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

smmf20230930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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

14,674,852 shares outstanding as of November 3, 2023

Table of Contents

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets September 30, 2023 (unaudited) and December 31, 2022	3

		Consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 (unaudited)	4

		Consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022 (unaudited)	5

		Consolidated statements of shareholders’ equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	6

		Consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 (unaudited)	8

		Notes to consolidated financial statements (unaudited)	10

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57

	Item 4.	Controls and Procedures	58

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	59

	Item 1A.	Risk Factors	59

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

	Item 3.	Defaults upon Senior Securities	None

	Item 4.	Mine Safety Disclosures	None

	Item 5.	Other Information	None

	Item 6.	Exhibits	60

EXHIBIT INDEX			61

SIGNATURES			62

Table of Contents

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)

	*September 30,*			*December 31,*
	*2023*			*2022*
Dollars in thousands (except per share amounts)	*(unaudited)*			**()***
ASSETS
Cash and due from banks	$	23,159		$	16,469
Interest bearing deposits with other banks		36,398			28,248
Cash and cash equivalents		59,557			44,717
Debt securities available for sale (at fair value)		511,403			405,201
Debt securities held to maturity (at amortized cost; estimated fair value - $82,448 - 2023, $86,627 - 2022)		94,715			96,163
Less: allowance for credit losses		—			—
Debt securities held to maturity, net		94,715			96,163
Equity investments (at fair value)		31,241			29,494
Other investments		19,579			16,029
Loans held for sale		209			—
Loans, net of unearned fees		3,598,919			3,082,818
Less: allowance for credit losses		(47,233	)		(38,899	)
Loans, net		3,551,686			3,043,919
Property held for sale		4,505			5,067
Premises and equipment, net		62,721			53,981
Accrued interest and fees receivable		19,789			15,866
Goodwill and other intangible assets, net		75,425			62,150
Cash surrender value of life insurance policies and annuities		85,076			71,640
Derivative financial instruments		44,527			40,506
Other assets		43,775			31,959
Total assets	$	4,604,208		$	3,916,692

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	630,055		$	553,616
Interest bearing		3,124,440			2,616,263
Total deposits		3,754,495			3,169,879
Short-term borrowings		258,054			225,999
Long-term borrowings		642			658
Subordinated debentures, net		103,661			103,296
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			19,589
Other liabilities		51,315			42,741
Total liabilities		4,187,756			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 shares		14,920			14,920
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued and outstanding: 2023 - 14,674,852 shares and 2022 - 12,783,646 shares		130,508			90,696
Retained earnings		289,641			260,393
Accumulated other comprehensive loss		(18,617	)		(11,479	)
Total shareholders' equity		416,452			354,530

Total liabilities and shareholders' equity	$	4,604,208		$	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 September 30,*						*For the Nine Months Ended September 30,*
Dollars in thousands (except per share amounts)	*2023*			*2022*			*2023*			*2022*
Interest income
Loans, including fees
Taxable	$	58,019		$	38,741		$	157,813		$	101,640
Tax-exempt		83			43			186			134
Securities
Taxable		4,971			2,273			13,283			5,694
Tax-exempt		1,386			1,224			4,140			3,177
Interest on interest bearing deposits with other banks		235			170			610			262
Total interest income		64,694			42,451			176,032			110,907
Interest expense
Deposits		19,924			6,140			51,775			10,489
Short-term borrowings		1,988			850			4,024			1,918
Long-term borrowings and subordinated debentures		1,509			1,348			4,457			3,867
Total interest expense		23,421			8,338			60,256			16,274
Net interest income		41,273			34,113			115,776			94,633
Provision for credit losses		1,250			1,500			10,750			5,450
Net interest income after provision for credit losses		40,023			32,613			105,026			89,183
Noninterest income
Trust and wealth management fees		819			725			2,484			2,228
Mortgage origination revenue		172			538			513			1,194
Service charges on deposit accounts		1,775			1,550			5,110			4,625
Bank card revenue		1,907			1,639			5,462			4,748
Net realized losses on available for sale debt securities		(12	)		(242	)		(282	)		(684	)
Net gains (losses) on equity investments		180			283			375			(14	)
Bank owned life insurance and annuities income		311			229			1,078			843
Other		113			165			334			348
Total noninterest income		5,265			4,887			15,074			13,288
Noninterest expenses
Salaries, commissions and employee benefits		11,959			10,189			34,922			29,920
Net occupancy expense		1,436			1,301			4,297			3,801
Equipment expense		2,361			1,851			6,752			5,484
Professional fees		400			372			1,246			1,242
Advertising and public relations		247			276			681			613
Amortization of intangibles		998			354			2,340			1,088
FDIC premiums		716			292			1,788			872
Bank card expense		972			726			2,620			2,249
Foreclosed properties expense, net of losses/(gains)		10			26			73			77
Acquisition-related expenses		1,110			—			5,604			33
Other		3,953			3,834			10,563			8,651
Total noninterest expenses		24,162			19,221			70,886			54,030
Income before income tax expense		21,126			18,279			49,214			48,441
Income tax expense		4,794			3,856			10,572			10,311
Net income		16,332			14,423			38,642			38,130
Preferred stock dividends		225			225			675			675
Net income applicable to common shares	$	16,107		$	14,198		$	37,967		$	37,455

Basic earnings per common share	$	1.10		$	1.11		$	2.70		$	2.94
Diluted earnings per common share	$	1.09		$	1.11		$	2.69		$	2.92

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Comprehensive Income (unaudited)

	*For the Three Months Ended*
	*September 30,*
Dollars in thousands	*2023*			*2022*
Net income	$	16,332		$	14,423
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedges of:
2023 - $2,082, net of deferred taxes of $(500); 2022 - $7,508, net of deferred taxes of $(1,802)		1,582			5,706
Net unrealized gain on fair value hedge of debt securities available for sale of:
2023 - $2,757, net of deferred taxes of $(662); 2022 - $2,962, net of deferred taxes of $(711)		2,095			2,251
Net unrealized loss on debt securities available for sale of:
2023 - $(17,841), net of deferred taxes of $4,282 and reclassification adjustment for net realized losses included in net income of $(12), net of tax of $3; 2022 - $(15,997), net of deferred taxes of $3,839 and reclassification adjustment for net realized losses included in net income of $(242), net of tax of $58		(13,559	)		(12,158	)
Total other comprehensive loss		(9,882	)		(4,201	)
Total comprehensive income	$	6,450		$	10,222

	*For the Nine Months Ended*
	*September 30,*
Dollars in thousands	*2023*			*2022*
Net income	$	38,642		$	38,130
Other comprehensive (loss) income:
Net unrealized gain on cashflow hedges of:
2023 - $1,372, net of deferred taxes of $(329); 2022 - $23,155, net of deferred taxes of $(5,557)		1,043			17,598
Net unrealized gain on fair value hedge of debt securities available for sale of:
2023 - $3,318, net of deferred taxes of $(796); 2022 - $8,141, net of deferred taxes of $(1,954)		2,522			6,187
Net unrealized loss on debt securities available for sale of:
2023 - $(14,083), net of deferred taxes of $3,380 and reclassification adjustment for net realized losses included in net income of $(282), net of tax of $68; 2022 - $(53,871), net of deferred taxes of $12,929 and reclassification adjustment for net realized losses included in net income of $(684), net of tax of $164		(10,703	)		(40,942	)
Total other comprehensive loss		(7,138	)		(17,157	)
Total comprehensive income	$	31,504		$	20,973

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

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

Balance June 30, 2023	$	14,920	$	130,227	$	—		$	276,762		$	(8,735	)	$	413,174

Three Months Ended September 30, 2023
Net income		—		—		—			16,332			—			16,332
Other comprehensive loss		—		—		—			—			(9,882	)		(9,882	)
Share-based compensation expense		—		220		—			—			—			220
Common stock issuances from reinvested dividends - 2,705 shares		—		61		—			—			—			61
Preferred stock cash dividends declared		—		—		—			(225	)		—			(225	)
Common stock cash dividends declared ($0.22 per share)		—		—		—			(3,228	)		—			(3,228	)
Balance, September 30, 2023	$	14,920	$	130,508	$	—		$	289,641		$	(18,617	)	$	416,452

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

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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

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

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

Nine Months Ended September 30, 2023
Net income		—		—		—			38,642			—			38,642
Other comprehensive loss		—		—		—			—			(7,138	)		(7,138	)
Exercise of SARs - 522 shares		—		—		—			—			—			—
Vesting of RSUs - 2,749 shares		—		—		—			—			—			—
Share-based compensation expense		—		634		—			—			—			634
Common stock issuances from reinvested dividends - 7,203 shares		—		158		—			—			—			158
Acquisition of PSB Holding Corp. issuance of 1,880,732 shares, net of issuance costs		—		39,020		—			—			—			39,020
Preferred stock cash dividends declared		—		—		—			(675	)		—			(675	)
Common stock cash dividends declared ($0.62 per share)		—		—		—			(8,719	)		—			(8,719	)
Balance, September 30, 2023	$	14,920	$	130,508	$	—		$	289,641		$	(18,617	)	$	416,452

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

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

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)

	*Nine Months Ended*
	*September 30,*			*September 30,*
Dollars in thousands	*2023*			*2022*
Cash Flows from Operating Activities
Net income	$	38,642		$	38,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,821			2,727
Provision for credit losses		10,750			5,450
Share-based compensation expense		634			469
Deferred income tax (benefit) expense		(118	)		487
Loans originated for sale		(3,828	)		(18,857	)
Proceeds from sale of loans		3,678			19,048
Gains on loans held for sale		(59	)		(326	)
Realized losses on debt securities, net		282			684
(Gain) loss on equity investments		(375	)		14
(Gain) loss on disposal of assets		(74	)		7
Write-downs of foreclosed properties		132			42
Amortization of securities premiums, net		1,016			3,626
Accretion related to acquisition adjustments, net		(2,868	)		(973	)
Amortization of intangibles		2,340			1,088
Earnings on bank owned life insurance and annuities		(1,146	)		(603	)
Increase in accrued interest receivable		(2,422	)		(2,664	)
Decrease in other assets		1,524			1,491
Increase in other liabilities		3,777			526
Net cash provided by operating activities		54,706			50,366
Cash Flows from Investing Activities
Proceeds from maturities and calls of debt securities available for sale		2,442			1,795
Proceeds from sales of debt securities available for sale		103,662			61,471
Principal payments received on debt securities available for sale		29,805			29,023
Purchases of debt securities available for sale		(115,119	)		(131,913	)
Purchase of equity investments		(744	)		(4,930	)
Purchases of other investments		(20,793	)		(17,699	)
Proceeds from redemptions of other investments		16,960			10,009
Net loan originations		(153,221	)		(315,676	)
Purchases of premises and equipment		(5,532	)		(1,111	)
Proceeds from disposal of premises and equipment		116			55
Improvements to property held for sale		(2	)		(17	)
Proceeds from sales of repossessed assets & property held for sale		595			4,732
Purchase of life insurance contracts and annuities		—			(10,000	)
Cash and cash equivalents from acquisitions, net of cash consideration paid 2023 - $595		14,364			—
Net cash used in investing activities		(127,467	)		(374,261	)
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts		84,560			283,192
Net increase (decrease) in time deposits		3,035			(117,424	)
Net increase in short-term borrowings		14,406			133,002
Repayment of long-term borrowings		(5,159	)		(16	)
Proceeds from issuance of common stock		153			150
Dividends paid on common stock		(675	)		(7,141	)
Dividends paid on preferred stock		(8,719	)		(675	)
Net cash provided by financing activities		87,601			291,088
Increase (decrease) in cash and cash equivalents		14,840			(32,807	)

continued

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited)(continued)

	*Nine Months Ended*
	*September 30,*		*September 30,*
Dollars in thousands	*2023*		*2022*
Cash and cash equivalents:
Beginning		44,717		78,458
Ending	$	59,557	$	45,651


Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	56,767	$	14,089
Income taxes	$	9,724	$	9,195

Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	$	59	$	6
Right of use assets obtained in exchange for lease obligations	$	3,946	$	—

Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired	$	546,216	$	—
Liabilities assumed	$	522,242	$	—

See Notes to Consolidated Financial Statements

Table of Contents

NOTE 1. BASIS OF PRESENTATION

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

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

The results of operations for the three and nine months ended September 30, 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 July 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a significant impact on our financial statements.

In March 2022, the FASB issued ASU 2022- 02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022- 02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310- 40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022- 02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326- 20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022- 02 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 October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. We do not expect the adoption of ASU 2023-06 to have a material impact on our consolidated financial statements.

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.

Table of Contents

NOTE 3. FAIR VALUE MEASUREMENTS

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

	*Balance at*		*Fair Value Measurements Using:*
Dollars in thousands	*September 30, 2023*		*Level 1*		*Level 2*		*Level 3*
Debt securities available for sale
U.S. Government sponsored agencies and corporations	$	25,955	$	—	$	25,955	$	—
Residential mortgage-backed securities:
Government sponsored agencies		127,369		—		127,369		—
Nongovernment sponsored entities		72,322		—		72,322		—
State and political subdivisions		89,716		—		89,716		—
Corporate debt securities		37,130		—		37,130		—
Asset-backed securities		46,258		—		46,258		—
Tax-exempt state and political subdivisions		112,653		—		112,653		—
Total debt securities available for sale	$	511,403	$	—	$	511,403	$	—

Equity investments	$	31,241	$	26,988	$	4,253	$	—

Derivative financial assets
Interest rate caps	$	30,815	$	—	$	30,815	$	—
Interest rate swaps		13,712		—		13,712		—

	*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		—

Table of Contents

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

	*Balance at*		*Fair Value Measurements Using:*
Dollars in thousands	*September 30, 2023*		*Level 1*		*Level 2*		*Level 3*
Residential mortgage loans held for sale	$	209	$	—	$	209	$	—

Collateral-dependent loans with an ACLL
Commercial	$	42	$	—	$	42	$	—
Commercial real estate		13,548		—		13,548		—
Construction and development		248		—		248		—
Residential real estate		373		—		373		—
Total collateral-dependent loans with an ACLL	$	14,211	$	—	$	14,211	$	—

Property held for sale
Commercial real estate	$	297	$	—	$	297	$	—
Construction and development		4,111		—		4,111		—
Total property held for sale	$	4,408	$	—	$	4,408	$	—

	*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		—
Total property held for sale	$	4,777	$	—	$	4,777	$	—

Table of Contents

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

	*September 30, 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	$	59,557	$	59,557	$	23,159	$	36,398	$	—
Debt securities available for sale		511,403		511,403		—		511,403		—
Debt securities held to maturity		94,715		82,448		—		82,448		—
Equity investments		31,241		31,241		26,988		4,253		—
Other investments		19,579		19,579		—		19,579		—
Loans, net		3,551,686		3,394,620		—		14,211		3,380,409
Accrued interest receivable		19,789		19,789		—		19,789		—
Cash surrender value of life insurance policies and annuities		85,076		85,076		—		85,076		—
Derivative financial assets		44,527		44,527		—		44,527		—
	$	4,417,573	$	4,248,240	$	50,147	$	817,684	$	3,380,409
Financial liabilities
Deposits	$	3,754,495	$	3,751,560	$	—	$	3,751,560	$	—
Short-term borrowings		258,054		258,054		—		258,054		—
Long-term borrowings		642		638		—		638		—
Subordinated debentures		103,661		92,125		—		92,125		—
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589		19,589		—		19,589		—
Accrued interest payable		4,464		4,464		—		4,464		—
	$	4,140,905	$	4,126,430	$	—	$	4,126,430	$	—

	*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, 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	$	—

Table of Contents

NOTE 4. EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:

	*For the Three Months Ended September 30,*
	*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	$	16,332						$	14,423
Less preferred stock dividends		(225	)						(225	)

Basic earnings per share	$	16,107			14,672,176	$	1.10	$	14,198			12,766,473	$	1.11

Effect of dilutive securities:
Stock appreciation rights ("SARs")					40,584							65,915
Restricted stock units ("RSUs")					1,451							3,372

Diluted earnings per share	$	16,107			14,714,211	$	1.09	$	14,198			12,835,760	$	1.11

	*For the Nine Months Ended September 30,*
	*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	$	38,642						$	38,130
Less preferred stock dividends		(675	)						(675	)

Basic earnings per share	$	37,967			14,048,567	$	2.70	$	37,455			12,755,576	$	2.94

Effect of dilutive securities:
Stock appreciation rights ("SARs")					39,330							56,035
Restricted stock units ("RSUs")					2,900							4,371

Diluted earnings per share	$	37,967			14,090,797	$	2.69	$	37,455			12,815,982	$	2.92

SAR grants and RSUs are disregarded in this computation if they are determined to be anti-dilutive. Our anti-dilutive SARs totaled 522,407 for the three and nine months ended September 30, 2023 and 105,467 for the three and nine months ended September 30, 2022, respectively. All RSUs were dilutive for all periods presented.

Table of Contents

NOTE 5. DEBT SECURITIES

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at September 30, 2023 and December 31, 2022 are summarized as follows:

	*September 30, 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	$	26,818	$	53	$	916	$	25,955
Residential mortgage-backed securities:
Government-sponsored agencies		136,367		470		9,468		127,369
Nongovernment-sponsored entities		78,599		—		6,277		72,322
State and political subdivisions
General obligations		79,323		3		19,334		59,992
Various tax revenues		10,674		—		2,604		8,070
Other revenues		27,827		—		6,173		21,654
Corporate debt securities		39,534		7		2,411		37,130
Asset-backed securities		46,341		75		158		46,258
Total taxable debt securities		445,483		608		47,341		398,750
Tax-exempt debt securities
State and political subdivisions
General obligations		104,032		—		12,592		91,440
Other revenues		25,838		—		4,625		21,213
Total tax-exempt debt securities		129,870		—		17,217		112,653
Total debt securities available for sale	$	575,353	$	608	$	64,558	$	511,403

Table of Contents

	*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 $3.4 million at September 30, 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.

	*September 30, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*

California	$	45,689	$	—	$	10,923	$	34,766
Texas		32,865		—		5,961		26,904
Michigan		26,792		—		3,551		23,241
Oregon		14,723		—		3,935		10,788
Pennsylvania		12,493		—		2,282		10,211

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

Table of Contents

The maturities, amortized cost and estimated fair values of debt securities available for sale at September 30, 2023, are summarized as follows:

	*Amortized*		*Estimated*
Dollars in thousands	*Cost*		*Fair Value*
Due in one year or less	$	61,778	$	59,334
Due from one to five years		162,530		153,854
Due from five to ten years		115,465		103,436
Due after ten years		235,580		194,779
Total	$	575,353	$	511,403

The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the nine months ended September 30, 2023 and 2022 are as follows:

	*Proceeds from*						*Gross realized*
			*Calls and*		*Principal*
Dollars in thousands	*Sales*		*Maturities*		*Payments*		*Gains*		*Losses*
For the Nine Months Ended
September 30,
2023	$	103,662	$	2,442	$	29,805	$	963	$	1,245

2022	$	61,471	$	1,795	$	29,023	$	218	$	902

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, 2023 and December 31, 2022.

	*September 30, 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		38	$	11,491	$	682	$	8,121	$	234	$	19,612	$	916
Residential mortgage-backed securities:
Government-sponsored agencies		146		75,929		4,875		33,228		4,593		109,157		9,468
Nongovernment-sponsored entities		36		36,310		2,660		30,435		3,617		66,745		6,277
State and political subdivisions:
General obligations		54		—		—		58,997		19,334		58,997		19,334
Various tax revenues		7		—		—		8,070		2,604		8,070		2,604
Other revenues		22		1,403		180		20,251		5,993		21,654		6,173
Corporate debt securities		21		9,614		624		17,938		1,787		27,552		2,411
Asset-backed securities		11		5,706		34		10,644		124		16,350		158
Tax-exempt debt securities
State and political subdivisions:
General obligations		82		49,543		4,903		41,898		7,689		91,441		12,592
Other revenues		24		3,137		363		17,595		4,262		20,732		4,625
Total		441	$	193,133	$	14,321	$	247,177	$	50,237	$	440,310	$	64,558

Table of Contents

	*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 September 30, 2023 and December 31, 2022 are summarized as follows:

	*September 30, 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	$	69,328	$	—	$	8,379	$	60,949
Water and sewer revenues		7,864		—		784		7,080
Lease revenues		4,172		—		668		3,504
Sales tax revenues		4,463		—		911		3,552
Various tax revenues		5,446		—		1,139		4,307
Other revenues		3,442		—		386		3,056
Total debt securities held to maturity	$	94,715	$	—	$	12,267	$	82,448

Table of Contents

	*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 September 30, 2023 and $1.1 million at 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.

	*September 30, 2023*
	*Amortized*		*Unrealized*				*Estimated*
Dollars in thousands	*Cost*		*Gains*		*Losses*		*Fair Value*
Texas	$	14,872	$	—	$	1,690	$	13,182
California		9,504		—		921		8,583
Pennsylvania		8,362		—		1,035		7,327
Florida		7,365		—		1,262		6,103
Michigan		6,805		—		1,027		5,778

The following table displays the amortized cost of held to maturity debt securities by credit rating at September 30, 2023 and December 31, 2022.

	*September 30, 2023*
Dollars in thousands	*AAA*		AA		A		*BBB*		*Below Investment Grade*
Tax-exempt state and political subdivisions	$	14,940	$	72,471	$	7,304	$	—	$	—

	*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 September 30, 2023 or December 31, 2022.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at September 30, 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		4,047		3,663
Due after ten years		90,668		78,785
Total	$	94,715	$	82,448

Table of Contents

There were no proceeds from calls and maturities of debt securities held to maturity for the nine months ended September 30, 2023 or 2022.

At September 30, 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:

	*September 30,*		*December 31,*
Dollars in thousands	*2023*		*2022*
Commercial	$	511,951	$	501,844
Commercial real estate - owner occupied
Professional & medical		157,549		120,872
Retail		170,535		188,196
Other		219,802		157,982
Commercial real estate - non-owner occupied
Hotels & motels		180,112		141,042
Mini-storage		68,066		51,109
Multifamily		294,872		272,705
Retail		254,917		192,270
Other		419,062		347,242
Construction and development
Land & land development		114,354		106,362
Construction		349,049		282,935
Residential 1-4 family real estate
Personal residence		354,978		265,326
Rental - small loan		142,098		121,548
Rental - large loan		113,837		92,103
Home equity		81,967		71,986
Mortgage warehouse lines		114,734		130,390
Consumer		44,288		35,372
Other
Credit cards		2,197		2,182
Overdrafts		4,551		1,352
Total loans, net of unearned fees		3,598,919		3,082,818
Less allowance for credit losses - loans		47,233		38,899
Loans, net	$	3,551,686	$	3,043,919

Accrued interest and fees receivable on loans totaled $12.3 million and $10.4 million at September 30, 2023 and December 31, 2022, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

Table of Contents

The following table presents the contractual aging of the amortized cost basis of past due loans by class as of September 30, 2023 and December 31, 2022.

	*September 30, 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	$	3,060	$	245	$	207	$	3,512	$	508,439	$	16
Commercial real estate - owner occupied
Professional & medical		194		278		—		472		157,077		—
Retail		120		92		131		343		170,192		—
Other		98		—		—		98		219,704		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—		180,112		—
Mini-storage		—		—		—		—		68,066		—
Multifamily		265		—		94		359		294,513		—
Retail		—		—		606		606		254,311		—
Other		37		—		—		37		419,025		—
Construction and development
Land & land development		1,544		—		—		1,544		112,810		—
Construction		—		—		—		—		349,049		—
Residential 1-4 family real estate
Personal residence		2,890		827		812		4,529		350,449		—
Rental - small loan		645		200		126		971		141,127		—
Rental - large loan		—		—		403		403		113,434		—
Home equity		744		295		334		1,373		80,594		—
Mortgage warehouse lines		—		—		—		—		114,734		—
Consumer		346		103		97		546		43,742		1
Other
Credit cards		35		2		11		48		2,149		11
Overdrafts		—		—		—		—		4,551		—
Total	$	9,978	$	2,042	$	2,821	$	14,841	$	3,584,078	$	28

	*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

Table of Contents

The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2023 and December 31, 2022.

	*September 30,*				*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	$	767	$	10	$	93	$	48
Commercial real estate - owner occupied
Professional & medical		131		—		—		—
Retail		421		—		350		—
Other		371		—		423		—
Commercial real estate - non-owner occupied
Hotels & motels		—		—		—		—
Mini-storage		—		—		—		—
Multifamily		553		—		538		—
Retail		4,925		3,746		439		—
Other		—		—		—		—
Construction and development
Land & land development		750		—		852		—
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		1,959		—		2,892		—
Rental - small loan		1,943		169		2,066		—
Rental - large loan		403		—		—		—
Home equity		482		—		158		—
Mortgage warehouse lines		—		—		—		—
Consumer		113		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	12,818	$	3,925	$	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.

Generally, the modifications we grant are extensions of terms, deferrals of payments for an extended period or interest rate reductions. Occasionally, we may modify a loan by providing principal forgiveness. In some cases, we will modify a loan by providing multiple types, or combinations, of concessions.

The following tables present the amortized cost basis of loans at September 30, 2023 made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2023 and the percentage of those such loans to total loans in their respective loan classes. There were no commitments to lend additional funds under these modifications as of September 30, 2023.

	*For the Three Months Ended*
	*September 30, 2023*
					*Combination*
					*Term Extension*				*% of Total*
	*Payment*		*Term*		*and*				*Class of*
Dollars in thousands	*Delay*		*Extension*		*Payment Delay*		*Total*		*Loans*
Commercial real estate - owner occupied
Other	$	—	$	36	$	—	$	36		0.0	%
Commercial real estate - non-owner occupied
Retail		—		397		—		397		0.2	%
Residential 1-4 family real estate
Rental - small loan		—		191		—		191		0.1	%
Total	$	—	$	624	$	—	$	624		0.0	%

	*For the Nine Months Ended*
	*September 30, 2023*
					*Combination*
					*Term Extension*				*% of Total*
	*Payment*		*Term*		*and*				*Class of*
Dollars in thousands	*Delay*		*Extension*		*Payment Delay*		*Total*		*Loans*
Commercial	$	—	$	22,400	$	—	$	22,400		4.4	%
Commercial real estate - owner occupied
Other		—		36		—		36		0.0	%
Commercial real estate - non-owner occupied
Retail		—		397		—		397		0.2	%
Residential 1-4 family real estate
Personal residence		109		7		66		182		0.1	%
Rental - small loan		—		360		—		360		0.3	%
Total	$	109	$	23,200	$	66	$	23,375		0.6	%

Table of Contents

The ACLL incorporates an estimate of lifetime expected credit losses and is recorded on each loan upon origination or acquisition. We use a loss-rate, or cohort, method to estimate expected credit losses. The starting point for the estimate of the ACLL is historical loss information, which includes losses from modifications to borrowers experiencing financial difficulty. The assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACLL because of the measurement methodologies used to estimate the allowance, a change to the ACLL is generally not recorded upon modification. When principal forgiveness is granted, the amortized cost basis of the loan is written off against the ACLL.

The following tables present the financial effect of the modifications made to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:

	*For the Three Months Ended*
	*September 30, 2023*
	*Weighted-Average*		*Weighted-Average*
	*Payment Delay*		*Term Extension*
Dollars in thousands	*in Months*		*in Months*
Commercial real estate - owner occupied
Other		—		12
Commercial real estate - non-owner occupied
Retail		—		20
Residential 1-4 family real estate
Rental - small loan		—		20

	*For the Nine Months Ended*
	*September 30, 2023*
	*Weighted-Average*		*Weighted-Average*
	*Payment Delay*		*Term Extension*
Dollars in thousands	*in Months*		*in Months*
Commercial		—		8
Commercial real estate - owner occupied
Other		—		12
Commercial real estate - non-owner occupied
Retail		—		20
Residential 1-4 family real estate
Personal residence		8		7
Rental - small loan		—		16

The following table presents the amortized cost basis of loans that were modified during the nine months ended September 30, 2023 and subsequently defaulted. For purposes of these tables, a default represents any loan that was more than 30 days past due at any time during the period or the loan was fully or partially charged off during the period.

	*September 30, 2023*
			*Combination*
			*Term Extension*
			*and*
Dollars in thousands	*Term Extension*		*Payment Delay*
Commercial	$	278	$	—
Residential 1-4 family real estate
Personal residence		7		66
Rental - small loan		169		—
Total	$	454	$	66

Upon determination that a modified loan, or a portion of a loan, has subsequently been deemed uncollectible, the loan, or a portion of the loan, is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACLL is adjusted by the same amount.

The following table depicts an age analysis of loans that have been modified during the nine months ended September 30, 2023 on an amortized cost basis:

	*September 30, 2023*
			*Past Due*
							*90 Days*
Dollars in thousands	*Current*		*30-59 Days*		*60-89 Days*		*or More*		*Total*
Commercial	$	22,400	$	—	$	—	$	—	$	22,400
Commercial real estate - owner occupied
Other		36		—		—		—		36
Commercial real estate - non-owner occupied
Retail		397		—		—		—		397
Residential 1-4 family real estate
Personal residence		175		7		—		—		182
Rental - small loan		191		169		—		—		360
Total	$	23,199	$	176	$	—	$	—	$	23,375

Table of Contents

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.

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

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of September 30, 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:

	*September 30, 2023*
																	*Revolvi-*			*Revolving-*
Dollars in thousands		*Risk Rating*	*2023*		*2022*		*2021*			*2020*		*2019*		*Prior*			ng			*Term*		*Total*

Commercial		Pass	$	26,303	$	138,691	$	67,865		$	20,007	$	16,937	$	11,197		$	203,876		$	—	$	484,876
		Special Mention		421		477		217			255		44		1,921			1,089			—		4,424
		Substandard		59		53		22,469			—		10		5			55			—		22,651
Total Commercial				26,783		139,221		90,551			20,262		16,991		13,123			205,020			—		511,951
Current Period Charge-Offs				—		—		(1	)		—		—		—			(19	)		—		(20	)

Commercial Real Estate - Owner Occupied

Professional & medical		Pass		16,663		20,628		53,775			9,806		7,731		44,593			2,101			—		155,297
		Special Mention		—		—		—			1,099		—		877			—			—		1,976
		Substandard		—		—		—			68		—		208			—			—		276
Total Professional & Medical				16,663		20,628		53,775			10,973		7,731		45,678			2,101			—		157,549
Current Period Charge-Offs				—		—		—			—		—		(3	)		—			—		(3	)

Retail		Pass		2,015		23,157		67,924			12,019		24,894		35,064			3,193			—		168,266
		Special Mention		—		—		—			—		—		1,870			—			—		1,870
		Substandard		—		—		—			—		—		399			—			—		399
Total Retail				2,015		23,157		67,924			12,019		24,894		37,333			3,193			—		170,535
Current Period Charge-Offs				—		—		—			—		—		—			—			—		—

Other		Pass		22,285		49,419		37,308			25,994		15,769		61,802			4,140			—		216,717
		Special Mention		—		—		54			—		130		1,717			—			—		1,901
		Substandard		—		—		—			—		367		781			36			—		1,184
Total Other				22,285		49,419		37,362			25,994		16,266		64,300			4,176			—		219,802
Current Period Charge-Offs				—		—		—			—		—		(28	)		—			—		(28	)

Total Commercial Real Estate - Owner Occupied				40,963		93,204		159,061			48,986		48,891		147,311			9,470			—		547,886

Commercial Real Estate - Non-Owner Occupied

Hotels & motels		Pass		15,761		38,161		12,058			9,218		54,098		29,442			4,250			—		162,988
		Special Mention		—		—		—			—		—		—			—			—		—
		Substandard		—		—		—			2,660		14,259		205			—			—		17,124
Total Hotels & Motels				15,761		38,161		12,058			11,878		68,357		29,647			4,250			—		180,112
Current Period Charge-Offs				—		—		—			—		—		—			—			—		—

Mini-storage		Pass		941		23,010		12,041			5,264		4,342		22,427			—			—		68,025
		Special Mention		—		—		—			—		—		41			—			—		41
		Substandard		—		—		—			—		—		—			—			—		—
Total Mini-storage				941		23,010		12,041			5,264		4,342		22,468			—			—		68,066
Current Period Charge-Offs				—		—		—			—		—		—			—			—		—

Multifamily		Pass		6,485		68,662		72,761			52,991		21,585		70,641			1,194			—		294,319
		Special Mention		—		—		—			—		—		—			—			—		—
		Substandard		—		—		—			409		—		144			—			—		553
Total Multifamily				6,485		68,662		72,761			53,400		21,585		70,785			1,194			—		294,872
Current Period Charge-Offs				—		—		—			—		—		—			—			—		—

Table of Contents

	*September 30, 2023*
																*Revolvi-*		*Revolving-*
Dollars in thousands	*Risk Rating*	*2023*		*2022*		*2021*		*2020*		*2019*			*Prior*			ng		*Term*		*Total*

Retail	Pass		37,452		52,894		58,034		50,435		10,801			36,470			3,540		—		249,626
	Special Mention		—		—		66		—		—			907			—		—		973
	Substandard		—		—		—		—		3,746			572			—		—		4,318
Total Retail			37,452		52,894		58,100		50,435		14,547			37,949			3,540		—		254,917
*Current Period Charge-Offs*			—		—		—		—		(3,658	)		—			—		—		(3,658	)

Other	Pass		44,744		104,621		115,570		56,980		15,722			58,943			9,258		—		405,838
	Special Mention		—		5,470		—		—		—			176			—		—		5,646
	Substandard		—		—		—		—		2,220			5,358			—		—		7,578
Total Other			44,744		110,091		115,570		56,980		17,942			64,477			9,258		—		419,062
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

*Total Commercial Real Estate - Non-Owner Occupied*			105,383		292,818		270,530		177,957		126,773			225,326			18,242		—		1,217,029

Construction and Development

Land & land development	Pass		23,963		26,467		21,003		9,446		4,104			17,331			10,130		—		112,444
	Special Mention		—		—		—		146		156			433			—		—		735
	Substandard		—		—		—		—		—			1,175			—		—		1,175
Total Land & land development			23,963		26,467		21,003		9,592		4,260			18,939			10,130		—		114,354
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

Construction	Pass		40,007		89,228		176,164		41,738		—			1,315			597		—		349,049
	Special Mention		—		—		—		—		—			—			—		—		—
	Substandard		—		—		—		—		—			—			—		—		—
Total Construction			40,007		89,228		176,164		41,738		—			1,315			597		—		349,049
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

*Total Construction and Development*			63,970		115,695		197,167		51,330		4,260			20,254			10,727		—		463,403

Residential 1-4 Family Real Estate

Personal residence	Pass		39,162		66,833		55,930		32,526		16,831			125,352			—		—		336,634
	Special Mention		218		16		51		—		176			9,415			—		—		9,876
	Substandard		—		—		66		—		585			7,817			—		—		8,468
Total Personal Residence			39,380		66,849		56,047		32,526		17,592			142,584			—		—		354,978
*Current Period Charge-Offs*			—		—		—		—		—			(48	)		—		—		(48	)

Rental - small loan	Pass		13,488		22,572		28,603		12,225		11,905			41,179			6,426		—		136,398
	Special Mention		—		283		220		100		186			2,178			—		—		2,967
	Substandard		—		150		—		—		—			2,481			102		—		2,733
Total Rental - Small Loan			13,488		23,005		28,823		12,325		12,091			45,838			6,528		—		142,098
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

Rental - large loan	Pass		6,417		41,684		36,020		10,256		2,389			9,728			2,746		—		109,240
	Special Mention		—		—		—		—		—			3,551			—		—		3,551
	Substandard		—		643		—		—		—			403			—		—		1,046
Total Rental - Large Loan			6,417		42,327		36,020		10,256		2,389			13,682			2,746		—		113,837
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

Home equity	Pass		108		152		605		123		54			2,252			76,154		—		79,448
	Special Mention		—		—		—		—		18			612			1,027		—		1,657
	Substandard		—		—		25		13		37			561			226		—		862
Total Home Equity			108		152		630		136		109			3,425			77,407		—		81,967
*Current Period Charge-Offs*			—		—		—		—		—			—			—		—		—

*Total Residential 1-4 Family Real Estate*			59,393		132,333		121,520		55,243		32,181			205,529			86,681		—		692,880

Table of Contents

	*September 30, 2023*
																					*Revolvi-*			*Revolving-*
Dollars in thousands		*Risk Rating*	*2023*			*2022*			*2021*			*2020*			*2019*			*Prior*			ng			*Term*		*Total*

Mortgage warehouse lines		Pass		—			—			—			—			—			—			114,734			—		114,734
Total Mortgage Warehouse Lines				—			—			—			—			—			—			114,734			—		114,734
Current Period Charge-Offs				—			—			—			—			—			—			—			—		—

Consumer		Pass		18,463			13,107			4,809			1,960			904			1,373			953			—		41,569
		Special Mention		1,007			864			206			145			48			85			3			—		2,358
		Substandard		67			183			63			2			19			2			25			—		361
Total Consumer				19,537			14,154			5,078			2,107			971			1,460			981			—		44,288
Current Period Charge-Offs				(58	)		(115	)		(10	)		(10	)		—			(7	)		—			—		(200	)

Other

Credit cards		Pass		2,197			—			—			—			—			—			—			—		2,197
Total Credit Cards				2,197			—			—			—			—			—			—			—		2,197
Current Period Charge-Offs				(80	)		—			—			—			—			—			—			—		(80	)

Overdrafts		Pass		4,551			—			—			—			—			—			—			—		4,551
Total Overdrafts				4,551			—			—			—			—			—			—			—		4,551
Current Period Charge-Offs				(363	)		—			—			—			—			—			—			—		(363	)

Total Other				6,748			—			—			—			—			—			—			—		6,748

Total			$	322,777		$	787,425		$	843,907		$	355,885		$	230,067		$	613,003		$	445,855		$	—	$	3,598,919
Total Charge-Offs			$	(501	)	$	(115	)	$	(11	)	$	(10	)	$	(3,658	)	$	(86	)	$	(19	)	$	—	$	(4,400	)

	*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		—		—		—		—		—		—		—		—		—
	Substandard		—		—		—		—		325		—		—		—		325
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

Table of Contents

Allowance for Credit Losses - Loans

The following tables presents the activity in the ACLL by portfolio segment during the three and nine months ended September 30, 2023 and 2022 and the twelve months ended December 31, 2022:

	For the Three Months Ended September 30, 2023
	Allowance for Credit Losses - Loans
			Provision
			for
			Credit
	*Beginning*		*Losses -*			*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*offs*			*Recoveries*		*Balance*
Commercial	$	4,708	$	(159	)	$	—		$	5	$	4,554
Commercial real estate - owner occupied
Professional & medical		1,169		24			—			—		1,193
Retail		1,183		(459	)		—			—		724
Other		638		9			(27	)		—		620
Commercial real estate - non-owner occupied
Hotels & motels		1,790		1,071			—			—		2,861
Mini-storage		86		13			—			—		99
Multifamily		3,545		(136	)		—			1		3,410
Retail		2,271		(43	)		—			19		2,247
Other		3,363		(574	)		—			3		2,792
Construction and development
Land & land development		4,688		17			—			2		4,707
Construction		12,418		1,009			—			—		13,427
Residential 1-4 family real estate
Personal residence		3,221		(17	)		—			13		3,217
Rental - small loan		2,175		(70	)		—			7		2,112
Rental - large loan		3,376		(172	)		—			—		3,204
Home equity		544		170			—			8		722
Mortgage warehouse lines		—		—			—			—		—
Consumer		210		16			(49	)		26		203
Other
Credit cards		23		10			(12	)		4		25
Overdrafts		273		961			(138	)		20		1,116
Total	$	45,681	$	1,670		$	(226	)	$	108	$	47,233

Table of Contents

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

	*For the Nine Months Ended September 30, 2023*
	*Allowance for Credit Losses - Loans*
			*Provision*
			*for*
			*Credit*			*Adjustment for*
	*Beginning*		*Losses -*			*PCD*		*Charge-*					*Ending*
Dollars in thousands	*Balance*		*Loans*			*Acquired Loans*		*offs*			*Recoveries*		*Balance*
Commercial	$	4,941	$	(376	)	$	—	$	(20	)	$	9	$	4,554
Commercial real estate - owner occupied
Professional & medical		966		201			29		(3	)		—		1,193
Retail		1,176		(535	)		82		—			1		724
Other		426		(162	)		384		(28	)		—		620
Commercial real estate - non-owner occupied
Hotels & motels		1,203		1,658			—		—			—		2,861
Mini-storage		82		17			—		—			—		99
Multifamily		2,907		498			1		—			4		3,410
Retail		1,362		4,349			99		(3,658	)		95		2,247
Other		2,452		(301	)		632		—			9		2,792
Construction and development
Land & land development		3,482		1,218			1		—			6		4,707
Construction		11,138		2,289			—		—			—		13,427
Residential 1-4 family real estate
Personal residence		2,939		163			68		(48	)		95		3,217
Rental - small loan		1,907		114			68		—			23		2,112
Rental - large loan		2,668		535			1		—			—		3,204
Home equity		705		(152	)		130		—			39		722
Mortgage warehouse lines		—		—			—		—			—		—
Consumer		174		123			—		(200	)		106		203
Other
Credit cards		17		82			—		(80	)		6		25
Overdrafts		354		1,064			—		(363	)		61		1,116
Total	$	38,899	$	10,785		$	1,495	$	(4,400	)	$	454	$	47,233

Table of Contents

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

	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

Table of Contents

The following tables presents, as of September 30, 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.

	*September 30, 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	$	22,226	$	489,725	$	511,951	$	5	$	4,549	$	4,554
Commercial real estate - owner occupied
Professional & medical		—		157,549		157,549		—		1,193		1,193
Retail		—		170,535		170,535		—		724		724
Other		—		219,802		219,802		—		620		620
Commercial real estate - non-owner occupied
Hotels & motels		17,124		162,988		180,112		1,477		1,384		2,861
Mini-storage		—		68,066		68,066		—		99		99
Multifamily		—		294,872		294,872		—		3,410		3,410
Retail		4,718		250,199		254,917		79		2,168		2,247
Other		7,855		411,207		419,062		223		2,569		2,792
Construction and development
Land & land development		750		113,604		114,354		503		4,204		4,707
Construction		—		349,049		349,049		—		13,427		13,427
Residential 1-4 family real estate
Personal residence		—		354,978		354,978		—		3,217		3,217
Rental - small loan		1,274		140,824		142,098		198		1,914		2,112
Rental - large loan		1,275		112,562		113,837		—		3,204		3,204
Home equity		—		81,967		81,967		—		722		722
Mortgage warehouse lines		—		114,734		114,734		—		—		—
Consumer		—		44,288		44,288		—		203		203
Other
Credit cards		—		2,197		2,197		—		25		25
Overdrafts		—		4,551		4,551		—		1,116		1,116
Total	$	55,222	$	3,543,697	$	3,598,919	$	2,485	$	44,748	$	47,233

(1) Included in the loans collectively evaluated are $9.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

	*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.

Table of Contents

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

	*September 30, 2023*
	*Real Estate*						*Allowance for*
	*Secured*		*Non-Real Estate*				*Credit Losses*
Dollars in thousands	*Loans*		*Secured Loans*		*Total Loans*		*- Loans*
Commercial	$	—	$	22,226	$	22,226	$	5
Commercial real estate - owner occupied
Professional & medical		—		—		—		—
Retail		—		—		—		—
Other		—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels		17,124		—		17,124		1,477
Mini-storage		—		—		—		—
Multifamily		—		—		—		—
Retail		4,718		—		4,718		79
Other		7,855		—		7,855		223
Construction and development
Land & land development		750		—		750		503
Construction		—		—		—		—
Residential 1-4 family real estate
Personal residence		—		—		—		—
Rental - small loan		1,274		—		1,274		198
Rental - large loan		1,275		—		1,275		—
Home equity		—		—		—		—
Consumer		—		—		—		—
Other
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Total	$	32,996	$	22,226	$	55,222	$	2,485

	*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

Table of Contents

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during third quarter 2023, we performed the qualitative assessment of goodwill and determined that the fair value was more likely than not greater than its carrying value. In performing the qualitative assessment, we considered certain events, and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value is less than the carrying value. No indicators of impairment were noted as of September 30, 2023.

The following tables present our goodwill activity for the nine months ended September 30, 2023 and the balance of other intangible assets at September 30, 2023 and December 31, 2022.

	*Goodwill Activity*
Dollars in thousands	*September 30, 2023*
Balance, January 1, 2023	$	55,347
Reclassifications from goodwill		—
Acquired goodwill		687
Balance, June 30, 2023	$	56,034

	*Other Intangible Assets*
Dollars in thousands	*September 30, 2023*		*December 31, 2022*
Identifiable intangible assets
Gross carrying amount	$	30,755	$	15,828
Less: accumulated amortization		11,364		9,025
Net carrying amount	$	19,391	$	6,803

We recorded amortization expense of $998,000 and $2.3 million for the three and nine months ended September 30, 2023 and $354,000 and $1.1 million for the three and nine months ended September 30, 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*
Three month period ending December 31, 2023	$	996
Year ending December 31, 2024		3,669
Year ending December 31, 2025		3,258
Year ending December 31, 2026		2,846
Year ending December 31, 2027		2,433
Thereafter		6,119

NOTE 8. DEPOSITS

The following is a summary of interest bearing deposits by type as of September 30, 2023 and December 31, 2022:

	*September 30,*		*December 31,*
Dollars in thousands	*2023*		*2022*
Demand deposits, interest bearing	$	2,144,737	$	1,743,299
Savings deposits		477,348		496,751
Time deposits		502,355		376,213
Total	$	3,124,440	$	2,616,263

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $32.8 million at September 30, 2023 and December 31, 2022, respectively.

A summary of the scheduled maturities for all time deposits as of September 30, 2023 is as follows:

Dollars in thousands
Three month period ending December 31, 2023	$	89,347
Year ending December 31, 2024		321,856
Year ending December 31, 2025		48,873
Year ending December 31, 2026		22,261
Year ending December 31, 2027		10,135
Thereafter		9,883
Total	$	502,355

The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $135.9 million at September 30, 2023 and $88.0 million at December 31, 2022.

Table of Contents

NOTE 9. BORROWED FUNDS

Short-term borrowings: A summary of short-term borrowings agreements are presented below.


	*Nine Months Ended September 30,*
	*2023*						*2022*
Dollars in thousands		*Short-term FHLB Advances*			*Federal Funds Purchased and Short-term Repurchase Agreements*			*Short-term FHLB Advances*			*Federal Funds Purchased and Short-term Repurchase Agreements*
Balance at September 30	$	257,900		$	154		$	273,000		$	148
Average balance outstanding for the period		203,008			11,314			179,667			146
Maximum balance outstanding at any month end during period		268,000			20,531			291,300			148
Weighted average interest rate for the period (1)		5.39	%		2.35	%		1.48	%		1.20	%
Weighted average interest rate for balances outstanding at September 30 (1)		5.67	%		5.50	%		3.06	%		3.25	%
(1) Excludes effect of any hedging activity

	*Year Ended December 31, 2022*
Dollars in thousands	*Short-term FHLB Advances*			*Federal Funds Purchased and Short-term Repurchase Agreements*
Balance at December 31	$	225,850		$	149
Average balance outstanding for the period		204,118			147
Maximum balance outstanding at any month end during period		298,900			149
Weighted average interest rate for the period (1)		2.37	%		1.87	%
Weighted average interest rate for balances outstanding at December 31 (1)		4.47	%		4.50	%
(1) Excludes effect of any hedging activity

Federal funds purchased and short-term repurchase agreements mature the next business day. The securities underlying the repurchase agreements are under our control and secure the total outstanding daily balances. We generally account for securities sold under agreements to repurchase as collateralized financing transactions and record them at the amounts at which the securities were sold, plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral provided is continually monitored and additional collateral is provided as needed.

Long-term borrowings: Our long-term borrowings of $642,000 and $658,000 at September 30, 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 $2.3 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 $73.9 million at September 30, 2023 and $73.7 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 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 year 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 September 30, 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 year term and generally, is not prepayable by us within the first five years.

Table of Contents

Subordinated debentures owed to unconsolidated subsidiary trusts: We have three statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. These subordinated debentures totaled $19.6 million at September 30, 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	$	6	$	—	$	—
	2024		23		—		—
	2025		24		—		—
	2026		589		—		—
	2027		—		—		—
	Thereafter		—		105,000		19,589
		$	642	$	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

Table of Contents

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

	*For the Nine Months Ended September 30, 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		(41,529	)						23.86
Expired		—							—
Outstanding, September 30		607,067		$	1,001		6.33	$	22.66

Exercisable, September 30		302,923		$	931		4.28	$	20.70

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

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

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

	*RSUs*			*Weighted Average Grant Date Fair Value*
Nonvested, December 31, 2022		7,204		$	20.49
Granted		—			—
Forfeited		(1,321	)		18.93
Vested		(2,749	)		18.19
Nonvested, September 30, 2023		3,134		$	23.17

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

We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first nine months of 2023 and 2022, total stock compensation expense for all share-based arrangements was $634,000 and $469,000 and the related deferred tax benefits were approximately $152,000 and $113,000. At September 30, 2023 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $2.4 million and on a weighted average basis, will be recognized over the next 2.29 years.

Table of Contents

NOTE 11. COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet Arrangements

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

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

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

	*September 30,*
Dollars in thousands	*2023*
Commitments to extend credit:
Revolving home equity and credit card lines	$	120,411
Construction loans		257,768
Other loans		508,399
Standby letters of credit		56,930
Total	$	943,508

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 $(420,000) and $(195,000) for the three months ended September 30, 2023 and 2022 and $(35,000) and $322,000 for the nine months ended September 30, 2023 and 2022. The ACL on off-balance-sheet credit exposures totaled $6.91 million at September 30, 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.

Table of Contents

NOTE 12. PREFERRED STOCK

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

NOTE 13. REGULATORY MATTERS

Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of September 30, 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 September 30, 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 September 30, 2023
CET1 (to risk weighted assets)
Summit	$	356,427		8.9	%	$	280,971		7.0	%		N/A		N/A
Summit Community		462,461		11.6	%		280,274		7.0	%		260,255		6.5	%
Tier I Capital (to risk weighted assets)
Summit		390,348		9.7	%		341,179		8.5	%		N/A		N/A
Summit Community		462,461		11.6	%		340,333		8.5	%		320,313		8.0	%
Total Capital (to risk weighted assets)
Summit		541,243		13.5	%		421,456		10.5	%		N/A		N/A
Summit Community		509,696		12.7	%		422,901		10.5	%		402,762		10.0	%
Tier I Capital (to average assets)
Summit		390,348		8.5	%		183,316		4.0	%		N/A		N/A
Summit Community		462,461		10.1	%		182,401		4.0	%		228,001		5.0	%

Table of Contents

	*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

We use derivative instruments primarily to protect against the risk of adverse interest rate movements on the cash flows and fair values of certain assets and liabilities. Each of our derivative transactions qualify under the rules for “hedge accounting” in accordance with GAAP. A summary of our derivative transactions follows:

Cash flow hedges

We have entered into four pay-fixed/receive variable 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, designated as a cash flow hedge of $20 million of a forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we 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, designated as a cash flow hedge of $20 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 1.1055% and receive a variable rate equal to three month LIBOR.

•

A $50 million notional interest rate swap with an effective date of May 18, 2023 and expiring on May 18, 2025, designated as a cash flow hedge of $50 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 3.768% and receive a variable rate equal to daily SOFR.

•

A $50 million notional interest rate swap with an effective date of July 18, 2023 and expiring on January 18, 2026, designated as a cash flow hedge of $50 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 4.36% and receive a variable rate equal to daily SOFR.

In addition, we have purchased 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, designated as a cash flow hedge of $100 million of a forecasted series short-term fixed rate Federal Home Loan Bank advances. Under the terms of this cap, we 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, designated as a cash flow hedge of $100 million of certain indexed interest bearing demand deposit accounts. Under the terms of this cap, we hedge the variability of cash flows when the indexed rate of daily SOFR is above 0.50%.

Fair value hedges

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

•

An original $9.95 million (current $6.7 million) notional amortizing interest rate swap with an effective date of January 15, 2015 and expiring on January 15, 2025, designated to hedge the variability in fair value of a fixed rate commercial loan with the same principal, amortization, and maturity terms of the swap. Under the terms of this swap, we pay a fixed rate of 4.33% and receive a variable rate equal to three month LIBOR plus 2.23%.

•

An original $11.3 million (current $9.6 million) notional amortizing interest rate swap with an effective date of December 18, 2015 and expiring on January 15, 2026, designated to hedge the variability in fair value of a fixed rate commercial loan with the same principal, amortization, and maturity terms as the swap. Under the terms of this swap, we pay a fixed rate of 4.30% and receive a variable rate equal to one month LIBOR plus 2.18%.

•

A $71.25 million notional pay fixed/receive variable interest rate swap with an effective date of April 1, 2024 (hedge designated on October 27, 2021) and expiring on February 1, 2031 to hedge the variability in fair value of a designated portfolio of available for sale taxable municipal securities. Under the terms of this swap, we will pay a fixed rate of 1.587% and will receive a variable rate equal to daily Federal funds.

Table of Contents

A summary of our derivative financial instruments as of September 30, 2023 and December 31, 2022 follows:

	*September 30, 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	$	140,000	$	2,404	$	—	$	—

Interest rate cap hedging:
Short term borrowings	$	100,000	$	21,822	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		8,993		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	16,353	$	869	$	—	$	—
Available for sale taxable municipal securities		71,245		10,439		—		(3	)

Total	$	427,598	$	44,527	$	—	$	(3	)

	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	)

Total	$	328,121	$	40,506	$	—	$	(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 and nine months ending September 30, 2023 and 2022.

	*For the Three Months Ended September 30, 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	$	20,328	$	(35,046	)	$	5,834	$	(8,735	)
Other comprehensive (loss) income before reclassification		—			—		1,582		(13,568	)		2,095		(9,891	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			—		—		9			—		9
Net current period other comprehensive (loss) income		—			—		1,582		(13,559	)		2,095		(9,882	)
Ending balance	$	(23	)	$	172	$	21,910	$	(48,605	)	$	7,929	$	(18,617	)

	*For the Three Months Ended September 30, 2022*
Dollars in thousands	*Gains and (Losses) on Pension Plan*		*Gains and (Losses) on Other Post-Retirement Benefits*		*Gains and (Losses) on Cash Flow Hedges*		*Unrealized Gains (Losses) on Debt Securities Available for Sale*			*Unrealized Gains (Losses) on Securities Fair Value Hedge*		*Total*
Beginning balance	$	30	$	9	$	15,885	$	(26,916	)	$	3,518	$	(7,474	)
Other comprehensive (loss) income before reclassification		—		—		5,706		(12,342	)		2,251		(4,385	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—		—		—		184			—		184
Net current period other comprehensive (loss) income		—		—		5,706		(12,158	)		2,251		(4,201	)
Ending balance	$	30	$	9	$	21,591	$	(39,074	)	$	5,769	$	(11,675	)

Table of Contents

	*For the Nine Months Ended September 30, 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 on Securities Fair Value Hedge*		*Total*
Beginning balance	$	(23	)	$	172	$	20,867	$	(37,902	)	$	5,407	$	(11,479	)
Other comprehensive (loss) income before reclassification		—			—		1,043		(10,917	)		2,522		(7,352	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—			—		—		214			—		214
Net current period other comprehensive (loss) income		—			—		1,043		(10,703	)		2,522		(7,138	)
Ending balance	$	(23	)	$	172	$	21,910	$	(48,605	)	$	7,929	$	(18,617	)

	*For the Nine Months Ended September 30, 2022*
Dollars in thousands	*Gains and (Losses) on Pension Plan*		*Gains and (Losses) on Other Post-Retirement Benefits*		*Gains and (Losses) on Cash Flow Hedges*		*Unrealized Gains/(Losses) on Debt Securities Available for Sale*			*Unrealized Gains on Securities Fair Value Hedge*			*Total*
Beginning balance	$	30	$	9	$	3,993	$	1,868		$	(418	)	$	5,482
Other comprehensive (loss) income before reclassification		—		—		17,598		(41,462	)		6,187			(17,677	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		—		—		—		520			—			520
Net current period other comprehensive (loss) income		—		—		17,598		(40,942	)		6,187			(17,157	)
Ending balance	$	30	$	9	$	21,591	$	(39,074	)	$	5,769		$	(11,675	)

NOTE 16. INCOME TAXES

Our income tax expense for the three and nine months ended September 30, 2023 and September 30, 2022 totaled $4.8 million and $10.6 million, and $3.9 million and $10.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three and nine months ended September 30, 2023 and 2022 was 22.7% and 21.5%, and 21.1% and 21.3%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and nine months ended September 30, 2023 and 2022 is as follows:

	*For the Three Months Ended September 30,*						*For the Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
	*Percent*			*Percent*			*Percent*			*Percent*
Applicable statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
Increase (decrease) in rate resulting from:
Tax-exempt interest and dividends, net		(1.4	)%		(1.5	)%		(1.8	)%		(1.4	)%
State income taxes, net of Federal income tax benefit		2.7	%		1.9	%		2.2	%		2.0	%
Low-income housing and rehabilitation tax credits		(0.2	)%		(0.3	)%		(0.2	)%		(0.3	)%
Other, net		0.6	%		—	%		0.3	%		—	%
Effective income tax rate		22.7	%		21.1	%		21.5	%		21.3	%

The components of applicable income tax expense for the three and nine months ended September 30, 2023 and 2022 are as follows:

	*For the Three Months Ended September 30,*					*For the Nine Months Ended September 30,*
Dollars in thousands	*2023*		*2022*			*2023*			*2022*
Current
Federal	$	3,917	$	3,617		$	9,281		$	8,644
State		684		480			1,409			1,180
		4,601		4,097			10,690			9,824
Deferred
Federal		169		(211	)		(103	)		426
State		24		(30	)		(15	)		61
		193		(241	)		(118	)		487
Total	$	4,794	$	3,856		$	10,572		$	10,311

Table of Contents

NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
Dollars in thousands	*2023*		*2022*		*2023*		*2022*
Service fees on deposit accounts	$	1,775	$	1,550	$	5,110	$	4,625
Bank card revenue		1,907		1,639		5,462		4,748
Trust and wealth management fees		819		725		2,484		2,228
Other		151		165		349		348
Net revenue from contracts with customers		4,652		4,079		13,405		11,949
Non-interest income within the scope of other ASC topics		613		808		1,669		1,339
Total noninterest income	$	5,265	$	4,887	$	15,074	$	13,288

NOTE 18. MERGERS AND ACQUISITIONS

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 $595,000 was paid for settlement of outstanding stock options and payments for fractional shares. At consummation, PSB's assets and liabilities approximated $568 million and $528 million respectively.

We accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the assets and liabilities of PSB were recorded at their respective acquisition date fair values. The fair values of assets and liabilities were preliminary and subject to refinement for up to one year after acquisition date as additional information relative to the acquisition date fair values becomes available. We recognized preliminary goodwill of $687,000 in connection with the acquisition (not deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on April 1, 2023 in connection with the acquisition of PSB, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill.

Table of Contents

							*Estimated Fair*
	As			*Estimated*			*Values as*
	*Recorded by*			*Fair Value*			*Recorded by*
Dollars in thousands	*Provident*			*Adjustments*			*Summit*
Cash consideration							$	595
Stock consideration								39,025
Total consideration								39,620

Identifiable assets acquired:
Cash and cash equivalents	$	14,959		$	—		$	14,959
Securities available for sale, at fair value		122,734			—			122,734
Securities held to maturity		20,466			(2,275	)		18,191
Loans		—			—			—
Purchased performing		363,446			(17,418	)		346,028
Purchased credit deteriorated		18,473			(1,495	)		16,978
Allowance for credit losses on loans		(3,341	)		3,341			—
Premises and equipment		6,600			(425	)		6,175
Core deposit intangibles		—			14,928			14,928
Other assets		24,981			(3,799	)		21,182
Total identifiable assets acquired	$	568,318		$	(7,143	)	$	561,175

Identifiable liabilities assumed:
Deposits		497,802			(249	)		497,553
Short-term borrowings		17,650			—			17,650
Long-term borrowings		5,209			(66	)		5,143
Other liabilities		7,284			(5,388	)		1,896
Total identifiable liabilities assumed	$	527,945		$	(5,703	)	$	522,242

Net identifiable assets acquired	$	40,373		$	(1,440	)	$	38,933

Preliminary goodwill resulting from acquisition							$	687

	*For the Nine Months Ended September 30,*
Dollars in thousands	*2023*
Purchase price of PCD loans at acquisition	$	18,473
Allowance for credit losses - loans at acquisition		1,495
Non-credit discount at acquisition		729
Par value of PCD loans at acquisition	$	16,249

Pending Merger

On August 24, 2023, we entered into an Agreement and Plan of Reorganization with Burke & Herbert Financial Services Corp. (“Burke & Herbert”), a $3.6 billion Virginia corporation headquartered in Alexandria, Virginia, pursuant to which Summit will merge with and into Burke & Herbert, with Burke & Herbert as the surviving entity. Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of Summit common stock, par value $2.50 per share will be converted into the right to receive 0.5043 shares of Burke & Herbert common stock, par value $0.50 per share. Holders of Summit common stock will receive cash in lieu of fractional shares. The merger is intended to be a tax-free reorganization under Section 368(a) of the Internal Revenue Code.

We anticipate the merger will close in the first quarter of 2024, subject to customary closing conditions, including regulatory approval and approval of Burke & Herbert's and Summit's shareholders. Immediately following the merger, Summit Community Bank, Inc., Summit’s wholly owned banking subsidiary, will be merged with and into Burke & Herbert’s wholly-owned banking subsidiary, Burke & Herbert Bank & Trust Company, with B&H Bank the surviving bank. Refer to our 8-K filed with the SEC on August 24, 2023 for further details.

Table of Contents

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

On April 1, 2023, we acquired PSB Holding Corp. (“PSB”), and its subsidiary, Provident State Bank, Inc., headquartered in Preston, Maryland. PSB's results are included in our financial statements from the acquisition date forward, impacting comparisons to the prior year third quarter and nine months ended September 30 periods.

In August 2023, we entered into an Agreement and Plan of Reorganization with Burke & Herbert pursuant to which Summit will merge with and into Burke & Herbert, with Burke & Herbert as the surviving entity. Immediately following the Merger, Summit Community Bank, Inc., Summit’s wholly owned banking subsidiary, will be merged with Burke & Herbert’s wholly-owned banking subsidiary, Burke & Herbert Bank & Trust Company, with B&H Bank the surviving bank. The transaction is expected to close in Q1 2024. See Note 18 to these consolidated financial statements for further information relative to the merger.

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, excluding acquired PSB deposits, increased 2.7% compared to December 31, 2022, to $3.3 billion at September 30, 2023 as we experienced minimal deposit outflow in the first nine months of 2023. The Company’s capital remains at high levels with CET1, Total Capital and Leverage ratios of 8.9%, 13.5% and 8.5%, respectively, as of September 30, 2023 compared to 8.6%, 13.5% and 8.5%, respectively, at December 31, 2022.

Further, during the first nine months of 2023, Summit's Tangible Book Value Per Common Share ("TBVPCS") increased $0.52 to $22.22. TBVPCS was negatively impacted by the acquisition of PSB, which represented TBVPCS dilution resulting from the transaction’s issuance of 1,880,732 common shares and its creation of intangible assets of $15.6 million and unrealized net losses on debt securities available for sale of $0.73 per common share (net of deferred income taxes), recorded in OCI. However, this dilution was more than offset by net income 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.

Primarily due to our PSB acquisition and organic loan growth, average interest earning assets increased by 17.3% for the first nine months in 2023 compared to the same period of 2022 while our net interest earnings on a tax equivalent basis increased 22.4%. Our tax equivalent net interest margin increased 16 basis points as our yield on interest earning assets increased 152 basis points while our cost of interest bearing funds increased 167 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.

Table of Contents

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
	September 30,		December 31,
Dollars in thousands	2023		2022
Total shareholders' equity	$	416,452	$	354,530
Less preferred stock		14,920		14,920
Common shareholders' equity		401,532		339,610
Less goodwill and intangible assets		75,425		62,150
Tangible common equity (TCE)	$	326,107	$	277,460

Common shares outstanding		14,674,852		12,783,646

Book value per common share(1)	$	27.36	$	26.57
Tangible book value per common share(2)	$	22.22	$	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 September 30, 2023 was $16.1 million, or $1.09 per diluted share, compared to $14.2 million, or $1.11 per diluted share for the same period of 2022. Net income applicable to common shares for the nine months ended September 30, 2023 was $38.0 million, or $2.69 per diluted share, compared to $37.5 million, or $2.92 per diluted share for the same period of 2022. The increased earnings during 2023 were primarily attributable to increased net interest income due to our growth. Returns on average equity and assets for the first nine months of 2023 were 12.97% and 1.18%, respectively, compared with 15.26% and 1.37% for the same period of 2022.

PSB's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our 2023 results reflect increased levels of average balances, income and expense as compared to the same periods of 2022 results. At consummation (prior to fair value acquisition adjustments), the PSB transaction consisted primarily of $568 million assets and $528 million liabilities.

Net Interest Income

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

Q3 2023 compared to Q2 2023

For the quarter ended September 30, 2023, our net interest income on a fully taxable-equivalent basis increased $977,000 to $41.7 million compared to $40.7 million for the quarter end June 30, 2023. Our taxable-equivalent earnings on interest earning assets increased $3.8 million, while the cost of interest bearing liabilities increased $2.9 million (see Tables I and II).

For the three months ended September 30, 2023, average interest earning assets increased to $4.26 billion compared to $4.19 billion for the three months ended June 30, 2023, while average interest bearing liabilities increased to $3.45 billion for the three months ended September 30, 2023 from $3.36 billion for the three months ended June 30, 2023.

For the quarter ended September 30, 2023, our net interest margin decreased to 3.88%, compared to 3.89% for the linked quarter, as the yields on earning assets increased 20 basis points and the cost of our interest bearing funds increased by 24 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 3.77% and 3.79% for the three months ended September 30, 2023 and June 30, 2023.

Q3 2023 compared to Q3 2022

For the quarter ended September 30, 2023, our net interest income on a fully taxable-equivalent basis increased $7.2 million to $41.7 million compared to $34.4 million for the quarter ended September 30, 2022. Our taxable-equivalent earnings on interest earning assets increased $22.3 million, while the cost of interest bearing liabilities increased $15.1 million (see Tables I and II).

For the three months ended September 30, 2023, average interest earning assets increased 19.8% to $4.26 billion compared to $3.56 billion for the three months ended September 30, 2022, while average interest bearing liabilities increased 21.3% from $2.84 billion for the three months ended September 30, 2022 to $3.49 billion for the three months ended September 30, 2023.

For the quarter ended September 30, 2023, our net interest margin increased to 3.88%, compared to 3.84% for the same period of 2022, as the yields on earning assets increased 129 basis points, while the cost of our interest bearing funds increased by 153 basis points.

Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.81% for the three months ended September 30, 2022.

Table of Contents

Table I - Average Balance Sheet and Net Interest Income Analysis
	For the Quarter Ended
	September 30, 2023								June 30, 2023								September 30, 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		3,591,583		$	58,040		6.41	%	$	3,516,306		$	54,374		6.20	%	$	3,018,219		$	38,741		5.09	%
Tax-exempt (2)		3,911			78		7.91	%		4,144			49		4.74	%		4,834			54		4.43	%
Securities
Taxable		417,299			4,971		4.73	%		428,039			4,900		4.59	%		283,645			2,273		3.18	%
Tax-exempt (2)		211,150			1,754		3.30	%		209,931			1,705		3.26	%		203,951			1,549		3.01	%
Federal funds sold and interest bearing deposits with other banks		39,200			235		2.38	%		35,218			203		2.31	%		49,048			170		1.38	%
Total interest earning assets		4,263,143			65,078		6.06	%		4,193,638			61,231		5.86	%		3,559,697			42,787		4.77	%
Noninterest earning assets
Cash & due from banks		24,229								23,588								17,455
Premises and equipment		62,085								60,872								54,976
Property held for sale		4,658								4,997								5,243
Intangible assets		76,037								80,445								62,705
Other assets		214,492								207,107								166,166
Allowance for credit losses-loans		(46,498	)							(44,312	)							(35,381	)
Total assets	$	4,598,146							$	4,526,335							$	3,830,861
Interest bearing liabilities
Interest bearing demand deposits	$	2,057,035		$	15,053		2.90	%	$	1,985,134		$	13,423		2.71	%	$	1,454,815		$	4,276		1.17	%
Savings deposits		493,565			2,035		1.64	%		528,694			2,000		1.52	%		611,075			1,243		0.81	%
Time deposits		505,824			2,836		2.22	%		513,236			2,428		1.90	%		461,134			621		0.53	%
Short-term borrowings		267,935			1,988		2.94	%		207,418			1,212		2.34	%		191,421			850		1.76	%
Long-term borrowings, subordinated debentures and capital trust securities		123,839			1,509		4.83	%		123,843			1,487		4.82	%		123,368			1,348		4.34	%
Total interest bearing liabilities		3,448,198			23,421		2.69	%		3,358,325			20,550		2.45	%		2,841,813			8,338		1.16	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits		681,035								706,391								609,424
Other liabilities		51,669								50,863								41,339
Total liabilities		4,180,902								4,115,579								3,492,576

Shareholders' equity - preferred		14,920								14,920								14,920
Shareholders' equity - common		402,324								395,836								323,365
Total liabilities and shareholders' equity	$	4,598,146							$	4,526,335							$	3,830,861
Net interest earnings				$	41,657							$	40,681							$	34,449
Net yield on interest earning assets							3.88	%							3.89	%							3.84	%

(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 $390,000, $368,000, and $336,000 for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

Table of Contents

Table II - Changes in Net Interest Income Attributable to Rate and Volume
	For the Quarter Ended							For the Quarter Ended
	September 30, 2023 vs. June 30, 2023							September 30, 2023 vs. September 30, 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	$	1,425		$	2,241	$	3,666	$	8,167		$	11,132		19,299
Tax-exempt		(3	)		32		29		(12	)		36		24
Securities
Taxable		(101	)		172		71		1,327			1,371		2,698
Tax-exempt		16			33		49		56			149		205
Federal funds sold and interest bearing deposits with other banks		25			7		32		(39	)		104		65
Total interest earned on interest earning assets		1,362			2,485		3,847		9,499			12,792		22,291

Interest paid on:
Interest bearing demand deposits		554			1,076		1,630		2,343			8,434		10,777
Savings deposits		(129	)		164		35		(278	)		1,070		792
Time deposits		(33	)		441		408		66			2,149		2,215
Short-term borrowings		414			362		776		425			713		1,138
Long-term borrowings, subordinated debentures and capital trust securities		—			22		22		5			156		161
Total interest paid on interest bearing liabilities		806			2,065		2,871		2,561			12,522		15,083

Net interest income	$	556		$	420	$	976	$	6,938		$	270	$	7,208

Table of Contents

Table III - Average Balance Sheet and Net Interest Income Analysis
	For the Nine Months Ended
	September 30, 2023								September 30, 2022
	Average			Earnings/		Yield/			Average			Earnings/		Yield/
Dollars in thousands	Balance			Expense		Rate			Balance			Expense		Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable	$	3,400,167		$	157,813		6.21	%	$	2,898,380		$	101,640		4.69	%
Tax-exempt (2)		4,706			235		6.68	%		5,108			170		4.45	%
Securities
Taxable		386,825			13,283		4.59	%		300,371			5,695		2.53	%
Tax-exempt (2)		212,484			5,241		3.30	%		187,575			4,021		2.87	%
Federal funds sold and interest bearing deposits with other banks		36,261			610		2.25	%		53,142			262		0.66	%
Total interest earning assets		4,040,443			177,182		5.86	%		3,444,576			111,788		4.34	%
Noninterest earning assets
Cash & due from banks		21,766								17,671
Premises and equipment		59,053								55,486
Property held for sale		4,920								6,464
Intangible assets		72,887								63,061
Other assets		202,191								153,448
Allowance for credit losses-loans		(43,466	)							(33,705	)
Total assets	$	4,357,794							$	3,707,001
Interest bearing liabilities
Interest bearing demand deposits	$	1,954,761		$	39,276		2.69	%	$	1,260,907		$	6,015		0.64	%
Savings deposits		500,647			5,949		1.59	%		660,855			2,505		0.51	%
Time deposits		469,864			6,550		1.86	%		506,654			1,969		0.52	%
Short-term borrowings		214,322			4,024		2.51	%		179,813			1,918		1.43	%
Long-term borrowings, subordinated debentures and capital trust securities		123,717			4,457		4.82	%		123,279			3,867		4.19	%
Total interest bearing liabilities		3,263,311			60,256		2.47	%		2,731,508			16,274		0.80	%
Noninterest bearing liabilities and shareholders' equity
Demand deposits		648,789								600,766
Other liabilities		48,554								41,541
Total liabilities		3,960,654								3,373,815

Shareholders' equity - preferred		14,920								14,920
Shareholders' equity - common		382,220								318,266
Total liabilities and shareholders' equity	$	4,357,794							$	3,707,001
Net interest earnings				$	116,926							$	95,514
Net yield on interest earning assets							3.87	%							3.71	%

(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 $1,150,000 and $881,000 for the YTD 2023 and YTD 2022 periods, respectively.

Table of Contents

Table IV - Changes in Net Interest Income Attributable to Rate and Volume
	For the Nine Months Ended
	September 30, 2023 vs. September 30, 2022
	Increase (Decrease) Due to Change in:
Dollars in thousands	Volume			Rate		Net
Interest earned on:
Loans
Taxable	$	19,581		$	36,592	$	56,173
Tax-exempt		(14	)		79		65
Securities
Taxable		1,987			5,601		7,588
Tax-exempt		572			648		1,220
Federal funds sold and interest bearing deposits with other banks		(106	)		454		348
Total interest earned on interest earning assets		22,020			43,374		65,394

Interest paid on:
Interest bearing demand deposits		4,865			28,396		33,261
Savings deposits		(739	)		4,183		3,444
Time deposits		(153	)		4,734		4,581
Short-term borrowings		424			1,682		2,106
Long-term borrowings, subordinated debentures and capital trust securities		14			576		590
Total interest paid on interest bearing liabilities		4,411			39,571		43,982

Net interest income	$	17,609		$	3,803	$	21,412

Provision for Credit Losses

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

We recorded $1.3 million and $1.5 million provision for credit losses for the three months ended September 30, 2023 and 2022 and $10.8 million and $5.5 million for the nine months ended September 30, 2023 and 2022. Second quarter 2023 includes provision for credit losses of $3.01 million to establish an allowance on non-PCD loans acquired from PSB in accordance with the Current Expected Credit Loss (“CECL”) accounting standard and $3.66 million to recognize an allowance on a nonperforming commercial real estate loan participation. The following table summarizes the changes in the various factors that comprise the components of credit loss expense.

Table V - Provision for Credit Losses
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2023			2022			2023			2022
Provision for credit losses-loans
Due to changes in:
Loan volume and mix	$	2,397		$	2,146		$	4,403		$	7,190
Loss experience		(838	)		(724	)		(3,005	)		(1,996	)
Reasonable and supportable economic forecasts & other qualitative adjustments		(373	)		573			2,210			614
Individually evaluated credits		484			(300	)		4,172			(680	)
Acquired loans		—			—			3,005			—
Total provision for credit losses - loans		1,670			1,695			10,785			5,128

Provision for credit losses-unfunded commitments
Due to changes in:
Loan volume and mix		(163	)		(341	)		(117	)		1,156
Loss experience		(84	)		(97	)		(243	)		(527	)
Reasonable and supportable economic forecasts & other qualitative adjustments		(173	)		243			90			(307	)
Individually evaluated credits		—			—			—			—
Acquired loan commitments		—			—			235			—
Total provision for credit losses - unfunded commitments		(420	)		(195	)		(35	)		322

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

Total provision for credit losses	$	1,250		$	1,500		$	10,750		$	5,450

Table of Contents

Noninterest Income

Total noninterest income for the three and nine months ended September 30, 2023 increased 7.7% and 13.4% compared to the same periods of 2022. The increases were principally due to fewer realized losses on debt securities, increased service charges on deposit account and higher bank card revenue partially offset by decreased mortgage origination revenue. Further detail regarding noninterest income is reflected in the following table.

Table VI - Noninterest Income
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2023			2022			2023			2022
Trust and wealth management fees		819			725			2,484			2,228
Mortgage origination revenue		172			538			513			1,194
Service charges on deposit accounts		1,775			1,550			5,110			4,625
Bank card revenue		1,907			1,639			5,462			4,748
Net realized losses on debt securities		(12	)		(242	)		(282	)		(684	)
Net gains/(losses) on equity investments		180			283			375			(14	)
Bank owned life insurance and annuities income		311			229			1,078			843
Other		113			165			334			348
Total	$	5,265		$	4,887		$	15,074		$	13,288

Noninterest Expense

Total noninterest expense increased 25.7% and 31.2% for the three and nine months ended September 30, 2023 compared to the same periods of 2022, primarily due to higher salaries, commissions, and employee benefits, acquisition-related expenses and other expenses. Table VII below shows the breakdown of the changes.

Table VII- Noninterest Expense

	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
			Change										Change
Dollars in thousands	2023		$			%			2022		2023		$			%			2022
Salaries, commissions, and employee benefits	$	11,959	$	1,770			17.4	%	$	10,189	$	34,922	$	5,002			16.7	%	$	29,920
Net occupancy expense		1,436		135			10.4	%		1,301		4,297		496			13.0	%		3,801
Equipment expense		2,361		510			27.6	%		1,851		6,752		1,268			23.1	%		5,484
Professional fees		400		28			7.5	%		372		1,246		4			0.3	%		1,242
Advertising and public relations		247		(29	)		(10.5	)%		276		681		68			11.1	%		613
Amortization of intangibles		998		644			181.9	%		354		2,340		1,252			115.1	%		1,088
FDIC premiums		716		424			145.2	%		292		1,788		916			105.0	%		872
Bank card expense		972		246			33.9	%		726		2,620		371			16.5	%		2,249
Foreclosed properties expense, net of losses/(gains)		10		(16	)		(61.5	)%		26		73		(4	)		(5.2	)%		77
Acquisition-related expenses		1,110		1,110			n/m			—		5,604		5,571			n/m			33
Other		3,953		119			3.1	%		3,834		10,563		1,912			22.1	%		8,651
Total	$	24,162	$	4,941			25.7	%	$	19,221	$	70,886	$	16,856			31.2	%	$	54,030

Salaries, commissions, and employee benefits: The increases in these expenses for the three and nine months ended September 30, 2023 compared to the same periods of 2022 are primarily due to general merit raises, higher group health insurance premiums and an increase in the average number of full-time equivalent employees related to the PSB acquisition during second quarter 2023.

Equipment: The increase in equipment expense is primarily increased depreciation and amortization related to various technological upgrades, both hardware and software, made during the past three years including depreciation and amortization relative to equipment and software related to acquisitions.

FDIC premiums: The increased FDIC premiums are primarily attributable to the higher assessment rate charged by the FDIC effective January 1, 2023.

Acquisition-related expenses: Acquisition-related expenses increased during 2023 due to the PSB transaction which closed on April 1, 2023 and the pending merger with Burke & Herbert. These 2023 expenses for the three months ended September 30, 2023 represent legal, due diligence and fairness opinion costs relative to the Burke & Herbert merger and for the nine months ended September 30, 2023, they included $4.16 million of contract termination costs, executive and employee severance benefits and legal and consulting fees associated with the PSB acquisition.

Other: The increase in other expenses for the three and nine months ended September 30, 2023 compared to the same periods of 2022 are largely due to the following:

•

Deferred director compensation plan-related income of $75,000 for the nine months ended September 30, 2023 compared to $296,000 in the comparable period of 2022 and expense of $230,000 and $830,000 for the three months ended September 30, 2023 and 2022 as a result of the stock market's overall declined performance during 2022. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments. During Q3 2022, we purchased investments to hedge the changes in the Plan participants’ phantom investments which should serve to significantly reduce period-to-period volatility of the Plan’s impact on our statements of income.

	•	Internet banking expense totaled $460,000 for the three months ended September 30, 2023 compared to $341,000 for the comparable period of 2022 and $1.29 million for the nine months ended September 30, 2023 compared to $1.03 million during the same period of 2022 due to increased customer usage.
	•	Fraud losses increased from $132,000 for the three months ended September 30, 2022 to $213,000 for the three months ended September 30, 2023. These losses totaled $745,000 and $544,000 for the nine months ended September 30, 2023 and 2022, respectively.
	•	Data processing costs were $132,000 and $254,000 for the three and nine months ended September 30, 2023 compared to zero in 2022 due to the PSB data processing costs that continued until we merged our processing systems in third quarter 2023.

Table of Contents

Income Taxes

Our income tax expense for the three months ended September 30, 2023 and September 30, 2022 totaled $4.8 million and $3.9 million, respectively. For the nine months ended September 30, 2023 and 2022, our income tax expense totaled $10.6 million and $10.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended September 30, 2023 and 2022 was 22.7% and 21.1%, respectively and for the nine months ended September 30, 2023 and 2022 was 21.5% and 21.3%. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.

FINANCIAL CONDITION

Our total assets were $ 4.60 billion at September 30, 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 September 30, 2023.

Table VIII - Summary of Significant Changes in Financial Position

Dollars in thousands	Balance at December 31, 2022			Impact of PSB Acquisition		Increase (Decrease)			Balance at September 30, 2023
Assets
Cash and cash equivalents	$	44,717		$	14,364	$	476		$	59,557
Debt securities available for sale		405,201			140,925		(34,723	)		511,403
Debt securities held to maturity		96,163			—		(1,448	)		94,715
Equity investments		29,494			63		1,684			31,241
Other investments		16,029			554		2,996			19,579
Loans, net of unearned fees		3,082,818			363,006		153,095			3,598,919
Less: allowance for credit losses		(38,899	)		—		(8,334	)		(47,233	)
Loans, net		3,043,919			363,006		144,761			3,551,686
Property held for sale		5,067			—		(562	)		4,505
Premises and equipment		53,981			6,175		2,565			62,721
Accrued interest and fees receivable		15,866			1,500		2,423			19,789
Goodwill and other intangibles		62,150			15,615		(2,340	)		75,425
Cash surrender value of life insurance policies and annuities		71,640			12,290		1,146			85,076
Derivative financial instruments		40,506			—		4,021			44,527
Other assets		31,959			6,775		5,250			43,984
Total assets	$	3,916,692		$	561,267	$	126,249		$	4,604,208

Liabilities
Non-interest bearing deposits	$	553,616		$	160,079	$	(83,640	)	$	630,055
Interest bearing deposits		2,616,263			337,474		170,703			3,124,440
Total deposits		3,169,879			497,553		87,063			3,754,495
Short-term borrowings		225,999			17,650		14,405			258,054
Long-term borrowings		658			5,143		(5,159	)		642
Subordinated debentures		103,296			—		365			103,661
Subordinated debentures owed to unconsolidated subsidiary trusts		19,589			—		—			19,589
Other liabilities		42,741			1,988		6,586			51,315

Shareholders' Equity - preferred		14,920			—		—			14,920
Shareholders' Equity - common		339,610			38,933		22,989			401,532

Total liabilities and shareholders' equity	$	3,916,692		$	561,267	$	126,249		$	4,604,208

The following is a discussion of the significant changes in our financial position, excluding the effects of the PSB acquisition, during the first nine months of 2023:

Debt securities available for sale: The net decrease of $34.7 million in debt securities available for sale is principally attributable to sales of municipal and mortgage-backed securities.

Table of Contents

Loans: Mortgage warehouse lines of credit declined $15.7 million during the first nine 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 and acquired loans, loan growth was $157.8 million during the first nine months of 2023.

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

Deposits: During the first nine months of 2023, excluding acquired deposits, noninterest bearing checking deposits decreased $83.3 million and interest bearing checking deposits grew $278.6 million, as we increased new commercial account relationships while brokered CDs increased $35,000, savings deposits declined $110.4 million and retail CDs increased $2.2 million.

Shareholders' equity - common: Changes in common shareholders' equity are a result of the issuance of 1,880,732 common shares in conjunction with the PSB acquisition, net income, other comprehensive income and common dividends. Refer to the Consolidated Statements of Shareholders' Equity of the accompanying financial statements for further details. Tangible book value per common share (“TBVPCS”) increased $0.52 to $22.22. TBVPCS was negatively impacted by the acquisition of PSB, which represented dilution resulting from the transaction’s issuance of 1,880,732 common shares and its creation of intangible assets of $15.6 million and unrealized net losses on debt securities available for sale of $0.73 per common share (net of deferred income taxes), recorded in OCI. However, this dilution was more than offset by net income in the same period.

Refer to Notes 5, 6, 8, and 9 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between September 30, 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 September 30, 2023 and December 31, 2022, our allowance for loan credit losses totaled $47.2 million, or 1.31% 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 charge-offs of $3.9 million in the first nine months of 2023 (0.15 percent of average loans annualized), which included a partial charge-off of $3.66 million of a nonperforming commercial real estate loan participation to the fair value of its collateral, compared to $676,000 net loan charge-offs during the first nine months of 2022 (0.03 percent of average loans annualized).

Table of Contents

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

Table IX - Summary of Non-Performing Assets
	September 30,						December 31,
Dollars in thousands	2023			2022			2022
Accruing loans past due 90 days or more	$	28		$	4		$	12
Nonaccrual loans
Commercial		767			347			93
Commercial real estate		6,401			1,860			1,750
Commercial construction and development		—			—			—
Residential construction and development		750			902			851
Residential real estate		4,787			6,083			5,117
Consumer		113			4			—
Other		—			—			—
Total nonaccrual loans		12,818			9,196			7,811
Foreclosed properties
Commercial		—			—			—
Commercial real estate		297			297			297
Commercial construction and development		2,187			2,332			2,187
Residential construction and development		1,924			2,293			2,293
Residential real estate		97			271			290
Total foreclosed properties		4,505			5,193			5,067
Repossessed assets		—			—			—
Total nonperforming assets	$	17,351		$	14,393		$	12,890
Total nonperforming loans as a percentage of total loans		0.36	%		0.30	%		0.25	%
Total nonperforming assets as a percentage of total assets		0.38	%		0.37	%		0.33	%
Allowance for credit losses-loans as a percentage of period end loans		1.31	%		1.19	%		1.26	%
Total nonaccrual loans as a percentage of total loans		0.36	%		0.30	%		0.25	%
Allowance for credit losses on loans as a percentage of nonaccrual loans		368.49	%		399.63	%		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 and nine months ended September 30, 2023 and 2022.

Table X - Foreclosed Property Activity
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
Dollars in thousands	2023			2022			2023			2022
Beginning balance	$	4,743		$	5,319		$	5,067		$	9,858
Acquisitions		—			6			59			6
Improvements		—			17			2			17
Disposals		(238	)		(149	)		(491	)		(4,646	)
Writedowns to fair value		—			—			(132	)		(42	)
Balance June 30	$	4,505		$	5,193		$	4,505		$	5,193

At September 30, 2023 and December 31, 2022 we had approximately $4.5 million and $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.

Table of Contents

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 $1.9 billion or 41.02% of total consolidated assets at September 30, 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 $1.6 billion. As of September 30, 2023 and December 31, 2022, these advances totaled approximately $258 million and $227 million, respectively. At September 30, 2023, we had additional borrowing capacity of $1.3 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 September 30, 2023 was approximately $299 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 $511 million portfolio of available for sale debt securities which can be liquidated to meet liquidity needs.

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

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

One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders’ equity at September 30, 2023 totaled $416.5 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 September 30, 2023.

Table XI - Contractual Cash Obligations
	Long				Capital
	Term		Subordinated		Trust		Operating
Dollars in thousands	Debt		Debentures		Securities		Leases
2023	$	6	$	—	$	—	$	322
2024		23		—		—		1,279
2025		24		—		—		1,220
2026		589		—		—		1,169
2027		—		—		—		950
Thereafter		—		105,000		19,589		2,548
Total	$	642	$	105,000	$	19,589	$	7,488

Table of Contents

OFF-BALANCE SHEET ARRANGEMENTS

We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at September 30, 2023 are presented in the following table.

Table XII - Off-Balance Sheet Arrangements	September 30,
Dollars in thousands	2023
Commitments to extend credit:
Revolving home equity and credit card lines	$	120,411
Construction loans		257,768
Other loans		508,399
Standby letters of credit		56,930
Total	$	943,508

Table of Contents

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 September 30, 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)		0.3	%		5.0	%
Down 200 basis points (1)		0.9	%		3.3	%
Down 200 basis points - steepening curve (2)		4.9	%		15.8	%
Up 200 basis points (1)		-1.8	%		5.6	%

(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

Table of Contents

Item 4. Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of September 30, 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 September 30, 2023 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

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 September 30, 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
July 1, 2023 - July 31, 2023		—	$	—		—		426,423
August 1, 2023 - August 31, 2023		—		—		—		426,423
September 1, 2023 - September 30, 2023		—		—		—		426,423

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

Item 5. Other Information

Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements.

None

Table of Contents

Item 6. Exhibits

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

Exhibit 3.ii	Articles of Amendment 2009

Exhibit 3.iii	Articles of Amendment 2011

Exhibit 3.iv	Amended and Restated Articles of Amendment 2021

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

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

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

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

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

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

Exhibit 101	Interactive Data File (Inline XBRL)

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

Table of Contents

EXHIBIT INDEX

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

11	Statement re: Computation of Earnings per Share	14

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

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

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

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

101**	Interactive data file (Inline XBRL)

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

*Furnished, not filed.

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

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

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

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

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

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

Table of Contents

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)




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



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



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


Date:	November 7, 2023