SUMMIT FINANCIAL GROUP, INC. - Quarter Report: 2023 March (Form 10-Q)

smmf20230331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

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

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

Commission File Number 0-16587

Summit Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

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

(304) 530-1000

(Registrant's telephone number, including area code)

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

Yes ☑ No ☐

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

Yes ☑ No ☐

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

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

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

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

Yes ☐ No ☑

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

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

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

Common Stock, $2.50 par value

14,668,564 shares outstanding as of May 8, 2023

Table of Contents

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets March 31, 2023 (unaudited) and December 31, 2022	3

		Consolidated statements of income for the three months ended March 31, 2023 and 2022 (unaudited)	4

		Consolidated statements of comprehensive income for the three months ended March 31, 2023 and 2022 (unaudited)	5

		Consolidated statements of shareholders’ equity for the three months ended March 31, 2023 and 2022 (unaudited)	6

		Consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 (unaudited)	7

		Notes to consolidated financial statements (unaudited)	9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55

	Item 4.	Controls and Procedures	56

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	57

	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	58

EXHIBIT INDEX			59

SIGNATURES			60

Table of Contents

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)

	*March 31,*			*December 31,*
	*2023*			*2022*
Dollars in thousands (except per share amounts)	*(unaudited)*			**()***
ASSETS
Cash and due from banks	$	16,488		$	16,469
Interest bearing deposits with other banks		54,328			28,248
Cash and cash equivalents		70,816			44,717
Debt securities available for sale (at fair value)		431,933			405,201
Debt securities held to maturity (at amortized cost; estimated fair value - $88,213 - 2023, $86,627 - 2022)		95,682			96,163
Less: allowance for credit losses		—			—
Debt securities held to maturity, net		95,682			96,163
Equity investments (at fair value)		29,867			29,494
Other investments		12,696			16,029
Loans, net of unearned fees		3,099,935			3,082,818
Less: allowance for credit losses		(40,836	)		(38,899	)
Loans, net		3,059,099			3,043,919
Property held for sale		5,128			5,067
Premises and equipment, net		54,491			53,981
Accrued interest and fees receivable		16,264			15,866
Goodwill and other intangible assets, net		61,807			62,150
Cash surrender value of life insurance policies and annuities		72,019			71,640
Derivative financial instruments		34,758			40,506
Other assets		32,847			31,959
Total assets	$	3,977,407		$	3,916,692

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	552,715		$	553,616
Interest bearing		2,747,131			2,616,263
Total deposits		3,299,846			3,169,879
Short-term borrowings		140,150			225,999
Long-term borrowings		653			658
Subordinated debentures, net		103,418			103,296
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		44,205			42,741
Total liabilities		3,607,861			3,562,162
Commitments and Contingencies

Shareholders' Equity
Preferred stock and related surplus, $1.00 par value, authorized 250,000 shares; issued: 2023 and 2022- 1,500		14,920			14,920
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2023 - 12,786,404 shares and 2022 - 12,783,646 shares; outstanding: 2023 - 12,786,404 shares and 2022 - 12,783,646		90,939			90,696
Retained earnings		271,712			260,393
Accumulated other comprehensive loss		(8,025	)		(11,479	)
Total shareholders' equity		369,546			354,530

Total liabilities and shareholders' equity	$	3,977,407		$	3,916,692

(*) - 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 March 31,*
Dollars in thousands (except per share amounts)	*2023*			*2022*
Interest income
Loans, including fees
Taxable	$	45,421		$	30,178
Tax-exempt		64			46
Securities
Taxable		3,412			1,656
Tax-exempt		1,407			967
Interest on interest bearing deposits with other banks		171			46
Total interest income		50,475			32,893
Interest expense
Deposits		14,000			1,727
Short-term borrowings		824			373
Long-term borrowings and subordinated debentures		1,462			1,239
Total interest expense		16,286			3,339
Net interest income		34,189			29,554
Provision for credit losses		1,500			1,950
Net interest income after provision for credit losses		32,689			27,604
Noninterest income
Trust and wealth management fees		811			757
Mortgage origination revenue		171			339
Service charges on deposit accounts		1,392			1,401
Bank card revenue		1,568			1,491
Net realized losses on debt securities		(59	)		(152	)
Net gains on equity investments		45			372
Bank owned life insurance and annuities income		336			283
Other		122			54
Total noninterest income		4,386			4,545
Noninterest expenses
Salaries, commissions and employee benefits		10,807			9,700
Net occupancy expense		1,333			1,242
Equipment expense		2,030			1,843
Professional fees		376			362
Advertising and public relations		170			172
Amortization of intangibles		343			378
FDIC premiums		330			390
Bank card expense		696			714
Foreclosed properties expense, net of losses/(gains)		15			(90	)
Acquisition-related expenses		331			29
Other		2,968			2,459
Total noninterest expenses		19,399			17,199
Income before income tax expense		17,676			14,950
Income tax expense		3,575			3,257
Net income		14,101			11,693
Preferred stock dividends		225			225
Net income applicable to common shares	$	13,876		$	11,468

Basic earnings per common share	$	1.09		$	0.90
Diluted earnings per common share	$	1.08		$	0.90

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Comprehensive Income (unaudited)

	*For the Three Months Ended*
	*March 31,*
Dollars in thousands	*2023*			*2022*
Net income	$	14,101		$	11,693
Other comprehensive income (loss):
Net unrealized (loss) gain on cashflow hedges of:
2023 - $(4,126), net of deferred taxes of $990; 2022 - $11,133, net of deferred taxes of $(2,672)		(3,136	)		8,461
Net unrealized (loss) gain on fair value hedge of debt securities available for sale of:
2023 - $(1,247), net of deferred taxes of $299; 2022 - $2,724, net of deferred taxes of $(654)		(948	)		2,070
Net unrealized gain (loss) on debt securities available for sale of:
2023 - $9,918, net of deferred taxes of $(2,380) and reclassification adjustment for net realized losses included in net income of $(59), net of tax of $14; 2022 - $(22,482), net of deferred taxes of $5,396 and reclassification adjustment for net realized losses included in net income of $(152), net of tax of $36		7,538			(17,086	)
Total other comprehensive income (loss)		3,454			(6,555	)
Total comprehensive income	$	17,555		$	5,138

See Notes to Consolidated Financial Statements

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Consolidated Statements of Shareholders’ Equity (unaudited)

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

Balance December 31, 2022	$	14,920	$	90,696	$	—		$	260,393		$	(11,479	)	$	354,530

Three Months Ended March 31, 2023
Net income		—		—		—			14,101			—			14,101
Other comprehensive income		—		—		—			—			3,454			3,454
Exercise of SARs - 522 shares		—		—		—			—			—			—
Share-based compensation expense		—		196		—			—			—			196
Common stock issuances from reinvested dividends - 2,236 shares		—		47		—			—			—			47
Preferred stock cash dividends declared		—		—		—			(225	)		—			(225	)
Common stock cash dividends declared ($0.20 per share)		—		—		—			(2,557	)		—			(2,557	)
Balance, March 31, 2023	$	14,920	$	90,939	$	—		$	271,712		$	(8,025	)	$	369,546

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

Three Months Ended March 31, 2022
Net income		—		—		—			11,693			—			11,693
Other comprehensive loss		—		—		—			—			(6,555	)		(6,555	)
Exercise of SARs - 390 shares		—		—		—			—			—			—
Vesting of RSUs - 1,846 shares		—		—		—			—			—			—
Share-based compensation expense		—		169		—			—			—			169
Unallocated ESOP shares committed to be released - 5,176 shares		—		83		57			—			—			140
Common stock issuances from reinvested dividends - 2,557 shares		—		65		—			—			—			65
Preferred stock cash dividends declared		—		—		—			(225	)		—			(225	)
Common stock cash dividends declared ($0.18 per share)		—		—		—			(2,294	)		—			(2,294	)
Balance, March 31, 2022	$	14,920	$	89,842	$	(167	)	$	226,944		$	(1,073	)	$	330,466

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)

	*Three Months Ended*
	*March 31,*			*March 31,*
Dollars in thousands	*2023*			*2022*
Cash Flows from Operating Activities
Net income	$	14,101		$	11,693
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		869			930
Provision for credit losses		1,500			1,950
Share-based compensation expense		196			169
Deferred income tax (benefit) expense		(413	)		661
Loans originated for sale		(946	)		(8,891	)
Proceeds from sale of loans		963			9,006
Gains on loans held for sale		(17	)		(153	)
Realized losses on debt securities, net		59			152
Gain on equity investments		(45	)		(372	)
Gain on disposal of assets		(5	)		(109	)
Write-downs of foreclosed properties		—			24
Amortization of securities premiums, net		843			1,255
Accretion related to acquisition adjustments, net		(167	)		(357	)
Amortization of intangibles		343			378
Earnings on bank owned life insurance and annuities		(379	)		(212	)
Increase in accrued interest receivable		(398	)		(444	)
Increase in other assets		(916	)		(332	)
Increase (decrease) in other liabilities		1,590			(512	)
Net cash provided by operating activities		17,178			14,836
Cash Flows from Investing Activities
Proceeds from maturities and calls of debt securities available for sale		1,145			210
Proceeds from sales of debt securities available for sale		36,940			16,092
Principal payments received on debt securities available for sale		8,048			8,730
Purchases of debt securities available for sale		(63,369	)		(22,202	)
Purchase of equity investments		(41	)		—
Purchases of other investments		(3,171	)		(304	)
Proceeds from redemptions of other investments		6,141			304
Net loan originations		(16,872	)		(90,457	)
Purchases of premises and equipment		(1,384	)		(320	)
Proceeds from disposal of premises and equipment		12			—
Improvements to property held for sale		(2	)		—
Proceeds from sales of repossessed assets & property held for sale		—			3,063
Purchase of life insurance contracts and annuities		—			(10,000	)
Net cash used in investing activities		(32,553	)		(94,884	)
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts		107,693			71,595
Net increase (decrease) in time deposits		22,370			(6,289	)
Net decrease in short-term borrowings		(85,849	)		—
Repayment of long-term borrowings		(5	)		(5	)
Proceeds from issuance of common stock		47			65
Dividends paid on common stock		(2,557	)		(2,294	)
Dividends paid on preferred stock		(225	)		(225	)
Net cash provided by financing activities		41,474			62,847
Increase (decrease) in cash and cash equivalents		26,099			(17,201	)

continued

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)(continued)

	*Three Months Ended*
	*March 31,*		*March 31,*
Dollars in thousands	*2023*		*2022*
Cash and cash equivalents:
Beginning		44,717		78,458
Ending	$	70,816	$	61,257


Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	15,545	$	2,680

Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	$	59	$	—
Right of use assets obtained in exchange for lease obligations	$	733	$	—

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, 2022.

The results of operations for the three months ended March 31, 2023 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 2022 audited financial statements and Annual Report on Form 10-K.

NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Recently Adopted

In March 2022, the Financial Accounting Standards Board ("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 was effective for us on January 1, 2023 and its adoption did not have a significant impact on our financial statements.

In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method. ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. ASU 2022-01 was effective January 1, 2023 and its adoption did not have a material impact on our consolidated financial statements.

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 was effective January 1, 2023 and its adoption did not have a material impact on our consolidated financial statements.

In March 2020, the 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 was effective January 1, 2023 and its adoption did not have any material adverse impact to our business operation or financial results during the period of transition.

Pending Adoption

In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. We do not expect the adoption of ASU 2023-02 to have a material impact on our consolidated 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.

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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	*March 31, 2023*		*Level 1*		*Level 2*		*Level 3*
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	18,838	$	—	$	18,838	$	—
Residential mortgage-backed securities:
Government sponsored agencies		66,922		—		66,922		—
Nongovernment sponsored entities		77,480		—		77,480		—
State and political subdivisions		96,006		—		96,006		—
Corporate debt securities		30,714		—		28,869		1,845
Asset-backed securities		26,433		—		26,433		—
Tax-exempt state and political subdivisions		115,540		—		115,540		—
Total debt securities available for sale	$	431,933	$	—	$	430,088	$	1,845

Equity investments	$	29,867	$	26,220	$	3,647	$	—

Derivative financial assets
Interest rate caps	$	26,655	$	—	$	26,655	$	—
Interest rate swaps		8,103		—		8,103		—

	*Balance at*		*Fair Value Measurements Using:*
Dollars in thousands	*December 31, 2022*		*Level 1*		*Level 2*		*Level 3*
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	20,219	$	—	$	20,219	$	—
Residential mortgage-backed securities:
Government sponsored agencies		51,456		—		51,456		—
Nongovernment sponsored entities		61,617		—		61,617		—
State and political subdivisions		93,067		—		93,067		—
Corporate debt securities		31,628		—		29,788		1,840
Asset-backed securities		19,476		—		19,476		—
Tax-exempt state and political subdivisions		127,738		—		127,738		—
Total debt securities available for sale	$	405,201	$	—	$	403,361	$	1,840

Equity investments	$	29,494	$	25,766	$	3,728	$	—

Derivative financial assets
Interest rate caps	$	30,601	$	—	$	30,601	$	—
Interest rate swaps		9,905		—		9,905		—

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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	*March 31, 2023*		*Level 1*		*Level 2*		*Level 3*
Residential mortgage loans held for sale	$	—	$	—	$	—	$	—

Collateral-dependent loans with an ACLL
Commercial	$	42	$	—	$	42	$	—
Commercial real estate		766		—		766		—
Construction and development		359		—		359		—
Residential real estate		448		—		448		—
Total collateral-dependent loans with an ACLL	$	1,615	$	—	$	1,615	$	—

Property held for sale
Commercial real estate	$	297	$	—	$	297	$	—
Construction and development		4,480		—		4,480		—
Residential real estate		—		—		—		—
Total property held for sale	$	4,777	$	—	$	4,777	$	—

	*Balance at*		*Fair Value Measurements Using:*
Dollars in thousands	*December 31, 2022*		*Level 1*		*Level 2*		*Level 3*
Residential mortgage loans held for sale	$	—	$	—	$	—	$	—

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

Property held for sale
Commercial real estate	$	297	$	—	$	297	$	—
Construction and development		4,480		—		4,480		—
Residential real estate		—		—		—		—
Total property held for sale	$	4,777	$	—	$	4,777	$	—

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

	*March 31, 2023*				*Fair Value Measurements Using:*
			*Estimated*
	*Carrying*		*Fair*
Dollars in thousands	*Value*		*Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets
Cash and cash equivalents	$	70,816	$	70,816	$	16,488	$	54,328	$	—
Debt securities available for sale		431,933		431,933		—		430,088		1,845
Debt securities held to maturity		95,682		88,213		—		88,213		—
Equity investments		29,867		29,867		26,220		3,647		—
Other investments		12,696		12,696		—		12,696		—
Loans, net		3,059,099		2,963,838		—		1,615		2,962,223
Accrued interest receivable		16,264		16,264		—		16,264		—
Cash surrender value of life insurance policies and annuities		72,019		72,019		—		72,019		—
Derivative financial assets		34,758		34,758		—		34,758		—
	$	3,823,134	$	3,720,404	$	42,708	$	713,628	$	2,964,068
Financial liabilities
Deposits	$	3,299,846	$	3,298,296	$	—	$	3,298,296	$	—
Short-term borrowings		140,150		140,150		—		140,150		—
Long-term borrowings		653		663		—		663		—
Subordinated debentures		103,418		92,653		—		92,653		—
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		19,589		—		19,589		—
Accrued interest payable		2,662		2,662		—		2,662		—
	$	3,566,318	$	3,554,013	$	—	$	3,554,013	$	—

	*December 31, 2022*				*Fair Value Measurements Using:*
			*Estimated*
	*Carrying*		*Fair*
Dollars in thousands	*Value*		*Value*		*Level 1*		*Level 2*		*Level 3*
Financial assets
Cash and cash equivalents	$	44,717	$	44,717	$	16,469	$	28,248	$	—
Debt securities available for sale		405,201		405,201		—		403,361		1,840
Debt securities held to maturity		96,163		86,627		—		86,627		—
Equity investments		29,494		29,494		25,766		3,728		—
Other investments		16,029		16,029		—		16,029		—
Loans held for sale, net		—		—		—		—		—
Loans, net		3,043,919		2,966,814		—		3,583		2,963,231
Accrued interest receivable		15,866		15,866		—		15,866		—
Cash surrender value of life insurance policies and annuities		71,640		71,640		—		71,640		—
Derivative financial assets		40,506		40,506		—		40,506		—
	$	3,763,535	$	3,676,894	$	42,235	$	669,588	$	2,965,071
Financial liabilities
Deposits	$	3,169,879	$	3,166,762	$	—	$	3,166,762	$	—
Short-term borrowings		225,999		225,999		—		225,999		—
Long-term borrowings		658		667		—		667		—
Subordinated debentures		103,296		91,801		—		91,801		—
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		19,589		—		19,589		—
Accrued interest payable		2,357		2,357		—		2,357		—
	$	3,521,778	$	3,507,175	$	—	$	3,507,175	$	—

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NOTE 4. EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:

	*For the Three Months Ended March 31,*
	*2023*							*2022*
				*Common*							*Common*
	*Net Income*			*Shares*		*Per*		*Net Income*			*Shares*		*Per*
Dollars in thousands,except per share amounts	*(Numerator)*			*(Denominator)*		*Share*		*(Numerator)*			*(Denominator)*		*Share*
Net income	$	14,101						$	11,693
Less preferred stock dividends		(225	)						(225	)

Basic earnings per share	$	13,876			12,783,851	$	1.09	$	11,468			12,745,297	$	0.90

Effect of dilutive securities:
Stock appreciation rights ("SARs")					43,287							51,681
Restricted stock units ("RSUs")					2,964							4,925

Diluted earnings per share	$	13,876			12,830,102	$	1.08	$	11,468			12,801,903	$	0.90

SAR grants and RSUs are disregarded in this computation if they are determined to be anti-dilutive. Our anti-dilutive SARs totaled 563,936 and 346,920 for the three months ended March 31, 2023 and 2022, respectively. There were 707 anti-dilutive RSUs at March 31, 2023 and all RSUs were dilutive for the three months ended March 31, 2022.

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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 March 31, 2023 and December 31, 2022 are summarized as follows:

	*March 31, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Available for Sale
Taxable debt securities
U.S. Government sponsored agencies and corporations	$	19,032	$	74	$	268	$	18,838
Residential mortgage-backed securities:
Government-sponsored agencies		69,624		781		3,483		66,922
Nongovernment-sponsored entities		81,959		40		4,519		77,480
State and political subdivisions
General obligations		82,413		26		16,341		66,098
Various tax revenues		10,691		—		2,179		8,512
Other revenues		26,265		—		4,869		21,396
Corporate debt securities		32,454		45		1,785		30,714
Asset-backed securities		26,791		—		358		26,433
Total taxable debt securities		349,229		966		33,802		316,393
Tax-exempt debt securities
State and political subdivisions
General obligations		94,168		476		4,847		89,797
Water and sewer revenues		7,906		101		622		7,385
Other revenues		20,578		103		2,323		18,358
Total tax-exempt debt securities		122,652		680		7,792		115,540
Total debt securities available for sale	$	471,881	$	1,646	$	41,594	$	431,933

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	*December 31, 2022*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Available for Sale
Taxable debt securities
U.S. Government sponsored agencies and corporations	$	20,446	$	83	$	310	$	20,219
Residential mortgage-backed securities:
Government-sponsored agencies		55,184		80		3,808		51,456
Nongovernment-sponsored entities		65,860		48		4,291		61,617
State and political subdivisions
General obligations		82,410		9		19,924		62,495
Various tax revenues		10,699		—		2,591		8,108
Other revenues		29,044		—		6,580		22,464
Corporate debt securities		33,409		44		1,825		31,628
Asset-backed securities		20,009		—		533		19,476
Total taxable debt securities		317,061		264		39,862		277,463
Tax-exempt debt securities
State and political subdivisions
General obligations		93,910		281		6,719		87,472
Water and sewer revenues		17,560		120		1,154		16,526
Lease revenues		7,411		47		411		7,047
Various tax revenues		7,851		—		1,115		6,736
Other revenues		11,274		9		1,326		9,957
Total tax-exempt debt securities		138,006		457		10,725		127,738
Total debt securities available for sale	$	455,067	$	721	$	50,587	$	405,201

Accrued interest receivable on debt securities available for sale totaled $3.03 million at March 31, 2023 and $3.0 million at December 31, 2022, 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.

	*March 31, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*

California	$	47,324	$	—	$	9,025	$	38,299
Texas		33,693		147		3,851		29,989
Michigan		21,904		154		1,838		20,220
Washington		14,415		—		1,281		13,134
Oregon		15,755		—		3,450		12,305

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 March 31, 2023, are summarized as follows:

	*Amortized*		*Estimated*
Dollars in thousands	*Cost*		*Fair Value*
Due in one year or less	$	48,018	$	46,759
Due from one to five years		104,737		100,665
Due from five to ten years		84,316		77,377
Due after ten years		234,810		207,132
Total	$	471,881	$	431,933

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 three months ended March 31, 2023 and 2022 are as follows:

	*Proceeds from*						*Gross realized*
			*Calls and*		*Principal*
Dollars in thousands	*Sales*		*Maturities*		*Payments*		*Gains*		*Losses*
For the Three Months Ended
March 31,
2023	$	36,940	$	1,145	$	8,048	$	446	$	505

2022	$	16,092	$	210	$	8,730	$	97	$	249

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at March 31, 2023 and December 31, 2022.

	*March 31, 2023*
			*Less than 12 months*				*12 months or more*				*Total*
	*# of securities*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*
Dollars in thousands	*in loss position*		*Fair Value*		*Loss*		*Fair Value*		*Loss*		*Fair Value*		*Loss*
Taxable debt securities
U.S. Government sponsored agencies and corporations		28	$	6,733	$	27	$	9,664	$	241	$	16,397	$	268
Residential mortgage-backed securities:
Government-sponsored agencies		57		13,651		274		31,132		3,209		44,783		3,483
Nongovernment-sponsored entities		35		52,912		2,066		17,717		2,453		70,629		4,519
State and political subdivisions:
General obligations		56		5,900		170		58,801		16,171		64,701		16,341
Various tax revenues		7		—		—		8,512		2,179		8,512		2,179
Other revenues		23		976		23		20,420		4,846		21,396		4,869
Corporate debt securities		19		3,386		331		16,290		1,454		19,676		1,785
Asset-backed securities		15		14,005		83		12,429		275		26,434		358
Tax-exempt debt securities
State and political subdivisions:
General obligations		50		43,594		640		29,192		4,207		72,786		4,847
Water and sewer revenues		7		5		—		4,575		622		4,580		622
Other revenues		10		—		—		15,486		2,323		15,486		2,323
Total		307	$	141,162	$	3,614	$	224,218	$	37,980	$	365,380	$	41,594

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	*December 31, 2022*
			*Less than 12 months*				*12 months or more*				*Total*
	*# of securities*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*
Dollars in thousands	*in loss position*		*Fair Value*		*Loss*		*Fair Value*		*Loss*		*Fair Value*		*Loss*
Taxable debt securities
U.S. Government sponsored agencies and corporations		28	$	8,012	$	99	$	9,577	$	211	$	17,589	$	310
Residential mortgage-backed securities:
Government-sponsored agencies		58		21,831		1,104		19,459		2,704		41,290		3,808
Nongovernment-sponsored entities		27		35,727		2,974		10,041		1,317		45,768		4,291
State and political subdivisions:
General obligations		56		11,258		1,476		49,858		18,448		61,116		19,924
Various tax revenues		7		1,352		276		6,756		2,315		8,108		2,591
Other revenues		23		6,361		1,040		16,103		5,540		22,464		6,580
Corporate debt securities		20		8,308		591		13,072		1,234		21,380		1,825
Asset-backed securities		13		11,680		277		7,796		256		19,476		533
Tax-exempt debt securities
State and political subdivisions:
General obligations		52		50,671		1,823		26,062		4,896		76,733		6,719
Water and sewer revenues		13		8,800		403		4,471		751		13,271		1,154
Lease revenues		2		3,330		11		1,985		400		5,315		411
Various tax revenues		4		3,597		439		3,139		676		6,736		1,115
Other revenues		7		2,900		393		4,812		933		7,712		1,326
Total		310	$	173,827	$	10,906	$	173,131	$	39,681	$	346,958	$	50,587

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 March 31, 2023 and December 31, 2022 are summarized as follows:

	*March 31, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Held to Maturity
Tax-exempt debt securities
State and political subdivisions:
General obligations	$	70,044	$	—	$	5,098	$	64,946
Water and sewer revenues		7,959		—		527		7,432
Lease revenues		4,214		—		434		3,780
Sales tax revenues		4,498		—		518		3,980
Various tax revenues		5,489		—		672		4,817
Other revenues		3,478		—		220		3,258
Total debt securities held to maturity	$	95,682	$	—	$	7,469	$	88,213

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	*December 31, 2022*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Debt Securities Held to Maturity
Tax-exempt debt securities
State and political subdivisions:
General obligations	$	70,401	$	—	$	6,480	$	63,921
Water and sewer revenues		8,006		—		672		7,334
Lease revenues		4,234		—		534		3,700
Sales tax revenues		4,515		—		689		3,826
Various tax revenues		5,511		—		871		4,640
Other revenues		3,496		—		290		3,206
Total debt securities held to maturity	$	96,163	$	—	$	9,536	$	86,627

Accrued interest receivable on debt securities held to maturity totaled $937,000 at March 31, 2023 and $1.1 million December 31, 2022, 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.

	*March 31, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Texas	$	15,025	$	—	$	1,021	$	14,004
California		9,612		—		609		9,003
Pennsylvania		8,440		—		536		7,904
Florida		7,432		—		774		6,658
Michigan		6,871		—		646		6,225

The following table displays the amortized cost of held to maturity debt securities by credit rating at March 31, 2023 and December 31, 2022.

	*March 31, 2023*
Dollars in thousands	*AAA*		AA		A		*BBB*		*Below Investment Grade*
Tax-exempt state and political subdivisions	$	12,786	$	75,539	$	7,357	$	—	$	—

	*December 31, 2022*
Dollars in thousands	*AAA*		AA		A		*BBB*		*Below Investment Grade*
Tax-exempt state and political subdivisions	$	12,846	$	75,932	$	7,385	$	—	$	—

We owned no past due or nonaccrual held to maturity debt securities at March 31, 2023 or December 31, 2022.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at March 31, 2023, are summarized as follows:

	*Amortized*		*Estimated*
Dollars in thousands	*Cost*		*Fair Value*
Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		2,794		2,646
Due after ten years		92,888		85,567
Total	$	95,682	$	88,213

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There were no proceeds from calls and maturities of debt securities held to maturity for the three months ended March 31, 2023 or 2022.

At March 31, 2023, no allowance for credit losses on debt securities held to maturity has been recognized.

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

Loans

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

	*March 31,*		*December 31,*
Dollars in thousands	*2023*		*2022*
Commercial	$	498,268	$	501,844
Commercial real estate - owner occupied
Professional & medical		119,697		120,872
Retail		185,205		188,196
Other		164,658		157,982
Commercial real estate - non-owner occupied
Hotels & motels		142,573		141,042
Mini-storage		54,122		51,109
Multifamily		273,846		272,705
Retail		219,395		192,270
Other		346,422		347,242
Construction and development
Land & land development		102,351		106,362
Construction		290,556		282,935
Residential 1-4 family real estate
Personal residence		271,361		265,326
Rental - small loan		123,951		121,548
Rental - large loan		111,475		92,103
Home equity		70,167		71,986
Mortgage warehouse lines		86,240		130,390
Consumer		36,531		35,372
Other
Credit cards		2,087		2,182
Overdrafts		1,030		1,352
Total loans, net of unearned fees		3,099,935		3,082,818
Less allowance for credit losses - loans		40,836		38,899
Loans, net	$	3,059,099	$	3,043,919

Accrued interest and fees receivable on loans totaled $10.8 million and $10.4 million at March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022.

	*At March 31, 2023*
	*Past Due*										*90 days or more and*
Dollars in thousands	*30-59 days*		*60-89 days*		*90 days or more*		*Total*		*Current*		*Accruing*
Commercial	$	443	$	61	$	185	$	689	$	497,579	$	—
Commercial real estate - owner occupied
Professional & medical		334		139		—		473		119,224		—
Retail		—		—		—		—		185,205		—
Other		174		—		38		212		164,446		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—		142,573		—
Mini-storage		—		—		—		—		54,122		—
Multifamily		93		—		58		151		273,695		—
Retail		259		—		438		697		218,698		—
Other		—		—		—		—		346,422		—
Construction and development
Land & land development		2,610		1,662		—		4,272		98,079		—
Construction		—		—		—		—		290,556		—
Residential 1-4 family real estate
Personal residence		1,652		656		889		3,197		268,164		—
Rental - small loan		290		138		1,083		1,511		122,440		—
Rental - large loan		—		25		—		25		111,450		—
Home equity		227		85		93		405		69,762		—
Mortgage warehouse lines		—		—		—		—		86,240		—
Consumer		235		19		39		293		36,238		—
Other
Credit cards		10		3		17		30		2,057		17
Overdrafts		—		—		—		—		1,030		—
Total	$	6,327	$	2,788	$	2,840	$	11,955	$	3,087,980	$	17

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	*December 31, 2022*
	*Past Due*										*90 days or more and*
Dollars in thousands	*30-59 days*		*60-89 days*		*90 days or more*		*Total*		*Current*		*Accruing*
Commercial	$	2,982	$	201	$	34	$	3,217	$	498,627	$	—
Commercial real estate - owner occupied
Professional & medical		100		—		—		100		120,772		—
Retail		—		—		221		221		187,975		—
Other		376		135		37		548		157,434		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—		141,042		—
Mini-storage		—		—		—		—		51,109		—
Multifamily		—		—		58		58		272,647		—
Retail		165		—		438		603		191,667		—
Other		—		—		—		—		347,242		—
Construction and development
Land & land development		317		852		—		1,169		105,193		—
Construction		—		—		—		—		282,935		—
Residential 1-4 family real estate
Personal residence		3,768		741		1,969		6,478		258,848		—
Rental - small loan		1,093		582		816		2,491		119,057		—
Rental - large loan		—		—		—		—		92,103		—
Home equity		1,401		105		52		1,558		70,428		—
Mortgage warehouse lines		—		—		—		—		130,390		—
Consumer		182		71		—		253		35,119		—
Other
Credit cards		9		13		12		34		2,148		12
Overdrafts		—		—		—		—		1,352		—
Total	$	10,393	$	2,700	$	3,637	$	16,730	$	3,066,088	$	12

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The following table presents the nonaccrual loans included in the net balance of loans at March 31, 2023 and December 31, 2022.

	*March 31,*				*December 31,*
	*2023*				*2022*
			*Nonaccrual*				*Nonaccrual*
			*with No*				*with No*
			*Allowance for*				*Allowance for*
			*Credit Losses*				*Credit Losses*
Dollars in thousands	*Nonaccrual*		*- Loans*		*Nonaccrual*		*- Loans*
Commercial	$	402	$	26	$	93	$	48
Commercial real estate - owner occupied
Professional & medical		—		—		—		—
Retail		315		—		350		—
Other		417		—		423		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—
Mini-storage		—		—		—		—
Multifamily		529		—		538		—
Retail		439		—		439		—
Other		—		—		—		—
Construction and development
Land & land development		813		—		852		—
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		2,005		—		2,892		—
Rental - small loan		2,118		174		2,066		—
Rental - large loan		—		—		—		—
Home equity		199		—		158		—
Mortgage warehouse lines		—		—		—		—
Consumer		48		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	7,285	$	200	$	7,811	$	48

Modifications to Borrowers Experiencing Financial Difficulty

We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. During first quarter 2023, we modified 3 loans totaling $456,000, which we deem insignificant, there were no commitments to lend additional funds under these modifications, and the payment status of each loan was current as of March 31, 2023.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

During the three months ended March 31, 2022, we modified 6 loans totaling $335,000, which we deem insignificant, there were no commitments to lend additional funds under these modifications, and the payment status of each loan was current as of March 31, 2022.

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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 March 31, 2023 and December 31, 2022, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:

	March 31, 2023
																Revolvi-			Revolving-
Dollars in thousands		Risk Rating	2023		2022		2021			2020		2019		Prior		ng			Term		Total

Commercial		Pass	$	8,438	$	141,006	$	68,767		$	24,531	$	18,905	$	12,444	$	198,265		$	—	$	472,356
		Special Mention		15		476		221			263		47		2,015		225			—		3,262
		Substandard		8		51		22,465			—		26		5		95			—		22,650
Total Commercial				8,461		141,533		91,453			24,794		18,978		14,464		198,585			—		498,268
Current Period Charge-Offs				—		—		(2	)		—		—		—		(19	)		—		(21	)

Commercial Real Estate - Owner Occupied

Professional & medical		Pass		2,403		13,125		46,157			10,087		6,523		37,695		2,155			—		118,145
		Special Mention		—		—		—			1,113		—		367		—			—		1,480
		Substandard		—		—		—			72		—		—		—			—		72
Total Professional & Medical				2,403		13,125		46,157			11,272		6,523		38,062		2,155			—		119,697
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Retail		Pass		1,303		23,167		69,134			28,027		27,007		33,356		2,318			—		184,312
		Special Mention		—		—		—			—		—		578		—			—		578
		Substandard		—		—		—			—		—		315		—			—		315
Total Retail				1,303		23,167		69,134			28,027		27,007		34,249		2,318			—		185,205
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Other		Pass		12,946		42,620		26,893			24,503		7,220		44,220		5,275			—		163,677
		Special Mention		—		—		55			—		130		379		—			—		564
		Substandard		—		—		—			—		—		417		—			—		417
Total Other				12,946		42,620		26,948			24,503		7,350		45,016		5,275			—		164,658
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Total Commercial Real Estate - Owner Occupied				16,652		78,912		142,239			63,802		40,880		117,327		9,748			—		469,560

Commercial Real Estate - Non-Owner Occupied

Hotels & motels		Pass		—		31,930		1,684			3,161		54,691		27,957		5,927			—		125,350
		Special Mention		—		—		—			—		—		—		—			—		—
		Substandard		—		—		—			2,697		14,308		218		—			—		17,223
Total Hotels & Motels				—		31,930		1,684			5,858		68,999		28,175		5,927			—		142,573
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Mini-storage		Pass		—		7,642		13,081			6,439		3,731		23,088		98			—		54,079
		Special Mention		—		—		—			—		—		43		—			—		43
		Substandard		—		—		—			—		—		—		—			—		—
Total Mini-storage				—		7,642		13,081			6,439		3,731		23,131		98			—		54,122
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Multifamily		Pass		1,685		61,379		60,453			52,201		28,007		68,725		789			—		273,239
		Special Mention		—		—		—			77		—		—		—			—		77
		Substandard		—		—		—			472		—		58		—			—		530
Total Multifamily				1,685		61,379		60,453			52,750		28,007		68,783		789			—		273,846
Current Period Charge-Offs				—		—		—			—		—		—		—			—		—

Table of Contents

	*March 31, 2023*
															*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*			ng		*Term*		*Total*

Retail	Pass		26,855		50,439		51,910		37,186		5,407		31,287			7,198		—		210,282
	Special Mention		—		—		—		—		—		948			—		—		948
	Substandard		—		—		—		—		7,726		439			—		—		8,165
Total Retail			26,855		50,439		51,910		37,186		13,133		32,674			7,198		—		219,395
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

Other	Pass		5,847		91,575		123,096		52,157		12,222		50,839			1,823		—		337,559
	Special Mention		—		5,467		—		—		—		521			—		—		5,988
	Substandard		—		—		—		—		—		2,875			—		—		2,875
Total Other			5,847		97,042		123,096		52,157		12,222		54,235			1,823		—		346,422
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

*Total Commercial Real Estate - Non-Owner Occupied*			34,387		248,432		250,224		154,390		126,092		206,998			15,835		—		1,036,358

Construction and Development

Land & land development	Pass		1,728		26,563		23,303		8,925		11,775		19,688			8,133		—		100,115
	Special Mention		—		—		—		148		107		462			—		—		717
	Substandard		—		—		—		—		—		1,519			—		—		1,519
Total Land & land development			1,728		26,563		23,303		9,073		11,882		21,669			8,133		—		102,351
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

Construction	Pass		4,484		74,198		151,568		56,002		—		1,342			2,962		—		290,556
	Special Mention		—		—		—		—		—		—			—		—		—
	Substandard		—		—		—		—		—		—			—		—		—
Total Construction			4,484		74,198		151,568		56,002		—		1,342			2,962		—		290,556
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

*Total Construction and Development*			6,212		100,761		174,871		65,075		11,882		23,011			11,095		—		392,907

Residential 1-4 Family Real Estate

Personal residence	Pass		8,197		41,755		39,424		30,334		15,582		118,467			—		—		253,759
	Special Mention		219		—		52		—		179		9,186			—		—		9,636
	Substandard		—		—		66		—		601		7,299			—		—		7,966
Total Personal Residence			8,416		41,755		39,542		30,334		16,362		134,952			—		—		271,361
*Current Period Charge-Offs*			—		—		—		—		—		(23	)		—		—		(23	)

Rental - small loan	Pass		5,329		22,240		25,891		11,487		10,892		37,287			5,970		—		119,096
	Special Mention		—		—		222		102		—		1,202			—		—		1,526
	Substandard		—		158		—		—		117		2,942			112		—		3,329
Total Rental - Small Loan			5,329		22,398		26,113		11,589		11,009		41,431			6,082		—		123,951
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

Rental - large loan	Pass		2,711		40,970		36,990		10,938		3,614		11,066			1,525		—		107,814
	Special Mention		—		—		—		—		—		26			—		—		26
	Substandard		—		660		—		—		—		2,975			—		—		3,635
Total Rental - Large Loan			2,711		41,630		36,990		10,938		3,614		14,067			1,525		—		111,475
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

Home equity	Pass		—		66		218		54		49		2,299			65,481		—		68,167
	Special Mention		—		—		—		—		—		601			841		—		1,442
	Substandard		—		51		—		—		—		458			49		—		558
Total Home Equity			—		117		218		54		49		3,358			66,371		—		70,167
*Current Period Charge-Offs*			—		—		—		—		—		—			—		—		—

*Total Residential 1-4 Family Real Estate*			16,456		105,900		102,863		52,915		31,034		193,808			73,978		—		576,954

Table of Contents

	March 31, 2023
																			Revolvi-			Revolving-
Dollars in thousands		Risk Rating	2023			2022			2021			2020		2019		Prior			ng			Term		Total

Mortgage warehouse lines		Pass		—			—			—			—		—		—			86,240			—		86,240
Total Mortgage Warehouse Lines				—			—			—			—		—		—			86,240			—		86,240
Current Period Charge-Offs				—			—			—			—		—		—			—			—		—

Consumer		Pass		5,714			15,393			6,483			2,588		1,426		1,684			898			—		34,186
		Special Mention		291			1,135			284			151		69		108			6			—		2,044
		Substandard		17			158			61			17		19		2			27			—		301
Total Consumer				6,022			16,686			6,828			2,756		1,514		1,794			931			—		36,531
Current Period Charge-Offs				—			(27	)		(7	)		—		—		—			—			—		(34	)

Other

Credit cards		Pass		2,087			—			—			—		—		—			—			—		2,087
Total Credit Cards				2,087			—			—			—		—		—			—			—		2,087
Current Period Charge-Offs				(11	)		—			—			—		—		—			—			—		(11	)

Overdrafts		Pass		1,030			—			—			—		—		—			—			—		1,030
Total Overdrafts				1,030			—			—			—		—		—			—			—		1,030
Current Period Charge-Offs				(76	)		—			—			—		—		—			—			—		(76	)

Total Other				3,117			—			—			—		—		—			—			—		3,117

Total			$	91,307		$	692,224		$	768,478		$	363,732	$	230,380	$	557,402		$	396,412		$	—	$	3,099,935
Total Charge-Offs			$	(87	)	$	(27	)	$	(9	)	$	—	$	—	$	(23	)	$	(19	)	$	—	$	(165	)

	*December 31, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*

Commercial	Pass	$	145,996	$	73,702	$	27,247	$	20,300	$	3,056	$	10,429	$	194,641	$	—	$	475,371
	Special Mention		689		23,055		267		51		17		149		2,010		—		26,238
	Substandard		52		56		—		48		24		—		55		—		235
Total Commercial			146,737		96,813		27,514		20,399		3,097		10,578		196,706		—		501,844

Commercial Real Estate - Owner Occupied

Professional & medical	Pass		13,750		47,010		10,312		6,621		3,981		35,476		2,090		—		119,240
	Special Mention		—		—		1,119		—		—		233		—		—		1,352
	Substandard		—		—		72		—		—		208		—		—		280
Total Professional & Medical			13,750		47,010		11,503		6,621		3,981		35,917		2,090		—		120,872

Retail	Pass		23,604		70,257		28,128		28,327		8,163		26,538		2,226		—		187,243
	Special Mention		—		—		—		—		—		603		—		—		603
	Substandard		—		—		—		—		—		350		—		—		350
Total Retail			23,604		70,257		28,128		28,327		8,163		27,491		2,226		—		188,196

Other	Pass		43,811		27,174		24,870		7,778		15,346		34,720		3,412		—		157,111
	Special Mention		—		56		—		—		—		392		—		—		448
	Substandard		—		—		—		—		107		316		—		—		423
Total Other			43,811		27,230		24,870		7,778		15,453		35,428		3,412		—		157,982

Total Commercial Real Estate - Owner Occupied			81,165		144,497		64,501		42,726		27,597		98,836		7,728		—		467,050

Table of Contents

	*December 31, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*
Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Pass		32,059		1,695		3,192		32,688		15,358		12,899		4,081		—		101,972
	Special Mention		—		—		—		36,131		—		—		—		—		36,131
	Substandard		—		—		2,716		—		—		223		—		—		2,939
Total Hotels & Motels			32,059		1,695		5,908		68,819		15,358		13,122		4,081		—		141,042

Mini-storage	Pass		2,868		13,191		7,679		3,776		13,017		10,419		115		—		51,065
	Special Mention		—		—		—		—		—		44		—		—		44
	Substandard		—		—		—		—		—		—		—		—		—
Total Mini-storage			2,868		13,191		7,679		3,776		13,017		10,463		115		—		51,109

Multifamily	Pass		57,727		56,073		53,558		29,479		21,359		53,244		646		—		272,086
	Special Mention		—		—		81		—		—		—		—		—		81
	Substandard		—		—		480		—		—		58		—		—		538
Total Multifamily			57,727		56,073		54,119		29,479		21,359		53,302		646		—		272,705

Retail	Pass		46,278		52,387		39,609		5,449		6,999		25,315		7,053		—		183,090
	Special Mention		—		—		—		—		—		964		—		—		964
	Substandard		—		—		—		7,778		—		438		—		—		8,216
Total Retail			46,278		52,387		39,609		13,227		6,999		26,717		7,053		—		192,270

Other	Pass		94,765		123,551		52,592		12,281		5,444		47,752		1,953		—		338,338
	Special Mention		5,465		—		—		—		538		—		—		—		6,003
	Substandard		—		—		—		—		—		2,901		—		—		2,901
Total Other			100,230		123,551		52,592		12,281		5,982		50,653		1,953		—		347,242

Total Commercial Real Estate - Non-Owner Occupied			239,162		246,897		159,907		127,582		62,715		154,257		13,848		—		1,004,368

Construction and Development

Land & land development	Pass		27,857		23,490		10,670		13,395		5,142		15,859		7,484		—		103,897
	Special Mention		—		—		149		109		—		473		—		—		731
	Substandard		—		—		—		—		—		1,734		—		—		1,734
Total Land & land development			27,857		23,490		10,819		13,504		5,142		18,066		7,484		—		106,362

Construction	Pass		82,650		140,764		54,584		317		1,355		—		2,940		—		282,610
	Special Mention		—		—		—		—		325		—		—		—		325
	Substandard		—		—		—		—		—		—		—		—		—
Total Construction			82,650		140,764		54,584		317		1,680		—		2,940		—		282,935

Total Construction and Development			110,507		164,254		65,403		13,821		6,822		18,066		10,424		—		389,297

Residential 1-4 Family Real Estate

Personal residence	Pass		38,783		39,416		30,297		16,003		16,581		105,822		—		—		246,902
	Special Mention		—		53		—		180		74		9,074		—		—		9,381
	Substandard		—		68		—		620		901		7,454		—		—		9,043
Total Personal Residence			38,783		39,537		30,297		16,803		17,556		122,350		—		—		265,326

Table of Contents

	*December 31, 2022*
														*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2022*		*2021*		*2020*		*2019*		*2018*		*Prior*		ng		*Term*		*Total*
Rental - small loan	Pass		22,692		26,654		11,609		10,995		8,103		30,508		5,784		—		116,345
	Special Mention		—		224		103		—		—		1,100		—		—		1,427
	Substandard		—		—		—		156		239		3,269		112		—		3,776
Total Rental - Small Loan			22,692		26,878		11,712		11,151		8,342		34,877		5,896		—		121,548

Rental - large loan	Pass		28,090		31,401		11,033		3,631		3,932		9,045		894		—		88,026
	Special Mention		—		—		—		—		—		26		—		—		26
	Substandard		670		—		—		—		—		3,381		—		—		4,051
Total Rental - Large Loan			28,760		31,401		11,033		3,631		3,932		12,452		894		—		92,103

Home equity	Pass		65		219		55		50		192		2,118		67,155		—		69,854
	Special Mention		—		—		—		—		125		626		757		—		1,508
	Substandard		51		—		—		—		58		461		54		—		624
Total Home Equity			116		219		55		50		375		3,205		67,966		—		71,986

Total Residential 1-4 Family Real Estate			90,351		98,035		53,097		31,635		30,205		172,884		74,756		—		550,963

Mortgage warehouse lines	Pass		—		—		—		—		—		—		130,390		—		130,390
Total Mortgage Warehouse Lines			—		—		—		—		—		—		130,390		—		130,390

Consumer	Pass		17,594		7,620		3,066		1,806		749		1,221		889		—		32,945
	Special Mention		1,332		362		179		83		18		102		6		—		2,082
	Substandard		207		75		31		—		3		1		28		—		345
Total Consumer			19,133		8,057		3,276		1,889		770		1,324		923		—		35,372

Other

Credit cards	Pass		2,182		—		—		—		—		—		—		—		2,182
Total Credit Cards			2,182		—		—		—		—		—		—		—		2,182

Overdrafts	Pass		1,352		—		—		—		—		—		—		—		1,352
Total Overdrafts			1,352		—		—		—		—		—		—		—		1,352

Total Other			3,534		—		—		—		—		—		—		—		3,534

Total		$	690,589	$	758,553	$	373,698	$	238,052	$	131,206	$	455,945	$	434,775	$	—	$	3,082,818

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Allowance for Credit Losses - Loans

The following tables presents the activity in the ACLL by portfolio segment during the three months ended March 31, 2023 and 2022 and the twelve months ended December 31, 2022:

	*For the Three Months Ended March 31, 2023*
	*Allowance for Credit Losses - Loans*
			*Provision*
			*for*
			*Credit*
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	4,941	$	(242	)	$	(21	)	$	2	$	4,680
Commercial real estate - owner occupied
Professional & medical		966		(95	)		—			—		871
Retail		1,176		(51	)		—			—		1,125
Other		426		34			—			—		460
Commercial real estate - non-owner occupied
Hotels & motels		1,203		(65	)		—			—		1,138
Mini-storage		82		8			—			—		90
Multifamily		2,907		395			—			1		3,303
Retail		1,362		510			—			69		1,941
Other		2,452		(46	)		—			4		2,410
Construction and development
Land & land development		3,482		486			—			2		3,970
Construction		11,138		621			—			—		11,759
Residential 1-4 family real estate
Personal residence		2,939		(468	)		(23	)		71		2,519
Rental - small loan		1,907		(50	)		—			8		1,865
Rental - large loan		2,668		1,165			—			—		3,833
Home equity		705		(310	)		—			13		408
Mortgage warehouse lines		—		—			—			—		—
Consumer		174		—			(34	)		38		178
Other
Credit cards		17		10			(11	)		1		17
Overdrafts		354		(27	)		(76	)		18		269
Total	$	38,899	$	1,875		$	(165	)	$	227	$	40,836

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	For the Three Months Ended March 31, 2022
	Allowance for Credit Losses - Loans
			Provision
			for
			Credit
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	3,218	$	992		$	(202	)	$	3	$	4,011
Commercial real estate - owner occupied
Professional & medical		1,092		59			—			—		1,151
Retail		1,362		(28	)		—			—		1,334
Other		575		(180	)		—			—		395
Commercial real estate - non-owner occupied
Hotels & motels		2,532		(1,332	)		—			—		1,200
Mini-storage		133		(13	)		—			—		120
Multifamily		1,821		236			—			1		2,058
Retail		1,074		476			—			—		1,550
Other		1,820		135			—			3		1,958
Construction and development
Land & land development		3,468		(16	)		—			4		3,456
Construction		6,346		1,032			—			—		7,378
Residential 1-4 family real estate
Personal residence		2,765		(36	)		(53	)		20		2,696
Rental - small loan		2,834		(469	)		(83	)		8		2,290
Rental - large loan		2,374		(181	)		—			—		2,193
Home equity		497		(51	)		(8	)		4		442
Mortgage warehouse lines		—		—			—			—		—
Consumer		163		14			(55	)		25		147
Other
Credit cards		17		(1	)		—			2		18
Overdrafts		207		196			(216	)		39		226
Total	$	32,298	$	833		$	(617	)	$	109	$	32,623

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	For the Twelve Months Ended December 31, 2022
	Allowance for Credit Losses - Loans
			Provision
			for
			Credit
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	3,218	$	1,774		$	(237	)	$	186	$	4,941
Commercial real estate - owner occupied
Professional & medical		1,092		(126	)		—			—		966
Retail		1,362		(79	)		(108	)		1		1,176
Other		575		(88	)		(61	)		—		426
Commercial real estate - non-owner occupied
Hotels & motels		2,532		(1,329	)		—			—		1,203
Mini-storage		133		(51	)		—			—		82
Multifamily		1,821		1,080			—			6		2,907
Retail		1,074		228			—			60		1,362
Other		1,820		593			—			39		2,452
Construction and development
Land & land development		3,468		76			(71	)		9		3,482
Construction		6,346		4,792			—			—		11,138
Residential 1-4 family real estate
Personal residence		2,765		230			(112	)		56		2,939
Rental - small loan		2,834		(848	)		(211	)		132		1,907
Rental - large loan		2,374		294			—			—		2,668
Home equity		497		179			(8	)		37		705
Mortgage warehouse lines		—		—			—			—		—
Consumer		163		70			(174	)		115		174
Other
Credit cards		17		7			(24	)		17		17
Overdrafts		207		476			(433	)		104		354
Total	$	32,298	$	7,278		$	(1,439	)	$	762	$	38,899

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The following tables presents, as of March 31, 2023 and December 31, 2022 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans.

	*March 31, 2023*
	*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	$	22,541	$	475,727	$	498,268	$	9	$	4,671	$	4,680
Commercial real estate - owner occupied
Professional & medical		—		119,697		119,697		—		871		871
Retail		—		185,205		185,205		—		1,125		1,125
Other		—		164,658		164,658		—		460		460
Commercial real estate - non-owner occupied
Hotels & motels		17,223		125,350		142,573		—		1,138		1,138
Mini-storage		—		54,122		54,122		—		90		90
Multifamily		—		273,846		273,846		—		3,303		3,303
Retail		8,165		211,230		219,395		95		1,846		1,941
Other		3,396		343,026		346,422		213		2,197		2,410
Construction and development
Land & land development		813		101,538		102,351		454		3,516		3,970
Construction		—		290,556		290,556		—		11,759		11,759
Residential 1-4 family real estate
Personal residence		—		271,361		271,361		—		2,519		2,519
Rental - small loan		1,151		122,800		123,951		207		1,658		1,865
Rental - large loan		3,636		107,839		111,475		—		3,833		3,833
Home equity		—		70,167		70,167		—		408		408
Mortgage warehouse lines		—		86,240		86,240		—		—		—
Consumer		—		36,531		36,531		—		178		178
Other
Credit cards		—		2,087		2,087		—		17		17
Overdrafts		—		1,030		1,030		—		269		269
Total	$	56,925	$	3,043,010	$	3,099,935	$	978	$	39,858	$	40,836

(1) Included in the loans collectively evaluated are $8.1 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, 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	$	104	$	501,740	$	501,844	$	—	$	4,941	$	4,941
Commercial real estate - owner occupied
Professional & medical		1,969		118,903		120,872		212		754		966
Retail		4,544		183,652		188,196		—		1,176		1,176
Other		—		157,982		157,982		—		426		426
Commercial real estate - non-owner occupied
Hotels & motels		2,939		138,103		141,042		—		1,203		1,203
Mini-storage		—		51,109		51,109		—		82		82
Multifamily		—		272,705		272,705		—		2,907		2,907
Retail		9,906		182,364		192,270		95		1,267		1,362
Other		5,551		341,691		347,242		287		2,165		2,452
Construction and development
Land & land development		1,398		104,964		106,362		502		2,980		3,482
Construction		—		282,935		282,935		—		11,138		11,138
Residential 1-4 family real estate
Personal residence		—		265,326		265,326		—		2,939		2,939
Rental - small loan		1,159		120,389		121,548		282		1,625		1,907
Rental - large loan		3,675		88,428		92,103		—		2,668		2,668
Home equity		—		71,986		71,986		—		705		705
Mortgage warehouse lines		—		130,390		130,390		—		—		—
Consumer		—		35,372		35,372		—		174		174
Other
Credit cards		—		2,182		2,182		—		17		17
Overdrafts		—		1,352		1,352		—		354		354
Total	$	31,245	$	3,051,573	$	3,082,818	$	1,378	$	37,521	$	38,899

(1) Included in the loans collectively evaluated are $8.5 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

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

	*March 31, 2023*
	*Real Estate*						*Allowance for*
	*Secured*		*Non-Real Estate*				*Credit Losses*
Dollars in thousands	*Loans*		*Secured Loans*		*Total Loans*		*- Loans*
Commercial	$	—	$	22,541	$	22,541	$	9
Commercial real estate - owner occupied
Professional & medical		—		—		—		—
Retail		—		—		—		—
Other		—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels		17,223		—		17,223		—
Mini-storage		—		—		—		—
Multifamily		—		—		—		—
Retail		8,165		—		8,165		95
Other		3,396		—		3,396		213
Construction and development
Land & land development		813		—		813		454
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		—		—		—		—
Rental - small loan		1,151		—		1,151		207
Rental - large loan		3,636		—		3,636		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	34,384	$	22,541	$	56,925	$	978

	*December 31, 2022*
	*Real Estate*						*Allowance for*
	*Secured*		*Non-Real Estate*				*Credit Losses*
Dollars in thousands	*Loans*		*Secured Loans*		*Total Loans*		*- Loans*
Commercial	$	—	$	104	$	104	$	—
Commercial real estate - owner occupied
Professional & medical		1,969		—		1,969		212
Retail		4,544		—		4,544		—
Other		—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels		2,939		—		2,939		—
Mini-storage		—		—		—		—
Multifamily		—		—		—		—
Retail		9,906		—		9,906		95
Other		5,551		—		5,551		287
Construction and development
Land & land development		1,398		—		1,398		502
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		—		—		—		—
Rental - small loan		1,159		—		1,159		282
Rental - large loan		3,675		—		3,675		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	31,141	$	104	$	31,245	$	1,378

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NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and certain other intangible assets with indefinite useful lives are not amortized into net income over an estimated life, but rather are tested at least annually for impairment. Intangible assets determined to have definite useful lives are amortized over their estimated useful lives and also are subject to impairment testing. Our goodwill totaled $55.3 million at March 31, 2023 and December 31, 2022.

The following table presents the balance of our other intangible assets at March 31, 2023 and December 31, 2022.

	*Other Intangible Assets*
Dollars in thousands	*March 31, 2023*		*December 31, 2022*
Identifiable intangible assets
Gross carrying amount	$	15,827	$	15,828
Less: accumulated amortization		9,367		9,025
Net carrying amount	$	6,460	$	6,803

We recorded amortization expense of $343,000 for the three months ended March 31, 2023 and $378,000 for the three months ended March 31, 2022, 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*
Nine month period ending December 31, 2023	$	956
Year ending December 31, 2024		1,158
Year ending December 31, 2025		1,019
Year ending December 31, 2026		878
Year ending December 31, 2027		737
Thereafter		1,642

NOTE 8. DEPOSITS

The following is a summary of interest bearing deposits by type as of March 31, 2023 and December 31, 2022:

	*March 31,*		*December 31,*
Dollars in thousands	*2023*		*2022*
Demand deposits, interest bearing	$	1,886,011	$	1,743,299
Savings deposits		462,631		496,751
Time deposits		398,489		376,213
Total	$	2,747,131	$	2,616,263

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $71.5 million and $32.8 million at March 31, 2023 and December 31, 2022, respectively.

A summary of the scheduled maturities for all time deposits as of March 31, 2023 is as follows:

Dollars in thousands
Nine month period ending December 31, 2023	$	173,874
Year ending December 31, 2024		160,739
Year ending December 31, 2025		35,088
Year ending December 31, 2026		13,883
Year ending December 31, 2027		7,582
Thereafter		7,323
Total	$	398,489

The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $129.2 million at March 31, 2023 and $88.0 million at December 31, 2022.

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NOTE 9. BORROWED FUNDS

Short-term borrowings: Federal funds purchased mature the next business day and totaled $150,000 at March 31, 2023 and $149,000 at December 31, 2022. A summary of short-term FHLB advances is presented below:

	*Three Months Ended March 31,*
Dollars in thousands	*2023*			*2022*
Balance at March 31	$	140,000		$	140,000
Average balance outstanding for the period		166,215			140,084
Maximum balance outstanding at any month end during period		140,000			140,000
Weighted average interest rate for the period		4.88	%		0.41	%
Weighted average interest rate for balances outstanding at March 31		5.20	%		0.47	%

Dollars in thousands		*Year Ended December 31, 2022*
Balance at December 31	$	225,850
Average balance outstanding for the period		204,118
Maximum balance outstanding at any month end during period		298,900
Weighted average interest rate for the period		2.37	%
Weighted average interest rate for balances outstanding at December 31		4.47	%

Long-term borrowings: Our long-term borrowings of $653,000 and $658,000 at March 31, 2023 and December 31, 2022, 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 $1.84 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 $73.7 million at March 31, 2023 and December 31, 2022. 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 $29.7 million at March 31, 2023 and $29.6 million at December 31, 2022. 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 March 31, 2023 and December 31, 2022.

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

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

						*Subordinated*
						*debentures owed*
		*Long-term*		*Subordinated*		*to unconsolidated*
Dollars in thousands		*borrowings*		*debentures*		*subsidiary trusts*
Year Ending December 31,	2023	$	17	$	—	$	—
	2024		23		—		—
	2025		24		—		—
	2026		589		—		—
	2027		—		—		—
	Thereafter		—		105,000		19,589
		$	653	$	105,000	$	19,589

NOTE 10. SHARE-BASED COMPENSATION

Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), 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 SARs and RSUs to individual employees.

During first quarter 2023, we granted 67,637 SARs with an $8.77 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 2023, we granted 108,747 SARs with an $8.63 grant date fair value per SAR that become exercisable ratably over five years (20% per year) and expire ten years after the grant date.

The fair value of our 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 SARs granted but are not considered by the model. Because our 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 SARs at the time of grant. The assumptions used to value SARs granted in 2023 are as follows:

	*2023 grant with 7 year expiration*			*2023 grant with 5 year expiration*
Risk-free interest rate		3.79	%		3.87	%
Expected dividend yield		3.00	%		3.00	%
Expected common stock volatility		40.76	%		40.76	%
Expected life (in years)		7			6.5

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A summary of our SAR activity during the first three months of 2023 and 2022 is as follows:

	*For the Three Months Ended March 31, 2023*
				*Aggregate*		*Remaining*		*Weighted-*
				*Intrinsic Value*		*Contractual*		*Average*
	*Options/SARs*			*(in thousands)*		*Term (Yrs.)*		*Exercise Price*
Outstanding, January 1		473,212						$	21.36
Granted		176,384							26.37
Exercised		(1,000	)						12.01
Forfeited		—							—
Expired		—							—
Outstanding, March 31		648,596		$	740		6.86	$	22.74

Exercisable, March 31		288,517		$	740		4.47	$	20.78

	*For the Three Months Ended March 31, 2022*
				*Aggregate*		*Remaining*		*Weighted-*
				*Intrinsic Value*		*Contractual*		*Average*
	*Options/SARs*			*(in thousands)*		*Term (Yrs.)*		*Exercise Price*
Outstanding, January 1		491,792						$	21.32
Granted		—							—
Exercised		(700	)						12.01
Forfeited		—							—
Expired		—							—
Outstanding, March 31		491,092		$	—		6.78	$	21.33

Exercisable, March 31		244,557		$	1,363		4.92	$	20.15

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years. A summary of our RSU activity during the first three months of 2023 and 2022 is as follows:

	*RSUs*		*Weighted Average Grant Date Fair Value*
Nonvested, December 31, 2022		7,204	$	20.49
Granted		—		—
Forfeited		—		—
Vested		—		—
Nonvested, March 31, 2023		7,204	$	20.49

	*RSUs*			*Weighted Average Grant Date Fair Value*
Nonvested, December 31, 2021		13,015		$	21.24
Granted		—			—
Forfeited		—			—
Vested		(1,846	)		27.09
Nonvested, March 31, 2022		11,169		$	20.28

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 three months of 2023 and 2022, total stock compensation expense for all share-based arrangements was $196,000 and $169,000 and the related deferred tax benefits were approximately $47,000 and $41,000. At March 31, 2023 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $3.0 million and on a weighted average basis, will be recognized over the next 2.57 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:

	*March 31,*
Dollars in thousands	*2023*
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,427
Construction loans		242,542
Other loans		504,056
Standby letters of credit		56,732
Total	$	907,757

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 $(375,000) and $1.12 million for the three months ended March 31, 2023 and 2022. The ACL on off-balance-sheet credit exposures totaled $6.57 million at March 31, 2023 compared to $6.95 million at December 31, 2022 and is included in other liabilities on the accompanying consolidated balance sheets.

Litigation

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

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NOTE 12. PREFERRED STOCK

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

NOTE 13. REGULATORY MATTERS

Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of March 31, 2023, 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 March 31, 2023 and December 31, 2022.

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 March 31, 2023
CET1 (to risk weighted assets)
Summit	$	309,186		8.9	%	$	244,091		7.0	%		N/A		N/A
Summit Community		414,809		11.9	%		243,326		7.0	%		225,945		6.5	%
Tier I Capital (to risk weighted assets)
Summit		343,106		9.8	%		296,397		8.5	%		N/A		N/A
Summit Community		414,809		11.9	%		295,467		8.5	%		278,086		8.0	%
Total Capital (to risk weighted assets)
Summit		487,193		14.0	%		366,137		10.5	%		N/A		N/A
Summit Community		455,479		13.1	%		364,989		10.5	%		347,608		10.0	%
Tier I Capital (to average assets)
Summit		343,106		8.7	%		157,337		4.0	%		N/A		N/A
Summit Community		414,809		10.6	%		156,366		4.0	%		195,458		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, 2022
CET1 (to risk weighted assets)
Summit		299,993		8.6	%		245,141		7.0	%		N/A		N/A
Summit Community		405,430		11.6	%		244,502		7.0	%		227,038		6.5	%
Tier I Capital (to risk weighted assets)
Summit		333,913		9.5	%		297,672		8.5	%		N/A		N/A
Summit Community		405,430		11.6	%		296,896		8.5	%		279,431		8.0	%
Total Capital (to risk weighted assets)
Summit		472,955		13.5	%		367,712		10.5	%		N/A		N/A
Summit Community		441,177		12.6	%		366,754		10.5	%		349,289		10.0	%
Tier I Capital (to average assets)
Summit		333,913		8.5	%		156,852		4.0	%		N/A		N/A
Summit Community		405,430		10.4	%		156,338		4.0	%		195,422		5.0	%

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

Cash flow hedges

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

•

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

•

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

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

•

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

•

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

Fair value hedges

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

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

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A summary of our derivative financial instruments as of March 31, 2023 and December 31, 2022 follows:

	*March 31, 2023*
			*Derivative Fair Value*				*Net Ineffective*
Dollars in thousands	*Notional Amount*		*Asset*		*Liability*		*Hedge Gains/(Losses)*
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	40,000	$	1,483	$	—	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	18,178	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		8,477		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	16,704	$	744	$	—	$	—
Available for sale taxable municipal securities		71,245		5,876		—		1

	*December 31, 2022*
			*Derivative Fair Value*				*Net Ineffective*
Dollars in thousands	*Notional Amount*		*Asset*		*Liability*		*Hedge Gains/(Losses)*
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	40,000	$	1,871	$	—	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	20,554	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		10,047		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	16,876	$	911	$	—	$	—
Available for sale taxable municipal securities		71,245		7,123		—		(12	)

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 months ending March 31, 2023 and 2022.

	*For the Three Months Ended March 31, 2023*
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 (Losses) on Securities Fair Value Hedge*			*Total*
Beginning balance	$	(23	)	$	172	$	20,867		$	(37,901	)	$	5,406		$	(11,479	)
Other comprehensive income (loss) before reclassification		—			—		(3,136	)		7,493			(948	)		3,409
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			—		—			45			—			45
Net current period other comprehensive income (loss)		—			—		(3,136	)		7,538			(948	)		3,454
Ending balance	$	(23	)	$	172	$	17,731		$	(30,363	)	$	4,458		$	(8,025	)

	*For the Three Months Ended March 31, 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 (Losses) on Securities Fair Value Hedge*			*Total*
Beginning balance	$	30	$	9	$	3,993	$	1,868		$	(418	)	$	5,482
Other comprehensive (loss) income before reclassification		—		—		8,461		(17,202	)		2,070			(6,671	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—		—		—		116			—			116
Net current period other comprehensive (loss) income		—		—		8,461		(17,086	)		2,070			(6,555	)
Ending balance	$	30	$	9	$	12,454	$	(15,218	)	$	1,652		$	(1,073	)

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NOTE 16. INCOME TAXES

Our income tax expense for the three months ended March 31, 2023 and March 31, 2022 totaled $3.6 million and $3.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three months ended March 31, 2023 and 2022 was 20.2% and 21.8%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three months ended March 31, 2023 and 2022 is as follows:

	*For the Three Months Ended March 31,*
	*2023*			*2022*
	*Percent*			*Percent*
Applicable statutory rate		21.0	%		21.0	%
Increase (decrease) in rate resulting from:
Tax-exempt interest and dividends, net		(1.8	)%		(1.4	)%
State income taxes, net of Federal income tax benefit		1.8	%		1.9	%
Low-income housing and rehabilitation tax credits		(0.3	)%		(0.2	)%
Other, net		(0.5	)%		0.5	%
Effective income tax rate		20.2	%		21.8	%

The components of applicable income tax expense for the three months ended March 31, 2023 and 2022 are as follows:

	*For the Three Months Ended March 31,*
Dollars in thousands	*2023*			*2022*
Current
Federal	$	3,537		$	2,326
State		451			270
		3,988			2,596
Deferred
Federal		(364	)		578
State		(49	)		83
		(413	)		661
Total	$	3,575		$	3,257

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 March 31,*
Dollars in thousands	*2023*		*2022*
Service fees on deposit accounts	$	1,392	$	1,401
Bank card revenue		1,568		1,491
Trust and wealth management fees		811		757
Other		122		101
Net revenue from contracts with customers		3,893		3,750
Non-interest income within the scope of other ASC topics		493		795
Total noninterest income	$	4,386	$	4,545

NOTE 18. SUBSEQUENT EVENT

On April 1, 2023, Summit acquired 100% of the ownership of PSB Holding Corp. (“PSB”), headquartered in Preston, Maryland. PSB merged with and into Summit, with Summit as the surviving entity (the “Merger”). Immediately following the Merger, Provident State Bank, Inc., PSB’s wholly owned banking subsidiary, merged with and into Summit’s wholly-owned banking subsidiary, Summit Community Bank, Inc. (“Summit Community Bank”). Each PSB shareholder received 1.2347 shares of Summit common stock for each outstanding share of PSB common stock representing $39.0 million stock consideration,or 1,880,732 shares of Summit common stock. In addition, cash consideration of $596,000 was paid for settlement of outstanding stock options and payments for fractional shares. PSB's assets and liabilities approximated $568 million and $528 million respectively. The transaction will be accounted for using the acquisition method of accounting and is deemed immaterial to our financial statements.

The former Provident State Bank offices will continue to operate under that name until late- September 2023, after which they will operate under the name Summit Community Bank.

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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 2022 audited consolidated financial statements and Annual Report on Form 10-K.

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

Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; overall levels of inflation; 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

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.

During the first quarter of 2023, the banking industry experienced significant volatility following two high-profile bank failures resulting in industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, our liquidity position and balance sheet remains robust. The Company’s total deposits increased 4.1% compared to December 31, 2022, to $3.3 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter. The Company’s capital remains at high levels with CET1, Total Capital and Leverage ratios of 8.9%, 14.0% and 8.7%, respectively, as of March 31, 2023 compared to 8.6%, 13.5% and 8.5%, respectively, at December 31, 2022.

Further, during the first quarter 2023, Summit's Tangible Book Value Per Common Share ("TBVPCS") increased $1.20 to $22.90. TBVPCS was negatively impacted by unrealized net losses on interest rate caps and swaps held as hedges against higher interest rates totaling $0.32 per common share (net of deferred income taxes) recorded in OCI. However, these losses were more than offset by unrealized net gains on debt securities available for sale of $0.59 per common share (net of deferred income taxes), also recorded in OCI, in the same period. While TBVPCS is a non-GAAP financial measure, we believe TBVPCS provides a meaningful alternative measure of capital strength and performance for investors, industry analysts and others. See reconciliation of this non-GAAP financial measure in NON-GAAP FINANCIAL MEASURES below.

Average interest earning assets increased by 9.2% for the first three months in 2023 compared to the same period of 2022 while our net interest earnings on a tax equivalent basis increased 16.0%. Our tax equivalent net interest margin increased 22 basis points as our yield on interest earning assets increased 163 basis points while our cost of interest bearing funds increased 171 basis points.

CRITICAL ACCOUNTING POLICIES

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

Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2022 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 6 of the Notes to the Consolidated Financial Statements in the 2022 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 2022 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2022.

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NON-GAAP FINANCIAL MEASURES

We prepare our financial statements in accordance with U.S. GAAP and also present certain non-GAAP financial measures that exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with U.S. GAAP. Non-GAAP measures are provided as additional useful information to assess our financial condition and results of operations (including period-to-period operating performance). These non-GAAP measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP measures with similar names used by other companies. For more information, including the reconciliation of these non-GAAP financial measures to their corresponding GAAP financial measures, see the respective sections where the measures are presented.

Book Value and Tangible Book Value Per Common Share
		March 31,		December 31,
Dollars in thousands	2023		2022
Total shareholders' equity	$	369,546	$	354,530
Less preferred stock		14,920		14,920
Common shareholders' equity		354,626		339,610
Less goodwill and intangible assets		61,807		62,150
Tangible common equity (TCE)	$	292,819	$	277,460

Common shares outstanding		12,786,404		12,783,646

Book value per common share(1)	$	27.73	$	26.57
Tangible book value per common share(2)	$	22.90	$	21.70

(1) Common shareholders' equity divided by common shares outstanding
(2) TCE divided by common shares outstanding

RESULTS OF OPERATIONS

Earnings Summary

Net income applicable to common shares for the three months ended March 31, 2023 was $13.9 million, or $1.08 per diluted share, compared to $11.5 million, or $0.90 per diluted share for the same period of 2022. The increased earnings for the three months ended March 31, 2023 were primarily attributable to increased net interest income due to our growth. Returns on average equity and assets for the first three months of 2023 were 15.55% and 1.43%, respectively, compared with 14.20% and 1.30% for the same period of 2022.

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.

Q1 2023 compared to Q4 2022

For the quarter ended March 31, 2023, our net interest income on a fully taxable-equivalent basis decreased $163,000 to $34.6 million compared to $34.7 million for the quarter end December 31, 2022. Our taxable-equivalent earnings on interest earning assets increased $2.6 million, while the cost of interest bearing liabilities increased $2.8 million (see Tables I and II).

For the three months ended March 31, 2023, average interest earning assets increased to $3.66 billion compared to $3.63 billion for the three months ended December 31, 2022, while average interest bearing liabilities increased to $2.98 billion for the three months ended March 31, 2023 from $2.94 billion for the three months ended December 31, 2022.

For the quarter ended March 31, 2023, our net interest margin increased to 3.83%, compared to 3.80% for the linked quarter, as the yields on earning assets increased 37 basis points and the cost of our interest bearing funds increased by 40 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 3.82% and 3.78% for the three months ended March 31, 2023 and December 31, 2022.

Q1 2023 compared to Q1 2022

For the quarter ended March 31, 2023, our net interest income on a fully taxable-equivalent basis increased $4.8 million to $34.6 million compared to $29.8 million for the quarter ended March 31, 2022. Our taxable-equivalent earnings on interest earning assets increased $17.7 million, while the cost of interest bearing liabilities increased $12.9 million (see Tables I and II).

For the three months ended March 31, 2023, average interest earning assets increased 9.2% to $3.66 billion compared to $3.35 billion for the three months ended March 31, 2022, while average interest bearing liabilities increased 12.8% from $2.64 billion for the three months ended March 31, 2022 to $2.98 billion for the three months ended March 31, 2023.

For the quarter ended March 31, 2023, our net interest margin increased to 3.83%, compared to 3.61% for the same period of 2022, as the yields on earning assets increased 163 basis points, while the cost of our interest bearing funds increased by 171 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 3.57% for the three months ended March 31, 2022.

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Table I - Average Balance Sheet and Net Interest Income Analysis
	For the Quarter Ended
	March 31, 2023								December 31, 2022								March 31, 2022
	Average			Earnings/		Yield/			Average			Earnings/		Yield/			Average			Earnings/		Yield/
Dollars in thousands	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	3,087,068		$	45,421		5.97	%	$	3,100,595		$	43,549		5.57	%	$	2,771,842		$	30,178		4.42	%
Tax-exempt (2)		6,086			81		5.40	%		4,525			52		4.56	%		5,369			58		4.38	%
Securities
Taxable		314,004			3,412		4.41	%		280,114			2,747		3.89	%		320,170			1,657		2.10	%
Tax-exempt (2)		216,430			1,781		3.34	%		219,245			1,813		3.28	%		180,473			1,223		2.75	%
Federal funds sold and interest bearing deposits with other banks		34,330			171		2.02	%		25,785			70		1.08	%		72,883			46		0.26	%
Total interest earning assets		3,657,918			50,866		5.64	%		3,630,264			48,231		5.27	%		3,350,737			33,162		4.01	%
Noninterest earning assets
Cash & due from banks		17,387								16,892								19,226
Premises and equipment		54,112								54,431								56,043
Property held for sale		5,110								5,200								8,148
Intangible assets		62,024								62,336								63,429
Other assets		185,423								186,726								134,571
Allowance for credit losses-loans		(39,507	)							(37,377	)							(32,462	)
Total assets	$	3,942,467							$	3,918,472							$	3,599,692
Interest bearing liabilities
Interest bearing demand deposits	$	1,819,505		$	10,796		2.41	%	$	1,615,275		$	7,848		1.93	%	$	1,135,068		$	465		0.17	%
Savings deposits		480,207			1,917		1.62	%		529,039			1,651		1.24	%		700,115			573		0.33	%
Time deposits		389,252			1,287		1.34	%		399,101			695		0.69	%		542,360			689		0.52	%
Short-term borrowings		166,365			824		2.01	%		276,823			1,868		2.68	%		140,230			373		1.08	%
Long-term borrowings, subordinated debentures and capital trust securities		123,599			1,462		4.80	%		123,488			1,425		4.58	%		123,203			1,239		4.08	%
Total interest bearing liabilities		2,978,928			16,286		2.22	%		2,943,726			13,487		1.82	%		2,640,976			3,339		0.51	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits		557,209								586,617								586,903
Other liabilities		43,508								43,378								42,493
Total liabilities		3,579,645								3,573,721								3,270,372

Shareholders' equity - preferred		14,920								14,920								14,920
Shareholders' equity - common		347,902								329,831								314,399
Total liabilities and shareholders' equity	$	3,942,467							$	3,918,472							$	3,599,691
Net interest earnings				$	34,580							$	34,744							$	29,823
Net yield on interest earning assets							3.83	%							3.80	%							3.61	%

(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 $391,000, $391,000, and $269,000 for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, 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
	March 31, 2023 vs. December 31, 2022									March 31, 2023 vs. March 31, 2022
	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	$	(242	)	$	2,114		$	1,872		$	3,727		$	11,516	$	15,243
Tax-exempt		19			10			29			9			14		23
Securities
Taxable		317			348			665			(33	)		1,788		1,755
Tax-exempt		(40	)		8			(32	)		269			289		558
Federal funds sold and interest bearing deposits with other banks		28			73			101			(36	)		161		125
Total interest earned on interest earning assets		82			2,553			2,635			3,936			13,768		17,704

Interest paid on:
Interest bearing demand deposits		995			1,953			2,948			442			9,889		10,331
Savings deposits		(168	)		434			266			(232	)		1,576		1,344
Time deposits		(18	)		610			592			(242	)		840		598
Short-term borrowings		(642	)		(402	)		(1,044	)		81			370		451
Long-term borrowings, subordinated debentures and capital trust securities		—			37			37			4			219		223
Total interest paid on interest bearing liabilities		167			2,632			2,799			53			12,894		12,947

Net interest income	$	(85	)	$	(79	)	$	(164	)	$	3,883		$	874	$	4,757

Provision for Credit Losses

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

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We recorded $1.5 million and $2.0 million provision for credit losses for the three months ended March 31, 2023 and 2022. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.

Table V - Provision for Credit Losses
	For the Three Months Ended
	March 31,
Dollars in thousands	2023			2022
Provision for credit losses-loans
Due to changes in:
Loan volume and mix	$	683		$	2,648
Loss experience		(802	)		(640	)
Reasonable and supportable economic forecasts & other qualitative adjustments		2,393			(757	)
Individually evaluated credits		(399	)		(418	)
Acquired loans		—			—
Total provision for credit losses - loans		1,875			833

Provision for credit losses-unfunded commitments
Due to changes in:
Loan volume and mix		(535	)		1,231
Loss experience		(83	)		(219	)
Reasonable and supportable economic forecasts & other qualitative adjustments		243			105
Individually evaluated credits		—			—
Acquired loan commitments		—			—
Total provision for credit losses - unfunded commitments		(375	)		1,117

Total provision for credit losses - debt securities		—			—

Total provision for credit losses	$	1,500		$	1,950

Noninterest Income

Total noninterest income for the three months ended March 31, 2023 decreased 3.5% compared to the same period of 2022. The decrease was principally due to fewer gains on equity investments. Further detail regarding noninterest income is reflected in the following table.

Table VI - Noninterest Income
	For the Three Months Ended
	March 31,
Dollars in thousands	2023			2022
Trust and wealth management fees		811			757
Mortgage origination revenue		171			339
Service charges on deposit accounts		1,392			1,401
Bank card revenue		1,568			1,491
Net realized losses on debt securities		(59	)		(152	)
Net gains on equity investments		45			372
Bank owned life insurance and annuities income		336			283
Other		122			54
Total	$	4,386		$	4,545

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Noninterest Expense

Total noninterest expense increased 12.8% for the three months ended March 31, 2023 compared to the same period of 2022, primarily due to higher salaries, commissions, and employee benefits and acquisition-related expenses. Table VII below shows the breakdown of the changes.

Table VII- Noninterest Expense

	For the Three Months Ended March 31,
			Change
Dollars in thousands	2023		$			%			2022
Salaries, commissions, and employee benefits	$	10,807	$	1,107			11.4	%	$	9,700
Net occupancy expense		1,333		91			7.3	%		1,242
Equipment expense		2,030		187			10.1	%		1,843
Professional fees		376		14			3.9	%		362
Advertising and public relations		170		(2	)		(1.2	)%		172
Amortization of intangibles		343		(35	)		(9.3	)%		378
FDIC premiums		330		(60	)		(15.4	)%		390
Bank card expense		696		(18	)		(2.5	)%		714
Foreclosed properties expense, net of (gains)/losses		15		105			(116.7	)%		(90	)
Acquisition-related expenses		331		302			1041.4	%		29
Other		2,968		509			20.7	%		2,459
Total	$	19,399	$	2,200			12.8	%	$	17,199

Salaries, commissions, and employee benefits: The increases in these expenses for the three months ended March 31, 2023 compared to the same period of 2022 are primarily due to general merit raises and higher group health insurance premiums.

Acquisition-related expenses: Acquisition-related expenses increased during 2023 due to the PSB transaction which closed on April 1, 2023.

Other: The increase in other expenses for the three months ended March 31, 2023 compared to the same periods of 2022 is largely due to the following:

•

Deferred director compensation plan-related income of $164,000 for the three months ended March 31, 2023 compared to $400,000 in the comparable period of 2022 as a result of the stock market's overall declined performance during 2023. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments. During Q3 2022, we purchased investments to hedge the changes in the Plan participants’ phantom investments which should serve to significantly reduce period-to-period volatility of the Plan’s impact on our statements of income.

•

During the three months ended March 31, 2023, Virginia franchise tax increased to $290,000 compared to $149,000 for the same period of 2022 primarily due to our balance sheet growth.

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Income Taxes

Our income tax expense for the three months ended March 31, 2023 and March 31, 2022 totaled $3.6 million and $3.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended March 31, 2023 and 2022 was 20.2% and 21.8%, respectively. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.

FINANCIAL CONDITION

Our total assets were $ 3.98 billion at March 31, 2023 and $ 3.92 billion at December 31, 2022. Table VIII below is a summary of significant changes in our financial position between December 31, 2022 and March 31, 2023.

Table VIII - Summary of Significant Changes in Financial Position

Dollars in thousands	Balance at December 31, 2022		Increase (Decrease)			Balance at March 31, 2023
Assets
Cash and cash equivalents	$	44,717	$	26,099		$	70,816
Debt securities available for sale		405,201		26,732			431,933
Debt securities held to maturity		96,163		(481	)		95,682
Equity investments		29,494		373			29,867
Other investments		16,029		(3,333	)		12,696
Loans, net		3,043,919		15,180			3,059,099
Property held for sale		5,067		61			5,128
Premises and equipment		53,981		510			54,491
Accrued interest and fees receivable		15,866		398			16,264
Goodwill and other intangibles		62,150		(343	)		61,807
Cash surrender value of life insurance policies and annuities		71,640		379			72,019
Derivative financial instruments		40,506		(5,748	)		34,758
Other assets		31,959		888			32,847
Total assets	$	3,916,692	$	60,715		$	3,977,407

Liabilities
Deposits	$	3,169,879	$	129,967		$	3,299,846
Short-term borrowings		225,999		(85,849	)		140,150
Long-term borrowings		658		(5	)		653
Subordinated debentures		103,296		122			103,418
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		—			19,589
Other liabilities		42,741		1,464			44,205

Shareholders' Equity - preferred		14,920		—			14,920
Shareholders' Equity - common		339,610		15,016			354,626

Total liabilities and shareholders' equity	$	3,916,692	$	60,715		$	3,977,407

The following is a discussion of the significant changes in our financial position during the first three months of 2023:

Cash and cash equivalents: Net increase of $26.1 million is primarily attributable to increased customer deposits.

Debt securities available for sale: The net increase of $26.7 million in debt securities available for sale is principally attributable to purchases of mortgage-backed securities.

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Loans: Mortgage warehouse lines of credit declined $44.2 million during the first three months of 2023 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 $61.3 million during the first three months of 2023.

Derivative financial instruments: The 2023 decrease in derivative financial instruments is due to the decrease in the fair value of our cash flow and interest rate hedges.

Deposits: During the first three months of 2023, noninterest bearing checking deposits decreased $901,000 and interest bearing checking deposits grew $142.7 million, as we increased new commercial account relationships while brokered CDs increased $38.7 million, savings deposits declined $34.1 million and retail CDs decreased $16.4 million.

Shareholders' equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income and common dividends. Refer to the Consolidated Statements of Shareholders' Equity of the accompanying financial statements for further details. Tangible book value per common share (“TBVPCS”) increased $1.20 to $22.90 during the quarter, which included unrealized net gains on debt securities available for sale of $0.59 per common share (net of deferred income taxes) recorded in Other Comprehensive Income (“OCI”), partially offset by decreases in the fair values of derivative financial instruments hedging against higher interest rates totaling $0.32 per common share (net of deferred income taxes) also recorded in OCI.

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 March 31, 2023 and December 31, 2022.

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.

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 credit losses is reviewed quarterly and adjustments are made as considered necessary.

At March 31, 2023 and December 31, 2022, our allowance for loan credit losses totaled $40.8 million, or 1.32% of total loans and $38.9 million, or 1.26% 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 recoveries of $63,000 in the first three months of 2023 (0.01 percent of average loans annualized), compared to $509,000 net loan charge-offs during the first three months of 2022 (0.07 percent of average loans annualized) .

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As illustrated in Table IX below, our non-performing assets have decreased since year end 2022.

Table IX - Summary of Non-Performing Assets
	March 31,						December 31,
Dollars in thousands	2023			2022			2022
Accruing loans past due 90 days or more	$	17		$	19		$	12
Nonaccrual loans
Commercial		402			433			93
Commercial real estate		1,700			4,765			1,750
Commercial construction and development		—			—			—
Residential construction and development		813			968			851
Residential real estate		4,322			5,549			5,117
Consumer		48			1			—
Other		—			—			—
Total nonaccrual loans		7,285			11,716			7,811
Foreclosed properties
Commercial		—			—			—
Commercial real estate		297			1,251			297
Commercial construction and development		2,187			2,332			2,187
Residential construction and development		2,293			3,018			2,293
Residential real estate		351			299			290
Total foreclosed properties		5,128			6,900			5,067
Repossessed assets		—			—			—
Total nonperforming assets	$	12,430		$	18,635		$	12,890
Total nonperforming loans as a percentage of total loans		0.24	%		0.41	%		0.25	%
Total nonperforming assets as a percentage of total assets		0.31	%		0.51	%		0.33	%
Allowance for credit losses-loans as a percentage of period end loans		1.32	%		1.14	%		1.26	%
Total nonaccrual loans as a percentage of total loans		0.24	%		0.41	%		0.25	%
Allowance for credit losses on loans as a percentage of nonaccrual loans		560.55	%		278.45	%		498.00	%

Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2022 Form 10-K for a discussion of the methodology information regarding our past due loans, nonaccrual loans, troubled debt restructurings and information regarding our methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for credit losses.

The following table details the activity regarding our foreclosed properties for the three months ended March 31, 2023 and 2022.

Table X - Foreclosed Property Activity
	For the Three Months Ended
	March 31,
Dollars in thousands	2023		2022
Beginning balance	$	5,067	$	9,858
Acquisitions		59		—
Improvements		2		—
Disposals		—		(2,934	)
Writedowns to fair value		—		(24	)
Balance December 31	$	5,128	$	6,900

At March 31, 2023 and December 31, 2022 we had approximately $5.1 million foreclosed properties which were obtained as the result of foreclosure proceedings. Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements. Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which combined totaled approximately $1.7 billion or 41.77% of total consolidated assets at March 31, 2023.

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 $1.29 billion. As of March 31, 2023 and December 31, 2022, these advances totaled approximately $141 million and $228 million, respectively. At March 31, 2023, we had additional borrowing capacity of $1.15 billion 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 March 31, 2023 was approximately $265 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 $432 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 March 31, 2023 totaled $369.5 million compared to $354.5 million at December 31, 2022.

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 Summit Community's capital.

CONTRACTUAL CASH OBLIGATIONS

During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at March 31, 2023.

Table XI - Contractual Cash Obligations
	Long				Capital
	Term		Subordinated		Trust		Operating
Dollars in thousands	Debt		Debentures		Securities		Leases
2023	$	17	$	—	$	—	$	748
2024		23		—		—		965
2025		24		—		—		900
2026		589		—		—		875
2027		—		—		—		779
Thereafter		—		105,000		19,589		1,719
Total	$	653	$	105,000	$	19,589	$	5,986

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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 March 31, 2023 are presented in the following table.

Table XII - Off-Balance Sheet Arrangements	March 31,
Dollars in thousands	2023
Commitments to extend credit:
Revolving home equity and credit card lines	$	104,427
Construction loans		242,542
Other loans		504,056
Standby letters of credit		56,732
Total	$	907,757

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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 the next 12 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 March 31, 2023. 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, see footnotes below) compared to net interest income with rates unchanged in the same period. The estimated changes set forth below are dependent on the assumptions discussed above.

	Estimated % Change in
	Net Interest Income over:
Change in	0 - 12 Months			13 - 24 Months
Interest Rates	Actual			Actual
Down 100 basis points (1)		-0.4	%		3.1	%
Down 200 basis points (1)		-0.8	%		-0.7	%
Down 200 basis points - steepening curve (2)		4.7	%		14.5	%
Up 200 basis points (1)		-1.5	%		8.2	%

(1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
(2) assumes short-term rates move down 200 basis points over 12 months while long-term rates remain relatively unchanged over 12 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 March 31, 2023, 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 March 31, 2023 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023, 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, 2022.

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 March 31, 2023.

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
January 1, 2023 - January 31, 2023		—	$	—		—		426,423
February 1, 2023 - February 28, 2023		—		—		—		426,423
March 1, 2023 - March 31, 2023		10,000		22.52		—		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:	May 10, 2023