[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)

Regulatory Compliance - The company is required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC, containing detailed financial and operating information [30]. - The Dodd-Frank Act established the Bureau of Consumer Financial Protection and requires compliance with its rules, enforced by the FDIC [33]. - The Basel III Capital Rules mandate a minimum Common Equity Tier 1 (CET1) risk-based capital ratio of 4.5% and a total risk-based capital ratio of 8% [50]. - The company must maintain a capital conservation buffer of 2.5% composed solely of CET1 capital to avoid limitations on certain activities [51]. - The FRB has the authority to require a financial holding company to contribute capital to a troubled subsidiary bank [47]. - The company is subject to limitations on dividend payments if its capital conservation buffer is less than or equal to 2.5% [51]. - The FRB regulates and monitors the capital adequacy of bank holding companies, using risk-based guidelines and leverage ratios [48]. - The company is excluded from the Volcker Rule due to its asset size, which has not materially impacted its operations [41]. - The BHC Act requires prior approval from the FRB for the acquisition of more than 5.0% of the voting shares of a commercial bank [42]. - The Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB) to oversee compliance with federal consumer protection laws, which applies to Summit as a bank with less than $10 billion in assets [66]. - The USA Patriot Act requires financial institutions to have policies to detect and prevent money laundering, with Summit expected to allocate significant resources to its anti-money laundering program [69]. - Federal banking regulators require institutions to notify their primary regulator within 36 hours of a significant cybersecurity incident [73]. - The Community Reinvestment Act (CRA) requires banks to meet the credit needs of the communities they serve, and Summit Community received a "satisfactory" CRA rating in its most recent examination [61]. - The Graham-Leach-Bliley Act mandates that financial institutions adopt privacy policies and restrict sharing nonpublic customer data, which Summit has established compliance procedures for [63]. - Under West Virginia banking law, any acquisition or merger is limited to not exceeding 25% of total deposits held by insured depository institutions in the state [64]. Financial Performance - Net interest income on a fully tax equivalent basis increased to $130.3 million in 2022, representing a 17.4% increase from 2021 [224]. - Total average earning assets rose by 11.4% to $3.49 billion in 2022, compared to $3.13 billion in 2021 [226]. - The company's net interest margin was 3.73% in 2022, an increase of 19 basis points from 2021 [227]. - Earnings on interest earning assets increased by $36.6 million in 2022, primarily due to higher volumes [225]. - Total average interest bearing liabilities increased by 12.0% to $2.78 billion at December 31, 2022 [226]. - Noninterest income decreased to $18,153,000 in 2022 from $20,208,000 in 2021, primarily due to a $2,519,000 decline in mortgage origination revenue [240]. - Noninterest expense rose to $72,879,000 in 2022, a 6.0% increase from $68,739,000 in 2021, driven mainly by higher salaries and employee benefits [241]. - The effective tax rate for 2022 was 20.9%, up from 20.3% in 2021, with income tax expense totaling $14,100,000 [248]. - Trust and wealth management fees increased to $2,978,000 in 2022 from $2,886,000 in 2021, indicating growth in this segment [240]. - The company recorded realized losses on debt securities of $708,000 in 2022, compared to gains of $425,000 in 2021 [240]. Capital Management - As of December 31, 2022, the company's regulatory capital ratios are well in excess of the minimum regulatory capital ratios plus the full Capital Conservation Buffer [53]. - A bank is considered "well capitalized" if it has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater [58]. - The company has approximately $19.6 million in junior subordinated debentures as of December 31, 2022, which are senior to common stock in terms of payment priority [150]. - The company issued $30 million in subordinated notes with a fixed interest rate of 5.00% until 2025, after which the rate will reset based on the three-month term SOFR plus 487 basis points [155]. - The capital securities held by the company's trust subsidiaries qualify as Tier 1 capital under FRB guidelines, with limitations on the amount that can be included [154]. - The company issued $75 million in subordinated notes with a fixed interest rate of 3.25% per year until December 1, 2026, after which it will switch to a floating rate [158]. - Total interest payments on the subordinated notes amounted to $4.0 million in 2022, with quarterly obligations of approximately $1.2 million for the 2021 subordinated notes [162]. Workforce and Diversity - As of December 31, 2022, Summit employed 432 full-time equivalent team members, with an increase of approximately 209 full-time employees from acquisitions over the last six years [87]. - The average tenure of full-time employees is 9.98 years, while the executive management team's average tenure is approximately 24.74 years [87]. - Summit's workforce is 78% gender/racial diverse, reflecting the company's commitment to diversity and inclusion [92]. - The Company matches 100% of employee salary reduction contributions to the 401(k) plan, up to 4% of compensation [94]. - The Employee Stock Ownership Plan (ESOP) owned 4.3% of the Company's common stock as of December 31, 2022, with discretionary contributions made by the Company for 2022 amounting to 6% [94]. Market Position and Competition - Summit has been recognized as the number-one "Best-In-State-Bank" in West Virginia by Forbes in both 2018 and 2022, based on a survey of over 25,000 customers [88]. - The Company actively competes for market share by offering competitive rates and terms on loans and deposits [86]. - The company faces aggressive competition from larger financial institutions, which may impact its market share and profitability [166]. - The Company has acquired five whole banks and eight branches over the last six years, enhancing its market presence [87]. Risk Management - The company is exposed to risks related to fraud and financial crimes, which have been increasing nationally [126]. - The company faces significant cybersecurity risks, including attempts to misappropriate sensitive information and introduce malware, which could adversely affect operations and customer trust [130]. - The company has implemented various security measures, but there is no assurance that these will be effective against evolving cyber threats, potentially leading to operational disruptions and financial liabilities [131]. - The company relies on third-party vendors for critical information systems and data management, which poses operational risks if these vendors encounter issues [133]. - The company is subject to environmental liability risks associated with its lending activities, particularly with properties securing loans [119]. - Economic conditions in the company's primary markets, including West Virginia and parts of Virginia and Kentucky, could negatively impact financial performance during prolonged economic downturns [139]. - Inflation has risen sharply since 2021, with expectations of continued elevated levels throughout 2023, potentially affecting the ability of business clients to repay loans and increasing operational costs [140]. - Changes in accounting standards could materially impact the company's financial statements and reported earnings [169]. Asset and Deposit Management - Total assets increased to $3,760,303 thousand in 2022, up from $3,353,281 thousand in 2021, representing a growth of 12.1% [229]. - Total liabilities increased to $3,424,202 thousand in 2022, compared to $3,043,472 thousand in 2021, marking a rise of 12.5% [229]. - Total deposits increased by $226,790,000 to $3,169,879,000 in 2022, reflecting strong customer retention and growth [251]. - Interest-bearing demand deposits grew to $1,350,227 thousand in 2022, up from $1,044,817 thousand in 2021, reflecting a 29.2% increase [229]. - Brokered deposits increased to $32.8 million, or approximately 1.0% of total deposits, compared to $14.7 million, or approximately 0.5% of total deposits at December 31, 2021 [113]. - Total deposits acquired from the purchase of MVB Bank branches in 2021 totaled $164.0 million [267]. - Retail time deposits declined by $189.7 million during 2022 [267]. - Core transaction accounts grew by $598.3 million or 35.3% during 2022, while internet-only high yielding savings products decreased by $166.3 million [267].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 300 North Main Street Moorefield, West Virginia 26836 (Address of principal executive offices) (Zip Code) FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number 0-16587 ( ...

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Commission File Number 0-16587 FORM 10-Q Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or West Virginia 55-0672148 (St ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) (304) 530-1000 Large accele ...

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 For the fiscal year ended December 31, 2021 Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) West Virginia (State or other jurisdiction of incorporation or organization) 300 N. Main Street Moorefield, West Virginia (Address of principal executive offices) 55-0672148 (I.R.S. Empl ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) West Virginia 55-067214 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) West Virginia 55-0672148 (St ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) West Virginia 55-0672148 (S ...

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 For the fiscal year ended December 31, 2020 Commission File Number 0-16587 Summit Financial Group, Inc. (Exact name of registrant as specified in its charter) West Virginia (State or other jurisdiction of incorporation or organization) 300 N. Main Street Moorefield, West Virginia (Address of principal executive offices) 55-0672148 (I.R.S. Empl ...