2022 - $(37,874), net of deferred taxes of $9,090 and reclassification adjustment for net realized losses included in net income of $(442), net of tax of $106; 2021 - $(2,157), net of deferred taxes of $518 and reclassification adjustment for net realized gains included in net income of $602, net of tax of $(144)	(28,784)		(1,639)


Total other comprehensive (loss) income	(12,956)		1,656
Total comprehensive income	$	10,751	$	22,575

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)


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

Balance March 31, 2022	$	14,920	$	89,842	$	(167)	$	226,944	$	(1,073)	$	330,466

Three Months Ended June 30, 2022

Net income	—		—		—		12,014		—		12,014
Other comprehensive loss	—		—		—		—		(6,401)		(6,401)
Exercise of SARs - 289 shares	—		—		—		—		—		—
Vesting of RSUs - 3,400 shares	—		—		—		—		—		—
Share-based compensation expense	—		155		—		—		—		155







Unallocated ESOP shares committed to be released - 5,175 shares	—		82		55		—		—		137


Common stock issuances from reinvested dividends - 1,464 shares	—		40		—		—		—		40
Preferred stock cash dividends declared	—		—		—		(225)		—		(225)
Common stock cash dividends declared ($0.18 per share)	—		—		—		(2,295)		—		(2,295)
Balance, June 30, 2022	$	14,920	$	90,119	$	(112)	$	236,438	$	(7,474)	$	333,891

Balance March 31, 2021	$	—	$	95,234	$	(410)	$	189,803	$	8,818	$	293,445

Three Months Ended June 30, 2021

Net income	—		—		—		10,560		—		10,560
Other comprehensive loss			—		—		—		(1,717)		(1,717)

Vesting of RSUs - 3,400 shares	—		—		—		—		—		—
Share-based compensation expense	—		126		—		—		—		126




Issuance of 1,500 shares of preferred stock, net of issuance costs	14,920		—		—		—		—		14,920
Unallocated ESOP shares committed to be released - 5,750 shares	—		79		63		—		—		142


Common stock issuances from reinvested dividends - 3,193 shares	—		72		—		—		—		72
Preferred stock cash dividends declared	—		—		—		(139)		—		(139)
Common stock cash dividends declared ($0.17 per share)	—		—		—		(2,202)		—		(2,202)


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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)


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

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

Six Months Ended June 30, 2022

Net income	—		—		—		23,707		—		23,707
Other comprehensive loss	—		—		—		—		(12,956)		(12,956)
Exercise of SARs - 679 shares	—		—		—		—		—		—
Vesting of RSUs - 5,246 shares	—		—		—		—		—		—
Share-based compensation expense	—		324		—		—		—		324







Unallocated ESOP shares committed to be released - 10,351 shares	—		165		112		—		—		277


Common stock issuances from reinvested dividends - 4,021 shares	—		105		—		—		—		105
Preferred stock cash dividends declared	—		—		—		(450)		—		(450)
Common stock cash dividends declared ($0.36 per share)	—		—		—		(4,589)		—		(4,589)
Balance, June 30, 2022	$	14,920	$	90,119	$	(112)	$	236,438	$	(7,474)	$	333,891

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

Six Months Ended June 30, 2021

Net income	—		—		—		20,919		—		20,919
Other comprehensive income	—		—		—		—		1,656		1,656
Exercise of SARs - 380 shares	—		—		—		—		—		—
Vesting of RSUs - 3,400 shares	—		—		—		—		—		—
Share-based compensation expense	—		252		—		—		—		252




Issuance of 1,500 shares of preferred stock, net of issuance costs	14,920		—		—		—		—		14,920
Unallocated ESOP shares committed to be released - 11,501 shares	—		153		125		—		—		278


Common stock issuances from reinvested dividends - 5,772 shares	—		142		—		—		—		142
Preferred stock cash dividend declared	—		—		—		(139)		—		(139)
Common stock cash dividends declared ($0.34 per share)	—		—		—		(4,401)		—		(4,401)


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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)


	Six Months Ended
Dollars in thousands	June 30, 2022		June 30, 2021
Cash Flows from Operating Activities
Net income	$	23,707	$	20,919
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,830		1,722
Provision for credit losses	3,950		2,500
Share-based compensation expense	324		252
Deferred income tax expense (benefit)	727		(278)
Loans originated for sale	(16,179)		(70,502)
Proceeds from sale of loans	16,445		72,095
Gains on loans held for sale	(283)		(1,378)
Realized losses (gains) on debt securities, net	442		(602)
Loss on equity investments	297		—
(Gain) loss on disposal of assets	(14)		79

Write-downs of foreclosed properties	42		741
Amortization of securities premiums, net	2,509		2,002
Accretion related to acquisition adjustments, net	(710)		(773)
Amortization of intangibles	734		787
Earnings on bank owned life insurance and annuities	(460)		(649)
(Increase) decrease in accrued interest receivable	(1,119)		1,592
Increase in other assets	(473)		(180)
(Decrease) increase in other liabilities	(2,396)		357
Net cash provided by operating activities	29,373		28,684
Cash Flows from Investing Activities
Proceeds from maturities and calls of debt securities available for sale	1,545		3,055

Proceeds from sales of debt securities available for sale	52,922		8,241
Principal payments received on debt securities available for sale	18,247		14,812
Purchases of debt securities available for sale	(79,542)		(88,360)

Purchases of other investments	(9,578)		(109)

Proceeds from redemptions of other investments	1,988		3,138
Net loan originations	(217,024)		(18,513)
Purchases of premises and equipment	(546)		(2,289)


Proceeds from sales of repossessed assets & property held for sale	4,592		1,948
Purchase of life insurance contracts and annuities	(10,000)		—


Net cash used in investing activities	(237,396)		(78,077)
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts	89,818		189,650
Net decrease in time deposits	(57,009)		(55,567)
Net increase in short-term borrowings	151,301		—

Repayment of long-term borrowings	(10)		(10)



Proceeds from issuance of common stock	105		142
Proceeds from issuance of preferred stock, net of issuance costs	—		14,920



Dividends paid on common stock	(4,589)		(4,401)
Dividends paid on preferred stock	(450)		(139)
Net cash provided by financing activities	179,166		144,595
(Decrease) increase in cash and cash equivalents	(28,857)		95,202
continued
See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited) - continued


	Six Months Ended
Dollars in thousands	June 30, 2022		June 30, 2021
Cash and cash equivalents:
Beginning	78,458		99,787
Ending	$	49,601	$	194,989


Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	7,478	$	6,815
Income taxes	$	5,859	$	6,265

Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	$	6	$	342

See Notes to Consolidated Financial Statements

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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 six months ended June 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

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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.

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	June 30, 2022		Level 1		Level 2		Level 3
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	26,431	$	—	$	26,431	$	—
Residential mortgage-backed securities:
Government sponsored agencies	53,780		—		53,780		—
Nongovernment sponsored entities	40,391		—		40,391		—
State and political subdivisions	96,648		—		96,648		—
Corporate debt securities	31,550		—		27,800		3,750
Asset-backed securities	24,979		—		24,979		—

Tax-exempt state and political subdivisions	94,270		—		94,270		—
Total debt securities available for sale	$	368,049	$	—	$	364,299	$	3,750

Derivative financial assets
Interest rate caps	$	24,890	$	—	$	24,890	$	—
Interest rate swaps	6,562		—		6,562		—


	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	June 30, 2022		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	244	$	—	$	244	$	—

Collateral-dependent loans with an ACLL

Commercial real estate	$	3,051	$	—	$	3,051	$	—
Construction and development	350		—		350		—
Residential real estate	337		—		182		155

Total collateral-dependent loans with an ACLL	$	3,738	$	—	$	3,583	$	155

Property held for sale

Commercial real estate	$	351	$	—	$	351	$	—
Construction and development	4,625		—		4,625		—
Residential real estate	—		—		—		—
Total property held for sale	$	4,976	$	—	$	4,976	$	—


	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:


	June 30, 2022				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	49,601	$	49,601	$	17,921	$	31,680	$	—
Debt securities available for sale	368,049		368,049		—		364,299		3,750
Debt securities held to maturity	97,116		88,442		—		88,442		—
Equity investments	19,905		19,905		—		19,905		—
Other investments	18,329		18,329		—		18,329		—
Loans held for sale	244		244		—		244		—
Loans, net	2,941,813		2,971,493		—		3,583		2,967,910
Accrued interest receivable	11,794		11,794		—		11,794		—
Cash surrender value of life insurance policies and annuities	71,073		71,073		—		71,073		—
Derivative financial assets	31,452		31,452		—		31,452		—
	$	3,609,376	$	3,630,382	$	17,921	$	640,801	$	2,971,660
Financial liabilities
Deposits	$	2,975,304	$	2,979,781	$	—	$	2,979,781	$	—
Short-term borrowings	291,447		291,447		—		291,447		—
Long-term borrowings	669		715		—		715		—
Subordinated debentures	103,053		95,997		—		—		95,997
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	963		963		—		963		—

	$	3,391,025	$	3,388,492	$	—	$	3,292,495	$	95,997


	December 31, 2021				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	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	$	—	$	3,107,164	$	103,623

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NOTE 4. EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:


	For the Three Months Ended June 30,
	2022					2021
Dollars in thousands,except per share amounts	Net Income (Numerator)		Common Shares (Denominator)	Per Share		Net Income (Numerator)		Common Shares (Denominator)	Per Share
Net income	$	12,014				$	10,560
Less preferred stock dividends	(225)					(139)

Basic earnings per share	$	11,789	12,754,724	$	0.92	$	10,421	12,952,357	$	0.80

Effect of dilutive securities:
Stock options			—					4,534
Stock appreciation rights ("SARs")			51,205					51,244
Restricted stock units ("RSUs")			4,245					5,579



Diluted earnings per share	$	11,789	12,810,174	$	0.92	$	10,421	13,013,714	$	0.80


	For the Six Months Ended June 30,
	2022					2021
Dollars in thousands,except per share amounts	Net Income (Numerator)		Common Shares (Denominator)	Per Share		Net Income (Numerator)		Common Shares (Denominator)	Per Share
Net income	$	23,707				$	20,919
Less preferred stock dividends	(450)					(139)

Basic earnings per share	$	23,257	12,750,037	$	1.82	$	20,780	12,947,228	$	1.61

Effect of dilutive securities:
Stock options			—					4,522
Stock appreciation rights ("SARs")			51,192					50,513
Restricted stock units ("RSUs")			4,643					5,626



Diluted earnings per share	$	23,257	12,805,872	$	1.82	$	20,780	13,007,889	$	1.60

Stock option and SAR grants are disregarded in this computation if they are determined to be anti-dilutive. All stock options were dilutive for the three and six months ended June 30, 2021. Our anti-dilutive SARs were 237,101 for the three and six months ended June 30, 2022 and totaled 222,740 for the three and six months ended June 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 June 30, 2022 and December 31, 2021 are summarized as follows:


	June 30, 2022
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Available for Sale
Taxable debt securities
U.S. Government and agencies and corporations	$	26,657	$	107	$	333	$	26,431
Residential mortgage-backed securities:
Government-sponsored agencies	56,268		248		2,736		53,780
Nongovernment-sponsored entities	41,827		—		1,436		40,391
State and political subdivisions
General obligations	76,016		3		14,189		61,830





Sales tax revenues	6,900		—		1,473		5,427

Various tax revenues	13,015		—		1,943		11,072


Other revenues	21,635		—		3,316		18,319
Corporate debt securities	32,863		—		1,313		31,550
Asset-backed securities	25,604		—		625		24,979
Total taxable debt securities	300,785		358		27,364		273,779
Tax-exempt debt securities
State and political subdivisions
General obligations	64,642		168		5,044		59,766
Water and sewer revenues	14,034		1		940		13,095
Lease revenues	7,496		61		380		7,177







Various tax revenues	7,919		—		1,139		6,780
Other revenues	8,589		—		1,137		7,452
Total tax-exempt debt securities	102,680		230		8,640		94,270

Total debt securities available for sale	$	403,465	$	588	$	36,004	$	368,049

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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 and 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 $2.3 million at June 30, 2022 and 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.


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

California	$	45,491	$	—	$	8,002	$	37,489
Texas	23,573		37		3,635		19,975
Michigan	19,584		—		1,821		17,763

Washington	14,399		67		1,300		13,166
Oregon	14,746		—		3,070		11,676

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 June 30, 2022, are summarized as follows:


Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	36,971	$	36,035
Due from one to five years	78,624		76,279
Due from five to ten years	57,340		54,286
Due after ten years	230,530		201,449

Total	$	403,465	$	368,049

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 six months ended June 30, 2022 and 2021 are as follows:


	Proceeds from						Gross realized
Dollars in thousands	Sales		Calls and Maturities		Principal Payments		Gains		Losses
For the Six Months Ended June 30,
2022	$	52,922	$	1,545	$	18,247	$	209	$	651

2021	$	8,241	$	3,055	$	14,812	$	628	$	26

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


	June 30, 2022
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	29	$	5,927	$	57	$	14,390	$	276	$	20,317	$	333
Residential mortgage-backed securities:
Government-sponsored agencies	43	32,842		2,506		6,961		230		39,803		2,736
Nongovernment-sponsored entities	19	28,540		1,115		4,430		321		32,970		1,436
State and political subdivisions:
General obligations	53	59,419		13,831		1,416		358		60,835		14,189





Sales tax revenues	4	5,427		1,473		—		—		5,427		1,473


Various tax revenues	10	9,667		1,528		1,405		415		11,072		1,943
Other revenues	19	18,319		3,316		—		—		18,319		3,316
Corporate debt securities	21	12,487		610		9,640		703		22,127		1,313
Asset-backed securities	16	22,462		373		2,516		252		24,978		625
Tax-exempt debt securities
State and political subdivisions:
General obligations	28	40,134		4,183		6,411		861		46,545		5,044
Water and sewer revenues	10	12,419		940		—		—		12,419		940
Lease revenues	1	2,026		380		—		—		2,026		380






Various tax revenues	4	6,647		1,116		133		23		6,780		1,139
Other revenues	6	7,307		1,137		—		—		7,307		1,137
Total	263	$	263,623	$	32,565	$	47,302	$	3,439	$	310,925	$	36,004

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	December 31, 2021
		Less than 12 months				12 months or more				Total
Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities
U.S. Government agencies and corporations	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 June 30, 2022 and December 31, 2021 are summarized as follows:


	June 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	$	71,107	$	—	$	6,009	$	65,098
Water and sewer revenues	8,100		—		555		7,545
Lease revenues	4,275		—		507		3,768


Sales tax revenues	4,549		—		548		4,001




Various tax revenues	5,553		—		803		4,750
Other revenues	3,532		—		252		3,280


Total debt securities held to maturity	$	97,116	$	—	$	8,674	$	88,442

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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 $1.1 million at June 30, 2022 and 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.


	June 30, 2022
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Texas	$	15,251	$	—	$	1,283	$	13,968
California	9,770		—		669		9,101
Pennsylvania	8,557		—		692		7,865
Florida	7,530		—		797		6,733
Michigan	6,969		—		684		6,285

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


	June 30, 2022
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	12,965	$	76,714	$	7,437	$	—	$	—

	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 June 30, 2022 or December 31, 2021.

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


Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due from one to five years	—		—
Due from five to ten years	2,843		2,609
Due after ten years	94,273		85,833

Total	$	97,116	$	88,442

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There were no proceeds from calls and maturities of debt securities held to maturity for the six months ended June 30, 2022 or for the year ended December 31, 2021.

At June 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

Loans

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


Dollars in thousands	June 30, 2022		December 31, 2021
Commercial	$	455,202	$	365,301
Commercial real estate - owner occupied
Professional & medical	147,912		150,759
Retail	193,806		190,304
Other	160,434		143,645
Commercial real estate - non-owner occupied
Hotels & motels	139,371		128,450
Mini-storage	52,378		59,045
Multifamily	286,903		233,157
Retail	194,900		162,758
Other	290,094		282,621
Construction and development
Land & land development	106,840		100,805
Construction	211,955		146,038
Residential 1-4 family real estate
Personal residence	255,223		262,805
Rental - small loan	122,757		121,989
Rental - large loan	79,803		79,108
Home equity	71,136		72,112
Mortgage warehouse lines	171,399		227,869
Consumer	33,816		31,923
Other
Credit cards	1,910		1,891
Overdrafts	1,037		811
Total loans, net of unearned fees	2,976,876		2,761,391
Less allowance for credit losses - loans	35,063		32,298
Loans, net	$	2,941,813	$	2,729,093

Accrued interest and fees receivable on loans totaled $8.2 million and $7.2 million at June 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 June 30, 2022 and December 31, 2021.


	At June 30, 2022
	Past Due										90 days or more and Accruing
Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	$	841	$	223	$	39	$	1,103	$	454,099	$	—
Commercial real estate - owner occupied
Professional & medical	—		—		—		—		147,912		—
Retail	326		—		1,074		1,400		192,406		—
Other	298		132		—		430		160,004		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		—		—		139,371		—
Mini-storage	—		—		—		—		52,378		—
Multifamily	3,348		—		53		3,401		283,502		—
Retail	—		117		259		376		194,524		—
Other	—		—		—		—		290,094		—
Construction and development
Land & land development	602		143		175		920		105,920		—
Construction	76		—		—		76		211,879		—
Residential 1-4 family real estate
Personal residence	1,938		746		2,655		5,339		249,884		—
Rental - small loan	992		397		749		2,138		120,619		—
Rental - large loan	—		—		—		—		79,803		—
Home equity	183		25		58		266		70,870		—
Mortgage warehouse lines	—		—		—		—		171,399		—
Consumer	190		6		32		228		33,588		—
Other
Credit cards	12		2		3		17		1,893		3
Overdrafts	—		—		—		—		1,037		—
Total	$	8,806	$	1,791	$	5,097	$	15,694	$	2,961,182	$	3

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	At December 31, 2021
	Past Due										90 days or more and Accruing
Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	$	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

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

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	June 30,				December 31,
	2022				2021
Dollars in thousands	Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans		Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans
Commercial	$	345	$	71	$	740	$	96
Commercial real estate - owner occupied
Professional & medical	—		—		—		—
Retail	1,284		669		775		—
Other	335		—		341		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		3,085		—
Mini-storage	—		—		—		—
Multifamily	52		—		55		—
Retail	704		—		338		—
Other	328		—		9		—
Construction and development
Land & land development	1,053		—		1,560		—
Construction	—		—		—		—
Residential 1-4 family real estate
Personal residence	3,850		—		2,504		—
Rental - small loan	2,781		—		3,094		—
Rental - large loan	—		—		—		—
Home equity	168		—		174		—
Mortgage warehouse lines	—		—		—		—
Consumer	34		—		17		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	10,934	$	740	$	12,692	$	96

At June 30, 2022, we had troubled debt restructurings ("TDRs") of $20.9 million, of which $18.2 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 six months ended June 30, 2022 and June 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 June 30, 2022					For the Three Months Ended June 30, 2021
Dollars in thousands	Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment		Number of Modifications		Pre- modification Recorded Investment		Post- modification Recorded Investment














Residential 1-4 family real estate



Home equity	1	$	132	$	132	—		$	—	$	—


Total	1	$	132	$	132	$	—	$	—	$	—

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	For the Six Months Ended June 30, 2022					For the Six Months Ended June 30, 2021
Dollars in thousands	Number of Modifications	Pre- modification Recorded Investment		Post- modification Recorded Investment		Number of Modifications		Pre- modification Recorded Investment		Post- modification Recorded Investment














Residential 1-4 family real estate
Personal residence	6	$	335	$	335	—		$	—	$	—


Home equity	1	132		132		—		—		—


Total	7	$	467	$	467	$	—	$	—	$	—

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 June 30, 2022			For the Three Months Ended June 30, 2021
Dollars in thousands	Number of Defaults	Recorded Investment at Default Date		Number of Defaults	Recorded Investment at Default Date














Residential 1-4 family real estate
Personal residence	4	$	312	1	$	49





Total	4	$	312	1	$	49


	For the Six Months Ended June 30, 2022			For the Six Months Ended June 30, 2021
Dollars in thousands	Number of Defaults	Recorded Investment at Default Date		Number of Defaults	Recorded Investment at Default Date














Residential 1-4 family real estate
Personal residence	4	$	312	1	$	49
Rental - small loan	—	—		1	399




Total	4	$	312	2	$	448

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 June 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:


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

Commercial	Pass	$	88,651	$	105,632	$	30,738	$	23,204	$	4,184	$	14,273	$	184,769	$	—	$	451,451
	Special Mention	274		558		274		63		34		199		1,993		—		3,395
	Substandard	—		101		17		71		34		6		127		—		356

Total Commercial		88,925		106,291		31,029		23,338		4,252		14,478		186,889		—		455,202

Commercial Real Estate - Owner Occupied

Professional & medical	Pass	9,858		71,998		10,615		6,824		4,286		40,111		2,562		—		146,254
	Special Mention	—		—		1,133		—		—		240		—		—		1,373
	Substandard	—		—		72		—		—		213		—		—		285

Total Professional & Medical		9,858		71,998		11,820		6,824		4,286		40,564		2,562		—		147,912

Retail	Pass	16,842		76,371		28,975		30,859		8,428		27,898		2,514		—		191,887
	Special Mention	—		—		—		—		—		635		—		—		635
	Substandard	—		—		—		—		—		1,284		—		—		1,284

Total Retail		16,842		76,371		28,975		30,859		8,428		29,817		2,514		—		193,806

Other	Pass	26,538		32,927		31,259		9,080		15,771		39,422		4,482		—		159,479
	Special Mention	—		57		—		—		—		563		—		—		620
	Substandard	—		—		—		—		—		299		36		—		335

Total Other		26,538		32,984		31,259		9,080		15,771		40,284		4,518		—		160,434

Total Commercial Real Estate - Owner Occupied		53,238		181,353		72,054		46,763		28,485		110,665		9,594		—		502,152

Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass	24,495		1,716		3,253		32,705		15,537		21,225		922		—		99,853
	Special Mention	—		—		—		36,541		—		—		—		—		36,541
	Substandard	—		—		2,741		—		—		236		—		—		2,977

Total Hotels & Motels		24,495		1,716		5,994		69,246		15,537		21,461		922		—		139,371

Mini-storage	Pass	2,502		13,380		8,185		3,938		13,363		10,965		—		—		52,333
	Special Mention	—		—		—		—		—		45		—		—		45
	Substandard	—		—		—		—		—		—		—		—		—

Total Mini-storage		2,502		13,380		8,185		3,938		13,363		11,010		—		—		52,378

Multifamily	Pass	43,320		58,193		49,135		52,840		23,335		56,249		3,690		—		286,762
	Special Mention	—		—		88		—		—		—		—		—		88
	Substandard	—		—		—		—		—		53		—		—		53

Total Multifamily		43,320		58,193		49,223		52,840		23,335		56,302		3,690		—		286,903

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

Retail	Pass	43,103	53,235	40,464	5,757	7,300	28,392	7,014	—	185,265
	Special Mention	—	—	—	—	52	1,001	—	—	1,053
	Substandard	—	—	—	7,878	—	704	—	—	8,582

Total Retail		43,103	53,235	40,464	13,635	7,352	30,097	7,014	—	194,900

Other	Pass	40,942	106,945	62,424	12,523	6,713	55,428	1,673	—	286,648
	Special Mention	—	—	—	—	568	—	—	—	568
	Substandard	—	—	—	—	—	2,878	—	—	2,878

Total Other		40,942	106,945	62,424	12,523	7,281	58,306	1,673	—	290,094

Total Commercial Real Estate - Non-Owner Occupied		154,362	233,469	166,290	152,182	66,868	177,176	13,299	—	963,646

Construction and Development

Land & land development	Pass	21,903	23,421	10,976	17,279	5,271	21,560	4,033	—	104,443
	Special Mention	—	—	153	113	—	513	—	—	779
	Substandard	—	—	—	—	—	1,618	—	—	1,618

Total Land & land development		21,903	23,421	11,129	17,392	5,271	23,691	4,033	—	106,840

Construction	Pass	46,548	95,049	62,449	317	1,381	—	5,713	—	211,457
	Special Mention	—	—	—	—	—	—	—	—	—
	Substandard	—	—	—	—	327	171	—	—	498

Total Construction		46,548	95,049	62,449	317	1,708	171	5,713	—	211,955

Total Construction and Development		68,451	118,470	73,578	17,709	6,979	23,862	9,746	—	318,795

Residential 1-4 Family Real Estate

Personal residence	Pass	17,902	37,949	30,668	16,685	17,592	114,968	—	—	235,764
	Special Mention	—	—	—	182	62	9,392	—	—	9,636
	Substandard	—	—	—	752	827	8,244	—	—	9,823

Total Personal Residence		17,902	37,949	30,668	17,619	18,481	132,604	—	—	255,223

Rental - small loan	Pass	12,814	29,049	13,064	12,270	9,262	34,899	5,527	—	116,885
	Special Mention	—	227	105	—	—	1,145	—	—	1,477
	Substandard	—	—	—	322	436	3,467	170	—	4,395

Total Rental - Small Loan		12,814	29,276	13,169	12,592	9,698	39,511	5,697	—	122,757

Rental - large loan	Pass	10,318	33,947	12,192	3,668	4,215	9,842	2,119	—	76,301
	Special Mention	—	—	—	—	—	28	—	—	28
	Substandard	—	—	—	—	—	3,474	—	—	3,474

Total Rental - Large Loan		10,318	33,947	12,192	3,668	4,215	13,344	2,119	—	79,803

Home equity	Pass	—	117	100	30	—	1,282	67,541	—	69,070
	Special Mention	—	—	—	—	—	91	1,385	—	1,476
	Substandard	—	—	—	—	27	307	256	—	590

Total Home Equity		—	117	100	30	27	1,680	69,182	—	71,136

Total Residential 1-4 Family Real Estate		41,034	101,289	56,129	33,909	32,421	187,139	76,998	—	528,919

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

Mortgage warehouse lines	Pass	—		—		—		—		—		—		171,399		—		171,399



Total Mortgage Warehouse Lines		—		—		—		—		—		—		171,399		—		171,399

Consumer	Pass	9,858		10,635		4,302		2,900		1,092		1,563		1,058		—		31,408
	Special Mention	799		560		310		138		26		119		11		—		1,963
	Substandard	211		130		53		15		7		1		28		—		445

Total Consumer		10,868		11,325		4,665		3,053		1,125		1,683		1,097		—		33,816

Other

Credit cards	Pass	1,910		—		—		—		—		—		—		—		1,910



Total Credit Cards		1,910		—		—		—		—		—		—		—		1,910

Overdrafts	Pass	1,037		—		—		—		—		—		—		—		1,037



Total Overdrafts		1,037		—		—		—		—		—		—		—		1,037

Total Other		2,947		—		—		—		—		—		—		—		2,947

Total		$	419,825	$	752,197	$	403,745	$	276,954	$	140,130	$	515,003	$	469,022	$	—	$	2,976,876


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

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

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

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Allowance for Credit Losses - Loans

The following tables presents the activity in the ACLL by portfolio segment during the three and six months ended June 30, 2022 and the twelve months ended December 31, 2021:


	For the Three Months Ended June 30, 2022
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	4,011	$	467	$	—	$	67	$	4,545
Commercial real estate - owner occupied
Professional & medical	1,151		29		—		—		1,180
Retail	1,334		263		—		—		1,597
Other	395		62		—		—		457
Commercial real estate - non-owner occupied
Hotels & motels	1,200		(41)		—		—		1,159
Mini-storage	120		(23)		—		—		97
Multifamily	2,058		271		—		1		2,330
Retail	1,550		338		—		3		1,891
Other	1,958		142		—		3		2,103
Construction and development
Land & land development	3,456		213		(71)		2		3,600
Construction	7,378		830		—		—		8,208
Residential 1-4 family real estate
Personal residence	2,696		(6)		(31)		10		2,669
Rental - small loan	2,290		(90)		(110)		7		2,097
Rental - large loan	2,193		(12)		—		—		2,181
Home equity	442		(49)		—		6		399
Mortgage warehouse lines	—		—		—		—		—
Consumer	147		101		(19)		25		254
Other
Credit cards	18		17		(18)		—		17
Overdrafts	226		88		(58)		23		279
Total	$	32,623	$	2,600	$	(307)	$	147	$	35,063

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	For the Six Months Ended June 30, 2022
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	3,218	$	1,459	$	(202)	$	70	$	4,545
Commercial real estate - owner occupied
Professional & medical	1,092		88		—		—		1,180
Retail	1,362		234		—		1		1,597
Other	575		(118)		—		—		457
Commercial real estate - non-owner occupied
Hotels & motels	2,532		(1,373)		—		—		1,159
Mini-storage	133		(36)		—		—		97
Multifamily	1,821		506		—		3		2,330
Retail	1,074		814		—		3		1,891
Other	1,820		277		—		6		2,103
Construction and development
Land & land development	3,468		198		(71)		5		3,600
Construction	6,346		1,862		—		—		8,208
Residential 1-4 family real estate
Personal residence	2,765		(42)		(84)		30		2,669
Rental - small loan	2,834		(559)		(193)		15		2,097
Rental - large loan	2,374		(193)		—		—		2,181
Home equity	497		(100)		(8)		10		399
Mortgage warehouse lines	—		—		—		—		—
Consumer	163		116		(74)		49		254
Other
Credit cards	17		16		(18)		2		17
Overdrafts	207		284		(274)		62		279
Total	$	32,298	$	3,433	$	(924)	$	256	$	35,063

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	For the Twelve Months Ended December 31, 2021
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending Balance
Commercial	$	2,304	$	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

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The following tables presents, as of June 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 described above.


	June 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	$	133	$	455,069	$	455,202	$	—	$	4,545	$	4,545
Commercial real estate - owner occupied
Professional & medical	2,024		145,888		147,912		228		952		1,180
Retail	5,281		188,525		193,806		—		1,597		1,597
Other	—		160,434		160,434		—		457		457
Commercial real estate - non-owner occupied
Hotels & motels	2,978		136,393		139,371		—		1,159		1,159
Mini-storage	—		52,378		52,378		—		97		97
Multifamily	—		286,903		286,903		—		2,330		2,330
Retail	10,053		184,847		194,900		256		1,635		1,891
Other	5,593		284,501		290,094		302		1,801		2,103
Construction and development
Land & land development	1,449		105,391		106,840		529		3,071		3,600
Construction	—		211,955		211,955		—		8,208		8,208
Residential 1-4 family real estate
Personal residence	—		255,223		255,223		—		2,669		2,669
Rental - small loan	1,428		121,329		122,757		401		1,696		2,097
Rental - large loan	3,093		76,710		79,803		—		2,181		2,181
Home equity	471		70,665		71,136		—		399		399
Mortgage warehouse lines	—		171,399		171,399		—		—		—
Consumer	—		33,816		33,816		—		254		254
Other
Credit cards	—		1,910		1,910		—		17		17
Overdrafts	—		1,037		1,037		—		279		279
Total	$	32,503	$	2,944,373	$	2,976,876	$	1,716	$	33,347	$	35,063

(1) Included in the loans collectively evaluated are $10.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

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	December 31, 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.

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

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	June 30, 2022
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - Loans
Commercial	$	—	$	133	$	133	$	—
Commercial real estate - owner occupied
Professional & medical	2,024		—		2,024		228
Retail	5,281		—		5,281		—
Other	—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels	2,978		—		2,978		—
Mini-storage	—		—		—		—
Multifamily	—		—		—		—
Retail	10,053		—		10,053		256
Other	5,593		—		5,593		302
Construction and development
Land & land development	1,449		—		1,449		529
Construction	—		—		—		—
Residential 1-4 family real estate
Personal residence	—		—		—		—
Rental - small loan	1,428		—		1,428		401
Rental - large loan	3,093		—		3,093		—
Home equity	471		—		471		—
Consumer	—		—		—		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	32,370	$	133	$	32,503	$	1,716


	December 31, 2021
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - 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

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



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

Balance, June 30, 2022	$	55,347


	Other Intangible Assets
Dollars in thousands	June 30, 2022		December 31, 2021





Identifiable intangible assets
Gross carrying amount	$	15,828		$	15,828
Less: accumulated amortization	8,319			7,585

Net carrying amount	$	7,509		$	8,243

We recorded amortization expense of $355,000 and $734,000 for the three and six months ended June 30, 2022 and $382,000 and $787,000 for the three and six months ended June 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




Six month period ending December 31, 2022	$	707
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 June 30, 2022 and December 31, 2021:


Dollars in thousands	June 30, 2022		December 31, 2021
Demand deposits, interest bearing	$	1,238,367	$	1,127,298
Savings deposits	645,099		698,156
Time deposits	491,046		548,649
Total	$	2,374,512	$	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 June 30, 2022 and December 31, 2021, respectively.

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


Dollars in thousands
Six month period ending December 31, 2022	$	221,217
Year ending December 31, 2023	152,848
Year ending December 31, 2024	56,487
Year ending December 31, 2025	32,621
Year ending December 31, 2026	15,439
Thereafter	12,434
Total	$	491,046

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The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $107.3 million at June 30, 2022 and $98.9 million at December 31, 2021.

NOTE 9. BORROWED FUNDS

Short-term borrowings: Federal funds purchased mature the next business day and totaled $147,000 at June 30, 2022 and December 31, 2021. A summary of short-term FHLB advancecs is presented below:


	Six Months Ended June 30,
	2022			2021
Dollars in thousands	Short-term FHLB Advances
Balance at June 30	$	291,300			$	140,000
Average balance outstanding for the period	173,768				140,000
Maximum balance outstanding at any month end during period	291,300				140,000
Weighted average interest rate for the period	0.85		%		0.35		%
Weighted average interest rate for balances
outstanding at June 30	1.52		%		0.31		%


	Year Ended December 31, 2021
Dollars in thousands	Short-term FHLB Advances
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 $669,000 and $679,000 at June 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 $1.74 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 $73.5 million at June 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 June 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 June 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:


Dollars in thousands		Long-term borrowings		Subordinated debentures		Subordinated debentures owed to unconsolidated subsidiary trusts
Year Ending December 31,	2022	$	11	$	—	$	—
	2023	22		—		—
	2024	23		—		—
	2025	24		—		—
	2026	589		—		—
	Thereafter	—		105,000		19,589
		$	669	$	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.

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.

There were no grants of SARs or stock options during first half 2022. During third quarter 2021, we granted 54,947 SARs with a $9.44 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 $9.34 grant date fair value per SAR that become exercisable ratably over five years (20% per year) and expire ten years after the grant date.


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

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


	For the Six Months Ended June 30,
	2022
	Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	491,792				$	21.32
Granted	—				—
Exercised	(1,200)				12.01
Forfeited	—				—
Expired	—				—
Outstanding, June 30	490,592	$	—	6.45	$	21.34

Exercisable, June 30	244,057	$	1,858,572	4.59	$	20.16


	For the Six Months Ended June 30,
	2021
	Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	329,203				$	20.47
Granted	—				—
Exercised	(800)				12.01
Forfeited	—				—
Expired	—				—
Outstanding, June 30	328,403	$	1,103	5.85	$	20.49

Exercisable, June 30	218,216	$	1,103	5.18	$	18.53

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years.


	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2021	13,015	$	21.24
Granted	—	—
Forfeited	—	—
Vested	(5,246)	22.24
Nonvested, June 30, 2022	7,769	$	20.57


	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2020	15,686	$	20.40
Granted	—	—
Forfeited	—	—
Vested	(3,400)	19.61
Nonvested, June 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 six months of 2022 and 2021, total stock compensation expense for all share-based arrangements was $324,000 and $252,000 and the related deferred tax benefits were approximately $80,000 and $61,000. At June 30, 2022 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $1.85 million and on a weighted average basis, will be recognized over the next 2.07 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:


Dollars in thousands	June 30, 2022
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,126
Construction loans	300,784
Other loans	451,599
Standby letters of credit	19,648
Total	$	876,157

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 $(600,000) and $955,000 for the three months ended June 30, 2022 and 2021 and $517,000 and $470,000 for the six months ended June 30, 2022 and 2021. The ACL on off-balance-sheet credit exposures totaled $7.79 million at June 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.

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

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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 June 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 June 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 June 30, 2022
CET1 (to risk weighted assets)
Summit	$	274,554	8.2	%	$	234,375	7.0	%	N/A	N/A
Summit Community	380,913		11.4	%	233,894		7.0	%	217,187	6.5	%
Tier I Capital (to risk weighted assets)
Summit	308,474		9.2	%	285,003		8.5	%	N/A	N/A
Summit Community	380,913		11.4	%	284,014		8.5	%	267,307	8.0	%
Total Capital (to risk weighted assets)
Summit	444,241		13.3	%	350,717		10.5	%	N/A	N/A
Summit Community	413,627		12.4	%	350,249		10.5	%	333,570	10.0	%
Tier I Capital (to average assets)
Summit	308,474		8.4	%	146,892		4.0	%	N/A	N/A
Summit Community	380,913		10.4	%	146,505		4.0	%	183,131	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.

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

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	June 30, 2022
	Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	40,000	$	1,446	$	—	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	17,201	$	—	$	—
Indexed interest bearing demand deposit accounts	100,000		7,689		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	17,216	$	478	$	—	$	—
Available for sale taxable municipal securities	71,245		4,638		—		(12)


	December 31, 2021
	Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	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 six months ending June 3, 2022 and 2021.


	For the Three Months Ended June 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	$	12,454	$	(15,218)	$	1,652	$	(1,073)
Other comprehensive (loss) income before reclassification	—		—		3,431		(11,918)		1,866		(6,621)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		220		—		220
Net current period other comprehensive (loss) income	—		—		3,431		(11,698)		1,866		(6,401)
Ending balance	$	30	$	9	$	15,885	$	(26,916)	$	3,518	$	(7,474)

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	For the Three Months Ended June 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)	$	4,958	$	4,099	$	8,818
Other comprehensive income (loss) before reclassification	—		—		(2,795)		1,175		(1,620)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(97)		(97)
Net current period other comprehensive income (loss)	—		—		(2,795)		1,078		(1,717)
Ending balance	$	(199)	$	(40)	$	2,163	$	5,177	$	7,101


	For the Six Months Ended June 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	—		—		11,892		(29,120)		3,936		(13,292)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		336		—		336
Net current period other comprehensive (loss) income	—		—		11,892		(28,784)		3,936		(12,956)
Ending balance	$	30	$	9	$	15,885	$	(26,916)	$	3,518	$	(7,474)


	For the Six Months Ended June 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	—		—		3,295		(1,181)		2,114
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(458)		(458)
Net current period other comprehensive income (loss)	—		—		3,295		(1,639)		1,656
Ending balance	$	(199)	$	(40)	$	2,163	$	5,177	$	7,101

NOTE 16. INCOME TAXES

Our income tax expense for the three and six ended June 30, 2022 and June 30, 2021 totaled $3.2 million and $2.9 million, and $6.5 million and $5.9 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three and six months ended June 30, 2022 and 2021 was 21.0% and 21.7% and 21.4% and 21.9%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and six months ended June 30, 2022 and 2021 is as follows:

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	For the Three Months Ended June 30,				For the Six Months Ended June 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	(1.4)	%	(1.5)	%	(1.4)	%	(1.5)	%
State income taxes, net of Federal income tax benefit	2.3	%	2.2	%	2.0	%	2.2	%
Low-income housing and rehabilitation tax credits	(0.2)	%	(0.2)	%	(0.2)	%	(0.3)	%
Other, net	(0.7)	%	0.2	%	—	%	0.5	%
Effective income tax rate	21.0	%	21.7	%	21.4	%	21.9	%

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Dollars in thousands	2022		2021		2022		2021
Current
Federal	$	2,701	$	2,695	$	5,028	$	5,370
State	431		386		700		771
	3,132		3,081		5,728		6,141
Deferred
Federal	58		(132)		636		(244)
State	8		(19)		91		(34)
	66		(151)		727		(278)
Total	$	3,198	$	2,930	$	6,455	$	5,863

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 June 30,				Six Months Ended June 30,
Dollars in thousands	2022		2021		2022		2021
Service fees on deposit accounts	$	1,674	$	1,093	$	3,074	$	2,193
Bank card revenue	1,618		1,519		3,109		2,860
Trust and wealth management fees	745		683		1,503		1,321

Other	129		120		183		269
Net revenue from contracts with customers	4,166		3,415		7,869		6,643
Non-interest income within the scope of other ASC topics	(310)		1,300		532		3,046
Total noninterest income	$	3,856	$	4,715	$	8,401	$	9,689

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

OVERVIEW

On 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 12.8% for the first six months in 2022 compared to the same period of 2021 while our net interest earnings on a tax equivalent basis increased 14.0%. Our tax equivalent net interest margin increased 4 basis points as our yield on interest earning assets increased 6 basis points while our cost of interest bearing funds increased 4 basis points.

COVID-19 IMPACTS

Overview

Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic adversely impacted a broad range of industries in which our clients operate and could still impair their ability to fulfill their financial obligations to the Company.

Impact on our Operations

While it appears that epidemiological and macroeconomic conditions are trending in a positive direction as of June 30, 2022, if there is a resurgence in the virus, we could experience further adverse effects on our business, financial condition, results of operations and cash flows. While it is not possible to know the full extent of the impact of COVID-19 or the impact of any potential resulting measures to curtail its spread on future operations, we are disclosing potentially material items of which we are aware.

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Impact on our Financial Position and Results of Operations

Lending and Credit Risks: Improving conditions around COVID-19 had an impact on our allowance for credit losses ("ACL") throughout the prior year as we experienced a decline in required reserves over that period. COVID-19 had little impact on required ACL levels, our financial condition and results of operations for first six months of 2022. We have not experienced any material charge-offs related to COVID-19. Our ACL calculation, and resulting provision for credit losses, are significantly impacted by changes in forecasted economic conditions. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, we could experience increases in our required ACL and record additional credit loss expense. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

While all industries experienced adverse impacts as a result of COVID-19, we had no material exposure (on balance sheet loans and commitments to lend greater than 5% of the loan portfolio) to loan categories that management considered to be "at-risk" of significant impact as of June 30, 2022. We continue to work with customers directly affected by COVID-19. As a result of the current economic environment caused by COVID-19, we continue to engage in communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise.

Capital and Liquidity: Our capital management activities, coupled with our historically strong earnings performance and prudent dividend practices, have allowed us to build and maintain strong capital reserves. At June 30, 2022, all of Summit’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company bank subsidiary’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 10.4% at June 30, 2022, which is well in excess of the well-capitalized regulatory minimum of 5.0%.

In addition, management believes the Company’s liquidity position is strong. The Company’s bank subsidiary maintains a funding base largely comprised of core noninterest bearing demand deposit accounts and low cost interest-bearing transactional deposit accounts with clients that operate or reside within the footprint of its branch bank network. At June 30, 2022, the Company’s cash and cash equivalent balances were $49.6 million. In addition, Summit maintains an available-for-sale securities portfolio, comprised primarily of highly liquid U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities, which serves as a ready source of liquidity. At June 30, 2022, the Company’s available-for-sale securities portfolio totaled $368.0 million, $232.5 million of which was unpledged as collateral. The Company's bank subsidiary’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at June 30, 2022 was $934.2 million, and it maintained $238.4 million of borrowing availability at the Federal Reserve Bank of Richmond’s discount window.

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 June 30, 2022 was $11.8 million, or $0.92 per diluted share, compared to $10.4 million, or $0.80 per diluted share for the same period of 2021. Net income applicable to common shares for the six months ended June 30, 2022 was $23.3 million, or $1.82 per diluted share, compared to $20.8 million, or $1.60 per diluted share for the same period of 2021. The increased earnings for the three and six months ended June 30, 2022 were primarily attributable to increased net interest income due to our growth. Returns on average equity and assets for the first six months of 2022 were 14.34% and 1.30%, respectively, compared with 14.09% and 1.30% 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.

Q2 2022 compared to Q1 2022

For the quarter ended June 30, 2022, our net interest income on a fully taxable-equivalent basis increased $1.4 million to $31.2 million compared to $29.8 million for the quarter end March 31, 2022. Our taxable-equivalent earnings on interest earning assets increased $2.7 million, while the cost of interest bearing liabilities increased $1.3 million (see Tables I and II).

For the three months ended June 30, 2022, average interest earning assets increased to $3.42 billion compared to $3.35 billion for the three months ended March 31, 2022, while average interest bearing liabilities increased to $2.71 billion for the three months ended June 30, 2022 from $2.64 billion for the three months ended March 31, 2022.

For the quarter ended June 30, 2022, our net interest margin increased to 3.66%, compared to 3.61% for the linked quarter, as the yields on earning assets increased 19 basis points and the cost of our interest bearing funds increased by 17 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 3.62% and 3.60% for the three months ended June 30, 2022 and March 31, 2022.

Q2 2022 compared to Q2 2021

For the quarter ended June 30, 2022, our net interest income on a fully taxable-equivalent basis increased $4.2 million to $31.2 million compared to $27.1 million for the quarter ended June 30, 2021. Our taxable-equivalent earnings on interest earning assets increased $5.6 million, while the cost of interest bearing liabilities increased $1.5 million (see Tables I and II).

For the three months ended June 30, 2022, average interest earning assets increased 12.0% to $3.42 billion compared to $3.05 billion for the three months ended June 30, 2021, while average interest bearing liabilities increased 12.2% from $2.41 billion for the three months ended June 30, 2021 to $2.71 billion for the three months ended June 30, 2022.

For the quarter ended June 30, 2022, our net interest margin increased to 3.66%, compared to 3.55% for the same period of 2021, as the yields on earning assets increased 23 basis points, while the cost of our interest bearing funds increased by 16 basis points.

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Table I - Average Balance Sheet and Net Interest Income Analysis

	For the Quarter Ended
	June 30, 2022						March 31, 2022						June 30, 2021
Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	2,902,370	$	32,721	4.52	%	$	2,771,842	$	30,178	4.42	%	$	2,455,757	$	27,593	4.51	%
Tax-exempt (2)	5,127		57		4.46	%	5,369		58		4.38	%	11,370		132		4.66	%
Securities
Taxable	297,701		1,765		2.38	%	320,170		1,656		2.10	%	285,092		1,351		1.90	%
Tax-exempt (2)	178,043		1,249		2.81	%	180,473		1,223		2.75	%	147,703		1,078		2.93	%
Federal funds sold and interest bearing deposits with other banks	37,757		45		0.48	%	72,883		46		0.26	%	154,677		56		0.15	%
Total interest earning assets	3,420,998		35,837		4.20	%	3,350,737		33,161		4.01	%	3,054,599		30,210		3.97	%
Noninterest earning assets
Cash & due from banks	16,351						19,226						19,095
Premises and equipment	55,449						56,043						53,210
Property held for sale	6,032						8,148						13,631
Intangible assets	63,058						63,429						54,072
Other assets	159,756						134,571						102,767
Allowance for loan losses	(33,232)						(32,462)						(34,674)
Total assets	$	3,688,412					$	3,599,692					$	3,262,700
Interest bearing liabilities
Interest bearing demand deposits	$	1,189,324	$	1,274	0.43	%	$	1,135,068	$	465	0.17	%	$	995,673	$	371	0.15	%
Savings deposits	672,353		689		0.41	%	700,115		573		0.33	%	665,735		634		0.38	%
Time deposits	517,360		659		0.51	%	542,360		689		0.52	%	562,605		1,131		0.81	%
Short-term borrowings	207,227		696		1.35	%	140,230		373		1.08	%	140,146		464		1.33	%
Long-term borrowings and capital trust securities	123,263		1,280		4.17	%	123,203		1,239		4.08	%	49,694		544		4.39	%
Total interest bearing liabilities	2,709,527		4,598		0.68	%	2,640,976		3,339		0.51	%	2,413,853		3,144		0.52	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits	605,724						586,903						503,116
Other liabilities	41,307						42,493						36,842
Total liabilities	3,356,558						3,270,372						2,953,811

Shareholders' equity - preferred	14,920						14,921						11,254
Shareholders' equity - common	316,934						314,399						297,635
Total liabilities and shareholders' equity	$	3,688,412					$	3,599,692					$	3,262,700
Net interest earnings			$	31,239					$	29,822					$	27,066
Net yield on interest earning assets					3.66	%					3.61	%					3.55	%

(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 $274,000, $268,000, and $255,000 for the three months ended June 30, 2022, March 31, 2022 and June 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
	June 30, 2022 vs. March 31, 2022						June 30, 2022 vs. June 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	$	1,682	$	861	$	2,543	$	5,035	$	93	$	5,128
Tax-exempt	(3)		2		(1)		(69)		(6)		(75)
Securities
Taxable	(117)		225		108		62		352		414
Tax-exempt	(12)		38		26		214		(43)		171
Federal funds sold and interest bearing deposits with other banks	(29)		28		(1)		(66)		55		(11)
Total interest earned on interest earning assets	1,521		1,154		2,675		5,176		451		5,627

Interest paid on:
Interest bearing demand deposits	23		786		809		85		818		903
Savings deposits	(23)		139		116		6		49		55
Time deposits	(25)		(5)		(30)		(85)		(387)		(472)
Short-term borrowings	212		111		323		225		7		232
Long-term borrowings and capital trust securities	1		40		41		765		(29)		736
Total interest paid on interest bearing liabilities	188		1,071		1,259		996		458		1,454

Net interest income	$	1,333	$	83	$	1,416	$	4,180	$	(7)	$	4,173

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Table III - Average Balance Sheet and Net Interest Income Analysis

	For the Six Months Ended
	June 30, 2022						June 30, 2021
Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	2,837,467	$	62,900	4.47	%	$	2,406,007	$	55,012	4.61	%
Tax-exempt (2)	5,248		115		4.42	%	12,021		281		4.71	%
Securities
Taxable	308,872		3,421		2.23	%	275,742		2,646		1.94	%
Tax-exempt (2)	179,252		2,473		2.78	%	146,300		2,168		2.99	%
Federal funds sold and interest bearing deposits with other banks	55,222		91		0.33	%	160,592		123		0.15	%
Total interest earning assets	3,386,061		69,000		4.11	%	3,000,662		60,230		4.05	%
Noninterest earning assets
Cash & due from banks	17,781						18,592
Premises and equipment	55,746						53,263
Property held for sale	7,084						14,242
Intangible assets	63,242						54,496
Other assets	147,116						99,772
Allowance for loan losses	(32,849)						(33,696)
Total assets	$	3,644,181					$	3,207,331
Interest bearing liabilities
Interest bearing demand deposits	$	1,162,346	$	1,739	0.30	%	$	978,029	$	765	0.16	%
Savings deposits	686,157		1,262		0.37	%	654,053		1,279		0.39	%
Time deposits	529,791		1,348		0.51	%	573,107		2,588		0.91	%
Short-term borrowings	173,914		1,068		1.24	%	140,146		933		1.34	%
Long-term borrowings and capital trust securities	123,234		2,519		4.12	%	49,679		1,089		4.42	%
Total interest bearing liabilities	2,675,442		7,936		0.60	%	2,395,014		6,654		0.56	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits	596,365						477,766
Other liabilities	41,779						37,614
Total liabilities	3,313,586						2,910,394

Shareholders' equity - preferred	14,920						5,658
Shareholders' equity - common	315,675						291,279
Total liabilities and shareholders' equity	$	3,644,181					$	3,207,331
Net interest earnings			$	61,064					$	53,576
Net yield on interest earning assets					3.64	%					3.60	%

(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 $544,000 and $514,000 for the six months ended June 30, 2022 and 2021, respectively.

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

	For the Six Months Ended
	June 30, 2022 versus June 30, 2021
	Increase (Decrease) Due to Change in:
Dollars in thousands	Volume		Rate		Net
Interest earned on:
Loans
Taxable	$	9,608	$	(1,720)	$	7,888
Tax-exempt	(149)		(17)		(166)
Securities
Taxable	339		436		775
Tax-exempt	462		(157)		305
Federal funds sold and interest bearing deposits with other banks	(115)		83		(32)
Total interest earned on interest earning assets	10,145		(1,375)		8,770

Interest paid on:
Interest bearing demand deposits	167		807		974
Savings deposits	61		(78)		(17)
Time deposits	(183)		(1,057)		(1,240)
Short-term borrowings	212		(77)		135
Long-term borrowings and capital trust securities	1,508		(78)		1,430
Total interest paid on interest bearing liabilities	1,765		(483)		1,282

Net interest income	$	8,380	$	(892)	$	7,488

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.

We recorded $2.0 million and $1.0 million provision for credit losses for the three months ended June 30, 2022 and 2021, respectively and $3.95 million and $2.5 million for the six months ended June 30, 2022 and 2021, respectively. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.

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Table V - Provision for Credit Losses
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Dollars in thousands	2022		2021		2022		2021
Provision for credit losses-loans
Due to changes in:
Volume and mix	$	2,396	$	2,530	$	5,044	$	5,361
Loss experience	(632)		(622)		(1,272)		(1,357)
Reasonable and supportable economic forecasts & other qualitative adjustments	798		(1,164)		41		(2,301)
Individually evaluated credits	38		(699)		(380)		327
Acquired loans	—		—		—		—
Total provision for credit losses - loans	2,600		45		3,433		2,030

Provision for credit losses-unfunded commitments
Due to changes in:
Volume and mix	266		1,282		1,497		1,316
Loss experience	(211)		(117)		(430)		(273)
Reasonable and supportable economic forecasts & other qualitative adjustments	(655)		(210)		(550)		(573)
Individually evaluated credits	—		—		—		—
Acquired loan commitments	—		—		—		—
Total provision for credit losses - unfunded commitments	(600)		955		517		470

Total provision for credit losses - debt securities	—		—

Total provision for credit losses	$	2,000	$	1,000	$	3,950	$	2,500

Noninterest Income

Total noninterest income for the three and six months ended June 30, 2022 decreased 18.2% and 13.3%, respectively, compared to the same periods of 2021. These decreases were principally due to realized losses on debt and equity securities in 2022 compared to realized gains on debt securities in first half 2021 and lower mortgage origination revenue as mortgage refinance opportunities have become more limited which more than offset the higher service charges on deposit accounts. Further detail regarding noninterest income is reflected in the following table.


Table VI - Noninterest Income
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Dollars in thousands	2022		2021		2022		2021

Trust and wealth management fees	745		683		1,503		1,321
Mortgage origination revenue	317		898		656		1,896
Service charges on deposit accounts	1,674		1,093		3,074		2,193
Bank card revenue	1,618		1,519		3,109		2,860
Realized (losses) gains on debt securities	(289)		127		(442)		602
(Loss) on equity investments	(669)		—		(297)		—
Bank owned life insurance income	331		275		615		573
Other	129		120		183		244
Total	$	3,856	$	4,715	$	8,401	$	9,689

Noninterest Expense

Total noninterest expense increased 3.4% and 4.0%for the three and six months ended June 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.

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Table VII- Noninterest Expense
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
			Change								Change
Dollars in thousands	2022		$		%		2021		2022		$		%		2021
Salaries, commissions, and employee benefits	$	10,030	$	1,800	21.9	%	$	8,230	$	19,731	$	3,066	18.4	%	$	16,665
Net occupancy expense	1,258		127		11.2	%	1,131		2,499		194		8.4	%	2,305
Equipment expense	1,791		193		12.1	%	1,598		3,634		454		14.3	%	3,180
Professional fees	507		79		18.5	%	428		869		103		13.4	%	766
Advertising and public relations	165		27		19.6	%	138		337		109		47.8	%	228
Amortization of intangibles	355		(27)		(7.1)	%	382		734		(53)		(6.7)	%	787
FDIC premiums	190		(298)		(61.1)	%	488		580		(185)		(24.2)	%	765
Bank card expense	810		125		18.2	%	685		1,524		265		21.0	%	1,259
Foreclosed properties expense, net of (gains)/losses	141		(605)		(81.1)	%	746		51		(921)		(94.8)	%	972

Acquisition-related expenses	4		(450)		(99.1)	%	454		33		(860)		(96.3)	%	893
Other	2,358		(398)		(14.4)	%	2,756		4,817		(832)		(14.7)	%	5,649
Total	$	17,609	$	573	3.4	%	$	17,036	$	34,809	$	1,340	4.0	%	$	33,469

Salaries, commissions, and employee benefits: The increases in these expenses for the three and six months ended June 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 $837,000 during second quarter 2022 compared to $502,000 during second quarter 2021 and $1.7 million for the first six months of 2022 compared to $1.0 million for the comparable period of 2021; and

•Accrued expenses related to employee bonus plans increased from $732,000 during second quarter 2021 to $1.4 million in second quarter 2022 and from $1.4 million for the six months ended June 30, 2021 to $2.5 million for the comparable period of 2022.

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

Foreclosed properties expense, net of (gains)/losses: The decrease in foreclosed properties expense, net of (gains)/losses, for the three and six months ended June 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 decrease in other expenses for the three and six months ended June 30, 2022 compared to the same periods of 2021 is largely due to the following:

•Deferred director compensation plan-related income of $1.1 million for the six months ended June 30, 2022 compared to plan-related expense of $436,000 in the comparable period of 2021 and income of $726,000 during second quarter 2022 compared to $190,000 during second 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

•Fraud and robbery losses increased to $143,000 and $233,000 for the three and six months ended June 30, 2022 compared to $98,000 and $133,000 for the three and six months ended June 30, 2021

•During the three months ended June 30, 2022, Virginia franchise tax increased to $169,000 compared to $108,000 for the same period of 2021 and was $318,000 and $198,000 for the six months ended June 30, 2022 and 2021 primarily due to our balance sheet growth

•Internet banking expense increased to $347,000 for the three months ended June 30, 2022 compared to $298,000 for the same period of 2021 and was $689,000 and $575,000 for the six months ended June 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 June 30, 2022 and June 30, 2021 totaled $3.2 million and $2.9 million, respectively. For the six months ended June 30, 2022 and June 30, 2021, our income tax expense totaled $6.5 million and $5.9 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended June 30, 2022 and 2021 was 21.0% and 21.7%, respectively and for the six months ended June 30, 2022 and 2021 was 21.4% and 21.9%. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.

FINANCIAL CONDITION

Our total assets were $3.76 billion at June 30, 2022 and $3.58 billion at December 31, 2021. TableVIII below is a summary of significant changes in our financial position between December 31, 2021 and June 30, 2022.


Table VIII - Summary of Significant Changes in Financial Position

	Balance at December 31, 2021		Increase (Decrease)		Balance at June 30, 2022
Dollars in thousands
Assets
Cash and cash equivalents	$	78,458	$	(28,857)	$	49,601
Debt securities available for sale	401,103		(33,054)		368,049
Debt securities held to maturity	98,060		(944)		97,116
Equity investments	20,202		(297)		19,905
Other investments	11,304		7,025		18,329
Loans, net	2,729,093		212,720		2,941,813
Property held for sale	9,858		(4,539)		5,319
Premises and equipment	56,371		(1,337)		55,034
Accrued interest and fees receivable	10,578		1,216		11,794
Goodwill and other intangibles	63,590		(734)		62,856
Cash surrender value of life insurance policies and annuities	60,613		10,460		71,073
Derivative financial instruments	11,187		20,265		31,452
Other assets	26,302		4,156		30,458
Total assets	$	3,576,719	$	186,080	$	3,762,799

Liabilities
Deposits	$	2,943,089	$	32,215	$	2,975,304
Short-term borrowings	140,146		151,301		291,447
Long-term borrowings	679		(10)		669
Subordinated debentures	102,891		162		103,053
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		—		19,589
Other liabilities	42,852		(4,006)		38,846

Shareholders' Equity - preferred	14,920		—		14,920
Shareholders' Equity - common	312,553		6,418		318,971

Total liabilities and shareholders' equity	$	3,576,719	$	186,080	$	3,762,799

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

Cash and cash equivalents: Net decrease of $28.9 million is primarily attributable to increased customer loans.

Debt securities available for sale: The net decrease of $33.1 million in debt securities available for sale is principally attributable to a $37.9 million decrease in the fair value of the portfolio, purchases of $79.5 million securities, sales of agencies, municipals and mortgage-backed securities of $52.9 million and principal paydowns on mortgage-backed securities of $18.2 million.

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Loans: Mortgage warehouse lines of credit declined $56.5 million during the first half 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 $272.0 million during the first six months of 2022, which included PPP loans declining $9.2 million.

Deposits: During the first six months of 2022, noninterest bearing checking deposits increased $31.8 million and interest bearing checking deposits grew $111.1 million, as we increased new commercial account relationships while brokered CDs increased $18.1 million, savings deposits declined $53.1 million, retail CDs decreased $74.9 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.

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 June 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 June 30, 2022 and December 31, 2021, our allowance for loan credit losses totaled $35.1 million, or 1.18% 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 $668,000 in first six months of 2022 (0.05 percent of average loans annualized), compared to $391,000 net loan charge-offs during first six months of 2021 (0.03 percent of average loans annualized) . Net loan charge-offs totaled $160,000 and $202,000 for the three months ended June 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
	June 30,						December 31,
Dollars in thousands	2022			2021			2021
Accruing loans past due 90 days or more	$	3		$	2		$	4
Nonaccrual loans
Commercial	345			968			740
Commercial real estate	2,703			14,430			4,603
Commercial construction and development	—			—			—
Residential construction and development	1,053			621			1,560
Residential real estate	6,799			6,800			5,772
Consumer	34			36			17
Other	—			—			—
Total nonaccrual loans	10,934			22,855			12,692
Foreclosed properties
Commercial	—			—			—
Commercial real estate	440			2,281			1,389
Commercial construction and development	2,332			3,146			2,332
Residential construction and development	2,293			6,859			5,561
Residential real estate	254			884			576
Total foreclosed properties	5,319			13,170			9,858
Repossessed assets	—			—			—
Total nonperforming assets	$	16,256		$	36,027		$	22,554
Total nonperforming loans as a percentage of total loans	0.37		%	0.94		%	0.46		%
Total nonperforming assets as a percentage of total assets	0.43		%	1.10		%	0.63		%
Allowance for credit losses-loans as a percentage of nonperforming loans	320.60		%	148.25		%	254.39		%
Allowance for credit losses-loans as a percentage of period end loans	1.18		%	1.39		%	1.17		%
Total nonaccrual loans as a percentage of total loans	0.37		%	0.94		%	0.46		%
Allowance for credit losses on loans as a percentage of nonaccrual loans	320.68		%	148.26		%	254.47		%

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

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


Table X - Foreclosed Property Activity
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Dollars in thousands	2022		2021		2022		2021
Beginning balance	$	6,900	$	13,918	$	9,858	$	15,588
Acquisitions	—		342		—		342
Improvements	—		—		—		—
Disposals	(1,563)		(372)		(4,497)		(2,019)
Writedowns to fair value	(18)		(718)		(42)		(741)
Balance March 31	$	5,319	$	13,170	$	5,319	$	13,170

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.

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At June 30, 2022 and December 31, 2021 we had approximately $5.3 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.

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 $1.4 billion or 37.58% of total consolidated assets at June 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 $1.23 billion. As of June 30, 2022 and December 31, 2021, these advances totaled approximately $292 million and $141 million, respectively. At June 30, 2022, we had additional borrowing capacity of $934 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 June 30, 2022 was approximately $238 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 $368 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 June 30, 2022 totaled $333.9 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 June 30, 2022.


Table XI - Contractual Cash Obligations
Dollars in thousands	Long Term Debt		Subordinated Debentures		Capital Trust Securities		Operating Leases
2022	$	11	$	—	$	—	$	496
2023	22		—		—		790
2024	23		—		—		740
2025	24		—		—		664
2026	589		—		—		634
Thereafter	—		105,000		19,589		2,217
Total	$	669	$	105,000	$	19,589	$	5,541

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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 June 30, 2022 are presented in the following table.


Table XII - Off-Balance Sheet Arrangements	June 30,
Dollars in thousands	2022
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,126
Construction loans	300,784
Other loans	451,599
Standby letters of credit	19,648
Total	$	876,157

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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 June 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)	-2.6	%	-4.6	%
Up 200 basis points (1)	1.2	%	8.1	%
Up 200 basis points (2)	0.9	%	6.3	%

(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 June 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 June 30, 2022 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended June 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 June 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
April 1, 2022 - April 30, 2022	—	$	—	—	426,423
May 1, 2022 - May 31, 2022	—	—		—	426,423
June 1, 2022 - June 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)

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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:	August 4, 2022

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