Core Insights - Summit Financial has made a minority-interest investment in Ivy Wealth Management, adding over $500 million in client assets and enhancing its presence in the Northeast [1][2][7] - Ivy Wealth Management, founded by Brad Ingegneri in 2010, focuses on high-net-worth families and business owners, emphasizing a client-first philosophy and community engagement [2][7] Investment Strategy - Summit Financial's strategy involves expanding through minority-stake purchases in independent advisory firms, allowing selling firms to retain control while accessing resources for growth [4][7] - The recent investment marks Summit's 14th partnership transaction of 2025, contributing to its management of over $25 billion in client assets [4][7] Leadership Commentary - Summit's CEO Stan Gregor highlighted the importance of partnerships for growth and community strengthening, praising Ivy's commitment to client service and market navigation [3] - Ivy's President Brad Ingegneri expressed that the partnership will enhance their client-first service through improved resources and technology [3] Company Background - Summit Financial is a prominent investment advisory firm with over 40 years of experience, dedicated to helping advisors grow their businesses while maintaining independence [6][9] - The firm has been recognized as a top RIA firm by Forbes and Barron's, reflecting its commitment to exceptional financial planning and service [10]

Core Insights - A surge of private equity investors is entering the wealth management sector, focusing on acquisitions [1] - Summit Financial, a wealth management firm with $23 billion in assets, emphasizes the importance of aligning with buyers who share long-term goals and values when selling a minority stake [1] - The trend of minority purchases is gaining traction among independent advisors amid a broader wave of mergers and acquisitions [1] Company Insights - Summit Financial is dedicated to empowering Registered Investment Advisor (RIA) growth [1] - The firm highlights the necessity for advisors to carefully select buyers that align with their vision for growth [1] Industry Trends - The wealth management space is experiencing increased activity from private equity investors pursuing acquisitions [1] - Minority stake sales are becoming a popular strategy for independent advisors looking to unlock growth opportunities [1]

Group 1 - Summit Financial climbed 15 spots to No. 35 on the Barron's 2025 Top 100 RIA Firms list [1]

Group 1 - MAI Capital Management announced the acquisition of Summit Financial Advisors, LLC [1]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2024 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, along with detailed notes for the three months ended March 31, 2024 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time | Metric | March 31, 2024 (Unaudited) ($ in thousands) | December 31, 2023 (Audited) ($ in thousands) | | :-------------------------------- | :--------------------------- | :-------------------------- | | **Assets** | | | | Cash and cash equivalents | $55,656 | $52,232 | | Debt securities available for sale | $490,271 | $502,762 | | Loans, net | $3,647,810 | $3,633,522 | | Total assets | $4,642,884 | $4,634,322 | | **Liabilities** | | | | Total deposits | $3,748,415 | $3,715,148 | | Short-term borrowings | $262,359 | $302,957 | | Total liabilities | $4,188,603 | $4,194,114 | | **Shareholders' Equity** | | | | Total shareholders' equity | $454,281 | $440,208 | - Total assets increased by **$8.56 million** from December 31, 2023, to March 31, 2024, reaching **$4.64 billion**, primarily driven by an increase in loans, net, and cash and cash equivalents, partially offset by a decrease in debt securities available for sale[9](index=9&type=chunk)[165](index=165&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This statement reports the company's revenues, expenses, and net income over specific periods | Metric | Three Months Ended March 31, 2024 ($ in thousands, except per share data) | Three Months Ended March 31, 2023 ($ in thousands, except per share data) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $65,522 | $50,475 | | Total interest expense | $25,599 | $16,286 | | Net interest income | $39,923 | $34,189 | | Provision for credit losses | $0 | $1,500 | | Total noninterest income | $5,078 | $4,386 | | Total noninterest expenses | $22,958 | $19,399 | | Net income | $17,047 | $14,101 | | Net income applicable to common shares | $16,822 | $13,876 | | Basic earnings per common share | $1.15 | $1.09 | | Diluted earnings per common share | $1.14 | $1.08 | - Net income applicable to common shares increased by **$2.95 million** (**21.26%**) to **$16.82 million** for Q1 2024 compared to Q1 2023, driven by higher net interest income and no provision for credit losses in 2024[11](index=11&type=chunk)[140](index=140&type=chunk) - Diluted EPS increased to **$1.14** in Q1 2024 from **$1.08** in Q1 2023[11](index=11&type=chunk)[140](index=140&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income, reflecting changes in equity from non-owner sources | Metric | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $17,047 | $14,101 | | Total other comprehensive income | $236 | $3,454 | | Total comprehensive income | $17,283 | $17,555 | - Total comprehensive income decreased from **$17.56 million** in Q1 2023 to **$17.28 million** in Q1 2024, primarily due to a significant reduction in total other comprehensive income from **$3.45 million** to **$0.24 million**[12](index=12&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This statement details changes in the company's equity accounts over a period, including net income and dividends | Metric | Balance December 31, 2023 ($ in thousands) | Balance March 31, 2024 ($ in thousands) | | :----------------------------------- | :------------------------ | :--------------------- | | Total shareholders' equity | $440,208 | $454,281 | | Net income | $17,047 | $17,047 | | Other comprehensive income | $236 | $236 | | Common stock cash dividends declared | $(3,230) | $(3,230) | - Total shareholders' equity increased by **$14.07 million** from December 31, 2023, to March 31, 2024, reaching **$454.28 million**, mainly due to net income and other comprehensive income, partially offset by common and preferred stock dividends[13](index=13&type=chunk)[168](index=168&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement reports the cash generated and used by the company across operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $19,363 | $17,178 | | Net cash used in investing activities | $(5,215) | $(32,553) | | Net cash (used in) provided by financing activities | $(10,724) | $41,474 | | Increase in cash and cash equivalents | $3,424 | $26,099 | | Ending cash and cash equivalents | $55,656 | $70,816 | - Net cash provided by operating activities increased by **$2.19 million** (**12.75%**) in Q1 2024 compared to Q1 2023, while net cash used in investing activities significantly decreased from **$32.55 million** in Q1 2023 to **$5.22 million** in Q1 2024, and net cash from financing activities shifted from a **$41.47 million** inflow to a **$10.72 million** outflow[14](index=14&type=chunk)[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [NOTE 1. BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) This note outlines the accounting principles and assumptions used in preparing the interim consolidated financial statements - The consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and include all necessary normal recurring adjustments for fair presentation[17](index=17&type=chunk) - The preparation of financial statements involves estimates and assumptions that may differ materially from actual results[18](index=18&type=chunk) - Results for the three months ended March 31, 2024, are not indicative of full-year results and should be read with the 2023 Annual Report on Form 10-K[19](index=19&type=chunk) [NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE](index=9&type=section&id=NOTE%202.%20SIGNIFICANT%20NEW%20AUTHORITATIVE%20ACCOUNTING%20GUIDANCE) This note details recently adopted and pending accounting standards updates and their expected impact on the financial statements - ASU 2023-02 (Investments—Equity Method and Joint Ventures) and ASU 2022-03 (Fair Value Measurement) were adopted on January 1, 2024, with no material impact on financial statements[20](index=20&type=chunk)[21](index=21&type=chunk) - ASU 2023-09 (Income Taxes) and ASU 2023-06 (Disclosure Improvements) are pending adoption, effective for annual periods beginning after December 15, 2024, and are not expected to have a material impact[22](index=22&type=chunk)[23](index=23&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=10&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) This note provides information on assets and liabilities measured at fair value, categorized by input levels | Asset/Liability | March 31, 2024 Fair Value ($ in thousands) | December 31, 2023 Fair Value ($ in thousands) | | :----------------------------------- | :-------------------------- | :--------------------------- | | Debt securities available for sale | $490,271 | $502,762 | | Equity investments | $11,571 | $10,958 | | Derivative financial assets | $36,803 | $33,145 | | Total assets measured at fair value (recurring) | $538,645 | $546,865 | - The majority of debt securities available for sale are measured using Level 2 inputs (**$485.80 million** at March 31, 2024), while equity investments use a mix of Level 1 and Level 2 inputs[26](index=26&type=chunk) | Financial Instrument | March 31, 2024 Carrying Value ($ in thousands) | March 31, 2024 Estimated Fair Value ($ in thousands) | | :----------------------------------- | :------------------------------ | :---------------------------------- | | Loans, net | $3,647,810 | $3,483,889 | | Deposits | $3,748,415 | $3,740,170 | | Subordinated debentures | $103,904 | $91,605 | [NOTE 4. EARNINGS PER SHARE](index=13&type=section&id=NOTE%204.%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per common share | Metric | Three Months Ended March 31, 2024 ($ in thousands, except per share data) | Three Months Ended March 31, 2023 ($ in thousands, except per share data) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income applicable to common shares | $16,822 | $13,876 | | Basic earnings per share | $1.15 | $1.09 | | Diluted earnings per share | $1.14 | $1.08 | | Basic common shares outstanding | 14,683,596 | 12,783,851 | | Diluted common shares outstanding | 14,750,052 | 12,830,102 | - Diluted earnings per common share increased from **$1.08** in Q1 2023 to **$1.14** in Q1 2024[30](index=30&type=chunk) - Anti-dilutive Stock Appreciation Rights (SARs) totaled **215,388** for Q1 2024, compared to **563,936** for Q1 2023[30](index=30&type=chunk) [NOTE 5. DEBT SECURITIES](index=14&type=section&id=NOTE%205.%20DEBT%20SECURITIES) This note provides details on the company's debt securities, categorized as available for sale and held to maturity | Debt Securities Available for Sale | March 31, 2024 Fair Value ($ in thousands) | December 31, 2023 Fair Value ($ in thousands) | | :----------------------------------- | :-------------------------- | :--------------------------- | | Total amortized cost | $532,250 | $541,196 | | Total estimated fair value | $490,271 | $502,762 | | Total unrealized losses | $42,570 | $39,968 | - The estimated fair value of debt securities available for sale decreased by **$12.49 million** from December 31, 2023, to March 31, 2024, primarily due to sales of municipal securities[32](index=32&type=chunk)[33](index=33&type=chunk)[165](index=165&type=chunk) - At March 31, 2024, **395** securities were in an unrealized loss position, totaling **$42.57 million** in unrealized losses, primarily attributed to changes in market interest rates rather than credit quality[38](index=38&type=chunk)[39](index=39&type=chunk) | Debt Securities Held to Maturity | March 31, 2024 Fair Value ($ in thousands) | December 31, 2023 Fair Value ($ in thousands) | | :----------------------------------- | :-------------------------- | :--------------------------- | | Total amortized cost | $93,737 | $94,227 | | Total estimated fair value | $87,029 | $88,319 | | Total unrealized losses | $6,708 | $5,908 | [NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)](index=19&type=section&id=NOTE%206.%20LOANS%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES%20ON%20LOANS%20(ACLL)) This note details the composition of the loan portfolio, credit quality, and the allowance for credit losses | Loan Category | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Commercial | $533,214 | $503,842 | | Commercial real estate - owner occupied | $569,407 | $545,108 | | Commercial real estate - non-owner occupied | $1,280,948 | $1,254,337 | | Construction and development | $447,152 | $519,284 | | Residential 1-4 family real estate | $710,758 | $703,138 | | Total loans, net of unearned fees | $3,697,042 | $3,681,612 | | Allowance for credit losses - loans | $(49,232) | $(48,090) | | Loans, net | $3,647,810 | $3,633,522 | - Total loans, net of unearned fees, increased by **$15.43 million** (**0.42%**) from December 31, 2023, to March 31, 2024, reaching **$3.697 billion**, with growth primarily in commercial and commercial real estate loans, while construction and development loans decreased[49](index=49&type=chunk)[167](index=167&type=chunk) | Past Due Status (March 31, 2024) | 30-59 days ($ in thousands) | 60-89 days ($ in thousands) | 90 days or more ($ in thousands) | Total Past Due ($ in thousands) | | :----------------------------------- | :--------- | :--------- | :-------------- | :------------- | | Commercial | $6,111 | $0 | $880 | $6,991 | | Residential 1-4 family real estate | $4,014 | $680 | $2,192 | $6,895 | | Total past due loans | $12,457 | $1,876 | $4,270 | $18,603 | | Nonaccrual Loans | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Commercial | $7,537 | $1,088 | | Commercial real estate | $8,378 | $5,675 | | Total nonaccrual loans | $21,121 | $12,104 | - Nonaccrual loans significantly increased from **$12.10 million** at December 31, 2023, to **$21.12 million** at March 31, 2024, with commercial and commercial real estate categories showing the largest increases[54](index=54&type=chunk)[176](index=176&type=chunk) | Allowance for Credit Losses - Loans | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Beginning Balance | $48,090 | $38,899 | | Provision for Credit Losses - Loans | $1,050 | $11,455 | | Charge-offs, net of recoveries | $(776) | $(3,759) | | Ending Balance | $49,232 | $48,090 | - The allowance for credit losses on loans increased to **$49.23 million** at March 31, 2024, from **$48.09 million** at December 31, 2023, representing **1.33%** of total loans[67](index=67&type=chunk)[172](index=172&type=chunk) [NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS](index=32&type=section&id=NOTE%207.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note provides information on the company's goodwill and other intangible assets, including amortization - Goodwill remained stable at **$56.0 million** at March 31, 2024, and December 31, 2023, and is tested annually for impairment[76](index=76&type=chunk) | Other Intangible Assets | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Gross carrying amount | $30,755 | $30,755 | | Less: accumulated amortization | $13,346 | $12,359 | | Net carrying amount | $17,409 | $18,396 | - Amortization expense for identifiable intangible assets was **$0.99 million** for Q1 2024, a significant increase from **$0.34 million** in Q1 2023[78](index=78&type=chunk) [NOTE 8. DEPOSITS](index=32&type=section&id=NOTE%208.%20DEPOSITS) This note details the composition of the company's deposit base by type | Deposit Type | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Non-interest bearing | $605,509 | $593,576 | | Interest bearing demand deposits | $2,145,824 | $2,164,522 | | Savings deposits | $438,451 | $450,527 | | Time deposits | $558,631 | $506,523 | | Total deposits | $3,748,415 | $3,715,148 | - Total deposits increased by **$33.27 million** (**0.90%**) from December 31, 2023, to March 31, 2024, reaching **$3.748 billion**, driven by an increase in non-interest bearing and time deposits, partially offset by decreases in interest-bearing demand and savings deposits[9](index=9&type=chunk)[80](index=80&type=chunk)[167](index=167&type=chunk) - Time deposits with denominations exceeding the FDIC insurance limit (**$250,000**) totaled **$153.4 million** at March 31, 2024, up from **$138.1 million** at December 31, 2023[81](index=81&type=chunk) [NOTE 9. BORROWED FUNDS](index=33&type=section&id=NOTE%209.%20BORROWED%20FUNDS) This note provides information on the company's short-term and long-term borrowings, including subordinated debentures | Borrowing Type | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :----------------------------------- | :------------- | :---------------- | | Short-term borrowings | $262,359 | $302,957 | | Long-term borrowings | $630 | $637 | | Subordinated debentures, net | $103,904 | $103,782 | | Subordinated debentures owed to unconsolidated subsidiary trusts | $19,589 | $19,589 | - Short-term borrowings decreased by **$40.60 million** (**13.40%**) from December 31, 2023, to March 31, 2024, to **$262.36 million**[9](index=9&type=chunk)[165](index=165&type=chunk) - Subordinated debentures include a **$75 million** issuance in Q4 2021 (**3.25%** fixed until Dec 2026, then SOFR + **230 bps**) and a **$30 million** issuance in Q3 2020 (**5.00%** fixed until Sep 2025, then SOFR + **487 bps**), both qualifying as Tier 2 capital[86](index=86&type=chunk)[87](index=87&type=chunk) - Subordinated debentures owed to unconsolidated subsidiary trusts, totaling **$19.59 million**, qualify as Tier 1 capital[89](index=89&type=chunk)[90](index=90&type=chunk) [NOTE 10. SHARE-BASED COMPENSATION](index=34&type=section&id=NOTE%2010.%20SHARE-BASED%20COMPENSATION) This note describes the company's share-based compensation plans and related expenses | SAR Activity | March 31, 2024 (Number of SARs) | March 31, 2023 (Number of SARs) | | :----------------------------------- | :------------- | :------------- | | Outstanding, January 1 | 594,561 | 473,212 | | Granted | 0 | 176,384 | | Exercised | (500) | (1,000) | | Outstanding, March 31 | 594,061 | 648,596 | | Exercisable, March 31 | 347,396 | 288,517 | - No SARs or RSUs were granted in Q1 2024, compared to **176,384** SARs granted in Q1 2023[93](index=93&type=chunk)[95](index=95&type=chunk) - Total share-based compensation expense for Q1 2024 was **$0.16 million**, down from **$0.20 million** in Q1 2023[95](index=95&type=chunk) - Unrecognized compensation expense related to nonvested awards totaled **$2.1 million** at March 31, 2024, to be recognized over an average of **2.24 years**[95](index=95&type=chunk) [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=36&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's off-balance sheet commitments and potential contingent liabilities | Off-Balance Sheet Commitments | March 31, 2024 ($ in thousands) | | :----------------------------------- | :------------- | | Revolving home equity and credit card lines | $116,403 | | Construction loans | $250,672 | | Other loans | $485,637 | | Standby letters of credit | $58,420 | | Total unfunded commitments | $911,132 | - The allowance for credit losses on off-balance-sheet credit exposures decreased to **$6.69 million** at March 31, 2024, from **$7.74 million** at December 31, 2023[102](index=102&type=chunk) - The provision for credit losses on unfunded commitments was **$(1.1 million)** for Q1 2024, compared to **$(0.38 million)** for Q1 2023[102](index=102&type=chunk) [NOTE 12. PREFERRED STOCK](index=37&type=section&id=NOTE%2012.%20PREFERRED%20STOCK) This note describes the terms and conditions of the company's outstanding preferred stock - The company has **1,500** shares (**$15.0 million**) of Series 2021 **6%** Fixed-Rate Non-Cumulative Perpetual Preferred Stock outstanding, with a liquidation preference of **$10,000** per share[105](index=105&type=chunk) - Dividends on preferred stock are non-cumulative and payable quarterly, if declared[105](index=105&type=chunk) [NOTE 13. REGULATORY MATTERS](index=37&type=section&id=NOTE%2013.%20REGULATORY%20MATTERS) This note provides information on the company's compliance with regulatory capital requirements - Summit Community Bank, Inc. (subsidiary) met all 'well capitalized' capital adequacy requirements as of March 31, 2024[106](index=106&type=chunk)[107](index=107&type=chunk) | Capital Ratio (March 31, 2024) | Summit Actual (%) | Summit Community Actual (%) | Minimum Required (Basel III) (%) | Minimum Required (Well Capitalized) (%) | | :----------------------------------- | :------------ | :---------------------- | :--------------------------- | :---------------------------------- | | CET1 (to risk weighted assets) | 9.4% | 12.0% | 7.0% | 6.5% | | Tier I Capital (to risk weighted assets) | 10.2% | 12.0% | 8.5% | 8.0% | | Total Capital (to risk weighted assets) | 14.0% | 13.3% | 10.5% | 10.0% | | Tier I Capital (to average assets) | 9.0% | 10.6% | 4.0% | 5.0% | - The company elected an optional phase-in period for ASC 326 (CECL) impact on regulatory capital, delaying the initial impact and phasing out cumulative adjustments over **three years** after **two years**[108](index=108&type=chunk) [NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS](index=38&type=section&id=NOTE%2014.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the company's use of derivative instruments for hedging purposes and their fair values - The company uses derivative instruments (interest rate swaps and caps) to hedge against adverse interest rate movements, with all transactions qualifying for hedge accounting[113](index=113&type=chunk) | Derivative Type (March 31, 2024) | Notional Amount ($ in thousands) | Derivative Fair Value Asset ($ in thousands) | | :----------------------------------- | :-------------- | :-------------------------- | | Cash flow hedges (swaps & caps) | $320,000 | $26,569 | | Fair value hedges (swaps) | $87,239 | $10,234 | | Total | $407,239 | $36,803 | - Derivative financial assets increased from **$33.15 million** at December 31, 2023, to **$36.80 million** at March 31, 2024[9](index=9&type=chunk)[115](index=115&type=chunk) [NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME](index=39&type=section&id=NOTE%2015.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20(LOSS)%20INCOME) This note provides a breakdown of the components of accumulated other comprehensive income (loss) | Component (Net of Tax) | March 31, 2024 Ending Balance ($ in thousands) | December 31, 2023 Beginning Balance ($ in thousands) | | :----------------------------------- | :---------------------------- | :---------------------------------- | | Gains (Losses) on Cash Flow Hedges | $17,170 | $15,820 | | Unrealized Gains (Losses) on Debt Securities Available for Sale | $(31,906) | $(29,211) | | Unrealized Gains (Losses) on Securities Fair Value Hedge | $7,321 | $5,740 | | Total Accumulated Other Comprehensive (Loss) Income | $(7,249) | $(7,485) | - Accumulated other comprehensive loss improved from **$(7.49) million** at December 31, 2023, to **$(7.25) million** at March 31, 2024, primarily due to net current period other comprehensive income of **$0.24 million**[117](index=117&type=chunk) [NOTE 16. INCOME TAXES](index=40&type=section&id=NOTE%2016.%20INCOME%20TAXES) This note details the company's income tax expense and effective tax rate | Income Tax Metric | Three Months Ended March 31, 2024 ($ in thousands, except for rate) | Three Months Ended March 31, 2023 ($ in thousands, except for rate) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $4,996 | $3,575 | | Effective tax rate | 22.7% | 20.2% | - Income tax expense increased by **$1.42 million** (**39.8%**) in Q1 2024 compared to Q1 2023, with the effective tax rate rising from **20.2%** to **22.7%**[118](index=118&type=chunk)[163](index=163&type=chunk) - The increase in effective tax rate was mainly due to higher state income taxes (net of federal benefit) and other net adjustments, partially offset by a smaller decrease from tax-exempt interest and dividends[118](index=118&type=chunk) [NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=41&type=section&id=NOTE%2017.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note disaggregates revenue generated from contracts with customers by type | Revenue Type | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Service fees on deposit accounts | $1,723 | $1,392 | | Bank card revenue | $1,833 | $1,568 | | Trust and wealth management fees | $847 | $811 | | Net revenue from contracts with customers | $4,500 | $3,893 | | Total noninterest income | $5,078 | $4,386 | - Net revenue from contracts with customers increased by **$0.61 million** (**15.6%**) in Q1 2024 compared to Q1 2023, primarily driven by higher service charges on deposit accounts and bank card revenue[121](index=121&type=chunk)[157](index=157&type=chunk) [NOTE 18. MERGER](index=41&type=section&id=NOTE%2018.%20MERGER) This note provides details regarding the pending merger of Summit Financial Group, Inc. with Burke & Herbert Financial Services Corp - Summit Financial Group, Inc. is merging with Burke & Herbert Financial Services Corp., with Burke & Herbert as the surviving entity[122](index=122&type=chunk) - Each Summit common stock share will convert into **0.5043** shares of Burke & Herbert common stock, with cash for fractional shares[122](index=122&type=chunk) - The merger is expected to close on May 3, 2024, followed by the merger of their banking subsidiaries[123](index=123&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2024 [INTRODUCTION](index=42&type=section&id=INTRODUCTION) This introduction outlines the scope of management's discussion and analysis, including forward-looking statements - The discussion focuses on significant changes in financial condition and results of operations for Summit Financial Group, Inc. and its subsidiary, Summit Community Bank[125](index=125&type=chunk) - The report contains forward-looking statements, and actual results may differ materially due to various economic, market, and regulatory factors[126](index=126&type=chunk)[127](index=127&type=chunk) [OVERVIEW](index=42&type=section&id=OVERVIEW) This overview highlights key financial performance indicators and significant corporate events, including acquisitions and mergers - The acquisition of PSB Holding Corp. on April 1, 2023, significantly impacted Q1 2024 financial comparisons, contributing **$568 million** in assets and **$528 million** in liabilities[128](index=128&type=chunk)[141](index=141&type=chunk) - A merger with Burke & Herbert Financial Services Corp. is pending, expected to close on May 3, 2024[129](index=129&type=chunk) - Tangible Book Value Per Common Share (TBVPCS) increased by **$1.02** to **$24.91** in Q1 2024, primarily due to retained earnings and positive impacts from unrealized gains on interest rate hedges[131](index=131&type=chunk) - Average interest-earning assets increased by **18.1%** year-over-year, while tax-equivalent net interest earnings rose by **16.3%**, and the tax-equivalent net interest margin decreased by **8 basis points**[132](index=132&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=42&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section discusses the significant accounting policies that require management's subjective judgments and estimates - Financial statements are prepared under U.S. GAAP, requiring estimates and judgments that can materially affect reported amounts[133](index=133&type=chunk) - Key accounting areas requiring subjective judgment include the determination of Allowance for Credit Losses (ACL), fair value measurements, and accounting for acquired loans[135](index=135&type=chunk) - No significant changes in critical accounting policies have occurred since December 31, 2023[136](index=136&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=43&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section presents non-GAAP financial measures to provide additional insights into the company's financial performance - Non-GAAP financial measures are provided to offer additional insights into financial condition and operating performance, but are not substitutes for GAAP measures[138](index=138&type=chunk) | Metric | March 31, 2024 ($ in thousands, except share data) | December 31, 2023 ($ in thousands, except share data) | | :----------------------------------- | :------------- | :---------------- | | Common shareholders' equity | $439,361 | $425,288 | | Tangible common equity (TCE) | $365,918 | $350,858 | | Common shares outstanding | 14,686,738 | 14,683,457 | | Book value per common share | $29.92 | $28.96 | | Tangible book value per common share | $24.91 | $23.89 | - Tangible book value per common share increased by **$1.02** to **$24.91** at March 31, 2024, from **$23.89** at December 31, 2023[139](index=139&type=chunk) [RESULTS OF OPERATIONS](index=43&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, including earnings, net interest income, and noninterest income/expense [Earnings Summary](index=43&type=section&id=Earnings%20Summary) This summary provides key earnings metrics and highlights the drivers of net income changes | Metric | Three Months Ended March 31, 2024 ($ in millions, except per share and percentage data) | Three Months Ended March 31, 2023 ($ in millions, except per share and percentage data) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income applicable to common shares | $16.8 million | $13.9 million | | Diluted earnings per share | $1.14 | $1.08 | | Return on average equity | 15.37% | 15.55% | | Return on average assets | 1.47% | 1.43% | - Increased earnings in Q1 2024 were primarily due to higher net interest income from growth and a decreased provision for credit losses[140](index=140&type=chunk) - The PSB acquisition contributed to increased average balances, income, and expenses in Q1 2024 compared to Q1 2023[141](index=141&type=chunk) [Net Interest Income](index=43&type=section&id=Net%20Interest%20Income) This section analyzes the components of net interest income and net interest margin - Net interest income on a fully taxable-equivalent basis decreased by **$0.95 million** to **$40.2 million** in Q1 2024 compared to Q4 2023, as earning asset yields decreased more than interest-bearing liability costs[143](index=143&type=chunk) - Net interest margin decreased to **3.75%** in Q1 2024 from **3.76%** in Q4 2023, with earning asset yields increasing **1 basis point** and interest-bearing fund costs increasing **6 basis points**[145](index=145&type=chunk) - Year-over-year, net interest income on a fully taxable-equivalent basis increased by **$5.7 million** to **$40.2 million** in Q1 2024 compared to Q1 2023[146](index=146&type=chunk) - Average interest-earning assets increased by **18.07%** to **$4.32 billion** in Q1 2024 compared to Q1 2023, while average interest-bearing liabilities increased by **19.25%** to **$3.52 billion**[147](index=147&type=chunk) - Net interest margin decreased to **3.75%** in Q1 2024 from **3.83%** in Q1 2023, as earning asset yields increased **49 basis points** while interest-bearing fund costs increased **70 basis points**[148](index=148&type=chunk) [Provision for Credit Losses](index=46&type=section&id=Provision%20for%20Credit%20Losses) This section discusses the provision for credit losses, reflecting changes in expected credit losses on loans and unfunded commitments - No provision for credit losses was recorded for the three months ended March 31, 2024, compared to **$1.5 million** in Q1 2023[155](index=155&type=chunk)[156](index=156&type=chunk) | Provision Component | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total provision for credit losses - loans | $1,050 | $1,875 | | Total recovery of credit losses - unfunded commitments | $(1,050) | $(375) | | Total provision for credit losses | $0 | $1,500 | [Noninterest Income](index=47&type=section&id=Noninterest%20Income) This section analyzes the various sources of noninterest income - Total noninterest income increased by **15.8%** in Q1 2024 compared to Q1 2023, driven by higher service charges on deposit accounts and bank card revenue[157](index=157&type=chunk) | Noninterest Income Category | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Service charges on deposit accounts | $1,723 | $1,392 | | Bank card revenue | $1,833 | $1,568 | | Trust and wealth management fees | $847 | $811 | | Bank owned life insurance and annuities income | $463 | $336 | | Total | $5,078 | $4,386 | [Noninterest Expense](index=47&type=section&id=Noninterest%20Expense) This section details the components of noninterest expenses and their changes - Total noninterest expense increased by **18.3%** to **$22.96 million** in Q1 2024 compared to Q1 2023, primarily due to higher salaries, commissions, employee benefits, and equipment expense[159](index=159&type=chunk)[160](index=160&type=chunk) | Noninterest Expense Category | Three Months Ended March 31, 2024 ($ in thousands) | Three Months Ended March 31, 2023 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Salaries, commissions and employee benefits | $12,058 | $10,807 | $1,251 | 11.6% | | Equipment expense | $2,508 | $2,030 | $478 | 23.5% | | Amortization of intangibles | $987 | $343 | $644 | 187.8% | | FDIC premiums | $717 | $330 | $387 | 117.3% | | Merger-related expenses | $53 | $331 | $(278) | (84.0)% | | Other | $3,439 | $2,968 | $471 | 15.9% | | Total | $22,958 | $19,399 | $3,559 | 18.3% | - Increased equipment expense is linked to technological upgrades and acquisition-related equipment/software depreciation[161](index=161&type=chunk) - Other expenses increased due to higher deferred director compensation plan income, internet banking expenses, fraud losses, and debit card issuance/processing costs[162](index=162&type=chunk) [Income Taxes](index=48&type=section&id=Income%20Taxes) This section discusses the company's income tax expense and effective tax rate - Income tax expense for Q1 2024 was **$5.0 million**, up from **$3.6 million** in Q1 2023[163](index=163&type=chunk) - The effective tax rate increased to **22.7%** in Q1 2024 from **20.2%** in Q1 2023[163](index=163&type=chunk) [FINANCIAL CONDITION](index=48&type=section&id=FINANCIAL%20CONDITION) This section provides an analysis of the company's balance sheet and credit quality [Summary of Significant Changes in Financial Position](index=48&type=section&id=Summary%20of%20Significant%20Changes%20in%20Financial%20Position) This summary highlights key changes in the company's assets, liabilities, and equity over the period | Asset/Liability | December 31, 2023 ($ in thousands) | March 31, 2024 ($ in thousands) | Change ($ in thousands) | | :----------------------------------- | :---------------- | :------------- | :--------- | | Total assets | $4,634,322 | $4,642,884 | $8,562 | | Loans, net | $3,633,522 | $3,647,810 | $14,288 | | Debt securities available for sale | $502,762 | $490,271 | $(12,491) | | Total deposits | $3,715,148 | $3,748,415 | $33,267 | | Short-term borrowings | $302,957 | $262,359 | $(40,598) | | Common shareholders' equity | $425,288 | $439,361 | $14,073 | - Total assets increased by **$8.56 million** to **$4.64 billion** at March 31, 2024[164](index=164&type=chunk)[165](index=165&type=chunk) - Loan growth (excluding mortgage warehouse lines) was **$15.4 million** in Q1 2024[167](index=167&type=chunk) - Deposits increased by **$33.27 million**, with noninterest-bearing deposits up **$11.9 million** and retail CDs up **$52.1 million**, while interest-bearing checking and savings deposits decreased[167](index=167&type=chunk) - Common shareholders' equity increased by **$14.07 million**, driven by net income and common dividends[168](index=168&type=chunk) [Credit Experience](index=49&type=section&id=Credit%20Experience) This section discusses the company's credit quality, including nonperforming assets and allowance for credit losses - Nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans (**90+ days** past due and nonaccrual loans)[170](index=170&type=chunk) - The allowance for loan credit losses was **$49.2 million** (**1.33%** of total loans) at March 31, 2024, deemed adequate to cover expected credit losses[172](index=172&type=chunk) - Net loan recoveries were **$0.09 million** in Q1 2024, compared to **$0.06 million** in Q1 2023[173](index=173&type=chunk) | Non-Performing Assets | March 31, 2024 ($ in thousands, except percentages) | December 31, 2023 ($ in thousands, except percentages) | | :----------------------------------- | :------------- | :---------------- | | Accruing loans past due 90 days or more | $506 | $335 | | Nonaccrual loans | $21,121 | $12,104 | | Foreclosed properties | $3,432 | $3,729 | | Total nonperforming assets | $25,059 | $16,168 | | Total nonperforming loans as % of total loans | 0.58% | 0.34% | | Allowance for credit losses on loans as % of nonaccrual loans | 233.10% | 397.31% | - Total non-performing assets increased to **$25.06 million** at March 31, 2024, from **$16.17 million** at December 31, 2023[175](index=175&type=chunk)[176](index=176&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's liquidity position and capital adequacy - Liquidity is primarily provided by cash, federal funds sold, non-pledged securities, and available lines of credit with FHLB and Federal Reserve, totaling approximately **$1.9 billion** (**39.95%** of total assets) at March 31, 2024[180](index=180&type=chunk) - Available borrowing capacity through FHLB programs was **$1.3 billion**, and a Federal Reserve Bank line offered approximately **$289 million** at March 31, 2024[181](index=181&type=chunk) - Shareholders' equity totaled **$454.3 million** at March 31, 2024, up from **$440.2 million** at December 31, 2023[184](index=184&type=chunk) - The Asset/Liability Management Committee (ALCO) oversees liquidity risk management, aiming to ensure cost-effective funding and sufficient on-hand liquidity under various circumstances[182](index=182&type=chunk) [CONTRACTUAL CASH OBLIGATIONS](index=51&type=section&id=CONTRACTUAL%20CASH%20OBLIGATIONS) This section outlines the company's future contractual cash obligations by type and maturity | Obligation Type | 2024 (9 months) ($ in thousands) | 2025 ($ in thousands) | 2026 ($ in thousands) | 2027 ($ in thousands) | 2028 ($ in thousands) | Thereafter ($ in thousands) | | :----------------------------------- | :-------------- | :--- | :--- | :--- | :--- | :--------- | | Long-term Debt | $17 | $24 | $589 | $0 | $0 | $0 | | Subordinated Debentures | $0 | $0 | $0 | $0 | $0 | $105,000 | | Trust Securities | $0 | $0 | $0 | $0 | $0 | $19,589 | | Operating Leases | $1,006 | $1,282 | $1,201 | $950 | $730 | $2,531 | | Total | $1,023 | $1,306 | $1,790 | $950 | $730 | $127,120 | [OFF-BALANCE SHEET ARRANGEMENTS](index=52&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section describes the company's off-balance sheet commitments for credit extensions | Commitment Type | March 31, 2024 ($ in thousands) | | :----------------------------------- | :------------- | | Revolving home equity and credit card lines | $116,403 | | Construction loans | $250,672 | | Other loans | $485,637 | | Standby letters of credit | $58,420 | | Total | $911,132 | - Total off-balance sheet credit extension commitments amounted to **$911.13 million** at March 31, 2024[191](index=191&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's exposure to market risk, primarily interest rate risk, and its management strategies, including earnings simulations - Interest rate risk is the primary market risk, managed by the Asset/Liability Management Committee (ALCO) through matching maturities and using derivatives like interest rate swaps and caps[193](index=193&type=chunk)[195](index=195&type=chunk) - The company's interest rate risk position is asset sensitive, implying net income increases in a rising rate environment and decreases in a falling rate environment[194](index=194&type=chunk) | Change in Interest Rates | Estimated % Change in Net Interest Income over 0-12 Months | | :----------------------------------- | :------------------------------------------------------- | | Down 100 basis points | 0.9% | | Down 200 basis points | 1.8% | | Down 200 basis points - steepening curve | 6.0% | | Up 200 basis points | -1.7% | [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[198](index=198&type=chunk) - No material changes in internal control over financial reporting occurred during Q1 2024[198](index=198&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms the absence of significant litigation that would materially impact the consolidated financial statements - The company is not involved in any litigation expected to have a significant adverse effect on its financial statements[103](index=103&type=chunk)[199](index=199&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors - Refer to the Annual Report on Form 10-K for the year ended December 31, 2023, for a comprehensive discussion of risk factors[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase plan and any related share transactions - A stock repurchase plan authorized in February 2020 allows for the repurchase of up to **750,000** shares[201](index=201&type=chunk) - No shares were purchased under the publicly announced repurchase plan during Q1 2024; however, shares were purchased for the benefit of Summit's Employee Stock Ownership Plan[203](index=203&type=chunk) - As of March 31, 2024, **426,423** shares remained available for purchase under the plan[203](index=203&type=chunk) [Item 3. Defaults upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This section confirms that no defaults on senior securities occurred during the reporting period - No defaults upon senior securities were reported[7](index=7&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section confirms that no mine safety disclosures were required for the reporting period - No mine safety disclosures were reported[7](index=7&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) This section indicates that no other information was reported under this item - No other information was reported[7](index=7&type=chunk)[205](index=205&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the 10-Q report, including corporate governance and certifications - Exhibits include corporate governance documents (Articles of Incorporation, By-Laws), earnings per share computation, and Sarbanes-Oxley Act certifications (Sections **302** and **906**)[206](index=206&type=chunk)[208](index=208&type=chunk) - Interactive Data Files (Inline XBRL) are furnished, not filed, for purposes of certain Securities Act and Exchange Act sections[208](index=208&type=chunk)[209](index=209&type=chunk) [SIGNATURES](index=58&type=section&id=SIGNATURES) This section contains the official signatures of the company's executive officers, certifying the report's accuracy - The report is signed by Julie R. Markwood (EVP & Chief Accounting Officer), H. Charles Maddy, III (President & CEO), and Robert S. Tissue (EVP & CFO)[214](index=214&type=chunk) - The signing date is May 2, 2024[214](index=214&type=chunk)

```markdown [Executive Summary & Key Highlights](index=1&type=section&id=1.%20Executive%20Summary%20%26%20Key%20Highlights) Summit Financial Group reported strong Q1 2024 earnings, driven by operational execution and loan growth, with strategic merger approvals and robust financial performance [First Quarter 2024 Earnings Overview](index=1&type=section&id=1.1%20First%20Quarter%202024%20Earnings%20Overview) Summit Financial Group reported strong first-quarter 2024 earnings, driven by solid operational execution and loan growth, with net income applicable to common shares increasing significantly year-over-year and modestly quarter-over-quarter, reflecting a stable net interest margin and strong efficiency First Quarter 2024 Earnings Summary | Metric | Q1 2024 (in millions) | Q4 2023 (in millions) | Q1 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :------------- | :------------- | | Net Income Applicable to Common Shares | $16.8 | $16.4 | $13.9 | +21.2 | +2.4 | | Diluted EPS | $1.14 | $1.11 | $1.08 | +5.6 | +2.7 | - The CEO highlighted a strong start to the year with solid earnings, a stable top quartile peer net interest margin, an enviable efficiency ratio, and best-in-class return on tangible common equity[3](index=3&type=chunk) [Strategic Developments & Financial Highlights](index=1&type=section&id=1.2%20Strategic%20Developments%20%26%20Financial%20Highlights) The company achieved key strategic milestones, including regulatory approvals for its merger with Burke & Herbert, and demonstrated robust financial performance with increases in tangible book value per common share, loans, and core deposits - The pending merger of equals with Burke & Herbert Financial Services Corp. has received all required regulatory approvals or waivers and is expected to close on May 3, 2024[4](index=4&type=chunk) Tangible Book Value Per Common Share | Metric | Q1 2024 (in $) | Q4 2023 (in $) | Change (in $) | | :----------------------------------- | :------------- | :------------- | :------------ | | Tangible Book Value Per Common Share | $24.91 | $23.89 | +$1.02 (4.3%) | - Total loans (excluding mortgage warehouse lines of credit and acquired loans) increased by **0.48%** (1.93% annualized) quarter-over-quarter and **6.7%** year-over-year[10](index=10&type=chunk) - Core deposits experienced a modest increase of **0.91%** (3.63% annualized) from the linked quarter[10](index=10&type=chunk) [Results from Operations](index=2&type=section&id=2.%20Results%20from%20Operations) This section details the company's net interest income, noninterest income, noninterest expense, and efficiency ratio, reflecting operational performance [Net Interest Income and Margin](index=2&type=section&id=2.1%20Net%20Interest%20Income%20and%20Margin) Net interest income showed strong year-over-year growth but a slight quarter-over-quarter decrease, with the net interest margin remaining stable Net Interest Income and Margin Performance | Metric | Q1 2024 (in millions) | Q4 2023 (in millions) | Q1 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :---------------- | :-------------------- | :-------------------- | :-------------------- | :------------- | :------------- | | Net Interest Income | $39.9 | $40.8 | $34.2 | +16.8 | -2.1 | | Net Interest Margin | 3.75 | 3.76 | 3.83 | -2.1 | -0.01 | [Noninterest Income](index=2&type=section&id=2.2%20Noninterest%20Income) Noninterest income increased year-over-year but decreased quarter-over-quarter, influenced by fluctuations in securities gains/losses and equity investments Noninterest Income Summary | Metric | Q1 2024 (in millions) | Q4 2023 (in millions) | Q1 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :------------------------- | :-------------------- | :-------------------- | :-------------------- | :------------- | :------------- | | Total Noninterest Income | $5.08 | $5.80 | $4.39 | +15.8 | -12.4 | | Net Realized Losses on Debt Securities | ($0.094) | $0.015 | ($0.059) | +59.3 | -726.7 | | Net Gains on Equity Investments | $0.040 | $0.365 | $0.045 | -11.1 | -89.0 | [Noninterest Expense](index=2&type=section&id=2.3%20Noninterest%20Expense) Total noninterest expense decreased quarter-over-quarter but increased year-over-year, primarily due to higher salary and benefit expenses from an acquisition and increased health insurance premiums, while acquisition-related expenses significantly declined Noninterest Expense Summary | Metric | Q1 2024 (in millions) | Q4 2023 (in millions) | Q1 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :------------------------ | :-------------------- | :-------------------- | :-------------------- | :------------- | :------------- | | Total Noninterest Expense | $23.0 | $23.9 | $19.4 | +18.3 | -4.0 | | Salaries and Employee Benefits | $12.1 | $11.4 | $10.8 | +11.6 | +6.1 | | Acquisition-related Expenses | $0.053 | $0.839 | $0.331 | -84.0 | -93.7 | - The year-over-year increase in salary and benefit expenses was primarily due to the PSB acquisition and higher group health insurance premiums[7](index=7&type=chunk) [Efficiency Ratio](index=2&type=section&id=2.4%20Efficiency%20Ratio) The efficiency ratio saw a slight increase both quarter-over-quarter and year-over-year, indicating a marginal shift in resource utilization Efficiency Ratio Performance | Metric | Q1 2024 (%) | Q4 2023 (%) | Q1 2023 (%) | YoY Change (%) | QoQ Change (%) | | :-------------- | :---------- | :---------- | :---------- | :------------- | :------------- | | Efficiency Ratio | 48.29 | 47.33 | 48.00 | +0.6 | +2.0 | [Balance Sheet Analysis](index=3&type=section&id=3.%20Balance%20Sheet%20Analysis) This section analyzes the company's total assets, loan portfolio, deposit structure, and shareholders' equity, highlighting key changes and trends [Total Assets](index=3&type=section&id=3.1%20Total%20Assets) Total assets experienced a modest increase during the first quarter of 2024 Total Assets Overview | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | Change (%) | | :---------- | :--------------------------- | :------------------------------ | :--------- | | Total Assets | $4.6 | $4.6 | +0.2 | [Loans](index=3&type=section&id=3.2%20Loans) Total loans, net of unearned fees, showed consistent growth both quarter-over-quarter and year-over-year, with specific categories like commercial and commercial real estate (non-owner occupied) contributing to the increase Loan Portfolio Summary | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | Change (%) | | :----------------------------------- | :--------------------------- | :------------------------------ | :--------- | | Total Loans, net of unearned fees | $3.70 | $3.68 | +0.4 (1.7% annualized) | | Total Loans (excl. mortgage warehouse & acquired) | $3.2 | N/A | +0.48 (1.93% annualized) | | Commercial Loans | $533.2 (in millions) | $503.8 (in millions) | +5.8 | | Commercial Real Estate (Non-owner occupied) | $1,280.9 (in millions) | $1,254.3 (in millions) | +2.1 | [Deposits](index=3&type=section&id=3.3%20Deposits) Deposits, particularly core deposits, demonstrated growth during the quarter, while the percentage of adjusted uninsured deposits slightly decreased Deposit Composition | Metric | March 31, 2024 (in billions) | December 31, 2023 (in billions) | Change (%) | | :---------------------- | :--------------------------- | :------------------------------ | :--------- | | Total Deposits | $3.7 | $3.7 | +0.9 (3.6% annualized) | | Core Deposits | $3.7 | N/A | +0.9 (3.6% annualized) | | Adjusted Uninsured Deposits (% of total) | 34.4 | 34.8 | -0.4 | [Shareholders' Equity](index=3&type=section&id=3.4%20Shareholders%27%20Equity) Shareholders' equity increased, primarily driven by retained earnings and positive impacts from interest rate hedges, despite some offsetting losses from available-for-sale debt securities Shareholders' Equity Overview | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | Change (%) | | :---------------------- | :--------------------------- | :------------------------------ | :--------- | | Total Shareholders' Equity | $454.3 | $440.2 | +3.2 | | Quarterly Common Dividend Per Share | $0.22 | $0.22 | 0 | | Outstanding Common Shares | 14,686,738 | 14,683,457 | +0.02 | - Tangible Book Value Per Common Share (TBVPCS) increased by **$1.02** to **$24.91**, positively impacted by retained earnings and unrealized net gains on interest rate caps and swaps (**$0.20** per common share), partially offset by unrealized net losses on AFS debt securities (**$0.18** per common share)[15](index=15&type=chunk) [Asset Quality](index=3&type=section&id=4.%20Asset%20Quality) This section evaluates the company's credit risk profile, including loan recoveries, provision for credit losses, allowance levels, and nonperforming assets [Loan Recoveries and Provision for Credit Losses](index=3&type=section&id=4.1%20Loan%20Recoveries%20and%20Provision%20for%20Credit%20Losses) The company recorded net loan recoveries for the quarter and no provision for credit losses, indicating a stable credit environment Loan Recoveries and Provision for Credit Losses | Metric | Q1 2024 (in thousands) | Q4 2023 (in millions) | Q1 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :-------------------------- | :--------------------- | :-------------------- | :-------------------- | :------------- | :------------- | | Net Loan Recoveries | $93 | $0.188 | $0.063 | +47.6 | -50.5 | | Provision for Credit Losses | $0 | $1.5 | $1.5 | -100.0 | -100.0 | [Allowance for Loan Credit Losses](index=3&type=section&id=4.2%20Allowance%20for%20Loan%20Credit%20Losses) The allowance for loan credit losses increased, both in absolute terms and as a percentage of total loans, while the coverage of nonperforming loans decreased due to a rise in NPAs Allowance for Loan Credit Losses | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | March 31, 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :----------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | :------------- | :------------- | | Allowance for Loan Credit Losses | $49.2 | $48.1 | $40.8 | +20.6 | +2.3 | | Allowance as % of Total Loans | 1.33 | 1.31 | 1.32 | +0.8 | +1.5 | | Allowance as % of Nonperforming Loans | 227.6 | 388.2 | N/A | N/A | -41.3 | - The allowance for credit losses on unfunded loan commitments decreased by **$1.05 million**, primarily due to a change in the mix of unfunded commitments, with a decrease in higher-loss-ratio construction loan commitments and an increase in lower-loss-factor commercial unfunded lines of credit[19](index=19&type=chunk) [Nonperforming Assets](index=3&type=section&id=4.3%20Nonperforming%20Assets) Nonperforming assets and nonperforming loans significantly increased quarter-over-quarter, leading to a higher percentage of assets classified as nonperforming Nonperforming Assets Summary | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | March 31, 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :--------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | :------------- | :------------- | | Total Nonperforming Assets | $25.1 | $16.2 | $12.4 | +102.4 | +54.9 | | Nonperforming Assets as % of Assets | 0.54 | 0.35 | 0.31 | +74.2 | +54.3 | | Total Nonperforming Loans | $21.6 | $12.4 | $7.3 | +195.9 | +74.2 | [Loans Past Due 30-89 Days](index=12&type=section&id=4.4%20Loans%20Past%20Due%2030-89%20Days) Loans past due 30-89 days decreased significantly quarter-over-quarter, indicating an improvement in short-term delinquency Loans Past Due 30-89 Days | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | March 31, 2023 (in millions) | YoY Change (%) | QoQ Change (%) | | :---------------------- | :--------------------------- | :------------------------------ | :--------------------------- | :------------- | :------------- | | Total Loans Past Due 30-89 Days | $5.4 | $10.0 | $7.5 | -27.9 | -45.7 | [Company Information](index=4&type=section&id=5.%20Company%20Information) This section provides an overview of Summit Financial Group, its use of non-GAAP financial measures, and important forward-looking statement disclosures [About Summit Financial Group, Inc.](index=4&type=section&id=5.1%20About%20Summit%20Financial%20Group%2C%20Inc.) Summit Financial Group, Inc. is a $4.6 billion financial holding company operating through Summit Community Bank, Inc., serving a broad client base across multiple states with a focus on commercial lending and a blend of digital and branch services - Summit Financial Group, Inc. is a **$4.6 billion** financial holding company for Summit Community Bank, Inc[21](index=21&type=chunk) - The company serves commercial and individual clients across West Virginia, the Washington D.C. metropolitan area, Virginia, Kentucky, the Eastern Shore of Maryland, and Delaware[21](index=21&type=chunk) - Summit focuses on in-market commercial lending and business banking services, leveraging efficient operations and core deposits, and offers residential, consumer lending, trust, wealth management, and other retail financial services through digital platforms and **54** full-service branch locations[21](index=21&type=chunk) [Non-GAAP Financial Measures](index=4&type=section&id=5.2%20Non-GAAP%20Financial%20Measures) Summit's management utilizes non-GAAP financial measures, such as tangible common equity/tangible assets, efficiency ratio, and return on average tangible equity/common equity, to provide investors with a clearer understanding of operational performance and business trends, emphasizing that these should not replace GAAP measures - Summit uses non-GAAP financial measures like tangible common equity/tangible assets, efficiency ratio, return on average tangible equity, and return on average tangible common equity to help investors understand operational performance and business trends[22](index=22&type=chunk) - These non-GAAP measures are believed to facilitate comparisons within the financial services industry but should not be considered an alternative to GAAP[22](index=22&type=chunk) - Specific definitions for non-GAAP measures like Net Interest Margin (A), Efficiency Ratio (B), Return on average tangible equity (C), Return on average tangible common equity (D), Tangible book value per common share (A), and Tangible common equity to tangible assets (B) are provided in the report's notes[27](index=27&type=chunk)[28](index=28&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk) [Forward-Looking Statements](index=4&type=section&id=5.3%20Forward-Looking%20Statements) The press release includes forward-looking statements based on current expectations, which involve inherent risks and uncertainties that could cause actual results to differ materially from projections - The press release contains forward-looking statements based on current expectations, identified by words such as 'expects,' 'anticipates,' 'believes,' 'estimates,' and future or conditional verbs[23](index=23&type=chunk) - Actual results may differ materially due to various factors, including economic and market conditions, fiscal and monetary policies, credit losses, changes in nonperforming assets, interest rate changes, competition, regulatory changes, technological advances, and customer behavior[24](index=24&type=chunk) - The company undertakes no obligation to revise these statements following the date of the press release[24](index=24&type=chunk) [Financial Tables](index=5&type=section&id=6.%20Financial%20Tables) This section provides comprehensive financial tables, including quarterly performance, balance sheet data, loan and deposit compositions, regulatory capital ratios, and asset quality information [Quarterly Performance Summary (Q1 2024 vs Q1 2023)](index=5&type=section&id=6.1%20Quarterly%20Performance%20Summary%20(Q1%202024%20vs%20Q1%202023)) This section provides a detailed unaudited summary of the company's income statement, per share data, and key performance ratios for the first quarter of 2024 compared to the first quarter of 2023 Quarterly Performance Summary (Q1 2024 vs Q1 2023) | Metric | 3/31/2024 (in thousands) | 3/31/2023 (in thousands) | Percent Change (%) | | :----------------------------- | :----------------------- | :----------------------- | :----------------- | | Total interest income | $65,522 | $50,475 | 29.8 | | Total interest expense | $25,599 | $16,286 | 57.2 | | Net interest income | $39,923 | $34,189 | 16.8 | | Total noninterest income | $5,078 | $4,386 | 15.8 | | Total noninterest expense | $22,958 | $19,399 | 18.3 | | Net income applicable to common shares | $16,822 | $13,876 | 21.2 | | Diluted EPS | $1.14 | $1.08 | 5.6 | | Return on average assets | 1.47 | 1.43 | 2.8 | | Net interest margin | 3.75 | 3.83 | -2.1 | | Efficiency ratio | 48.29 | 48.00 | 0.6 | [Five Quarter Performance Summary (Income Statement)](index=7&type=section&id=6.2%20Five%20Quarter%20Performance%20Summary%20(Income%20Statement)) This table presents a five-quarter trend of the company's income statement, highlighting changes in interest income, interest expense, net interest income, noninterest income, and noninterest expense over time Five Quarter Performance Summary (Income Statement) | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Total interest income | $65,522 | $66,516 | $64,694 | $60,863 | $50,475 | | Total interest expense | $25,599 | $25,723 | $23,421 | $20,550 | $16,286 | | Net interest income | $39,923 | $40,793 | $41,273 | $40,313 | $34,189 | | Provision for credit losses | $0 | $1,500 | $1,250 | $8,000 | $1,500 | | Total noninterest income | $5,078 | $5,801 | $5,265 | $5,423 | $4,386 | | Total noninterest expense | $22,958 | $23,907 | $24,162 | $27,324 | $19,399 | | Net income applicable to common shares | $16,822 | $16,372 | $16,107 | $7,984 | $13,876 | [Five Quarter Performance Summary (Per Share Data & Ratios)](index=8&type=section&id=6.3%20Five%20Quarter%20Performance%20Summary%20(Per%20Share%20Data%20%26%20Ratios)) This table provides a five-quarter overview of per share data and key performance ratios, illustrating trends in earnings per share, dividends, and various profitability and efficiency metrics Five Quarter Performance Summary (Per Share Data & Ratios) | Per Share Data & Ratios | 3/31/2024 (in $) | 12/31/2023 (in $) | 9/30/2023 (in $) | 6/30/2023 (in $) | 3/31/2023 (in $) | | :---------------------- | :--------------- | :---------------- | :--------------- | :--------------- | :--------------- | | Diluted EPS | $1.14 | $1.11 | $1.09 | $0.54 | $1.08 | | Cash dividends per common share | $0.22 | $0.22 | $0.22 | $0.20 | $0.20 | | Common stock dividend payout ratio | 19.0 (%) | 19.5 (%) | 19.8 (%) | 36.7 (%) | 18.1 (%) | | Return on average assets | 1.47 (%) | 1.42 (%) | 1.42 (%) | 0.73 (%) | 1.43 (%) | | Net interest margin | 3.75 (%) | 3.76 (%) | 3.88 (%) | 3.89 (%) | 3.83 (%) | | Efficiency ratio | 48.29 (%) | 47.33 (%) | 47.15 (%) | 47.90 (%) | 48.00 (%) | [Selected Balance Sheet Data](index=9&type=section&id=6.4%20Selected%20Balance%20Sheet%20Data) This table provides a five-quarter snapshot of key balance sheet items, including assets, liabilities, and shareholders' equity, along with book value and tangible book value per common share Selected Balance Sheet Data | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Total assets | $4,642,884 | $4,634,322 | $4,604,208 | $4,552,270 | $3,977,407 | | Loans, net | $3,647,810 | $3,633,522 | $3,551,686 | $3,506,880 | $3,059,099 | | Deposits | $3,748,415 | $3,715,148 | $3,754,495 | $3,735,034 | $3,299,846 | | Total liabilities | $4,188,603 | $4,194,114 | $4,187,756 | $4,139,096 | $3,607,861 | | Total shareholders' equity | $454,281 | $440,208 | $416,452 | $413,174 | $369,546 | | Book value per common share | $29.92 | $28.96 | $27.36 | $27.14 | $27.73 | | Tangible book value per common share | $24.91 | $23.89 | $22.22 | $21.93 | $22.90 | | Tangible common equity to tangible assets | 8.0 (%) | 7.7 (%) | 7.2 (%) | 7.2 (%) | 7.5 (%) | [Loan Composition](index=10&type=section&id=6.5%20Loan%20Composition) This table details the composition of the loan portfolio across various categories over five quarters, showing trends in commercial, real estate, construction, and consumer lending Loan Composition | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Commercial | $533,214 | $503,842 | $511,951 | $511,457 | $498,268 | | Commercial real estate (Owner occupied) | $569,407 | $545,108 | $547,886 | $566,447 | $469,560 | | Commercial real estate (Non-owner occupied) | $1,280,948 | $1,254,337 | $1,217,029 | $1,193,927 | $1,036,358 | | Construction and development | $447,152 | $519,284 | $463,403 | $427,080 | $392,907 | | Residential real estate | $710,758 | $703,138 | $692,880 | $687,267 | $576,954 | | Total loans, net of unearned fees | $3,697,042 | $3,681,612 | $3,598,919 | $3,552,561 | $3,099,935 | [Deposit Composition](index=11&type=section&id=6.6%20Deposit%20Composition) This table provides a five-quarter breakdown of deposit types, including core deposits and brokered deposits, and estimated uninsured deposits Deposit Composition | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Non interest bearing checking | $605,509 | $593,576 | $630,055 | $679,139 | $552,716 | | Interest bearing checking | $2,145,824 | $2,164,522 | $2,144,737 | $2,024,341 | $1,886,011 | | Savings | $438,451 | $450,526 | $477,348 | $512,129 | $462,631 | | Time deposits | $525,932 | $473,687 | $469,530 | $465,026 | $327,037 | | Total core deposits | $3,715,716 | $3,682,311 | $3,721,670 | $3,680,635 | $3,228,395 | | Brokered deposits | $32,699 | $32,837 | $32,825 | $54,399 | $71,451 | | Total deposits | $3,748,415 | $3,715,148 | $3,754,495 | $3,735,034 | $3,299,846 | | Estimated uninsured deposits (A) | $1,288,845 | $1,291,467 | $1,283,610 | $1,189,908 | $933,703 | [Regulatory Capital Ratios](index=11&type=section&id=6.7%20Regulatory%20Capital%20Ratios) This table presents the regulatory capital ratios for both Summit Financial Group, Inc. and Summit Community Bank, Inc. over five quarters, demonstrating compliance and capital strength Regulatory Capital Ratios | Regulatory Capital Ratios | 3/31/2024 (%) | 12/31/2023 (%) | 9/30/2023 (%) | 6/30/2023 (%) | 3/31/2023 (%) | | :------------------------ | :------------ | :------------- | :------------ | :------------ | :------------ | | **Summit Financial Group, Inc.** | | | | | | | CET1 Risk-based Capital | 9.4 | 9.1 | 8.9 | 8.7 | 8.9 | | Tier 1 Risk-based Capital | 10.2 | 9.9 | 9.7 | 9.5 | 9.8 | | Total Risk Based Capital | 14.0 | 13.7 | 13.5 | 13.3 | 14.0 | | Tier 1 Leverage | 9.0 | 8.7 | 8.5 | 8.4 | 8.7 | | **Summit Community Bank, Inc.** | | | | | | | CET1 Risk-based Capital | 12.0 | 11.7 | 11.6 | 11.3 | 11.9 | | Tier 1 Risk-based Capital | 12.0 | 11.7 | 11.6 | 11.3 | 11.9 | | Total Risk Based Capital | 13.3 | 12.9 | 12.7 | 12.5 | 13.1 | | Tier 1 Leverage | 10.6 | 10.2 | 10.1 | 9.9 | 10.6 | [Asset Quality Information](index=12&type=section&id=6.8%20Asset%20Quality%20Information) This table provides a five-quarter summary of asset quality metrics, including net loan charge-offs/recoveries, allowance for loan credit losses, and nonperforming assets Asset Quality Information | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Net loan charge-offs (recoveries) | ($93) | ($188) | $119 | $3,891 | ($63) | | Allowance for loan credit losses | $49,232 | $48,090 | $47,233 | $45,681 | $40,836 | | Allowance for loan credit losses as a percentage of period end loans | 1.33 (%) | 1.31 (%) | 1.31 (%) | 1.29 (%) | 1.32 (%) | | Total nonperforming assets | $25,059 | $16,168 | $17,351 | $16,082 | $12,430 | | Nonperforming loans to period end loans | 0.58 (%) | 0.34 (%) | 0.36 (%) | 0.32 (%) | 0.24 (%) | | Nonperforming assets to period end assets | 0.54 (%) | 0.35 (%) | 0.38 (%) | 0.35 (%) | 0.31 (%) | [Loans Past Due 30-89 Days](index=12&type=section&id=6.9%20Loans%20Past%20Due%2030-89%20Days) This table provides a five-quarter trend of loans past due 30-89 days across different loan categories, indicating short-term delinquency patterns Loans Past Due 30-89 Days | Metric | 3/31/2024 (in thousands) | 12/31/2023 (in thousands) | 9/30/2023 (in thousands) | 6/30/2023 (in thousands) | 3/31/2023 (in thousands) | | :----------------------------- | :----------------------- | :------------------------ | :----------------------- | :----------------------- | :----------------------- | | Commercial | $183 | $1,152 | $3,300 | $1,006 | $463 | | Commercial real estate | $281 | $1,711 | $781 | $513 | $1,000 | | Construction and development | $0 | $570 | $793 | $161 | $3,459 | | Residential real estate | $4,570 | $6,114 | $4,620 | $4,933 | $2,311 | | Consumer | $379 | $401 | $440 | $389 | $252 | | Total | $5,423 | $9,991 | $9,971 | $7,019 | $7,498 | [Average Balance Sheet, Interest Earnings & Expenses and Average Rates](index=13&type=section&id=6.10%20Average%20Balance%20Sheet%2C%20Interest%20Earnings%20%26%20Expenses%20and%20Average%20Rates) This table presents the average balance sheet, interest earnings and expenses, and average rates for Q1 2024, Q4 2023, and Q1 2023, providing insights into the company's interest rate sensitivity and profitability Average Balance Sheet, Interest Earnings & Expenses and Average Rates | Metric | Q1 2024 Average Balances (in thousands) | Q1 2024 Earnings/Expense (in thousands) | Q1 2024 Yield/Rate (%) | Q4 2023 Average Balances (in thousands) | Q4 2023 Earnings/Expense (in thousands) | Q4 2023 Yield/Rate (%) | Q1 2023 Average Balances (in thousands) | Q1 2023 Earnings/Expense (in thousands) | Q1 2023 Yield/Rate (%) | | :----------------------------- | :-------------------------------------- | :-------------------------------------- | :--------------------- | :-------------------------------------- | :-------------------------------------- | :--------------------- | :-------------------------------------- | :-------------------------------------- | :--------------------- | | Total interest earning assets | $4,318,968 | $65,831 | 6.13 | $4,340,501 | $66,905 | 6.12 | $3,657,918 | $50,866 | 5.64 | | Total interest bearing liabilities | $3,522,354 | $25,599 | 2.92 | $3,572,224 | $25,723 | 2.86 | $2,978,928 | $16,286 | 2.22 | | NET INTEREST EARNINGS | | $40,232 | | | $41,182 | | | $34,580 | | | NET INTEREST MARGIN | | | 3.75 | | | 3.76 | | | 3.83 | ```

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 Commission File Number 0-16587 West Virginia (State or other jurisdiction of incorporation or organization) 300 N. Main Street Moorefield, West Virginia (Address of principal executive offic ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Summit Financial Group's unaudited consolidated financial statements and notes for Q3 2023 and FY2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position at September 30, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 (*) | | :----------------------------------- | :----------------------- | :--------------- | | Total assets | $4,604,208 | $3,916,692 | | Total liabilities | $4,187,756 | $3,562,162 | | Total shareholders' equity | $416,452 | $354,530 | - Total assets increased by **$687.5 million** (**17.5%**) from December 31, 2022, to September 30, 2023, primarily driven by increases in loans, debt securities available for sale, and cash and cash equivalents[9](index=9&type=chunk) - Total liabilities increased by **$625.6 million** (**17.6%**) over the same period, mainly due to growth in total deposits and short-term borrowings[9](index=9&type=chunk) - Shareholders' equity increased by **$61.9 million** (**17.5%**) from December 31, 2022, to September 30, 2023, reflecting net income and common stock issuances, partially offset by accumulated other comprehensive loss[9](index=9&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This section details the company's financial performance for the periods ended September 30, 2023 and 2022 Consolidated Statements of Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest income | $64,694 | $42,451 | $176,032 | $110,907 | | 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 | | Total noninterest income | $5,265 | $4,887 | $15,074 | $13,288 | | Total noninterest expenses | $24,162 | $19,221 | $70,886 | $54,030 | | Net income | $16,332 | $14,423 | $38,642 | $38,130 | | 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 | - Net interest income increased by **$7.16 million** (**20.99%**) for the three months ended September 30, 2023, compared to the same period in 2022, and by **$21.14 million** (**22.34%**) for the nine months ended September 30, 2023, primarily due to higher interest income from loans and securities[11](index=11&type=chunk) - Provision for credit losses decreased for the three-month period but significantly increased for the nine-month period, reflecting higher expected credit losses[11](index=11&type=chunk) - Net income applicable to common shares increased for the three-month period but diluted EPS decreased due to an increase in outstanding common shares[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $16,332 | $14,423 | $38,642 | $38,130 | | Total other comprehensive loss | $(9,882) | $(4,201) | $(7,138) | $(17,157) | | Total comprehensive income | $6,450 | $10,222 | $31,504 | $20,973 | - Total other comprehensive loss increased significantly for the three months ended September 30, 2023, compared to the prior year, primarily due to net unrealized losses on debt securities available for sale[12](index=12&type=chunk) - For the nine months ended September 30, 2023, total other comprehensive loss decreased compared to the prior year, leading to a higher total comprehensive income[12](index=12&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section outlines changes in the company's shareholders' equity for the nine months ended September 30, 2023 Consolidated Statements of Shareholders' Equity (in thousands) | Metric (in thousands) | Balance Dec 31, 2022 | 9 Months Ended Sep 30, 2023 | Balance Sep 30, 2023 | | :----------------------------------- | :------------------- | :-------------------------- | :------------------- | | Preferred Stock and Related Surplus | $14,920 | $0 | $14,920 | | Common Stock and Related Surplus | $90,696 | $39,812 | $130,508 | | Retained Earnings | $260,393 | $29,248 | $289,641 | | Accumulated Other Comprehensive Loss | $(11,479) | $(7,138) | $(18,617) | | Total Shareholders' Equity | $354,530 | $61,922 | $416,452 | - Total shareholders' equity increased by **$61.9 million** during the nine months ended September 30, 2023, primarily driven by net income and the issuance of common stock for the acquisition of PSB Holding Corp[14](index=14&type=chunk)[130](index=130&type=chunk) - Accumulated other comprehensive loss increased, reflecting unrealized losses on debt securities[12](index=12&type=chunk)[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $54,706 | $50,366 | | Net cash used in investing activities | $(127,467) | $(374,261) | | Net cash provided by financing activities | $87,601 | $291,088 | | Increase (decrease) in cash and cash equivalents | $14,840 | $(32,807) | | Ending cash and cash equivalents | $59,557 | $45,651 | - Net cash provided by operating activities increased by **$4.34 million** (**8.6%**) for the nine months ended September 30, 2023, compared to the same period in 2022[16](index=16&type=chunk) - Net cash used in investing activities significantly decreased by **$246.79 million** (**66%**) for the nine months ended September 30, 2023, primarily due to lower purchases of debt securities and net loan originations, partially offset by cash from acquisitions[16](index=16&type=chunk) - Net cash provided by financing activities decreased by **$203.49 million** (**69.9%**) for the nine months ended September 30, 2023, mainly due to a smaller net increase in demand deposits and short-term borrowings compared to the prior year[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20consolidated%20financial%20statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [NOTE 1. BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) This note describes the accounting principles and presentation methods used in the financial statements - The consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and include all necessary normal recurring adjustments for fair presentation[19](index=19&type=chunk) - The preparation of financial statements requires management to make estimates and assumptions that could materially differ from actual results[20](index=20&type=chunk) [NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE](index=10&type=section&id=NOTE%202.%20SIGNIFICANT%20NEW%20AUTHORITATIVE%20ACCOUNTING%20GUIDANCE) This note discusses the impact of recently adopted and pending accounting standards updates - Recently adopted ASUs, including ASU 2023-03 (Presentation of Financial Statements), ASU 2022-02 (Financial Instruments - Credit Losses), ASU 2022-01 (Derivatives and Hedging), ASU 2021-08 (Business Combinations), and ASU 2020-04 (Reference Rate Reform), did not have a significant or material impact on the company's financial statements[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - Pending ASUs, including ASU 2023-06 (Disclosure Improvements) and ASU 2023-02 (Investments—Equity Method and Joint Ventures), are not expected to have a material impact on the consolidated financial statements upon adoption[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value measurements of financial instruments, categorized by input levels Fair Value Measurements (in thousands) | Asset/Liability (in thousands) | Sep 30, 2023 Fair Value | Dec 31, 2022 Fair Value | | :----------------------------------- | :---------------------- | :---------------------- | | Debt securities available for sale | $511,403 | $405,201 | | Equity investments | $31,241 | $29,494 | | Derivative financial assets | $44,527 | $40,506 | | Loans, net (estimated fair value) | $3,394,620 | $2,966,814 | | Deposits (estimated fair value) | $3,751,560 | $3,166,762 | - The majority of debt securities available for sale and derivative financial assets are measured using Level 2 inputs (observable inputs other than quoted prices)[31](index=31&type=chunk) - Loans, net, are primarily valued using Level 3 inputs (unobservable inputs), reflecting significant management judgment[34](index=34&type=chunk) [NOTE 4. EARNINGS PER SHARE](index=14&type=section&id=NOTE%204.%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per common share for the reported periods Earnings Per Share | EPS Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | 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 | - Diluted earnings per common share decreased for both the three and nine months ended September 30, 2023, compared to the prior year, despite an increase in net income, primarily due to a higher number of outstanding common shares[35](index=35&type=chunk) - Anti-dilutive Stock Appreciation Rights (SARs) totaled **522,407** for the three and nine months ended September 30, 2023, and **105,467** for the same periods in 2022[35](index=35&type=chunk) [NOTE 5. DEBT SECURITIES](index=15&type=section&id=NOTE%205.%20DEBT%20SECURITIES) This note details the company's debt securities, including available-for-sale and held-to-maturity portfolios Debt Securities Available for Sale (in thousands) | Debt Securities Available for Sale (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Amortized Cost | $575,353 | $455,067 | | Estimated Fair Value | $511,403 | $405,201 | | Total Unrealized Losses | $64,558 | $50,587 | Debt Securities Held to Maturity (in thousands) | Debt Securities Held to Maturity (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Amortized Cost | $94,715 | $96,163 | | Estimated Fair Value | $82,448 | $86,627 | | Total Unrealized Losses | $12,267 | $9,536 | - Unrealized losses on available-for-sale debt securities increased from **$50.59 million** at December 31, 2022, to **$64.56 million** at September 30, 2023, primarily due to changes in market interest rates[37](index=37&type=chunk)[44](index=44&type=chunk) - The company does not intend to sell securities in an unrealized loss position and does not believe the decline in value is credit-related, as all securities carry above investment grade ratings[44](index=44&type=chunk) - Debt securities held to maturity are primarily tax-exempt state and political subdivisions, with no past due or nonaccrual securities[45](index=45&type=chunk)[49](index=49&type=chunk) [NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)](index=20&type=section&id=NOTE%206.%20LOANS%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES%20ON%20LOANS%20(ACLL)) This note provides detailed information on the company's loan portfolio and the allowance for credit losses Loan Categories (in thousands) | Loan Category (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Commercial | $511,951 | $501,844 | | Commercial real estate - owner occupied | $547,886 | $467,050 | | Commercial real estate - non-owner occupied | $1,217,029 | $1,004,368 | | Construction and development | $463,403 | $389,297 | | Residential 1-4 family real estate | $692,880 | $550,963 | | Mortgage warehouse lines | $114,734 | $130,390 | | Consumer | $44,288 | $35,372 | | Total loans, net of unearned fees | $3,598,919 | $3,082,818 | | Allowance for credit losses - loans | $47,233 | $38,899 | | Loans, net | $3,551,686 | $3,043,919 | - Total loans, net of unearned fees, increased by **$516.1 million** (**16.7%**) from December 31, 2022, to September 30, 2023, with significant growth in commercial real estate and residential real estate loans[54](index=54&type=chunk) - The Allowance for Credit Losses on Loans (ACLL) increased by **$8.33 million** (**21.4%**) to **$47.23 million** at September 30, 2023[54](index=54&type=chunk) Past Due Loans (in thousands) | Past Due Loans (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | 30-59 days past due | $9,978 | $10,393 | | 60-89 days past due | $2,042 | $2,700 | | 90 days or more past due | $2,821 | $3,637 | | Total past due loans | $14,841 | $16,730 | Nonaccrual Loans (in thousands) | Nonaccrual Loans (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total nonaccrual loans | $12,818 | $7,811 | - Nonaccrual loans increased by **$5.01 million** (**64.1%**) from December 31, 2022, to September 30, 2023[59](index=59&type=chunk) - Loan modifications for borrowers experiencing financial difficulty totaled **$23.38 million** for the nine months ended September 30, 2023, primarily through term extensions[62](index=62&type=chunk) [NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS](index=34&type=section&id=NOTE%207.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note details the company's goodwill and other intangible assets, including changes from acquisitions Goodwill and Other Intangible Assets (in thousands) | Intangible Asset (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Goodwill | $56,034 | $55,347 | | Net identifiable intangible assets | $19,391 | $6,803 | | Total Goodwill and Other Intangible Assets | $75,425 | $62,150 | - Goodwill increased by **$687,000** due to the PSB acquisition, and no impairment indicators were noted as of September 30, 2023[86](index=86&type=chunk)[88](index=88&type=chunk) - Net identifiable intangible assets significantly increased from **$6.80 million** to **$19.39 million**, primarily due to the acquisition of core deposit intangibles from PSB[88](index=88&type=chunk)[131](index=131&type=chunk) - Amortization expense for identifiable intangible assets was **$998,000** for the three months and **$2.3 million** for the nine months ended September 30, 2023[88](index=88&type=chunk) [NOTE 8. DEPOSITS](index=34&type=section&id=NOTE%208.%20DEPOSITS) This note provides a breakdown of the company's deposit types and their changes over the period Deposits (in thousands) | Deposit Type (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Non-interest bearing deposits | $630,055 | $553,616 | | Interest bearing demand deposits | $2,144,737 | $1,743,299 | | Savings deposits | $477,348 | $496,751 | | Time deposits | $502,355 | $376,213 | | Total deposits | $3,754,495 | $3,169,879 | - Total deposits increased by **$584.6 million** (**18.4%**) from December 31, 2022, to September 30, 2023, largely due to the PSB acquisition and growth in interest-bearing demand and time deposits[90](index=90&type=chunk)[143](index=143&type=chunk) - Time deposits with denominations meeting or exceeding the FDIC insurance limit (**$250,000**) totaled **$135.9 million** at September 30, 2023, up from **$88.0 million** at December 31, 2022[91](index=91&type=chunk) [NOTE 9. BORROWED FUNDS](index=35&type=section&id=NOTE%209.%20BORROWED%20FUNDS) This note details the company's short-term and long-term borrowings, including subordinated debentures Borrowed Funds (in thousands) | Borrowing Type (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | 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 | - Short-term borrowings increased by **$32.05 million** (**14.2%**) from December 31, 2022, to September 30, 2023, with a weighted average interest rate of **5.67%** for Federal Funds Purchased and FHLB Advances at September 30, 2023[9](index=9&type=chunk)[93](index=93&type=chunk) - Subordinated debentures qualify as Tier 2 capital and bear fixed interest rates that will reset to variable rates (SOFR-based) after initial fixed periods[95](index=95&type=chunk)[96](index=96&type=chunk) - Subordinated debentures owed to unconsolidated subsidiary trusts qualify as Tier 1 capital[98](index=98&type=chunk) [NOTE 10. SHARE-BASED COMPENSATION](index=36&type=section&id=NOTE%2010.%20SHARE-BASED%20COMPENSATION) This note describes the company's share-based compensation plans, including SARs and RSUs activity SAR Activity | SAR Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Outstanding, January 1 | 473,212 | 491,792 | | Granted | 176,384 | 0 | | Exercised | (1,000) | (14,996) | | Forfeited | (41,529) | 0 | | Outstanding, September 30 | 607,067 | 476,796 | | Weighted Average Exercise Price (Outstanding) | $22.66 | $21.38 | RSU Activity | RSU Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Nonvested, December 31 | 7,204 | 13,015 | | Granted | 0 | 0 | | Forfeited | (1,321) | (313) | | Vested | (2,749) | (5,246) | | Nonvested, September 30 | 3,134 | 7,456 | | Weighted Average Grant Date Fair Value (Nonvested) | $23.17 | $20.31 | - The company granted **176,384** SARs during the first nine months of 2023, with grant date fair values of **$8.77** and **$8.63** per SAR[101](index=101&type=chunk) - Total stock compensation expense for all share-based arrangements was **$634,000** for the nine months ended September 30, 2023, compared to **$469,000** in the prior year[103](index=103&type=chunk) [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=38&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's off-balance sheet commitments, contingencies, and legal proceedings Off-Balance Sheet Commitments (in thousands) | Off-Balance Sheet Commitment (in thousands) | Sep 30, 2023 | | :----------------------------------- | :----------- | | Revolving home equity and credit card lines | $120,411 | | Construction loans | $257,768 | | Other loans | $508,399 | | Standby letters of credit | $56,930 | | Total unfunded commitments | $943,508 | - Total unfunded credit extension commitments were **$943.51 million** at September 30, 2023[106](index=106&type=chunk) - The Allowance for Credit Losses (ACL) on off-balance-sheet credit exposures totaled **$6.91 million** at September 30, 2023, a slight decrease from **$6.95 million** at December 31, 2022[109](index=109&type=chunk) - Management believes the outcome of legal proceedings arising in the normal course of business will not have a significant adverse effect on the consolidated financial statements[110](index=110&type=chunk) [NOTE 12. PREFERRED STOCK](index=39&type=section&id=NOTE%2012.%20PREFERRED%20STOCK) This note details the company's outstanding preferred stock, including its terms and dividend payments - The company has **1,500** shares of Series 2021 **6%** Fixed-Rate Non-Cumulative Perpetual Preferred Stock outstanding, with a liquidation preference of **$10,000** per share, paying noncumulative dividends quarterly[112](index=112&type=chunk) [NOTE 13. REGULATORY MATTERS](index=39&type=section&id=NOTE%2013.%20REGULATORY%20MATTERS) This note provides information on the company's compliance with regulatory capital requirements Capital Ratios | Capital Ratio | Summit (Sep 30, 2023) | Summit Community (Sep 30, 2023) | Minimum Required (Basel III) | Well Capitalized Minimum | | :----------------------------------- | :-------------------- | :------------------------------ | :--------------------------- | :------------------------- | | CET1 (to risk weighted assets) | 8.9% | 11.6% | 7.0% | 6.5% | | Tier I Capital (to risk weighted assets) | 9.7% | 11.6% | 8.5% | 8.0% | | Total Capital (to risk weighted assets) | 13.5% | 12.7% | 10.5% | 10.0% | | Tier I Capital (to average assets) | 8.5% | 10.1% | 4.0% | 5.0% | - Both Summit and its bank subsidiary, Summit Community Bank, met all capital adequacy requirements and were categorized as '**well capitalized**' as of September 30, 2023[113](index=113&type=chunk)[114](index=114&type=chunk) - The company elected an optional phase-in period for the regulatory capital effects of ASC 326 (CECL), delaying the initial impact and phasing out cumulative adjustments over three years after a two-year delay[115](index=115&type=chunk) [NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS](index=40&type=section&id=NOTE%2014.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the company's use of derivative instruments for hedging interest rate risk Derivative Financial Instruments (in thousands) | Derivative Type (in thousands) | Sep 30, 2023 Notional Amount | Dec 31, 2022 Notional Amount | | :----------------------------------- | :--------------------------- | :--------------------------- | | Cash Flow Hedges (Interest Rate Swaps) | $140,000 | $40,000 | | Cash Flow Hedges (Interest Rate Caps) | $200,000 | $200,000 | | Fair Value Hedges (Interest Rate Swaps) | $87,598 | $88,121 | | Total Notional Amount | $427,598 | $328,121 | - The company uses derivative instruments, primarily interest rate swaps and caps, to hedge against adverse interest rate movements on cash flows and fair values of assets and liabilities[120](index=120&type=chunk) - Notional amounts for cash flow hedges significantly increased, reflecting new interest rate swaps to hedge forecasted short-term fixed rate FHLB advances[122](index=122&type=chunk)[123](index=123&type=chunk) [NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME](index=41&type=section&id=NOTE%2015.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20(LOSS)%20INCOME) This note details the components of accumulated other comprehensive loss, primarily from debt securities Accumulated Other Comprehensive (Loss) Income (in thousands) | AOCI Component (in thousands) | Sep 30, 2023 Balance | Dec 31, 2022 Balance | | :----------------------------------- | :------------------- | :------------------- | | Gains and (Losses) on Pension Plan | $(23) | $(23) | | Gains and (Losses) on Other Post Retirement Benefits | $172 | $172 | | Gains and (Losses) on Cash Flow Hedges | $21,910 | $20,867 | | Unrealized Gains (Losses) on Debt Securities Available for Sale | $(48,605) | $(37,902) | | Unrealized Gains on Securities Fair Value Hedge | $7,929 | $5,407 | | Total Accumulated Other Comprehensive Loss | $(18,617) | $(11,479) | - Accumulated other comprehensive loss increased from **$(11.48) million** at December 31, 2022, to **$(18.62) million** at September 30, 2023, primarily due to increased unrealized losses on debt securities available for sale[126](index=126&type=chunk) [NOTE 16. INCOME TAXES](index=42&type=section&id=NOTE%2016.%20INCOME%20TAXES) This note provides information on the company's income tax expense and effective tax rates Income Tax Expense (in thousands) | Income Tax Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total income tax expense | $4,794 | $3,856 | $10,572 | $10,311 | | Effective income tax rate | 22.7% | 21.1% | 21.5% | 21.3% | - The effective income tax rate for the three months ended September 30, 2023, was **22.7%**, up from **21.1%** in the prior year, mainly due to state income taxes and other net adjustments[127](index=127&type=chunk) - For the nine months ended September 30, 2023, the effective tax rate was **21.5%**, slightly higher than **21.3%** in the prior year[127](index=127&type=chunk) [NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=43&type=section&id=NOTE%2017.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note details non-interest income derived from contracts with customers, such as service charges Non-Interest Income from Contracts with Customers (in thousands) | Non-Interest Income (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net revenue from contracts with customers | $4,652 | $4,079 | $13,405 | $11,949 | | Non-interest income within scope of other ASC topics | $613 | $808 | $1,669 | $1,339 | | Total noninterest income | $5,265 | $4,887 | $15,074 | $13,288 | - Net revenue from contracts with customers increased by **$573,000** (**14.0%**) for the three months and **$1.46 million** (**12.2%**) for the nine months ended September 30, 2023, driven by higher service charges on deposit accounts and bank card revenue[129](index=129&type=chunk) [NOTE 18. MERGERS AND ACQUISITIONS](index=43&type=section&id=NOTE%2018.%20MERGERS%20AND%20ACQUISITIONS) This note details the PSB Holding Corp. acquisition and the pending merger with Burke & Herbert - On April 1, 2023, Summit acquired PSB Holding Corp. for **$39.62 million**, consisting of **$39.03 million** in stock and **$595,000** in cash, recognizing preliminary goodwill of **$687,000**[130](index=130&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk) - The acquisition resulted in **$561.18 million** in identifiable assets acquired and **$522.24 million** in identifiable liabilities assumed, including a core deposit intangible of **$14.93 million**[133](index=133&type=chunk) - On August 24, 2023, Summit entered into an agreement to merge with Burke & Herbert Financial Services Corp., with the merger expected to close in Q1 2024, subject to regulatory and shareholder approvals[134](index=134&type=chunk)[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, condition, liquidity, and capital resources [INTRODUCTION](index=45&type=section&id=INTRODUCTION) This section introduces the management's discussion and analysis, including forward-looking statements and risks - The discussion focuses on significant changes in financial condition and results of operations for Summit Financial Group, Inc. and its subsidiary, Summit Community Bank, for the periods indicated[137](index=137&type=chunk) - The report contains forward-looking statements based on current expectations, subject to various risks and uncertainties, including economic conditions, interest rates, competition, and regulatory changes[138](index=138&type=chunk)[139](index=139&type=chunk) [OVERVIEW](index=45&type=section&id=OVERVIEW) This section provides a high-level overview of the company's financial performance, acquisitions, and capital position - The acquisition of PSB Holding Corp. on April 1, 2023, significantly impacted financial statements, with PSB's results included from the acquisition date[140](index=140&type=chunk) - A pending merger with Burke & Herbert Financial Services Corp. is expected to close in Q1 2024[141](index=141&type=chunk) - Despite industry volatility, the company maintained a robust liquidity position and strong capital levels, with total deposits (excluding acquired PSB deposits) increasing **2.7%** and CET1, Total Capital, and Leverage ratios remaining high at September 30, 2023[143](index=143&type=chunk) - Tangible Book Value Per Common Share (TBVPCS) increased by **$0.52** to **$22.22**, despite dilution from the PSB acquisition, offset by net income[144](index=144&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=45&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section outlines the company's critical accounting policies, emphasizing significant judgments and estimates - Critical accounting policies, including the determination of Allowance for Credit Losses (ACL), fair value measurements, and accounting for acquired loans, involve significant subjective judgments and estimates[148](index=148&type=chunk) - No significant changes in the application of critical accounting policies have occurred since December 31, 2022[149](index=149&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=46&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section presents non-GAAP financial measures, including tangible book value per common share Non-GAAP Financial Measures (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Common shareholders' equity (in thousands) | $401,532 | $339,610 | | Tangible common equity (TCE) (in thousands) | $326,107 | $277,460 | | Common shares outstanding | 14,674,852 | 12,783,646 | | Book value per common share | $27.36 | $26.57 | | Tangible book value per common share | $22.22 | $21.70 | - Tangible book value per common share (TBVPCS) increased by **$0.52** to **$22.22** at September 30, 2023, from **$21.70** at December 31, 2022[151](index=151&type=chunk) [RESULTS OF OPERATIONS](index=46&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial results, including net interest income, credit losses, and expenses [Earnings Summary](index=46&type=section&id=Earnings%20Summary) This section summarizes the company's net income, diluted EPS, and returns on equity and assets Earnings Summary (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income applicable to common shares (in millions) | $16.1 | $14.2 | $38.0 | $37.5 | | Diluted EPS | $1.09 | $1.11 | $2.69 | $2.92 | | Return on average equity (9 months) | 12.97% | 15.26% | | | | Return on average assets (9 months) | 1.18% | 1.37% | | | - Increased earnings in 2023 were primarily due to higher net interest income driven by growth, though diluted EPS decreased due to increased common shares[152](index=152&type=chunk) - Returns on average equity and assets for the first nine months of 2023 decreased compared to the same period in 2022[152](index=152&type=chunk) [Net Interest Income](index=46&type=section&id=Net%20Interest%20Income) This section analyzes net interest income and net interest margin, highlighting drivers of change Net Interest Income (Taxable-Equivalent, in millions) | Metric | Q3 2023 | Q2 2023 | Q3 2022 | | :----------------------------------- | :------ | :------ | :------ | | Net interest income (taxable-equivalent, in millions) | $41.7 | $40.7 | $34.4 | | Net interest margin | 3.88% | 3.89% | 3.84% | Net Interest Income (Taxable-Equivalent, in millions) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net interest income (taxable-equivalent, in millions) | $116.9 | $95.5 | | Net interest margin | 3.87% | 3.71% | - Net interest income (taxable-equivalent) increased by **$977,000** quarter-over-quarter and **$7.2 million** year-over-year for Q3 2023, driven by higher earnings on interest-earning assets[155](index=155&type=chunk)[158](index=158&type=chunk) - The net interest margin for Q3 2023 was **3.88%**, a slight decrease from **3.89%** in Q2 2023 but an increase from **3.84%** in Q3 2022[157](index=157&type=chunk)[160](index=160&type=chunk) - For the nine months ended September 30, 2023, net interest income increased by **$21.41 million** (**22.4%**) and net interest margin increased by **16** basis points compared to the same period in 2022[145](index=145&type=chunk)[166](index=166&type=chunk) [Provision for Credit Losses](index=50&type=section&id=Provision%20for%20Credit%20Losses) This section details the provision for credit losses, reflecting changes in expected credit losses Provision for Credit Losses (in thousands) | Provision (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total provision for credit losses | $1,250 | $1,500 | $10,750 | $5,450 | | Provision for credit losses-loans | $1,670 | $1,695 | $10,785 | $5,128 | | Provision for credit losses-unfunded commitments | $(420) | $(195) | $(35) | $322 | - The total provision for credit losses for the nine months ended September 30, 2023, significantly increased to **$10.75 million** from **$5.45 million** in the prior year[171](index=171&type=chunk)[172](index=172&type=chunk) - This increase was primarily due to a **$3.01 million** provision for non-PCD loans acquired from PSB and a **$3.66 million** allowance for a nonperforming commercial real estate loan participation[171](index=171&type=chunk) [Noninterest Income](index=51&type=section&id=Noninterest%20Income) This section analyzes the components of noninterest income, including service charges and bank card revenue Noninterest Income (in thousands) | Noninterest Income (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 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) | | Total noninterest income | $5,265 | $4,887 | $15,074 | $13,288 | - Total noninterest income increased by **7.7%** for the three months and **13.4%** for the nine months ended September 30, 2023, compared to the same periods in 2022[174](index=174&type=chunk) - The increase was primarily due to fewer realized losses on debt securities, higher service charges on deposit accounts, and increased bank card revenue, partially offset by decreased mortgage origination revenue[174](index=174&type=chunk) [Noninterest Expense](index=51&type=section&id=Noninterest%20Expense) This section details noninterest expenses, including salaries, amortization, and acquisition-related costs Noninterest Expense (in thousands) | Noninterest Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries, commissions, and employee benefits | $11,959 | $10,189 | $34,922 | $29,920 | | Amortization of intangibles | $998 | $354 | $2,340 | $1,088 | | FDIC premiums | $716 | $292 | $1,788 | $872 | | Acquisition-related expenses | $1,110 | $0 | $5,604 | $33 | | Other | $3,953 | $3,834 | $10,563 | $8,651 | | Total noninterest expenses | $24,162 | $19,221 | $70,886 | $54,030 | - Total noninterest expense increased by **25.7%** for the three months and **31.2%** for the nine months ended September 30, 2023, compared to the same periods in 2022[176](index=176&type=chunk) - Key drivers include higher salaries and benefits (due to merit raises, health insurance, and PSB acquisition), increased amortization of intangibles, higher FDIC premiums, and significant acquisition-related expenses[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) [Income Taxes](index=52&type=section&id=Income%20Taxes) This section provides an overview of the company's income tax expense and effective tax rates Income Taxes (in millions) | Income Tax Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense (in millions) | $4.8 | $3.9 | $10.6 | $10.3 | | Effective tax rate | 22.7% | 21.1% | 21.5% | 21.3% | - The effective tax rate for the three months ended September 30, 2023, was **22.7%**, up from **21.1%** in the prior year, and **21.5%** for the nine months, slightly higher than **21.3%** in the prior year[182](index=182&type=chunk) [FINANCIAL CONDITION](index=52&type=section&id=FINANCIAL%20CONDITION) This section discusses key aspects of the company's financial condition, including assets, liabilities, and equity [Debt securities available for sale](index=52&type=section&id=Debt%20securities%20available%20for%20sale) This section details changes in debt securities available for sale, including sales and unrealized losses - Debt securities available for sale decreased by **$34.7 million** (excluding PSB acquisition impact) during the first nine months of 2023, primarily due to sales of municipal and mortgage-backed securities[184](index=184&type=chunk) [Loans](index=53&type=section&id=Loans) This section discusses the company's loan portfolio, including organic growth and mortgage warehouse lines - Mortgage warehouse lines of credit declined by **$15.7 million** during the first nine months of 2023[186](index=186&type=chunk) - Excluding mortgage warehouse lines and acquired loans, organic loan growth was **$157.8 million** during the first nine months of 2023[186](index=186&type=chunk) [Derivative financial instruments](index=53&type=section&id=Derivative%20financial%20instruments) This section explains the changes in derivative financial instruments used for hedging purposes - The increase in derivative financial instruments in 2023 is attributed to the rise in the fair value of cash flow and interest rate hedges[187](index=187&type=chunk) [Deposits](index=53&type=section&id=Deposits) This section details the composition and changes in the company's deposit base - Excluding acquired deposits, noninterest-bearing checking deposits decreased by **$83.3 million**, while interest-bearing checking deposits grew by **$278.6 million** during the first nine months of 2023[188](index=188&type=chunk) - Savings deposits declined by **$110.4 million**, and retail CDs increased by **$2.2 million**[188](index=188&type=chunk) [Shareholders' equity - common](index=53&type=section&id=Shareholders%27%20equity%20-%20common) This section discusses changes in common shareholders' equity and tangible book value per share - Common shareholders' equity changes resulted from the issuance of **1,880,732** common shares for the PSB acquisition, net income, other comprehensive income, and common dividends[189](index=189&type=chunk) - Tangible book value per common share (TBVPCS) increased by **$0.52** to **$22.22**, despite dilution from the PSB acquisition and unrealized net losses on debt securities, offset by net income[189](index=189&type=chunk) [Credit Experience](index=53&type=section&id=Credit%20Experience) This section analyzes the company's credit quality, including non-performing assets and loan charge-offs Non-Performing Assets (in thousands) | Non-Performing Assets (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total nonaccrual loans | $12,818 | $7,811 | | Total foreclosed properties | $4,505 | $5,067 | | Total nonperforming assets | $17,351 | $12,890 | | Nonperforming loans as % of total loans | 0.36% | 0.25% | | Nonperforming assets as % of total assets | 0.38% | 0.33% | | ACLL as % of period end loans | 1.31% | 1.26% | | ACLL as % of nonaccrual loans | 368.49% | 498.00% | - Non-performing assets increased to **$17.35 million** at September 30, 2023, from **$12.89 million** at December 31, 2022, with nonaccrual loans being the primary driver[196](index=196&type=chunk)[197](index=197&type=chunk) - Net loan charge-offs were **$3.9 million** (**0.15%** of average loans annualized) for the first nine months of 2023, including a **$3.66 million** partial charge-off of a nonperforming commercial real estate loan[194](index=194&type=chunk) - The allowance for loan credit losses totaled **$47.2 million**, or **1.31%** of total loans, and is considered adequate to cover expected credit losses[193](index=193&type=chunk) [Foreclosed properties](index=54&type=section&id=Foreclosed%20properties) This section details the activity and balance of foreclosed properties held by the company Foreclosed Property Activity (in thousands) | Foreclosed Property Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $5,067 | $9,858 | | Acquisitions | $59 | $6 | | Disposals | $(491) | $(4,646) | | Writedowns to fair value | $(132) | $(42) | | Ending balance | $4,505 | $5,193 | - Foreclosed properties decreased to **$4.51 million** at September 30, 2023, from **$5.07 million** at December 31, 2022[199](index=199&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=55&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's liquidity position, capital adequacy, and available borrowing capacity - Liquidity is primarily provided by cash, non-pledged securities, and available lines of credit with FHLB and Federal Reserve Bank, totaling approximately **$1.9 billion** or **41.02%** of total consolidated assets at September 30, 2023[201](index=201&type=chunk) - The company had additional borrowing capacity of **$1.3 billion** through FHLB programs and a **$299 million** line with the Federal Reserve Bank at September 30, 2023[202](index=202&type=chunk) - Shareholders' equity totaled **$416.5 million** at September 30, 2023, up from **$354.5 million** at December 31, 2022, reflecting a strong capital position[205](index=205&type=chunk) [CONTRACTUAL CASH OBLIGATIONS](index=55&type=section&id=CONTRACTUAL%20CASH%20OBLIGATIONS) This section outlines the company's contractual cash obligations, including debt and lease commitments Contractual Cash Obligations (in thousands) | Obligation Type (in thousands) | Total | | :----------------------------------- | :---- | | Long Term Debt | $642 | | Subordinated Debentures | $105,000 | | Capital Subordinated Trust Securities | $19,589 | | Operating Leases | $7,488 | | Total Contractual Cash Obligations | $132,719 | - The majority of long-term debt matures in 2026, while subordinated debentures and capital subordinated trust securities mature thereafter[99](index=99&type=chunk)[208](index=208&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=56&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section details the company's off-balance sheet arrangements, primarily credit extension commitments Off-Balance Sheet Arrangements (in thousands) | Off-Balance Sheet Arrangement (in thousands) | Sep 30, 2023 | | :----------------------------------- | :----------- | | 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 | - Total off-balance sheet arrangements, primarily commitments to extend credit, amounted to **$943.51 million** at September 30, 2023[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's market risk management, focusing on interest rate risk and sensitivity [Market Risk Management](index=57&type=section&id=Market%20Risk%20Management) This section describes how the company manages market risk, primarily interest rate risk, through ALCO and hedging - Interest rate risk is the primary market risk, managed by the Asset/Liability Management Committee (ALCO) through matching maturities and using derivative financial instruments[212](index=212&type=chunk) - The company's interest rate risk position is **asset sensitive**, meaning net income is expected to increase in a rising rate environment and decrease in a falling rate environment[213](index=213&type=chunk) Net Interest Income Sensitivity | Change in Interest Rates | Estimated % Change in Net Interest Income over 0-12 Months | | :----------------------------------- | :------------------------------------------------------- | | Down 100 basis points | 0.3% | | Down 200 basis points | 0.9% | | Down 200 basis points - steepening curve | 4.9% | | Up 200 basis points | -1.8% | - Earnings simulation models forecast the effects on net interest income under various interest rate scenarios, assuming gradual changes over 12 months and stability thereafter[214](index=214&type=chunk)[215](index=215&type=chunk) [Item 4. Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective, with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2023[217](index=217&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[217](index=217&type=chunk) PART II. OTHER INFORMATION This section provides additional information, including legal, risk, and equity matters [Item 1. Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 11 for legal proceedings, with no other reportable matters - Information regarding legal proceedings is incorporated by reference from Note 11 to the Consolidated Financial Statements[218](index=218&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the Annual Report on Form 10-K for a discussion of risk factors - Readers should refer to Part I, 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of risk factors[219](index=219&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase plan, with no shares purchased during Q3 2023 - The Board of Directors authorized an open market repurchase plan in February 2020 for up to **750,000** shares of common stock[220](index=220&type=chunk) - No shares were purchased under the public repurchase plan during the quarter ended September 30, 2023[222](index=222&type=chunk) - As of September 30, 2023, **426,423** shares remained available for purchase under the plan[222](index=222&type=chunk) [Item 3. Defaults upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This item states that there were no defaults upon senior securities during the reporting period [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item states that there were no mine safety disclosures required for the reporting period [Item 5. Other Information](index=59&type=section&id=Item%205.%20Other%20Information) This item indicates that there is no other information to report for the period [Item 6. Exhibits](index=60&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits include organizational documents, earnings per share computation, and certifications required by the Sarbanes-Oxley Act[225](index=225&type=chunk) [EXHIBIT INDEX](index=61&type=section&id=EXHIBIT%20INDEX) This index provides a detailed list of all exhibits accompanying the Form 10-Q - The Exhibit Index provides a comprehensive list of all documents filed as exhibits, including those incorporated by reference from previous SEC filings[226](index=226&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) [SIGNATURES](index=62&type=section&id=SIGNATURES) This section contains the required signatures of the registrant's authorized officers - The report is duly signed on behalf of Summit Financial Group, Inc. by its President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Executive Vice President and Chief Accounting Officer[232](index=232&type=chunk)[233](index=233&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (Dollars in thousands) | Metric (Dollars in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------------- | :------------ | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $63,243 | $44,717 | | Debt securities available for sale | $512,038 | $405,201 | | Loans, net | $3,506,880 | $3,043,919 | | Total assets | $4,552,270 | $3,916,692 | | **LIABILITIES** | | | | Total deposits | $3,735,034 | $3,169,879 | | Total liabilities | $4,139,096 | $3,562,162 | | **SHAREHOLDERS' EQUITY** | | | | Total shareholders' equity | $413,174 | $354,530 | - Total assets increased by **$635.58 million** from December 31, 2022, to June 30, 2023, primarily driven by growth in loans and debt securities available for sale[8](index=8&type=chunk) - Total deposits increased by **$565.15 million**, with interest-bearing deposits showing a significant rise[8](index=8&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (Dollars in thousands, except per share) | Metric (Dollars in thousands, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $60,863 | $35,563 | $111,338 | $68,456 | | Total interest expense | $20,550 | $4,598 | $36,835 | $7,936 | | Net interest income | $40,313 | $30,965 | $74,503 | $60,520 | | Provision for credit losses | $8,000 | $2,000 | $9,500 | $3,950 | | Total noninterest income | $5,423 | $3,856 | $9,809 | $8,401 | | Total noninterest expenses | $27,324 | $17,609 | $46,723 | $34,809 | | Net income | $8,209 | $12,014 | $22,310 | $23,707 | | Net income applicable to common shares | $7,984 | $11,789 | $21,860 | $23,257 | | Basic earnings per common share | $0.54 | $0.92 | $1.59 | $1.82 | | Diluted earnings per common share | $0.54 | $0.92 | $1.59 | $1.82 | - Net interest income increased significantly year-over-year for both the three-month and six-month periods, driven by higher interest income from loans and securities, despite a substantial rise in interest expense[10](index=10&type=chunk) - Net income and EPS decreased for the three-month period ended June 30, 2023, compared to the prior year, primarily due to a higher provision for credit losses and increased noninterest expenses, including acquisition-related costs[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Dollars in thousands) | Metric (Dollars in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $8,209 | $12,014 | $22,310 | $23,707 | | Total other comprehensive loss | $(710) | $(6,401) | $2,744 | $(12,956) | | Total comprehensive income | $7,499 | $5,613 | $25,054 | $10,751 | - Total comprehensive income for the six months ended June 30, 2023, significantly increased to **$25.05 million** from **$10.75 million** in the prior year, largely due to a positive shift in other comprehensive income from a loss to a gain, primarily driven by unrealized gains on debt securities available for sale[11](index=11&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Consolidated Statements of Shareholders' Equity (Dollars in thousands) | Metric (Dollars in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------------- | :------------ | :---------------- | | Total Shareholders' Equity | $413,174 | $354,530 | | Common Stock and Related Surplus | $130,227 | $90,696 | | Retained Earnings | $276,762 | $260,393 | | Accumulated Other Comprehensive Loss | $(8,735) | $(11,479) | - Total shareholders' equity increased by **$58.64 million** from December 31, 2022, to June 30, 2023, primarily due to net income, common stock issuance for the PSB acquisition (**$39.02 million**), and other comprehensive income[13](index=13&type=chunk) - Common stock and related surplus increased significantly due to the issuance of 1,880,732 shares for the acquisition of PSB Holding Corp[12](index=12&type=chunk)[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Dollars in thousands) | Metric (Dollars in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $31,877 | $29,373 | | Net cash used in investing activities | $(58,793) | $(237,396) | | Net cash provided by financing activities | $45,442 | $179,166 | | Increase (decrease) in cash and cash equivalents | $18,526 | $(28,857) | | Ending cash and cash equivalents | $63,243 | $49,601 | - Cash and cash equivalents increased by **$18.53 million** for the six months ended June 30, 2023, a significant turnaround from a decrease of **$28.86 million** in the prior year, primarily driven by increased net cash provided by financing activities and a reduced net cash outflow from investing activities[15](index=15&type=chunk) - Investing activities saw a substantial reduction in net cash used, from **$(237.40) million** in H1 2022 to **$(58.79) million** in H1 2023, partly due to cash and cash equivalents from acquisitions (**$14.36 million**) and higher proceeds from sales of debt securities available for sale[15](index=15&type=chunk) [NOTE 1. BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) - The consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations, not including all annual year-end footnotes[18](index=18&type=chunk) - Management's estimates and assumptions are crucial, and actual results may differ materially; readers are advised to consider risk factors from the Annual Report on Form 10-K[19](index=19&type=chunk) [NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE](index=10&type=section&id=NOTE%202.%20SIGNIFICANT%20NEW%20AUTHORITATIVE%20ACCOUNTING%20GUIDANCE) - Recently adopted ASUs, including ASU 2023-03, ASU 2022-02, ASU 2022-01, ASU 2021-08, and ASU 2020-04, did not have a significant or material impact on the company's financial statements[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - Pending adoption of ASU 2023-02 and ASU 2022-03 is not expected to have a material impact[27](index=27&type=chunk)[28](index=28&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) Fair Value Measurements (Dollars in thousands) | Asset/Liability (Dollars in thousands) | June

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides comprehensive financial data, including statements, notes, and management's analysis of performance and condition [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, cash flows, and notes - Financial statements adhere to GAAP for interim reporting and Form 10-Q instructions[17](index=17&type=chunk) - Management's estimates and assumptions are used, and actual results may differ materially[18](index=18&type=chunk) - Interim results for Q1 2023 are not necessarily indicative of full-year performance[19](index=19&type=chunk) [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Balance sheets show financial position at March 31, 2023, with total assets increasing to **$3.98 billion** Total Assets Summary | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $3,977,407 | $3,916,692 | | **Change** | **+$60,715** | | Total Liabilities Summary | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total liabilities | $3,607,861 | $3,562,162 | | **Change** | **+$45,699** | | Total Shareholders' Equity Summary | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total shareholders' equity | $369,546 | $354,530 | | **Change** | **+$15,016** | | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Statements of income show a significant increase in net income for Q1 2023, driven by higher net interest income Net Income Summary | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $14,101 | $11,693 | | **Change (YoY)** | **+$2,408 (+20.6%)** | | Net Interest Income Summary | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net interest income | $34,189 | $29,554 | | **Change (YoY)** | **+$4,635 (+15.7%)** | | Earnings Per Common Share Summary | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Basic earnings per common share | $1.09 | $0.90 | | **Change (YoY)** | **+$0.19 (+21.1%)** | | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income significantly increased to **$17.56 million** for Q1 2023, driven by unrealized gains Total Comprehensive Income Summary | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total comprehensive income | $17,555 | $5,138 | | **Change (YoY)** | **+$12,417 (+241.7%)** | | Net Unrealized Gain (Loss) Summary | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net unrealized gain (loss) | $7,538 | $(17,086) | | **Change (YoY)** | **+$24,624** | | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to **$369.55 million** at March 31, 2023, driven by net income and OCI Total Shareholders' Equity Summary | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total shareholders' equity | $369,546 | $354,530 | | **Change (QoQ)** | **+$15,016 (+4.2%)** | | - Key Drivers of Equity Change (3 Months Ended March 31, 2023): * Net income: **+$14,101 thousand**[13](index=13&type=chunk) * Other comprehensive income: **+$3,454 thousand**[13](index=13&type=chunk) * Common stock cash dividends declared: **$(2,557) thousand**[13](index=13&type=chunk) * Preferred stock cash dividends declared: **$(225) thousand**[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash and cash equivalents increased by **$26.10 million** for Q1 2023, driven by financing activities Net Cash from Operating Activities | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $17,178 | $14,836 | | **Change (YoY)** | **+$2,342 (+15.8%)** | | Net Cash Used in Investing Activities | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash used in investing activities | $(32,553) | $(94,884) | | **Change (YoY)** | **+$62,331 (less cash used)** | | Net Cash from Financing Activities | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by financing activities | $41,474 | $62,847 | | **Change (YoY)** | **$(21,373) (-34.0%)** | | Cash and Cash Equivalents Change | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Increase (decrease) in cash and cash equivalents | $26,099 | $(17,201) | | **Change (YoY)** | **+$43,300** | | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed disclosures for financial statements, covering accounting policies, fair value, loans, deposits, and regulatory items - Financial statements are prepared in accordance with GAAP for interim information and Form 10-Q instructions[17](index=17&type=chunk) - Estimates and assumptions are used, and actual results may differ materially[18](index=18&type=chunk) - Results for the three months ended March 31, 2023, are not necessarily indicative of the full year[19](index=19&type=chunk) [NOTE 1. BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) Financial statements are prepared under U.S. GAAP for interim information, with management estimates affecting amounts - Financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions[17](index=17&type=chunk) - Management's estimates and assumptions affect reported amounts, and actual results could differ materially[18](index=18&type=chunk) - Interim results are not necessarily indicative of full-year results[19](index=19&type=chunk) [NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE](index=9&type=section&id=NOTE%202.%20SIGNIFICANT%20NEW%20AUTHORITATIVE%20ACCOUNTING%20GUIDANCE) Adopted new accounting standards in 2023, including ASU 2022-02, with no significant impact on financials - **Recently Adopted ASUs (Effective January 1, 2023):** * ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures): Eliminated TDR guidance, enhanced disclosures for loan modifications. No significant impact[20](index=20&type=chunk) * ASU 2022-01 (Derivatives and Hedging - Portfolio Layer Method): Clarified fair value hedge accounting for interest rate risk. No material impact[21](index=21&type=chunk) * ASU 2021-08 (Business Combinations - Contract Assets/Liabilities): Required Topic 606 application for acquired contract assets/liabilities. No material impact[22](index=22&type=chunk) * ASU 2020-04 (Reference Rate Reform): Provided temporary optional guidance for LIBOR transition. No material adverse impact[23](index=23&type=chunk) - **Pending Adoption ASUs (Not expected to have material impact):** * ASU 2023-02 (Investments—Equity Method and Joint Ventures): Allows proportional amortization for qualifying tax equity investments[24](index=24&type=chunk) * ASU 2022-03 (Fair Value Measurement): Clarifies contractual sale restrictions on equity securities are not part of fair value measurement[25](index=25&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=10&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) Details assets and liabilities measured at fair value, categorized by Level 1, 2, and 3 inputs, primarily Level 2 Recurring Fair Value Measurements by Level | Asset Type | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :--------------- | :------ | :------ | :------ | | Debt securities available for sale | $431,933 | $0 | $430,088 | $1,845 | | Equity investments | $29,867 | $26,220 | $3,647 | $0 | | Derivative financial assets | $34,758 | $0 | $34,758 | $0 | Nonrecurring Fair Value Measurements by Level | Asset Type | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :--------------- | :------ | :------ | :------ | | Collateral-dependent loans with an ACLL | $1,615 | $0 | $1,615 | $0 | | Property held for sale | $4,777 | $0 | $4,777 | $0 | Estimated Fair Value of Financial Instruments | Instrument Type | Carrying Value | Estimated Fair Value | | :-------------------------------- | :--------------- | :------------------- | | Financial assets | $3,823,134 | $3,720,404 | | Financial liabilities | $3,566,318 | $3,554,013 | [NOTE 4. EARNINGS PER SHARE](index=13&type=section&id=NOTE%204.%20EARNINGS%20PER%20SHARE) Basic and diluted EPS increased for Q1 2023, reflecting higher net income applicable to common shares Earnings Per Share Calculation | Metric | 2023 | 2022 | | :---------------------------- | :----- | :----- | | Net income applicable to common shares (in thousands) | $13,876 | $11,468 | | Basic earnings per common share | $1.09 | $0.90 | | Diluted earnings per common share | $1.08 | $0.90 | - Dilutive Securities: SARs and RSUs are included in diluted EPS calculations[32](index=32&type=chunk) - Anti-dilutive SARs: **563,936** in 2023 and **346,920** in 2022[32](index=32&type=chunk) [NOTE 5. DEBT SECURITIES](index=14&type=section&id=NOTE%205.%20DEBT%20SECURITIES) Detailed breakdown of debt securities, available for sale and held to maturity, including fair values and maturities - Management performs pre-purchase and ongoing analysis to confirm investment securities meet credit quality standards[37](index=37&type=chunk) - No allowance for credit losses has been recognized for debt securities in an unrealized loss position, as the decline is attributed to market interest rates and not credit quality[41](index=41&type=chunk)[49](index=49&type=chunk) [Debt Securities Available for Sale](index=14&type=section&id=Debt%20Securities%20Available%20for%20Sale) Debt securities available for sale increased to **$431.93 million** at March 31, 2023, with unrealized losses Debt Securities Available for Sale Summary | Metric | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :-------------------------------- | :------------- | :--------------- | :---------------- | :------------------- | | Total debt securities available for sale | $471,881 | $1,646 | $41,594 | $431,933 | Maturity Distribution of Debt Securities Available for Sale | Maturity Period | Amortized Cost | Estimated Fair Value | | :-------------------- | :------------- | :------------------- | | Due in one year or less | $48,018 | $46,759 | | Due after ten years | $234,810 | $207,132 | Proceeds from Debt Securities Available for Sale | Metric | Sales | Calls and Maturities | Principal Payments | | :-------------------------------- | :---- | :------------------- | :----------------- | | Proceeds | $36,940 | $1,145 | $8,048 | [Debt Securities Held to Maturity](index=17&type=section&id=Debt%20Securities%20Held%20to%20Maturity) Debt securities held to maturity totaled **$95.68 million** amortized cost, with unrealized losses Debt Securities Held to Maturity Summary | Metric | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :-------------------------------- | :------------- | :--------------- | :---------------- | :------------------- | | Total debt securities held to maturity | $95,682 | $0 | $7,469 | $88,213 | Tax-Exempt State and Political Subdivisions by Rating | Rating | AAA | AA | A | BBB | Below Investment Grade | | :-------------------------------- | :---- | :----- | :---- | :---- | :--------------------- | | Tax-exempt state and political subdivisions | $12,786 | $75,539 | $7,357 | $0 | $0 | - No past due or nonaccrual held to maturity debt securities at March 31, 2023 or December 31, 2022[46](index=46&type=chunk) [NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL)](index=19&type=section&id=NOTE%206.%20LOANS%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES%20ON%20LOANS%20(ACLL)) Details loan portfolio, including past due and nonaccrual loans, and Allowance for Credit Losses on Loans (ACLL) activity - The company adopted ASU 2022-02, eliminating troubled debt restructuring accounting guidance and enhancing disclosures for loan modifications to borrowers experiencing financial difficulty[56](index=56&type=chunk) - During Q1 2023, **3 loans totaling $456,000** were modified due to financial difficulty, deemed insignificant[56](index=56&type=chunk) - Loans are categorized into risk categories (Pass, Special Mention, Substandard, Doubtful, Loss) based on borrower's ability to service debt and collateral[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk) [Loans](index=19&type=section&id=Loans) Amortized cost of loans increased to **$3.10 billion** at March 31, 2023, with **$11.96 million** past due Loan Portfolio by Type | Loan Type | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Commercial | $498,268 | $501,844 | | Commercial real estate - owner occupied | $469,560 | $467,050 | | Commercial real estate - non-owner occupied | $1,036,358 | $1,004,368 | | Construction and development | $392,907 | $389,297 | | Residential 1-4 family real estate | $576,954 | $550,963 | | Mortgage warehouse lines | $86,240 | $130,390 | | Consumer | $36,531 | $35,372 | | Total loans, net of unearned fees | $3,099,935 | $3,082,818 | Contractual Aging of Past Due Loans | Past Due Category | 30-59 days | 60-89 days | 90 days or more | Total Past Due | | :-------------------------------- | :--------- | :--------- | :-------------- | :------------- | | Total | $6,327 | $2,788 | $2,840 | $11,955 | Nonaccrual Loans Summary | Loan Type | Nonaccrual | Nonaccrual with No Allowance for Credit Losses - Loans | | :-------------------------------- | :--------- | :--------------------------------------------------- | | Total | $7,285 | $200 | [Allowance for Credit Losses - Loans](index=29&type=section&id=Allowance%20for%20Credit%20Losses%20-%20Loans) ACLL increased to **$40.84 million** at March 31, 2023, with a Q1 2023 provision of **$1.88 million** Allowance for Credit Losses - Loans Activity | Metric | Beginning Balance | Provision for Credit Losses - Loans | Charge-offs | Recoveries | Ending Balance | | :-------------------------------- | :---------------- | :-------------------------------- | :---------- | :--------- | :------------- | | Total | $38,899 | $1,875 | $(165) | $227 | $40,836 | Allowance for Credit Losses - Loans by Portfolio Segment | Portfolio Segment | Loan Balances Individually Evaluated | Loan Balances Collectively Evaluated | Total Loan Balances | Allowance for Credit Losses - Loans | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :------------------ | :-------------------------------- | | Commercial | $22,541 | $475,727 | $498,268 | $4,680 | | Commercial real estate - owner occupied | $0 | $469,560 | $469,560 | $2,456 | | Commercial real estate - non-owner occupied | $28,784 | $734,254 | $762,538 | $8,882 | | Construction and development | $813 | $392,094 | $392,907 | $15,729 | | Residential 1-4 family real estate | $4,787 | $568,167 | $572,954 | $8,625 | | Mortgage warehouse lines | $0 | $86,240 | $86,240 | $0 | | Consumer | $0 | $36,531 | $36,531 | $178 | | Other | $0 | $3,117 | $3,117 | $286 | | **Total** | **$56,925** | **$3,043,010** | **$3,099,935** | **$40,836** | [NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS](index=35&type=section&id=NOTE%207.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill stable at **$55.3 million**; other intangibles decreased to **$6.46 million** due to amortization - Goodwill: **$55.3 million** at March 31, 2023 and December 31, 2022[80](index=80&type=chunk) Other Intangible Assets Summary | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Gross carrying amount | $15,827 | $15,828 | | Less: accumulated amortization | $9,367 | $9,025 | | Net carrying amount | $6,460 | $6,803 | - Amortization expense for identifiable intangible assets: **$343,000** for Q1 2023 (vs. **$378,000** for Q1 2022)[82](index=82&type=chunk) [NOTE 8. DEPOSITS](index=35&type=section&id=NOTE%208.%20DEPOSITS) Total deposits increased to **$3.30 billion** at March 31, 2023, driven by interest-bearing demand deposits Total Deposits Summary | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Non-interest bearing | $552,715 | $553,616 | | Interest bearing | $2,747,131 | $2,616,263 | | Total deposits | $3,299,846 | $3,169,879 | Deposit Types | Deposit Type | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Demand deposits, interest bearing | $1,886,011 | $1,743,299 | | Savings deposits | $462,631 | $496,751 | | Time deposits | $398,489 | $376,213 | - Brokered deposits: **$71.5 million** at March 31, 2023 (vs. **$32.8 million** at December 31, 2022)[84](index=84&type=chunk) [NOTE 9. BORROWED FUNDS](index=36&type=section&id=NOTE%209.%20BORROWED%20FUNDS) Short-term borrowings decreased to **$140.15 million**; subordinated debentures remained stable Short-Term Borrowings Summary | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Short-term borrowings | $140,150 | $225,999 | | **Change (QoQ)** | **$(85,849) (-38.0%)** | | FHLB Advances Details | Metric | Value | | :-------------------------------- | :---- | | Balance at March 31 | $140,000 thousand | | Weighted average interest rate for the period | 4.88% | | Weighted average interest rate for balances outstanding at March 31 | 5.20% | - Subordinated debentures: **$75 million** issued in Q4 2021 (3.25% fixed until Dec 2026, then 3-month SOFR + 230 bps) and **$30 million** issued in Q3 2020 (5.00% fixed until Sep 2025, then 3-month SOFR + 487 bps). Both qualify as Tier 2 capital[88](index=88&type=chunk)[89](index=89&type=chunk) - Subordinated debentures owed to unconsolidated subsidiary trusts: **$19.6 million**, qualify as Tier 1 capital[91](index=91&type=chunk)[92](index=92&type=chunk) [NOTE 10. SHARE-BASED COMPENSATION](index=37&type=section&id=NOTE%2010.%20SHARE-BASED%20COMPENSATION) Granted **176,384 SARs** in Q1 2023; total compensation expense was **$196,000**, **$3.0 million** unrecognized - SARs granted in Q1 2023: **176,384 shares**[95](index=95&type=chunk)[97](index=97&type=chunk) - Grant date fair value per SAR: **$8.77** (7-year expiration) and **$8.63** (5-year expiration)[95](index=95&type=chunk) - Total stock compensation expense (Q1 2023): **$196,000** (vs. **$169,000** in Q1 2022)[98](index=98&type=chunk) - Total unrecognized compensation expense: **$3.0 million**, to be recognized over **2.57 years**[98](index=98&type=chunk) [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=39&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) Off-balance sheet credit commitments totaled **$907.76 million**; ACL on exposures decreased; no material litigation - Off-balance sheet arrangements are part of normal business to meet customer financing needs[99](index=99&type=chunk) - Exposure to credit loss for commitments is represented by the contractual amount[103](index=103&type=chunk) - Litigation: Not a party to material litigation; outcomes not expected to have a significant adverse effect[105](index=105&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) Unfunded credit extension commitments totaled **$907.76 million** at March 31, 2023, including various loan types Off-Balance Sheet Commitments | Commitment Type | Amount | | :-------------------------------- | :----- | | Revolving home equity and credit card lines | $104,427 | | Construction loans | $242,542 | | Other loans | $504,056 | | Standby letters of credit | $56,732 | | **Total** | **$907,757** | [Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures](index=39&type=section&id=Allowance%20For%20Credit%20Losses%20-%20Off-Balance-Sheet%20Credit%20Exposures) ACL on off-balance-sheet credit exposures decreased to **$6.57 million** at March 31, 2023 - Provision for credit losses on unfunded commitments: **$(375,000)** for Q1 2023 (vs. **$1.12 million** for Q1 2022)[104](index=104&type=chunk) - ACL on off-balance-sheet credit exposures: **$6.57 million** at March 31, 2023 (vs. **$6.95 million** at December 31, 2022)[104](index=104&type=chunk) [Litigation](index=39&type=section&id=Litigation) No litigation is expected to have a significant adverse effect on consolidated financial statements - No significant adverse effect from litigation is expected[105](index=105&type=chunk) [NOTE 12. PREFERRED STOCK](index=40&type=section&id=NOTE%2012.%20PREFERRED%20STOCK) Sold **$15.0 million** of Series 2021 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock in April 2021 - Issued **1,500 shares** of Series 2021 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock for **$15.0 million** in April 2021[107](index=107&type=chunk) - Liquidation preference: **$10,000 per share**[107](index=107&type=chunk) - Dividends: Non-cumulative, **6.0% per annum**, payable quarterly if declared[107](index=107&type=chunk) [NOTE 13. REGULATORY MATTERS](index=40&type=section&id=NOTE%2013.%20REGULATORY%20MATTERS) Summit and its bank subsidiary met all capital adequacy requirements and were "well capitalized" at March 31, 2023 - Summit Community Bank met all capital adequacy requirements and was categorized as "well capitalized" as of March 31, 2023[108](index=108&type=chunk)[109](index=109&type=chunk) - The company elected an optional phase-in period for the regulatory capital effects of ASC 326 implementation[110](index=110&type=chunk) Capital Adequacy Ratios | Metric | Entity | Actual Amount | Actual Ratio | Minimum Required (Basel III) Ratio | Minimum Required (Well Capitalized) Ratio | | :-------------------------------- | :------------- | :------------ | :----------- | :--------------------------------- | :---------------------------------------- | | CET1 (to risk weighted assets) | Summit | $309,186 | 8.9% | 7.0% | N/A | | | Summit Community | $414,809 | 11.9% | 7.0% | 6.5% | | Tier I Capital (to risk weighted assets) | Summit | $343,106 | 9.8% | 8.5% | N/A | | | Summit Community | $414,809 | 11.9% | 8.5% | 8.0% | | Total Capital (to risk weighted assets) | Summit | $487,193 | 14.0% | 10.5% | N/A | | | Summit Community | $455,479 | 13.1% | 10.5% | 10.0% | | Tier I Capital (to average assets) | Summit | $343,106 | 8.7% | 4.0% | N/A | | | Summit Community | $414,809 | 10.6% | 4.0% | 5.0% | [NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS](index=41&type=section&id=NOTE%2014.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) Uses derivatives for cash flow and fair value hedges, including interest rate swaps and caps - Cash flow hedges: Two pay-fixed/receive LIBOR interest rate swaps (**$20M** notional each) hedging FHLB advances, and two interest rate caps (**$100M** notional each) hedging FHLB advances and indexed demand deposits[115](index=115&type=chunk)[116](index=116&type=chunk) - Fair value hedges: Two pay-fixed/receive variable interest rate swaps hedging commercial fixed-rate loans (**$21.3M** original notional), and one swap hedging available-for-sale taxable municipal securities (**$71.2M** original notional)[115](index=115&type=chunk)[116](index=116&type=chunk) Derivative Financial Instruments Summary | Derivative Type | Notional Amount | Asset Fair Value | Liability Fair Value | | :-------------------------------- | :-------------- | :--------------- | :----------------- | | Cash Flow Hedges (Swaps & Caps) | $240,000 | $28,158 | $0 | | Fair Value Hedges (Swaps) | $87,949 | $6,620 | $0 | [NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME](index=42&type=section&id=NOTE%2015.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20(LOSS)%20INCOME) Accumulated other comprehensive loss improved to **$(8.03) million** due to net current period OCI Accumulated Other Comprehensive (Loss) Income | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Ending balance | $(8,025) | $(11,479) | | **Change (QoQ)** | **+$3,454** | | - Net current period other comprehensive income (loss) for Q1 2023: **$3,454 thousand** (vs. **$(6,555) thousand** for Q1 2022)[119](index=119&type=chunk) - Key components of Q1 2023 OCI: Unrealized gains on debt securities available for sale (**$7,538 thousand**), unrealized losses on cash flow hedges (**$(3,136) thousand**), and unrealized losses on fair value hedges (**$(948) thousand**)[119](index=119&type=chunk) [NOTE 16. INCOME TAXES](index=43&type=section&id=NOTE%2016.%20INCOME%20TAXES) Income tax expense for Q1 2023 was **$3.6 million**, with an effective tax rate of **20.2%**, a slight decrease Income Tax Expense | Metric | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Total income tax expense | $3,575 | $3,257 | | **Change (YoY)** | **+$318 (+9.8%)** | | Effective Income Tax Rate | Metric | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Effective income tax rate | 20.2% | 21.8% | - Factors influencing effective tax rate: Tax-exempt interest and dividends (decrease), state income taxes (increase), low-income housing and rehabilitation tax credits (decrease)[120](index=120&type=chunk) [NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=43&type=section&id=NOTE%2017.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Net revenue from contracts with customers increased to **$3.89 million** for Q1 2023 - Interest income, loan fees, realized securities gains/losses, bank owned life insurance income, and mortgage banking revenue are outside the scope of ASC Topic 606[121](index=121&type=chunk) Net Revenue from Contracts with Customers | Revenue Type | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Service fees on deposit accounts | $1,392 | $1,401 | | Bank card revenue | $1,568 | $1,491 | | Trust and wealth management fees | $811 | $757 | | Other | $122 | $101 | | **Total net revenue from contracts with customers** | **$3,893** | **$3,750** | | Non-interest income within the scope of other ASC topics | $493 | $795 | | **Total noninterest income** | **$4,386** | **$4,545** | [NOTE 18. SUBSEQUENT EVENT](index=43&type=section&id=NOTE%2018.%20SUBSEQUENT%20EVENT) Acquired PSB Holding Corp. on April 1, 2023, for **$39.0 million** in stock and cash, deemed immaterial - Acquisition of PSB Holding Corp. on April 1, 2023[123](index=123&type=chunk) - Consideration: **$39.0 million** in stock (**1,880,732 shares**) and **$596,000** in cash[123](index=123&type=chunk) - Acquired assets: **~$568 million**; acquired liabilities: **~$528 million**[123](index=123&type=chunk) - Transaction deemed immaterial to financial statements[123](index=123&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion of financial condition and results for Q1 2023, covering income, expenses, and balance sheet - Discussion focuses on significant changes in financial condition and results of operations for Summit Financial Group, Inc. and Summit Community Bank[126](index=126&type=chunk) - Includes forward-looking statements based on current expectations, subject to risks and uncertainties[127](index=127&type=chunk)[128](index=128&type=chunk) - Primary income source is net interest income from loans and deposits, influenced by economic factors[129](index=129&type=chunk) [INTRODUCTION](index=44&type=section&id=INTRODUCTION) Outlines MD&A scope, focusing on financial changes and including cautionary forward-looking statements - Discussion focuses on significant changes in financial condition and results of operations for Summit Financial Group, Inc. and Summit Community Bank[126](index=126&type=chunk) - Contains forward-looking statements based on current expectations, subject to various risks and uncertainties[127](index=127&type=chunk)[128](index=128&type=chunk) - Readers should consider risk factors discussed in the Annual Report on Form 10-K[128](index=128&type=chunk) [OVERVIEW](index=44&type=section&id=OVERVIEW) Despite Q1 2023 industry volatility, Summit maintained robust liquidity, increased deposits, and strong capital - Primary income source: Net interest income from loans and deposits[129](index=129&type=chunk) - Despite industry volatility in Q1 2023, liquidity and balance sheet remain robust[130](index=130&type=chunk) - Total deposits increased **4.1%** to **$3.3 billion** at March 31, 2023, with minimal deposit outflow[130](index=130&type=chunk) - Capital ratios remain high: CET1 **8.9%**, Total Capital **14.0%**, Leverage **8.7%** at March 31, 2023[130](index=130&type=chunk) - Tangible Book Value Per Common Share (TBVPCS) increased **$1.20** to **$22.90**[131](index=131&type=chunk) - Net interest earnings on a tax equivalent basis increased **16.0%** YoY[132](index=132&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=44&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Financial statements use U.S. GAAP, relying on estimates for ACL, fair value, and acquired loans; no changes - Financial statements prepared in accordance with U.S. GAAP, requiring estimates, assumptions, and judgments[133](index=133&type=chunk) - Most subjective accounting areas: determination of ACL, fair value measurements, and accounting for acquired loans[135](index=135&type=chunk) - No significant changes in critical accounting policies since December 31, 2022[136](index=136&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=45&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) Presents non-GAAP measures like Tangible Book Value Per Common Share (TBVPCS) as additional investor information - Non-GAAP measures are provided as additional useful information, not as substitutes for GAAP[138](index=138&type=chunk) Book Value and Tangible Book Value Per Common Share | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Book value per common share | $27.73 | $26.57 | | Tangible book value per common share | $22.90 | $21.70 | [RESULTS OF OPERATIONS](index=45&type=section&id=RESULTS%20OF%20OPERATIONS) Q1 2023 results show increased net income and improved returns, primarily driven by higher net interest income - Net income applicable to common shares for Q1 2023 was **$13.9 million**, or **$1.08 per diluted share**, up from **$11.5 million**, or **$0.90 per diluted share** in Q1 2022[140](index=140&type=chunk) - Returns on average equity and assets for Q1 2023 were **15.55%** and **1.43%**, respectively, up from **14.20%** and **1.30%** in Q1 2022[140](index=140&type=chunk) [Earnings Summary](index=45&type=section&id=Earnings%20Summary) Net income applicable to common shares increased to **$13.9 million** for Q1 2023, improving returns - Net income applicable to common shares: **$13.9 million** (Q1 2023) vs. **$11.5 million** (Q1 2022)[140](index=140&type=chunk) - Diluted EPS: **$1.08** (Q1 2023) vs. **$0.90** (Q1 2022)[140](index=140&type=chunk) - Returns on average equity: **15.55%** (Q1 2023) vs. **14.20%** (Q1 2022)[140](index=140&type=chunk) - Returns on average assets: **1.43%** (Q1 2023) vs. **1.30%** (Q1 2022)[140](index=140&type=chunk) [Net Interest Income](index=45&type=section&id=Net%20Interest%20Income) Net interest income on a fully taxable-equivalent basis increased to **$34.6 million** for Q1 2023 Net Interest Income and Margin | Period | Q1 2023 | Q4 2022 | Q1 2022 | | :-------------------------------- | :------ | :------ | :------ | | Net interest income | $34,600 | $34,700 | $29,800 | | **Change (QoQ)** | **$(163)** | | | | **Change (YoY)** | **+$4,800** | | | | Net interest margin | 3.83% | 3.80% | 3.61% | | **Change (QoQ)** | **+3 bps** | | | | **Change (YoY)** | **+22 bps** | | | - Average interest earning assets increased **9.2%** YoY to **$3.66 billion**[146](index=146&type=chunk) - Yield on interest earning assets increased **163 basis points** YoY, while cost of interest bearing funds increased **171 basis points** YoY[147](index=147&type=chunk) [Provision for Credit Losses](index=47&type=section&id=Provision%20for%20Credit%20Losses) Provision for credit losses decreased to **$1.5 million** for Q1 2023, influenced by loan volume and forecasts Total Provision for Credit Losses | Metric | Q1 2023 | Q1 2022 | | :-------------------------------- | :------ | :------ | | Total provision for credit losses | $1,500 | $1,950 | | **Change (YoY)** | **$(450) (-23.1%)** | | - Key drivers of change in provision for credit losses - loans (Q1 2023 vs Q1 2022): * Loan volume and mix: **$(683) thousand** (Q1 2023) vs. **$2,648 thousand** (Q1 2022)[156](index=156&type=chunk) * Reasonable and supportable economic forecasts & other qualitative adjustments: **$2,393 thousand** (Q1 2023) vs. **$(757) thousand** (Q1 2022)[156](index=156&type=chunk) [Noninterest Income](index=48&type=section&id=Noninterest%20Income) Total noninterest income decreased by **3.5%** to **$4.39 million** for Q1 2023, due to fewer equity gains Total Noninterest Income | Metric | Q1 2023 | Q1 2022 | | :-------------------------------- | :------ | :------ | | Total noninterest income | $4,386 | $4,545 | | **Change (YoY)** | **$(159) (-3.5%)** | | - Key changes in noninterest income (Q1 2023 vs Q1 2022): * Net gains on equity investments: **$45 thousand** (Q1 2023) vs. **$372 thousand** (Q1 2022)[158](index=158&type=chunk) * Trust and wealth management fees: **$811 thousand** (Q1 2023) vs. **$757 thousand** (Q1 2022)[158](index=158&type=chunk) * Mortgage origination revenue: **$171 thousand** (Q1 2023) vs. **$339 thousand** (Q1 2022)[158](index=158&type=chunk) [Noninterest Expense](index=49&type=section&id=Noninterest%20Expense) Total noninterest expense increased by **12.8%** to **$19.40 million** for Q1 2023, driven by salaries and acquisitions Total Noninterest Expenses | Metric | Q1 2023 | Q1 2022 | | :-------------------------------- | :------ | :------ | | Total noninterest expenses | $19,399 | $17,199 | | **Change (YoY)** | **+$2,200 (+12.8%)** | | - Key drivers of increase (Q1 2023 vs Q1 2022): * Salaries, commissions, and employee benefits: **+$1,107 thousand (+11.4%)**[160](index=160&type=chunk) * Acquisition-related expenses: **+$302 thousand (+1041.4%)** due to PSB transaction[161](index=161&type=chunk) * Other expenses: **+$509 thousand (+20.7%)**, partly due to increased Virginia franchise tax and changes in deferred director compensation plan[162](index=162&type=chunk) [Income Taxes](index=50&type=section&id=Income%20Taxes) Income tax expense for Q1 2023 was **$3.6 million**, with an effective tax rate of **20.2%**, a slight decrease - Income tax expense: **$3.6 million** (Q1 2023) vs. **$3.3 million** (Q1 2022)[163](index=163&type=chunk) - Effective tax rate: **20.2%** (Q1 2023) vs. **21.8%** (Q1 2022)[163](index=163&type=chunk) - Refer to Note 16 for further details on income taxes[163](index=163&type=chunk) [FINANCIAL CONDITION](index=50&type=section&id=FINANCIAL%20CONDITION) Total assets increased by **$60.72 million** to **$3.98 billion** at March 31, 2023, driven by cash, securities, loans - Total assets: **$3.98 billion** (March 31, 2023) vs. **$3.92 billion** (December 31, 2022)[164](index=164&type=chunk) Financial Condition Summary | Asset/Liability | December 31, 2022 | Increase (Decrease) | March 31, 2023 | | :-------------------------------- | :---------------- | :------------------ | :------------- | | Cash and cash equivalents | $44,717 | $26,099 | $70,816 | | Debt securities available for sale | $405,201 | $26,732 | $431,933 | | Loans, net | $3,043,919 | $15,180 | $3,059,099 | | Deposits | $3,169,879 | $129,967 | $3,299,846 | | Short-term borrowings | $225,999 | $(85,849) | $140,150 | | Shareholders' Equity - common | $339,610 | $15,016 | $354,626 | [Cash and cash equivalents](index=50&type=section&id=Cash%20and%20cash%20equivalents) Cash and cash equivalents increased by **$26.1 million** during Q1 2023, primarily due to increased customer deposits - Net increase of **$26.1 million**, primarily from increased customer deposits[165](index=165&type=chunk) [Debt securities available for sale](index=50&type=section&id=Debt%20securities%20available%20for%20sale) Debt securities available for sale increased by **$26.7 million** in Q1 2023, mainly from MBS purchases - Net increase of **$26.7 million**, principally from purchases of mortgage-backed securities[166](index=166&type=chunk) [Loans](index=51&type=section&id=Loans) Total loans, net, increased by **$15.18 million** to **$3.06 billion** at March 31, 2023 - Net increase of **$15.18 million**[165](index=165&type=chunk) - Mortgage warehouse lines of credit declined **$44.2 million**[167](index=167&type=chunk) - Excluding mortgage warehouse lines, loan growth was **$61.3 million**[167](index=167&type=chunk) [Derivative financial instruments](index=51&type=section&id=Derivative%20financial%20instruments) Derivative financial instruments decreased by **$5.75 million** in Q1 2023 due to decreased fair value of hedges - Decrease of **$5.75 million** due to decreased fair value of cash flow and interest rate hedges[168](index=168&type=chunk) [Deposits](index=51&type=section&id=Deposits) Total deposits increased by **$129.97 million** in Q1 2023, with growth in interest-bearing checking and brokered CDs - Net increase of **$129.97 million**[165](index=165&type=chunk) - Noninterest bearing checking deposits decreased **$901,000**[169](index=169&type=chunk) - Interest bearing checking deposits grew **$142.7 million**[169](index=169&type=chunk) - Brokered CDs increased **$38.7 million**[169](index=169&type=chunk) - Savings deposits declined **$34.1 million** and retail CDs decreased **$16.4 million**[169](index=169&type=chunk) [Shareholders' equity - common](index=51&type=section&id=Shareholders'%20equity%20-%20common) Common shareholders' equity increased by **$15.02 million** in Q1 2023; TBVPCS increased to **$22.90** - Increase of **$15.02 million**, resulting from net income, other comprehensive income, and common dividends[165](index=165&type=chunk)[170](index=170&type=chunk) - TBVPCS increased **$1.20** to **$22.90**[170](index=170&type=chunk) - TBVPCS was positively impacted by **$0.59 per common share** from unrealized net gains on debt securities available for sale (net of deferred taxes)[170](index=170&type=chunk) - TBVPCS was negatively impacted by **$0.32 per common share** from unrealized net losses on interest rate caps and swaps (net of deferred taxes)[170](index=170&type=chunk) [Credit Experience](index=51&type=section&id=Credit%20Experience) Non-performing assets decreased to **$12.43 million**; ACLL increased to **$40.8 million** (1.32% of loans) - Non-performing assets decreased since year-end 2022[177](index=177&type=chunk) Nonperforming Assets Summary | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total nonperforming assets | $12,430 | $12,890 | | Total nonperforming loans | $7,302 | $7,823 | | Total foreclosed properties | $5,128 | $5,067 | - Allowance for loan credit losses (ACLL): **$40.8 million** (**1.32%** of total loans) at March 31, 2023, up from **$38.9 million** (**1.26%** of total loans) at December 31, 2022[174](index=174&type=chunk) - Net loan recoveries: **$63,000** in Q1 2023 (**0.01%** of average loans annualized) vs. **$509,000** net loan charge-offs in Q1 2022 (**0.07%** of average loans annualized)[175](index=175&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=53&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Maintains strong liquidity of **$1.7 billion** and robust capital, with shareholders' equity at **$369.5 million** - Liquidity provided by cash, federal funds sold, non-pledged securities, and available lines of credit, totaling approximately **$1.7 billion** (**41.77%** of total consolidated assets) at March 31, 2023[182](index=182&type=chunk) - Additional borrowing capacity: **$1.15 billion** through FHLB programs and **$265 million** with the Federal Reserve Bank[183](index=183&type=chunk) - Shareholders' equity: **$369.5 million** at March 31, 2023 (vs. **$354.5 million** at December 31, 2022)[186](index=186&type=chunk) - Asset/Liability Management Committee (ALCO) oversees liquidity risk management[184](index=184&type=chunk) [CONTRACTUAL CASH OBLIGATIONS](index=53&type=section&id=CONTRACTUAL%20CASH%20OBLIGATIONS) Contractual cash obligations total **$131.24 million**, including long-term debt, debentures, and operating leases Contractual Cash Obligations by Maturity | Obligation Type | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | | :-------------------------------- | :--- | :--- | :--- | :--- | :--- | :--------- | :---- | | Long Term Debt | $17 | $23 | $24 | $589 | $0 | $0 | $653 | | Subordinated Debentures | $0 | $0 | $0 | $0 | $0 | $105,000 | $105,000 | | Capital Trust Securities | $0 | $0 | $0 | $0 | $0 | $19,589 | $19,589 | | Operating Leases | $748 | $965 | $900 | $875 | $779 | $1,719 | $5,986 | | **Total** | **$765** | **$988** | **$924** | **$1,464** | **$779** | **$126,308** | **$131,228** | [OFF-BALANCE SHEET ARRANGEMENTS](index=54&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) Off-balance sheet arrangements, primarily credit commitments, totaled **$907.76 million** at March 31, 2023 Off-Balance Sheet Commitments | Arrangement Type | Amount | | :-------------------------------- | :----- | | Revolving home equity and credit card lines | $104,427 | | Construction loans | $242,542 | | Other loans | $504,056 | | Standby letters of credit | $56,732 | | **Total** | **$907,757** | - These arrangements involve credit and interest rate risk[99](index=99&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discusses market risk, primarily interest rate risk, managed through earnings simulations and hedging strategies - Primary market risk is interest rate risk, resulting from repricing differences and embedded options[193](index=193&type=chunk) - The company's interest rate risk position is asset sensitive, implying increased net income in a rising rate environment and decreased net income in a falling rate environment[194](index=194&type=chunk) - Interest rate risk is controlled by matching maturities and hedging with derivatives (swaps and caps)[195](index=195&type=chunk) - Earnings simulations model forecasts effects on net interest income under various interest rate scenarios[195](index=195&type=chunk) [Market Risk Management](index=55&type=section&id=Market%20Risk%20Management) ALCO oversees interest rate risk; company is asset sensitive, expecting net income to increase in rising rates - ALCO formulates economic assumptions and establishes policies for funds management[193](index=193&type=chunk) - Interest rate risk position is asset sensitive[194](index=194&type=chunk) Estimated Change in Net Interest Income | Change in Interest Rates | Estimated % Change in Net Interest Income over 0-12 Months | | :-------------------------------- | :------------------------------------------------------- | | Down 100 basis points | -0.4% | | Down 200 basis points | -0.8% | | Down 200 basis points - steepening curve | 4.7% | | Up 200 basis points | -1.5% | [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control - Disclosure controls and procedures were effective as of March 31, 2023[198](index=198&type=chunk) - No material changes in internal control over financial reporting during Q1 2023[198](index=198&type=chunk) [PART II. OTHER INFORMATION](index=57&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information beyond financial statements, including legal, risk factors, and exhibits [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 11 for legal proceedings, indicating no material litigation with significant adverse effects - Refer to Note 11 for legal proceedings information[199](index=199&type=chunk) - No significant adverse effect from litigation is expected[105](index=105&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) Directs readers to the Annual Report on Form 10-K for a comprehensive discussion of risk factors - Readers should carefully consider risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Board authorized repurchase plan for **750,000** common shares; **10,000** shares purchased in March 2023 - February 2020 Repurchase Plan authorized repurchase of up to **750,000** common shares[201](index=201&type=chunk) Common Stock Repurchase Plan Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Shares Remaining Under Plan | | :-------------------------------- | :----------------------------- | :--------------------------- | :-------------------------- | | March 1, 2023 - March 31, 2023 | 10,000 | $22.52 | 426,423 | - All shares purchased were for the benefit of Summit's Employee Stock Ownership Plan[203](index=203&type=chunk) [Item 3. Defaults upon Senior Securities](index=2&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) Reports no defaults upon senior securities - No defaults upon senior securities[7](index=7&type=chunk) [Item 4. Mine Safety Disclosures](index=2&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Reports no mine safety disclosures - No mine safety disclosures[7](index=7&type=chunk) [Item 5. Other Information](index=2&type=section&id=Item%205.%20Other%20Information) Reports no other information to disclose under this item - No other information to disclose under this item[7](index=7&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the 10-Q report, including corporate governance documents and regulatory certifications - Lists various exhibits, including corporate governance documents, financial computations, and regulatory certifications[205](index=205&type=chunk) - Includes Sarbanes-Oxley Act Section 302 and 906 Certifications from CEO and CFO[205](index=205&type=chunk) [EXHIBIT INDEX](index=59&type=section&id=EXHIBIT%20INDEX) Provides a detailed list of all exhibits accompanying the Form 10-Q, with descriptions and references - Detailed list of all exhibits filed with the Form 10-Q[206](index=206&type=chunk) - Indicates whether exhibits are incorporated by reference from previous filings[207](index=207&type=chunk)[208](index=208&type=chunk) [SIGNATURES](index=60&type=section&id=SIGNATURES) Contains required signatures of authorized officers, certifying the filing of the report on May 10, 2023 - Report duly signed by authorized officers: H. Charles Maddy, III (President and CEO), Robert S. Tissue (EVP and CFO), and Julie R. Markwood (EVP and Chief Accounting Officer)[212](index=212&type=chunk) - Date of signing: May 10, 2023[212](index=212&type=chunk)