Summit(SMMF) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION 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 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 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 $4.64 billion, primarily driven by an increase in loans, net, and cash and cash equivalents, partially offset by a decrease in debt securities available for sale[9][165] Consolidated Statements of Income This statement reports the company's revenues, expenses, and net income over specific periods | Metric | Three Months Ended March 31, 2024 ($ 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][140] - Diluted EPS increased to $1.14 in Q1 2024 from $1.08 in Q1 2023[11][140] Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income, reflecting changes in equity from non-owner sources | Metric | Three Months Ended March 31, 2024 ($ 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 $0.24 million[12] Consolidated Statements of Shareholders' Equity This statement details changes in the company's equity accounts over a period, including net income and dividends | Metric | Balance December 31, 2023 ($ 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 $454.28 million, mainly due to net income and other comprehensive income, partially offset by common and preferred stock dividends[13][168] Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company across operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 ($ 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 $10.72 million outflow[14][16] Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements NOTE 1. BASIS OF PRESENTATION This note outlines the accounting principles and assumptions used in preparing the interim consolidated financial statements - The consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and include all necessary normal recurring adjustments for fair presentation[17] - The preparation of financial statements involves estimates and assumptions that may differ materially from actual results[18] - Results for the three months ended March 31, 2024, are not indicative of full-year results and should be read with the 2023 Annual Report on Form 10-K[19] NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE This note details recently adopted and pending accounting standards updates and their expected impact on the financial statements - ASU 2023-02 (Investments—Equity Method and Joint Ventures) and ASU 2022-03 (Fair Value Measurement) were adopted on January 1, 2024, with no material impact on financial statements[20][21] - ASU 2023-09 (Income Taxes) and ASU 2023-06 (Disclosure Improvements) are pending adoption, effective for annual periods beginning after December 15, 2024, and are not expected to have a material impact[22][23] NOTE 3. FAIR VALUE MEASUREMENTS This note provides information on assets and liabilities measured at fair value, categorized by input levels | Asset/Liability | March 31, 2024 Fair Value ($ 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 ($485.80 million at March 31, 2024), while equity investments use a mix of Level 1 and Level 2 inputs[26] | Financial Instrument | March 31, 2024 Carrying Value ($ 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 | $91,605 | NOTE 4. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per common share | Metric | Three Months Ended March 31, 2024 ($ 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 $1.14 in Q1 2024[30] - Anti-dilutive Stock Appreciation Rights (SARs) totaled 215,388 for Q1 2024, compared to 563,936 for Q1 2023[30] NOTE 5. DEBT SECURITIES This note provides details on the company's debt securities, categorized as available for sale and held to maturity | Debt Securities Available for Sale | March 31, 2024 Fair Value ($ 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][33][165] - At March 31, 2024, 395 securities were in an unrealized loss position, totaling $42.57 million in unrealized losses, primarily attributed to changes in market interest rates rather than credit quality[38][39] | Debt Securities Held to Maturity | March 31, 2024 Fair Value ($ 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 | $5,908 | NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (ACLL) This note details the composition of the loan portfolio, credit quality, and the allowance for credit losses | Loan Category | March 31, 2024 ($ 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 $3.697 billion, with growth primarily in commercial and commercial real estate loans, while construction and development loans decreased[49][167] | Past Due Status (March 31, 2024) | 30-59 days ($ 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 $21.12 million at March 31, 2024, with commercial and commercial real estate categories showing the largest increases[54][176] | Allowance for Credit Losses - Loans | March 31, 2024 ($ 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][172] NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS This note provides information on the company's goodwill and other intangible assets, including amortization - Goodwill remained stable at $56.0 million at March 31, 2024, and December 31, 2023, and is tested annually for impairment[76] | Other Intangible Assets | March 31, 2024 ($ 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 $0.34 million in Q1 2023[78] NOTE 8. DEPOSITS This note details the composition of the company's deposit base by type | Deposit Type | March 31, 2024 ($ 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][80][167] - Time deposits with denominations exceeding the FDIC insurance limit ($250,000) totaled $153.4 million at March 31, 2024, up from $138.1 million at December 31, 2023[81] NOTE 9. BORROWED FUNDS This note provides information on the company's short-term and long-term borrowings, including subordinated debentures | Borrowing Type | March 31, 2024 ($ 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][165] - 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][87] - Subordinated debentures owed to unconsolidated subsidiary trusts, totaling $19.59 million, qualify as Tier 1 capital[89][90] NOTE 10. SHARE-BASED COMPENSATION 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][95] - Total share-based compensation expense for Q1 2024 was $0.16 million, down from $0.20 million in Q1 2023[95] - Unrecognized compensation expense related to nonvested awards totaled $2.1 million at March 31, 2024, to be recognized over an average of 2.24 years[95] NOTE 11. COMMITMENTS AND CONTINGENCIES This note outlines the company's off-balance sheet commitments and potential contingent liabilities | Off-Balance Sheet Commitments | March 31, 2024 ($ 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] - The provision for credit losses on unfunded commitments was $(1.1 million) for Q1 2024, compared to $(0.38 million) for Q1 2023[102] NOTE 12. PREFERRED STOCK 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 $10,000 per share[105] - Dividends on preferred stock are non-cumulative and payable quarterly, if declared[105] NOTE 13. REGULATORY MATTERS This note provides information on the company's compliance with regulatory capital requirements - Summit Community Bank, Inc. (subsidiary) met all 'well capitalized' capital adequacy requirements as of March 31, 2024[106][107] | Capital Ratio (March 31, 2024) | Summit Actual (%) | Summit Community Actual (%) | Minimum Required (Basel III) (%) | Minimum Required (Well Capitalized) (%) | | :----------------------------------- | :------------ | :---------------------- | :--------------------------- | :---------------------------------- | | CET1 (to risk weighted assets) | 9.4% | 12.0% | 7.0% | 6.5% | | Tier I Capital (to risk weighted assets) | 10.2% | 12.0% | 8.5% | 8.0% | | Total Capital (to risk weighted assets) | 14.0% | 13.3% | 10.5% | 10.0% | | Tier I Capital (to average assets) | 9.0% | 10.6% | 4.0% | 5.0% | - The company elected an optional phase-in period for ASC 326 (CECL) impact on regulatory capital, delaying the initial impact and phasing out cumulative adjustments over three years after two years[108] NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS This note describes the company's use of derivative instruments for hedging purposes and their fair values - The company uses derivative instruments (interest rate swaps and caps) to hedge against adverse interest rate movements, with all transactions qualifying for hedge accounting[113] | Derivative Type (March 31, 2024) | Notional Amount ($ 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 $36.80 million at March 31, 2024[9][115] NOTE 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME This note provides a breakdown of the components of accumulated other comprehensive income (loss) | Component (Net of Tax) | March 31, 2024 Ending Balance ($ 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 $0.24 million[117] NOTE 16. INCOME TAXES This note details the company's income tax expense and effective tax rate | Income Tax Metric | Three Months Ended March 31, 2024 ($ 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 $1.42 million (39.8%) in Q1 2024 compared to Q1 2023, with the effective tax rate rising from 20.2% to 22.7%[118][163] - The increase in effective tax rate was mainly due to higher state income taxes (net of federal benefit) and other net adjustments, partially offset by a smaller decrease from tax-exempt interest and dividends[118] NOTE 17. REVENUE FROM CONTRACTS WITH CUSTOMERS This note disaggregates revenue generated from contracts with customers by type | Revenue Type | Three Months Ended March 31, 2024 ($ 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][157] NOTE 18. MERGER 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] - Each Summit common stock share will convert into 0.5043 shares of Burke & Herbert common stock, with cash for fractional shares[122] - The merger is expected to close on May 3, 2024, followed by the merger of their banking subsidiaries[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The report contains forward-looking statements, and actual results may differ materially due to various economic, market, and regulatory factors[126][127] 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][141] - A merger with Burke & Herbert Financial Services Corp. is pending, expected to close on May 3, 2024[129] - Tangible Book Value Per Common Share (TBVPCS) increased by $1.02 to $24.91 in Q1 2024, primarily due to retained earnings and positive impacts from unrealized gains on interest rate hedges[131] - Average interest-earning assets increased by 18.1% year-over-year, while tax-equivalent net interest earnings rose by 16.3%, and the tax-equivalent net interest margin decreased by 8 basis points[132] CRITICAL ACCOUNTING POLICIES This section discusses the significant accounting policies that require management's subjective judgments and estimates - Financial statements are prepared under U.S. GAAP, requiring estimates and judgments that can materially affect reported amounts[133] - Key accounting areas requiring subjective judgment include the determination of Allowance for Credit Losses (ACL), fair value measurements, and accounting for acquired loans[135] - No significant changes in critical accounting policies have occurred since December 31, 2023[136] NON-GAAP FINANCIAL MEASURES This section presents non-GAAP financial measures to provide additional insights into the company's financial performance - Non-GAAP financial measures are provided to offer additional insights into financial condition and operating performance, but are not substitutes for GAAP measures[138] | Metric | March 31, 2024 ($ 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 $23.89 at December 31, 2023[139] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including earnings, net interest income, and noninterest income/expense Earnings Summary This summary provides key earnings metrics and highlights the drivers of net income changes | Metric | Three Months Ended March 31, 2024 ($ 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] - The PSB acquisition contributed to increased average balances, income, and expenses in Q1 2024 compared to Q1 2023[141] Net Interest Income 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] - 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] - 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] - 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] - 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] Provision for Credit Losses 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 $1.5 million in Q1 2023[155][156] | Provision Component | Three Months Ended March 31, 2024 ($ 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 | $1,500 | Noninterest Income This section analyzes the various sources of noninterest income - Total noninterest income increased by 15.8% in Q1 2024 compared to Q1 2023, driven by higher service charges on deposit accounts and bank card revenue[157] | Noninterest Income Category | Three Months Ended March 31, 2024 ($ 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 This section details the components of noninterest expenses and their changes - Total noninterest expense increased by 18.3% to $22.96 million in Q1 2024 compared to Q1 2023, primarily due to higher salaries, commissions, employee benefits, and equipment expense[159][160] | Noninterest Expense Category | Three Months Ended March 31, 2024 ($ 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] - Other expenses increased due to higher deferred director compensation plan income, internet banking expenses, fraud losses, and debit card issuance/processing costs[162] Income Taxes 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 $3.6 million in Q1 2023[163] - The effective tax rate increased to 22.7% in Q1 2024 from 20.2% in Q1 2023[163] FINANCIAL CONDITION This section provides an analysis of the company's balance sheet and credit quality Summary of Significant Changes in Financial Position This summary highlights key changes in the company's assets, liabilities, and equity over the period | Asset/Liability | December 31, 2023 ($ 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][165] - Loan growth (excluding mortgage warehouse lines) was $15.4 million in Q1 2024[167] - 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] - Common shareholders' equity increased by $14.07 million, driven by net income and common dividends[168] Credit Experience 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] - 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] - Net loan recoveries were $0.09 million in Q1 2024, compared to $0.06 million in Q1 2023[173] | Non-Performing Assets | March 31, 2024 ($ 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][176] LIQUIDITY AND CAPITAL RESOURCES 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] - 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] - Shareholders' equity totaled $454.3 million at March 31, 2024, up from $440.2 million at December 31, 2023[184] - The Asset/Liability Management Committee (ALCO) oversees liquidity risk management, aiming to ensure cost-effective funding and sufficient on-hand liquidity under various circumstances[182] CONTRACTUAL CASH OBLIGATIONS This section outlines the company's future contractual cash obligations by type and maturity | Obligation Type | 2024 (9 months) ($ 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 | $127,120 | OFF-BALANCE SHEET ARRANGEMENTS This section describes the company's off-balance sheet commitments for credit extensions | Commitment Type | March 31, 2024 ($ 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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][195] - 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] | 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 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] - No material changes in internal control over financial reporting occurred during Q1 2024[198] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings 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][199] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] - As of March 31, 2024, 426,423 shares remained available for purchase under the plan[203] Item 3. Defaults upon Senior Securities This section confirms that no defaults on senior securities occurred during the reporting period - No defaults upon senior securities were reported[7] Item 4. Mine Safety Disclosures This section confirms that no mine safety disclosures were required for the reporting period - No mine safety disclosures were reported[7] Item 5. Other Information This section indicates that no other information was reported under this item - No other information was reported[7][205] Item 6. Exhibits 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][208] - Interactive Data Files (Inline XBRL) are furnished, not filed, for purposes of certain Securities Act and Exchange Act sections[208][209] 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] - The signing date is May 2, 2024[214]