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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 
https://cdn.kscope.io/81af083cc18f2b623155390216e08cef-smmf-20210930_g1.jpg
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
West Virginia55-0672148
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
300 North Main Street 
MoorefieldWest Virginia26836
(Address of principal executive offices)(Zip Code)
(304) 530-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☑No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☑No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o               Accelerated filer þ    Non-accelerated filer o
                  Smaller reporting company ☐     Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐No☑







Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, Par Value $2.50 per shareSMMFNASDAQ Global Select Market


Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
13,003,145 shares outstanding as of November 3, 2021


Table of Contents

   Page
PART  I.FINANCIAL INFORMATION 
    
 Item 1.Financial Statements 
    
  Consolidated balance sheets September 30, 2021 (unaudited) and
December 31, 2020
    
  Consolidated statements of income
for the three and nine months ended September 30, 2021 and 2020 (unaudited)
    
  Consolidated statements of comprehensive income
for the three and nine months ended September 30, 2021 and 2020 (unaudited)
    
  Consolidated statements of shareholders’ equity
for the three and nine months ended
September 30, 2021 and 2020 (unaudited)
    
  Consolidated statements of cash flows
for the nine months ended
September 30, 2021 and 2020 (unaudited)
    
  Notes to consolidated financial statements (unaudited)
    
 Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations
    
 Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4.Controls and Procedures
PART II.OTHER INFORMATION 
 Item 1.Legal Proceedings
    
 Item 1A.Risk Factors
    
 Item 2.Unregistered Sales of Equity Securities and Use of ProceedsNone
    
 Item 3.Defaults upon Senior SecuritiesNone
    
 Item 4.Mine Safety DisclosuresNone
    
 Item 5.Other InformationNone
    
 Item 6.Exhibits
    
EXHIBIT INDEX 
    
SIGNATURES 
3

Item 1. Financial Statements


Consolidated Balance Sheets (unaudited)

September 30,
2021		December 31,
2020
Dollars in thousands, except per share amounts(unaudited)(*)
ASSETS  
Cash and due from banks$21,247 $19,522 
Interest bearing deposits with other banks189,862 80,265 
Cash and cash equivalents211,109 99,787 
Debt securities available for sale (at fair value)424,741 286,127 
Debt securities held to maturity (at amortized cost; estimated fair value - $100,793 - 2021, $103,157 - 2020)
98,528 99,914 
   Less: allowance for credit losses— — 
        Debt securities held to maturity, net98,528 99,914 
Other investments10,649 14,185 
Loans held for sale1,393 1,998 
Loans, net of unearned fees2,554,110 2,412,153 
    Less: allowance for credit losses (32,406)(32,246)
         Loans, net2,521,704 2,379,907 
Property held for sale12,450 15,588 
Premises and equipment, net56,818 52,537 
Accrued interest and fees receivable10,484 11,989 
Goodwill and other intangible assets, net63,977 55,123 
Cash surrender value of life insurance policies and annuities60,241 59,438 
Other assets36,857 29,791 
Total assets$3,508,951 $3,106,384 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Liabilities  
Deposits  
Non-interest bearing$575,542 $440,818 
Interest bearing2,380,398 2,154,833 
Total deposits2,955,940 2,595,651 
Short-term borrowings140,146 140,146 
Long-term borrowings684 699 
Subordinated debentures29,466 29,364 
Subordinated debentures owed to unconsolidated subsidiary trusts19,589 19,589 
Other liabilities39,837 39,355 
Total liabilities3,185,662 2,824,804 
Commitments and Contingencies
Shareholders' Equity  
Preferred stock, $1.00 par value, authorized 250,000 shares; issued: 2021 - 1,500
14,920 — 
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2021 - 13,003,145 shares and 2020 - 12,985,708 shares; outstanding: 2021 - 12,976,693 shares and 2020 - 12,942,004
95,863 94,964 
Unallocated common stock held by Employee Stock Ownership Plan - 2021 - 26,452 shares and 2020 - 43,704 shares
(285)(472)
Retained earnings207,703 181,643 
Accumulated other comprehensive income5,088 5,445 
Total shareholders' equity323,289 281,580 
Total liabilities and shareholders' equity$3,508,951 $3,106,384 
(*) - Derived from audited consolidated financial statements
See Notes to Consolidated Financial Statements
4

Consolidated Statements of Income (unaudited)

 For the Three Months Ended September 30,For the Nine Months Ended September 30,
Dollars in thousands, except per share amounts2021202020212020
Interest income    
Interest and fees on loans    
Taxable$28,340 $26,656 $83,352 $77,211 
Tax-exempt76 151 299 455 
Interest and dividends on securities    
Taxable1,432 1,445 4,078 4,656 
Tax-exempt916 937 2,629 2,288 
Interest on interest bearing deposits with other banks118 57 240 216 
Total interest income30,882 29,246 90,598 84,826 
Interest expense    
Interest on deposits1,832 3,552 6,464 13,088 
Interest on short-term borrowings470 734 1,404 1,863 
Interest on long-term borrowings and subordinated debentures543 194 1,631 600 
Total interest expense2,845 4,480 9,499 15,551 
Net interest income28,037 24,766 81,099 69,275 
Provision for credit losses— 3,250 2,500 11,500 
Net interest income after provision for credit losses28,037 21,516 78,599 57,775 
Noninterest income    
Trust and wealth management fees718 622 2,039 1,870 
Mortgage origination revenue742 780 2,638 1,636 
Service charges on deposit accounts1,338 1,138 3,530 3,283 
Bank card revenue1,509 1,237 4,369 3,257 
Realized securities gains (losses), net(68)1,522 534 2,560 
Bank owned life insurance and annuities income160 795 733 1,334 
Other168 113 413 367 
Total noninterest income4,567 6,207 14,256 14,307 
Noninterest expenses    
Salaries, commissions and employee benefits8,745 8,108 25,410 23,709 
Net occupancy expense1,254 1,057 3,559 2,917 
Equipment expense1,908 1,474 5,088 4,263 
Professional fees374 364 1,140 1,168 
Advertising and public relations254 145 482 389 
Amortization of intangibles390 412 1,176 1,251 
FDIC premiums354 320 1,119 595 
Bank card expense705 589 1,964 1,652 
Foreclosed properties expense370 607 1,342 1,815 
Acquisition-related expenses273 28 1,167 1,453 
Other2,716 2,405 8,365 6,493 
Total noninterest expenses17,343 15,509 50,812 45,705 
Income before income tax expense15,261 12,214 42,043 26,377 
Income tax expense3,023 2,594 8,886 5,302 
Net income12,238 9,620 33,157 21,075 
Dividends on preferred shares225 — 364 — 
Net income applicable to common shares$12,013 $9,620 $32,793 $21,075 
Basic earnings per common share$0.93 $0.74 $2.53 $1.63 
Diluted earnings per common share$0.92 $0.74 $2.52 $1.62 
See Notes to Consolidated Financial Statements 
5

Consolidated Statements of Comprehensive Income (unaudited)

For the Three Months Ended 
 September 30,
Dollars in thousands20212020
Net income$12,238 $9,620 
Other comprehensive (loss) income:  
Net unrealized gain on cashflow hedge of:
2021 - $907, net of deferred taxes of $218; 2020 - $555, net of deferred taxes of $133
689 422 
Net unrealized (loss) gain on securities available for sale of:
2021 - $(3,555), net of deferred taxes of $(853) and reclassification adjustment for net realized losses included in net income of $(68), net of tax of $(16); 2020 - $587, net of deferred taxes of $141 and reclassification adjustment for net realized gains included in net income of $1,522, net of tax of $365
(2,702)446 
Total other comprehensive (loss) income(2,013)868 
Total comprehensive income
$10,225 $10,488 



For the Nine Months Ended 
 September 30,
Dollars in thousands20212020
Net income$33,157 $21,075 
Other comprehensive (loss) income:  
Net unrealized gain (loss) on cashflow hedge of:
2021 - $5,242, net of deferred taxes of $1,258; 2020 - $1,943, net of deferred taxes of $(466)
3,984 (1,477)
Net unrealized (loss) gain on securities available for sale of:
2021 - $(5,712), net of deferred taxes of $(1,371) and reclassification adjustment for net realized gains included in net income of $534, net of tax of $128; 2020 - $4,121, net of deferred taxes of $989 and reclassification adjustment for net realized gains included in net income of $2,560, net of tax of $614
(4,341)3,132 
Total other comprehensive (loss) income(357)1,655 
Total comprehensive income
$32,800 $22,730 























See Notes to Consolidated Financial Statements
6

Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share
  amounts
Preferred
Stock and
Related
Surplus		Common
Stock and
Related
Surplus		Unallocated
Common
Stock Held
by ESOP		Retained
Earnings		Accumulated
Other
Compre-
hensive
Income		Total
Share-
holders'
Equity
Balance June 30, 2021$14,920 $95,511 $(347)$198,022 $7,101 $315,207 
Three Months Ended September 30, 2021     
Net income— — — 12,238 — 12,238 
Other comprehensive loss— — — — (2,013)(2,013)
Exercise of stock options - 5,000 shares
— 13 — — — 13 
Share-based compensation expense— 195 — — — 195 
Unallocated ESOP shares committed to be released - 5,751 shares
— 72 62 — — 134 
Common stock issuances from reinvested dividends - 2,885 shares
— 72 — — — 72 
Preferred stock cash dividends declared— — — (225)— (225)
Common stock cash dividends declared ($0.18 per share)
— — — (2,332)— (2,332)
Balance, September 30, 2021$14,920 $95,863 $(285)$207,703 $5,088 $323,289 
Balance June 30, 2020$— $94,539 $(593)$166,163 $3,322 $263,431 
Three Months Ended September 30, 2020     
Net income— — — 9,620 — 9,620 
Other comprehensive income — — — 868 868 
Share-based compensation expense— 79 — — — 79 
Unallocated ESOP shares committed to be released - 5,599 shares
— 27 61 — — 88 
Common stock issuances from reinvested dividends - 4,771 shares
— 72 — — — 72 
Common stock cash dividends declared ($0.17 per share)
— — — (2,195)— (2,195)
Balance, September 30, 2020$— $94,717 $(532)$173,588 $4,190 $271,963 














See Notes to Consolidated Financial Statements
7

Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share
  amounts
Preferred
Stock and
Related
Surplus		Common
Stock and
Related
Surplus		Unallocated
Common
Stock Held
by ESOP		Retained
Earnings		Accumulated
Other
Compre-
hensive
Income		Total
Share-
holders'
Equity
Balance December 31, 2020$— $94,964 $(472)$181,643 $5,445 $281,580 
Nine Months Ended September 30, 2021     
Net income— — — 33,157 — 33,157 
Other comprehensive loss— — — — (357)(357)
Exercise of stock options and SARs - 5,380 shares
— 13 — — — 13 
Vesting of RSUs - 3,400 shares
— — — — — — 
Share-based compensation expense— 448 — — — 448 
Issuance of 1,500 shares of preferred stock, net of issuance costs
14,920 — — — — 14,920 
Unallocated ESOP shares committed to be released - 17,252 shares
— 225 187 — — 412 
Common stock issuances from reinvested dividends - 8,657 shares
— 213 — — — 213 
Preferred stock cash dividends declared— — — (364)— (364)
Common stock cash dividends declared ($0.52 per share)
— — — (6,733)— (6,733)
Balance, September 30, 2021$14,920 $95,863 $(285)$207,703 $5,088 $323,289 
Balance December 31, 2019$— $80,084 $(714)$165,859 $2,535 $247,764 
Nine Months Ended September 30, 2020     
Impact of adoption of ASC 326— — — (6,756)— $(6,756)
Net income— — — 21,075 — 21,075 
Other comprehensive income— — — — 1,655 1,655 
Vesting of RSUs - 651 shares
— — — — — — 
Share-based compensation expense— 402 — — — 402 
Unallocated ESOP shares committed to be released - 16,797 shares
— 128 182 — — 310 
Retirement of 75,333 shares of common stock
— (1,444)— — — (1,444)
Acquisition of Cornerstone Financial Services, Inc. - 570,000 shares, net of issuance costs
— 15,354 — — — 15,354 
Common stock issuances from reinvested dividends - 11,758 shares
— 193 — — — 193 
Common stock cash dividends declared ($0.51 per share)
— — — (6,590)— (6,590)
Balance, September 30, 2020$— $94,717 $(532)$173,588 $4,190 $271,963 








See Notes to Consolidated Financial Statements
8

Consolidated Statements of Cash Flows (unaudited)

 Nine Months Ended
Dollars in thousandsSeptember 30,
2021		September 30,
2020
Cash Flows from Operating Activities  
Net income$33,157 $21,075 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation2,650 2,359 
Provision for credit losses2,500 11,500 
Share-based compensation expense448 402 
Deferred income tax benefit44 (3,459)
Loans originated for sale(94,025)(64,279)
Proceeds from sale of loans96,519 64,195 
Gains on loans held for sale(1,890)(1,135)
Realized securities gains, net(534)(2,560)
Loss (gain) on disposal of assets113 (167)
Write-downs of foreclosed properties1,006 1,719 
Amortization of securities premiums, net3,163 2,135 
Accretion related to acquisitions, net(1,271)(1,133)
Amortization of intangibles1,176 1,251 
Earnings on bank owned life insurance and annuities(803)(1,413)
Decrease (increase) in accrued interest receivable1,657 (1,617)
Increase in other assets(207)(48)
Increase (decrease) in other liabilities642 (1,225)
Net cash provided by operating activities44,345 27,600 
Cash Flows from Investing Activities  
Proceeds from maturities and calls of debt securities available for sale6,455 2,810 
Proceeds from maturities and calls of held to maturity securities— 1,000 
Proceeds from sales of debt securities available for sale15,704 105,597 
Principal payments received on debt securities available for sale22,925 17,952 
Purchases of debt securities available for sale(190,653)(52,783)
Purchases of held to maturity securities— (93,234)
Purchases of other investments(343)(14,245)
Proceeds from redemptions of other investments3,139 16,461 
Net loan originations(90,086)(264,600)
Purchases of premises and equipment(3,683)(8,077)
Proceeds from disposal of premises and equipment59 9 
Improvements to property held for sale100 (1,249)
Proceeds from sales of repossessed assets & property held for sale2,457 2,007 
Purchase of life insurance contracts and annuities— (9,298)
Cash and cash equivalents from acquisitions, net of cash consideration paid 2021 - $9,807 2020 - $27,215
95,699 183,688 
Net cash used in investing activities(138,227)(113,962)
Cash Flows from Financing Activities  
Net increase in demand deposit, NOW and savings accounts275,730 307,957 
Net decrease in time deposits(78,560)(130,841)
Net decrease in short-term borrowings— (59,199)
Repayment of long-term borrowings(15)(14)
Proceeds from subordinated debt, net of issuance costs— 29,336 
Purchase of interest rate cap— (5,850)
Proceeds from issuance of common stock, net of issuance costs213 105 
Proceeds from issuance of preferred stock, net of issuance costs14,920 — 
Purchase and retirement of common stock— (1,444)
Exercise of stock options13 — 
Dividends paid on common stock(6,733)(6,590)
Dividends paid on preferred stock(364)— 
Net cash provided by financing activities205,204 133,460 
Increase in cash and cash equivalents111,322 47,098 
continued
See Notes to Consolidated Financial Statements
9

Consolidated Statements of Cash Flows (unaudited) - continued

Nine Months Ended
Dollars in thousandsSeptember 30,
2021		September 30,
2020
Cash and cash equivalents:  
Beginning99,787 61,888 
Ending$211,109 $108,986 
Supplemental Disclosures of Cash Flow Information  
Cash payments for:  
Interest$9,671 $15,887 
Income taxes$9,017 $9,145 
Supplemental Disclosures of Noncash Investing and Financing Activities 
Real property and other assets acquired in settlement of loans$532 $902 
Right of use assets obtained in exchange for lease obligations$1,950 $3,293 
Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired$58,054 $171,645 
Liabilities assumed$164,085 $365,379 











































See Notes to Consolidated Financial Statements
10


NOTE 1.  BASIS OF PRESENTATION

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

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Certain amounts in the prior financial statements have been reclassified to conform to the current year presentation. Such reclassifications were immaterial and had no impact on total shareholders’ equity or net income for any period.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.  The consolidated financial statements and notes included herein should be read in conjunction with our 2020 audited financial statements and Annual Report on Form 10-K. 

NOTE 2.  SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Recently Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs which clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on our consolidated financial statements.

Pending Adoption

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.
11



NOTE 3.  FAIR VALUE MEASUREMENTS

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
 Balance atFair Value Measurements Using:
Dollars in thousandsSeptember 30, 2021Level 1Level 2Level 3
Debt securities available for sale    
U.S. Government sponsored agencies$38,510 $— $38,510 $— 
Mortgage backed securities:    
Government sponsored agencies63,328 — 63,328 — 
Nongovernment sponsored entities19,906 — 19,906 — 
State and political subdivisions147,189 — 147,189 — 
Corporate debt securities30,837 — 30,837 — 
Asset-backed securities46,492 — 46,492 — 
Tax-exempt state and political subdivisions78,479 — 78,479 — 
Total debt securities available for sale$424,741 $— $424,741 $— 
Derivative financial assets
Interest rate caps$10,380 $— $10,380 $— 
Derivative financial liabilities    
Interest rate swaps$1,349 $— $1,349 $— 
 Balance atFair Value Measurements Using:
Dollars in thousandsDecember 31, 2020Level 1Level 2Level 3
Debt securities available for sale    
U.S. Government sponsored agencies$35,157 $— $35,157 $— 
Mortgage backed securities:    
Government sponsored agencies59,046 — 59,046 — 
Nongovernment sponsored entities16,687 — 16,687 — 
State and political subdivisions50,905 — 50,905 — 
Corporate debt securities26,427 — 26,427 — 
Asset-backed securities46,126 — 46,126 — 
Tax-exempt state and political subdivisions51,779 — 51,779 — 
Total debt securities available for sale$286,127 $— $286,127 $— 
Derivative financial assets
Interest rate caps$6,653 $— $6,653 $— 
Derivative financial liabilities    
Interest rate swaps$2,747 $— $2,747 $— 

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.  These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.  Assets measured at fair value on a nonrecurring basis are included in the table below.
12

 Balance atFair Value Measurements Using:
Dollars in thousandsSeptember 30, 2021Level 1Level 2Level 3
Residential mortgage loans held for sale$1,393 $— $1,393 $— 
Collateral-dependent loans with an ACLL    
Commercial real estate$2,417 $— $2,417 $— 
Construction and development318 — 318 — 
Residential real estate526 — 304 222 
Total collateral-dependent loans with an ACLL$3,261 $— $3,039 $222 
Property held for sale    
Commercial real estate$1,548 $— $1,548 $— 
Construction and development9,636 — 9,142 494 
Residential real estate27 — 27 — 
Total property held for sale$11,211 $— $10,717 $494 

 Balance atFair Value Measurements Using:
Dollars in thousandsDecember 31, 2020Level 1Level 2Level 3
Residential mortgage loans held for sale$1,998 $— $1,998 $— 
Collateral-dependent impaired loans    
Commercial$8 $— $8 $— 
Commercial real estate9,914 — 9,914 — 
Construction and development1,576 — 1,576 — 
Residential real estate597 — 597 — 
Total collateral-dependent impaired loans$12,095 $— $12,095 $— 
Property held for sale    
Commercial real estate$1,557 $— $1,557 $— 
Construction and development11,595 — 10,974 621 
Residential real estate476 — 476 — 
Total property held for sale$13,628 $— $13,007 $621 

13

The carrying values and estimated fair values of our financial instruments are summarized below:
 September 30, 2021Fair Value Measurements Using:
Dollars in thousandsCarrying
Value		Estimated
Fair
Value		Level 1Level 2Level 3
Financial assets    
Cash and cash equivalents$211,109 $211,109 $— $211,109 $— 
Debt securities available for sale424,741 424,741 — 424,741 — 
Debt securities held to maturity98,528 100,793 — 100,793 — 
Other investments10,649 10,649 — 10,649 — 
Loans held for sale, net1,393 1,393 — 1,393 — 
Loans, net2,521,704 2,519,969 — 3,039 2,516,930 
Accrued interest receivable10,484 10,484 — 10,484 — 
     Cash surrender value of life insurance policies and annuities60,241 60,241 — 60,241 — 
Derivative financial assets10,380 10,380 — 10,380 — 
 $3,349,229 $3,349,759 $— $832,829 $2,516,930 
Financial liabilities    
Deposits$2,955,940 $2,956,162 $— $2,956,162 $— 
Short-term borrowings140,146 140,146 — 140,146 — 
Long-term borrowings684 820 — 820 — 
Subordinated debentures29,466 31,719 — — 31,719 
Subordinated debentures owed to unconsolidated
  subsidiary trusts		19,589 19,589 — 19,589 — 
Accrued interest payable557 557 — 557 — 
Derivative financial liabilities1,349 1,349 — 1,349 — 
 $3,147,731 $3,150,342 $— $3,118,623 $31,719 
 December 31, 2020Fair Value Measurements Using:
Dollars in thousandsCarrying
Value		Estimated
Fair
Value		Level 1Level 2Level 3
Financial assets    
Cash and cash equivalents$99,787 $99,787 $— $99,787 $— 
Debt securities available for sale286,127 286,127 — 286,127 — 
Debt securities held to maturity99,914 103,157 — 103,157 — 
Other investments14,185 14,185 — 14,185 — 
Loans held for sale, net1,998 1,998 — 1,998 — 
Loans, net2,379,907 2,384,275 — 12,095 2,372,180 
Accrued interest receivable11,989 11,989 — 11,989 — 
Cash surrender value of life insurance policies and annuities59,438 59,438 — 59,438 — 
Derivative financial assets6,653 6,653 — 6,653 — 
 $2,959,998 $2,967,609 $— $595,429 $2,372,180 
Financial liabilities    
Deposits$2,595,651 $2,597,326 $— $2,597,326 $— 
Short-term borrowings140,146 140,146 — 140,146 — 
Long-term borrowings699 866 — 866 — 
Subordinated debentures29,364 29,364 — 29,364 — 
Subordinated debentures owed to unconsolidated
  subsidiary trusts		19,589 19,589 — 19,589 — 
Accrued interest payable745 745 — 745 — 
Derivative financial liabilities2,747 2,747 — 2,747 — 
 $2,788,941 $2,790,783 $— $2,790,783 $— 


14

NOTE 4.  EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:
 For the Three Months Ended September 30,
 20212020
Dollars in thousands,except per share amountsNet Income
(Numerator)		Common
Shares
(Denominator)		Per
Share		Net Income
(Numerator)		Common
Shares
(Denominator)		Per
Share
Net income$12,238   $9,620   
Less preferred stock dividends(225)— 
Basic earnings per share$12,013 12,964,575 $0.93 $9,620 12,922,158 $0.74 
Effect of dilutive securities:  
Stock options789  4,182  
Stock appreciation rights ("SARs")48,827 23,244 
Restricted stock units ("RSUs")4,481 — 
Diluted earnings per share$12,013 13,018,672 $0.92 $9,620 12,949,584 $0.74 

 For the Nine Months Ended September 30,
 20212020
Dollars in thousands,except per share amountsNet Income
(Numerator)		Common
Shares
(Denominator)		Per
Share		Net Income
(Numerator)		Common
Shares
(Denominator)		Per
Share
Net income$33,157   $21,075   
Less preferred stock dividends(364)— 
Basic earnings per share$32,793 12,953,053 $2.53 $21,075 12,934,401 $1.63 
Effect of dilutive securities:  
Stock options3,278  4,308  
Stock appreciation rights ("SARs")49,951 33,082 
Restricted stock units ("RSUs")5,244 122 
Diluted earnings per share$32,793 13,011,526 $2.52 $21,075 12,971,913 $1.62 


Stock option, SAR and RSU grants are disregarded in this computation if they are determined to be anti-dilutive.  All stock options were dilutive for the three and nine months ended September 30, 2021 and the nine months ended September 30, 2020. Our anti-dilutive stock options for the quarter ended September 30, 2020 were 300 shares. Our anti-dilutive SARs for the three and nine months ended September 30, 2021 and September 30, 2020 were 222,740. All RSUs were dilutive for the three and nine months ended September 30, 2021. Our anti-dilutive RSUs for the three and nine months ended September 30, 2020 were 15,082 and 13,780, respectively.

15

NOTE 5.  DEBT SECURITIES

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at September 30, 2021 and December 31, 2020 are summarized as follows:
 September 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Available for Sale    
Taxable debt securities    
U.S. Government and agencies and corporations$38,611 $242 $343 $38,510 
Residential mortgage-backed securities:    
Government-sponsored agencies62,313 1,482 467 63,328 
Nongovernment-sponsored entities20,061 67 222 19,906 
State and political subdivisions    
General obligations81,480 431 1,497 80,414 
Water and sewer revenues15,958 360 64 16,254 
Lease revenues5,811 240 33 6,018 
Income tax revenues6,489 293 5 6,777 
Sales tax revenues7,337 22 128 7,231 
Other revenues29,988 835 328 30,495 
Corporate debt securities30,973 97 233 30,837 
Asset-backed securities46,291 286 85 46,492 
Total taxable debt securities345,312 4,355 3,405 346,262 
Tax-exempt debt securities    
State and political subdivisions    
General obligations48,494 1,479 632 49,341 
Water and sewer revenues7,474 488 — 7,962 
Lease revenues5,635 521 — 6,156 
Other revenues14,565 576 121 15,020 
Total tax-exempt debt securities76,168 3,064 753 78,479 
Total debt securities available for sale$421,480 $7,419 $4,158 $424,741 

16

 December 31, 2020
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Available for Sale    
Taxable debt securities    
U.S. Government and agencies and corporations$35,190 $361 $394 $35,157 
Residential mortgage-backed securities:    
Government-sponsored agencies57,399 1,996 349 59,046 
Nongovernment-sponsored entities16,799 132 244 16,687 
State and political subdivisions    
General obligations15,065 804 4 15,865 
Water and sewer revenues10,176 620 — 10,796 
Lease revenues4,825 341 — 5,166 
College and university revenues3,022 315 — 3,337 
Income tax revenues5,052 376 — 5,428 
Other revenues9,406 907 — 10,313 
Corporate debt securities26,483 56 112 26,427 
          Asset-backed securities46,579 172 625 46,126 
Total taxable debt securities229,996 6,080 1,728 234,348 
Tax-exempt debt securities    
State and political subdivisions    
General obligations22,213 2,416 9 24,620 
Water and sewer revenues8,266 709 — 8,975 
Lease revenues7,195 799 — 7,994 
Other revenues9,487 711 8 10,190 
Total tax-exempt debt securities47,161 4,635 17 51,779 
Total debt securities available for sale$277,157 $10,715 $1,745 $286,127 

Accrued interest receivable on debt securities available for sale totaled $2.2 million and $1.7 million at September 30, 2021 and December 31, 2020 and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our available for sale portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.
 September 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
California$44,932 $797 $809 $44,920 
Texas26,731 564 410 26,885 
Oregon14,760 — 269 14,491 
Florida13,630 391 109 13,912 
Michigan12,498 155 214 12,439 

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

17

The maturities, amortized cost and estimated fair values of debt securities available for sale at September 30, 2021, are summarized as follows:
Dollars in thousandsAmortized
Cost		Estimated
Fair Value
Due in one year or less$36,859 $37,229 
Due from one to five years87,349 89,178 
Due from five to ten years84,030 84,348 
Due after ten years213,242 213,986 
Total$421,480 $424,741 
The proceeds from sales, calls and maturities of debt securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the nine months ended September 30, 2021 and 2020 are as follows:
 Proceeds fromGross realized
Dollars in thousandsSalesCalls and
Maturities		Principal
Payments		GainsLosses
For the Nine Months Ended 
 September 30,
2021$15,704 $6,455 $22,925 $628 $94 
2020$105,597 $2,810 $17,952 $2,560 $— 

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, 2021 and December 31, 2020.
 September 30, 2021
 Less than 12 months12 months or moreTotal
Dollars in thousands# of securities in loss positionEstimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss
Taxable debt securities      
U.S. Government agencies and corporations
39$4,979 $13 $22,296 $330 $27,275 $343 
Residential mortgage-backed securities:      
Government-sponsored agencies1715,256 258 7,598 209 22,854 467 
Nongovernment-sponsored entities79,505 90 2,923 132 12,428 222 
State and political subdivisions:      
General obligations4466,087 1,497 — — 66,087 1,497 
Water and sewer revenues35,548 64 — — 5,548 64 
Lease revenues21,460 33 — — 1,460 33 
Income tax revenues1720 5 — — 720 5 
Sales tax revenues26,451 128 — — 6,451 128 
Other revenues1113,335 328 — — 13,335 328 
Corporate debt securities1010,631 220 986 13 11,617 233 
Asset-backed securities98,680 34 9,333 51 18,013 85 
Tax-exempt debt securities      
State and political subdivisions:      
General obligations1530,345 617 902 15 31,247 632 
Other revenues75,846 120 156 1 6,002 121 
Total167$178,843 $3,407 $44,194 $751 $223,037 $4,158 




18

 December 31, 2020
 Less than 12 months12 months or moreTotal
Dollars in thousands# of securities in loss positionEstimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss
Taxable debt securities      
U.S. Government agencies and
      corporations		36$12,611 $54 $14,384 $340 $26,995 $394 
Residential mortgage-backed securities:      
Government-sponsored agencies103,127 34 8,593 315 11,720 349 
Nongovernment-sponsored entities66,770 35 2,751 209 9,521 244 
State and political subdivisions:      
General obligations1362 4 — — 362 4 
Corporate debt securities63,952 16 1,904 96 5,856 112 
   Asset-backed securities162,010 2 31,862 623 33,872 625 
Tax-exempt debt securities      
State and political subdivisions:      
General obligations1924 9 — — 924 9 
Other revenues2415 1 151 7 566 8 
Total78$30,171 $155 $59,645 $1,590 $89,816 $1,745 

We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases.  We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality as none of these securities are in default and all carry above investment grade ratings. Accordingly, no allowance for credit losses has been recognized relative to these securities.

Debt Securities Held to Maturity

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at September 30, 2021 and December 31, 2020 are summarized as follows:
 September 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Held to Maturity    
Tax-exempt debt securities    
State and political subdivisions    
General obligations$72,154 $1,928 $15 $74,067 
Water and sewer revenues8,238 135 7 8,366 
Lease revenues4,336 21 — 4,357 
Sales tax revenues4,599 68 19 4,648 
Other revenues9,201 184 30 9,355 
Total debt securities held to maturity$98,528 $2,336 $71 $100,793 

 December 31, 2020
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Held to Maturity    
Tax-exempt debt securities    
State and political subdivisions    
General obligations$73,179 $2,524 $— $75,703 
Water and sewer revenues8,375 256 — 8,631 
Lease revenues4,395 88 — 4,483 
Sales tax revenues4,649 94 3 4,740 
Other revenues9,316 309 25 9,600 
Total debt securities held to maturity$99,914 $3,271 $28 $103,157 
19

Accrued interest receivable on debt securities held to maturity totaled $937,000 and $1.2 million at September 30, 2021 and December 31, 2020, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our held to maturity portfolio are located.  We own no such securities of any single issuer which we deem to be a concentration.

September 30, 2021
AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Texas$15,475 $439 $7 $15,907 
California9,927 262 4 10,185 
Pennsylvania8,672 253 — 8,925 
Florida7,628 139 — 7,767 
Michigan7,065 130 24 7,171 

The following table displays the amortized cost of held to maturity debt securities by credit rating at September 30, 2021 and December 31, 2020.

September 30, 2021
Dollars in thousandsAAAAAABBBBelow Investment Grade
Tax-exempt state and political subdivisions$15,522 $75,490 $7,516 $— $— 
December 31, 2020
Dollars in thousandsAAAAAABBBBelow Investment Grade
Tax-exempt state and political subdivisions$15,735 $76,585 $7,594 $— $— 

We owned no past due or nonaccrual held to maturity debt securities at September 30, 2021 or December 31, 2020.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at September 30, 2021, are summarized as follows:
Dollars in thousandsAmortized
Cost		Estimated
Fair Value
Due in one year or less$— $— 
Due from one to five years— — 
Due from five to ten years2,006 2,024 
Due after ten years96,522 98,769 
Total$98,528 $100,793 

There were no proceeds from calls and maturities of debt securities held to maturity for the nine months ended September 30, 2021.

The proceeds from calls and maturities of debt securities held to maturity totaled $1.0 million for the nine month ended September 30, 2020.

At September 30, 2021, no allowance for credit losses on debt securities held to maturity has been recognized.






20


NOTE 6.  LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

Loans

The following table presents the amortized cost of loans held for investment:
Dollars in thousandsSeptember 30,
2021		December 31,
2020
Commercial$317,855 $306,885 
Commercial real estate - owner occupied  
Professional & medical132,500 107,151 
Retail163,350 126,451 
Other143,352 118,258 
Commercial real estate - non-owner occupied
Hotels & motels121,765 121,502 
Mini-storage56,992 60,550 
Multifamily233,401 175,988 
Retail154,120 135,405 
Other268,793 192,120 
Construction and development  
Land & land development99,718 107,342 
Construction127,432 91,100 
Residential 1-4 family real estate  
Personal residence270,951 305,093 
Rental - small loan123,937 120,426 
Rental - large loan71,977 74,185 
Home equity71,496 81,588 
Mortgage warehouse lines161,628 251,810 
Consumer32,285 33,906 
Other
Credit cards1,783 1,855 
Overdrafts775 538 
Total loans, net of unearned fees2,554,110 2,412,153 
Less allowance for credit losses - loans32,406 32,246 
Loans, net$2,521,704 $2,379,907 

Accrued interest and fees receivable on loans totaled $6.1 million and $9.1 million at September 30, 2021 and December 31, 2020, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

COVID-19 Loan Deferments. In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. Certain borrowers continue to be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At September 30, 2021, we had 1 loan in COVID-19 related deferment with an aggregate outstanding balance of approximately $7.2 million.


21

The following table presents the contractual aging of the amortized cost basis of past due loans by class as of September 30, 2021 and December 31, 2020.
 At September 30, 2021
 Past Due 90 days or more and Accruing
Dollars in thousands30-59 days60-89 days90 days or moreTotalCurrent
Commercial$298 $42 $385 $725 $317,130 $— 
Commercial real estate - owner occupied      
  Professional & medical— — — — 132,500 — 
  Retail— — 146 146 163,204 — 
  Other— 124 150 274 143,078 — 
Commercial real estate - non-owner occupied
  Hotels & motels— — — — 121,765 — 
  Mini-storage— — — — 56,992 — 
  Multifamily101 56 — 157 233,244 — 
  Retail— — 337 337 153,783 — 
  Other— — — — 268,793 — 
Construction and development      
  Land & land development1,215 — — 1,215 98,503 — 
  Construction— — — — 127,432 — 
Residential 1-4 family real estate      
  Personal residence2,086 979 843 3,908 267,043 — 
  Rental - small loan197 228 1,270 1,695 122,242 — 
  Rental - large loan— — — — 71,977 — 
  Home equity211 64 173 448 71,048 — 
Mortgage warehouse lines— — — — 161,628 — 
Consumer110 89 40 239 32,046 — 
Other
Credit cards1 — 2 3 1,780 2 
Overdrafts— — — — 775 — 
Total$4,219 $1,582 $3,346 $9,147 $2,544,963 $2 
 
22

 At December 31, 2020
 Past Due 90 days or more and Accruing
Dollars in thousands30-59 days60-89 days90 days or moreTotalCurrent
Commercial$60 $— $318 $378 $306,507 $— 
Commercial real estate - owner occupied      
  Professional & medical220 — 457 677 106,474 — 
  Retail54 — 2,259 2,313 124,138 — 
  Other— — 150 150 118,108 — 
Commercial real estate - non-owner occupied
  Hotels & motels— — — — 121,502 — 
  Mini-storage— — — — 60,550 — 
  Multifamily— — — — 175,988 — 
  Retail— — 657 657 134,748 — 
  Other— — 315 315 191,805 — 
Construction and development     
  Land & land development47 — 70 117 107,225 — 
  Construction— — — — 91,100 — 
Residential 1-4 family real estate      
  Personal residence3,750 1,071 1,656 6,477 298,616 — 
  Rental - small loan1,129 487 719 2,335 118,091 — 
  Rental - large loan769 — — 769 73,416 — 
  Home equity758 — 197 955 80,633 — 
Mortgage warehouse lines— — — — 251,810 — 
Consumer190 44 72 306 33,600 — 
Other
Credit cards5 — 2 7 1,848 2 
Overdrafts— — — — 538 — 
Total$6,982 $1,602 $6,872 $15,456 $2,396,697 $2 

The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2021 and December 31, 2020.
23

September 30,December 31,
20212020
Dollars in thousandsNonaccrualNonaccrual
with No
Allowance for
Credit Losses
- Loans		NonaccrualNonaccrual
with No
Allowance for
Credit Losses
- Loans
Commercial$459 $35 $525 $— 
Commercial real estate - owner occupied  
  Professional & medical— — 536 — 
  Retail789 146 12,193 2,258 
  Other340 — 384 — 
Commercial real estate - non-owner occupied
  Hotels & motels3,160 — — — 
  Mini-storage— — — — 
  Multifamily— — — — 
  Retail337 207 809 657 
  Other17 — 315 — 
Construction and development  
  Land & land development448 448 70 — 
  Construction— — 165 — 
Residential 1-4 family real estate  
  Personal residence2,334 — 3,424 — 
  Rental - small loan2,981 110 1,603 108 
  Rental - large loan— — — — 
  Home equity199 131 236 — 
Mortgage warehouse lines— — — — 
Consumer46 — 73 — 
Other
Credit cards— — — — 
Overdrafts— — — — 
Total$11,110 $1,077 $20,333 $3,023 

At September 30, 2021, we had troubled debt restructurings ("TDRs") of $21.7 million, of which $19.4 million were current with respect to restructured contractual payments. At December 31, 2020, our TDRs totaled $24.5 million, of which $20.5 million were current with respect to restructured contractual payments.  There were no commitments to lend additional funds under these restructurings at either balance sheet date.

The following table presents by class the TDRs that were restructured during the three and nine months ended September 30, 2021 and September 30, 2020. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate.  TDRs are evaluated individually for allowance for credit loss purposes if the loan balance exceeds $500,000, otherwise, smaller balance TDR loans are included in the pools to determine ACLL.

For the Three Months Ended 
 September 30, 2021		For the Three Months Ended 
 September 30, 2020
Dollars in thousandsNumber of
Modifications		Pre-
modification
Recorded
Investment		Post-
modification
Recorded
Investment		Number of
Modifications		Pre-
modification
Recorded
Investment		Post-
modification
Recorded
Investment
Residential 1-4 family real estate
  Personal residence— $— $— 1 $48 $48 
  Rental - small loan— — — 1 399 399 
Total— $— $— 2 $447 $447 

24

For the Nine Months Ended 
 September 30, 2021		For the Nine Months Ended 
 September 30, 2020
Dollars in thousandsNumber of
Modifications		Pre-
modification
Recorded
Investment		Post-
modification
Recorded
Investment		Number of
Modifications		Pre-
modification
Recorded
Investment		Post-
modification
Recorded
Investment
Commercial real estate - owner occupied
  Other— $— $— 1 $361 $361 
Residential 1-4 family real estate
  Personal residence— — — 1 48 48 
  Rental - small loan— — — 1 399 399 
Total— $— $— 3 $808 $808 

The following tables present defaults during the stated period of TDRs that were restructured during the prior 12 months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.
For the Three Months Ended 
 September 30, 2021		For the Three Months Ended 
 September 30, 2020
Dollars in thousandsNumber
of
Defaults		Recorded
Investment
at Default Date		Number
of
Defaults		Recorded
Investment
at Default Date
Commercial real estate - owner occupied
  Other— $— 1 $361 
Residential 1-4 family real estate
   Personal residence— — 1 49 
Total—$— 2 $410 

For the Nine Months Ended 
 September 30, 2021		For the Nine Months Ended 
 September 30, 2020
Dollars in thousandsNumber
of
Defaults		Recorded
Investment
at Default Date		Number
of
Defaults		Recorded
Investment
at Default Date
Commercial real estate - owner occupied
  Other— $— 1 $361 
Residential 1-4 family real estate
   Personal residence— — 1 49 
Total—$— 2 $410 

Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk.  We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $5.0 million, at which time these loans are re-graded. We use the following definitions for our risk grades:

Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.

Special Mention:  Commercial loans categorized as Special Mention are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.

Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.

25

Doubtful:  Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.

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

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of September 30, 2021 and December 31, 2020, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:
September 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng		Revolving- TermTotal
CommercialPass$90,931 $40,069 $34,789 $6,605 $9,970 $14,940 $112,577 $— $309,881 
Special Mention486 980 31 43 71 549 4,988 — 7,148 
Substandard137 — 111 53 26 15 484 — 826 
Total Commercial91,554 41,049 34,931 6,701 10,067 15,504 118,049 — 317,855 
Commercial Real Estate
   - Owner Occupied
Professional & medicalPass37,987 26,127 7,293 4,747 23,338 23,806 2,779 — 126,077 
Special Mention — 1,153 — — — 4,980 — — 6,133 
Substandard— 71 — — 219 — — — 290 
Total Professional & Medical37,987 27,351 7,293 4,747 23,557 28,786 2,779 — 132,500 
RetailPass44,833 30,499 34,141 9,207 9,517 29,277 2,471 — 159,945 
Special Mention— — — — — 740 — — 740 
Substandard— — 1,876 — 555 234 — — 2,665 
Total Retail44,833 30,499 36,017 9,207 10,072 30,251 2,471 — 163,350 
OtherPass30,324 31,332 14,335 16,870 7,631 39,879 1,946 — 142,317 
Special Mention60 45 — — — 590 — — 695 
Substandard— — — — — 301 39 — 340 
Total Other30,384 31,377 14,335 16,870 7,631 40,770 1,985 — 143,352 
Total Commercial Real Estate -
   Owner Occupied		113,204 89,227 57,645 30,824 41,260 99,807 7,235 — 439,202 
Commercial Real Estate
   - Non-Owner Occupied
Hotels & motelsPass1,747 3,342 32,325 16,029 7,024 20,657 444 — 81,568 
Special Mention— — 37,037 — — — — — 37,037 
Substandard— 2,896 — — — 264 — — 3,160 
Total Hotels & Motels1,747 6,238 69,362 16,029 7,024 20,921 444 — 121,765 
Mini-storagePass8,836 7,493 10,911 14,568 4,552 10,544 40 — 56,944 
Special Mention— — — — — 48 — — 48 
Substandard— — — — — — — — — 
26

September 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng		Revolving- TermTotal
Total Mini-storage8,836 7,493 10,911 14,568 4,552 10,592 40 — 56,992 
MultifamilyPass49,770 38,286 45,966 24,370 15,828 53,811 4,681 — 232,712 
Special Mention— 588 — — — 101 — — 689 
Substandard— — — — — — — — — 
Total Multifamily49,770 38,874 45,966 24,370 15,828 53,912 4,681 — 233,401 
RetailPass35,227 42,582 24,122 8,821 9,055 26,324 6,610 — 152,741 
Special Mention— — — — — 979 — — 979 
Substandard— — — — — 400 — — 400 
Total Retail35,227 42,582 24,122 8,821 9,055 27,703 6,610 — 154,120 
OtherPass100,701 75,164 14,409 8,557 11,516 53,083 1,910 — 265,340 
Special Mention— — — 575 — — — — 575 
Substandard— — — — — 2,878 — — 2,878 
Total Other100,701 75,164 14,409 9,132 11,516 55,961 1,910 — 268,793 
Total Commercial Real Estate -
   Non-Owner Occupied		196,281 170,351 164,770 72,920 47,975 169,089 13,685 — 835,071 
Construction and Development
Land & land developmentPass18,045 16,385 22,360 7,128 3,555 22,752 6,745 — 96,970 
Special Mention— 157 119 — — 662 — — 938 
Substandard— — — — — 1,810 — — 1,810 
Total Land & land development18,045 16,542 22,479 7,128 3,555 25,224 6,745 — 99,718 
ConstructionPass51,372 57,903 7,188 2,067 — — 8,401 — 126,931 
Special Mention— — — — — — — — — 
Substandard— — — 330 — 171 — — 501 
Total Construction51,372 57,903 7,188 2,397 — 171 8,401 — 127,432 
Total Construction and
   Development		69,417 74,445 29,667 9,525 3,555 25,395 15,146 — 227,150 
Residential 1-4 Family Real Estate
Personal residencePass34,742 36,393 19,820 20,253 16,399 122,763 — — 250,370 
Special Mention— — 184 172 279 10,971 — — 11,606 
Substandard— — 487 750 455 7,283 — — 8,975 
Total Personal Residence34,742 36,393 20,491 21,175 17,133 141,017 — — 270,951 
Rental - small loanPass25,763 15,405 15,210 11,898 7,850 35,733 4,980 — 116,839 
Special Mention— 107 57 252 2 1,928 — — 2,346 
Substandard— 370 140 380 513 3,112 237 — 4,752 
Total Rental - Small Loan25,763 15,882 15,407 12,530 8,365 40,773 5,217 — 123,937 
Rental - large loanPass23,163 14,161 5,071 6,430 3,954 14,127 1,456 — 68,362 
27

September 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng		Revolving- TermTotal
Special Mention— — — — — 30 — — 30 
Substandard— — — — — 3,585 — — 3,585 
Total Rental - Large Loan23,163 14,161 5,071 6,430 3,954 17,742 1,456 — 71,977 
Home equityPass142 115 12 23 19 1,333 67,557 — 69,201 
Special Mention— — — — — 94 1,541 — 1,635 
Substandard— — — — — 404 256 — 660 
Total Home Equity142 115 12 23 19 1,831 69,354 — 71,496 
Total Residential 1-4 Family Real
   Estate		83,810 66,551 40,981 40,158 29,471 201,363 76,027 — 538,361 
Mortgage warehouse linesPass— — — — — — 161,628 — 161,628 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Mortgage Warehouse Lines— — — — — — 161,628 — 161,628 
ConsumerPass11,005 7,681 5,397 2,405 700 1,896 1,131 — 30,215 
Special Mention670 513 254 94 112 56 12 — 1,711 
Substandard102 133 46 9 3 38 28 — 359 
Total Consumer11,777 8,327 5,697 2,508 815 1,990 1,171 — 32,285 
Other
Credit cardsPass1,783 — — — — — — — 1,783 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Credit Cards1,783 — — — — — — — 1,783 
OverdraftsPass775 — — — — — — — 775 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Overdrafts775 — — — — — — — 775 
Total Other2,558 — — — — — — — 2,558 
Total$568,601 $449,950 $333,691 $162,636 $133,143 $513,148 $392,941 $— $2,554,110 

December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng		Revolving- TermTotal
CommercialPass$112,335 $46,323 $20,936 $16,723 $11,087 $12,336 $78,107 $— $297,847 
Special Mention9 38 1,956 77 201 909 407 — 3,597 
Substandard1,039 177 215 29 40 56 3,885 — 5,441 
Total Commercial113,383 46,538 23,107 16,829 11,328 13,301 82,399 — 306,885 
28

December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng		Revolving- TermTotal
Commercial Real Estate
   - Owner Occupied
Professional & medicalPass19,454 16,414 2,540 26,578 3,322 28,905 3,079 — 100,292 
Special Mention 1,171 — — — — 5,152 — — 6,323 
Substandard79 321 — — 136 — — — 536 
Total Professional & Medical20,704 16,735 2,540 26,578 3,458 34,057 3,079 — 107,151 
RetailPass28,351 28,547 5,238 10,288 6,041 31,087 2,199 — 111,751 
Special Mention— — — 432 3 824 — — 1,259 
Substandard— 10,524 — 157 — 2,360 400 — 13,441 
Total Retail28,351 39,071 5,238 10,877 6,044 34,271 2,599 — 126,451 
OtherPass28,712 13,722 17,699 9,845 13,119 32,486 1,496 — 117,079 
Special Mention— — — — — 694 — — 694 
Substandard— — — — — 444 41 — 485 
Total Other28,712 13,722 17,699 9,845 13,119 33,624 1,537 — 118,258 
Total Commercial Real Estate -
   Owner Occupied		77,767 69,528 25,477 47,300 22,621 101,952 7,215 — 351,860 
Commercial Real Estate
   - Non-Owner Occupied
Hotels & motelsPass3,428 23,821 18,894 9,880 7,389 14,252 3,160 — 80,824 
Special Mention2,994 37,398 — — — 286 — — 40,678 
Substandard— — — — — — — — — 
Total Hotels & Motels6,422 61,219 18,894 9,880 7,389 14,538 3,160 — 121,502 
Mini-storagePass10,159 19,022 15,046 3,986 6,228 4,780 170 — 59,391 
Special Mention— — — — — 50 — — 50 
Substandard— — — — — 1,109 — — 1,109 
Total Mini-storage10,159 19,022 15,046 3,986 6,228 5,939 170 — 60,550 
MultifamilyPass39,814 27,090 27,198 19,294 10,762 47,751 2,844 — 174,753 
Special Mention— — — — — 48 — — 48 
Substandard— 1,187 — — — — — — 1,187 
Total Multifamily39,814 28,277 27,198 19,294 10,762 47,799 2,844 — 175,988 
RetailPass44,359 27,357 11,169 9,361 4,414 30,381 6,502 — 133,543 
Special Mention— — — — 446 540 — — 986 
Substandard— — — 152 — 724 — — 876 
Total Retail44,359 27,357 11,169 9,513 4,860 31,645 6,502 — 135,405 
OtherPass75,272 20,483 24,663 10,626 26,989 28,293 1,794 — 188,120 
Special Mention— — — — — 142 — — 142 
Substandard— — — — — — — — — 
Doubtful— — 576 — — 3,282 — — 3,858 
Total Other75,272 20,483 25,239 10,626 26,989 31,717 1,794 — 192,120 
29

December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng		Revolving- TermTotal
Total Commercial Real Estate -
   Non-Owner Occupied		176,026 156,358 97,546 53,299 56,228 131,638 14,470 — 685,565 
Construction and Development
Land & land developmentPass27,084 25,468 10,943 4,149 6,370 21,882 9,320 — 105,216 
Special Mention— 70 12 — — 644 — — 726 
Substandard— — 6 — 11 1,383 — — 1,400 
Total Land & land development27,084 25,538 10,961 4,149 6,381 23,909 9,320 — 107,342 
ConstructionPass50,060 34,480 2,833 885 — — 1,325 — 89,583 
Special Mention— — — — — — — — — 
Substandard— 1,352 — — — 165 — — 1,517 
Total Construction50,060 35,832 2,833 885 — 165 1,325 — 91,100 
Total Construction and
   Development		77,144 61,370 13,794 5,034 6,381 24,074 10,645 — 198,442 
Residential 1-4 Family Real Estate
Personal residencePass51,120 31,415 27,052 23,069 23,759 126,293 — — 282,708 
Special Mention— 242 131 267 254 12,020 — — 12,914 
Substandard— 46 849 540 126 7,910 — — 9,471 
Total Personal Residence51,120 31,703 28,032 23,876 24,139 146,223 — — 305,093 
Rental - small loanPass18,762 20,113 14,512 10,705 10,941 34,643 4,047 — 113,723 
Special Mention110 253 251 3 192 1,749 62 — 2,620 
Substandard— 1,163 — — 46 2,874 — — 4,083 
Total Rental - Small Loan18,872 21,529 14,763 10,708 11,179 39,266 4,109 — 120,426 
Rental - large loanPass16,926 5,484 9,456 5,323 9,133 20,515 2,188 — 69,025 
Special Mention— 1,430 — — — 32 — — 1,462 
Substandard— — — — — 3,698 — — 3,698 
Total Rental - Large Loan16,926 6,914 9,456 5,323 9,133 24,245 2,188 — 74,185 
Home equityPass429 565 347 502 89 2,174 74,974 — 79,080 
Special Mention— — — 40 — 96 1,596 — 1,732 
Substandard— — 32 28 — 424 292 — 776 
Total Home Equity429 565 379 570 89 2,694 76,862 — 81,588 
Total Residential 1-4 Family Real
   Estate		87,347 60,711 52,630 40,477 44,540 212,428 83,159 — 581,292 
Mortgage warehouse linesPass— — — — — — 251,810 — 251,810 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Mortgage Warehouse Lines— — — — — — 251,810 — 251,810 
30

December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng		Revolving- TermTotal
ConsumerPass12,785 9,257 4,239 1,609 1,237 1,516 822 — 31,465 
Special Mention991 454 214 155 70 49 18 — 1,951 
Substandard245 127 31 6 51 4 26 — 490 
Total Consumer14,021 9,838 4,484 1,770 1,358 1,569 866 — 33,906 
Other
Credit cardsPass1,855 — — — — — — — 1,855 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Credit Cards1,855 — — — — — — — 1,855 
OverdraftsPass538 — — — — — — — 538 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total Overdrafts538 — — — — — — — 538 
Total Other2,393 — — — — — — — 2,393 
Total$548,081 $404,343 $217,038 $164,709 $142,456 $484,962 $450,564 $— $2,412,153 

Allowance for Credit Losses - Loans
The following tables presents the activity in the ACLL by portfolio segment during the three and nine months ended September 30, 2021 and the twelve months ended December 31, 2020:

31

For the Three Months Ended September 30, 2021
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance 		Provision
for
Credit
Losses -
Loans
Adjustment
for PCD
Acquired
Loans		Charge-
offs		RecoveriesEnding
Balance
Commercial$2,709 $46 $— $— $4 $2,759 
Commercial real estate - owner occupied
  Professional & medical
986 (46)71 — — 1,011 
  Retail
3,519 (1,791)— — — 1,728 
  Other556 46 — — — 602 
Commercial real estate - non-owner occupied
  Hotels & motels
2,569 29 — — — 2,598 
  Mini-storage
157 19 — — — 176 
  Multifamily
1,637 457 — (233)4 1,865 
  Retail
1,471 107 — — — 1,578 
  Other
1,425 330 — — — 1,755 
Construction and development
  Land & land development
3,705 (166)— — 2 3,541 
  Construction6,217 (241)— — — 5,976 
Residential 1-4 family real estate
  Personal residence3,050 (31)— (189)21 2,851 
  Rental - small loan2,546 143 20 — 48 2,757 
  Rental - large loan2,431 (144)— — — 2,287 
  Home equity551 (15)— — 3 539 
Mortgage warehouse lines
— — — — — — 
Consumer172 (5)— (24)26 169 
Other
  Credit cards16 4 — (4)1 17 
  Overdrafts168 58 — (78)49 197 
Total
$33,885 $(1,200)$91 $(528)$158 $32,406 
32

For the Nine Months Ended September 30, 2021
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance 		Provision
for
Credit
Losses -
Loans
Adjustment
for PCD
Acquired
Loans		Charge-
offs		RecoveriesEnding
Balance
Commercial$2,304 $655 $— $(222)$22 $2,759 
Commercial real estate - owner occupied
  Professional & medical
954 (11)71 (3)— 1,011 
  Retail
3,173 (1,446)— — 1 1,728 
  Other610 (8)— — — 602 
Commercial real estate - non-owner occupied
  Hotels & motels
2,135 463 — — — 2,598 
  Mini-storage
337 (161)— — — 176 
  Multifamily
1,547 544 — (233)7 1,865 
  Retail
981 597 — — — 1,578 
  Other
1,104 651 — — — 1,755 
Construction and development
  Land & land development
4,084 (552)— — 9 3,541 
  Construction4,648 1,328 — — — 5,976 
Residential 1-4 family real estate
  Personal residence3,559 (515)— (298)105 2,851 
  Rental - small loan2,736 13 20 (89)77 2,757 
  Rental - large loan3,007 (720)— — — 2,287 
  Home equity713 (161)— (26)13 539 
Mortgage warehouse lines
— — — — — — 
Consumer216 (39)— (100)92 169 
Other
  Credit cards17 11 — (16)5 17 
  Overdrafts121 181 — (237)132 197 
Total
$32,246 $830 $91 $(1,224)$463 $32,406 

33

For the Twelve Months Ended December 31, 2020
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance 		Impact of
Adoption
of ASC
326		Provision
for
Credit
Losses -
Loans
Adjustment
for PCD
Acquired
Loans		Charge-
offs		RecoveriesEnding
Balance
Commercial$1,221 $1,064 $85 $— $(99)$33 $2,304 
Commercial real estate - owner occupied
  Professional & medical
1,058 (390)1,290 1 (1,005)— 954 
  Retail
820 (272)2,311 152 — 162 3,173 
  Other821 (137)(104)1 — 29 610 
Commercial real estate - non-owner occupied
  Hotels & motels
1,235 (936)1,836 — — — 2,135 
  Mini-storage
485 (311)48 115 — — 337 
  Multifamily
1,534 8 (155)122 — 38 1,547 
  Retail
964 279 (22)101 (343)2 981 
  Other
1,721 (1,394)700 58 — 19 1,104 
Construction and development
  Land & land development
600 2,136 1,202 111 (7)42 4,084 
  Construction242 996 3,159 251 — — 4,648 
Residential 1-4 family real estate
  Personal residence1,275 1,282 980 182 (252)92 3,559 
  Rental - small loan532 1,453 657 96 (140)138 2,736 
  Rental - large loan49 2,884 58 16 — — 3,007 
  Home equity138 308 246 — (24)45 713 
Mortgage warehouse lines
— — — — — — — 
Consumer379 (238)166 — (239)148 216 
Other
  Credit cards— 12 35 — (40)10 17 
  Overdrafts— 182 251 — (460)148 121 
Total
$13,074 $6,926 $12,743 $1,206 $(2,609)$906 $32,246 

The following tables presents, as of September 30, 2021 and December 31, 2020 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above.
34

September 30, 2021
Loan BalancesAllowance for Credit Losses - Loans
Dollars in thousandsLoans Individually Evaluated
Loans Collectively Evaluated (1)
TotalLoans Individually EvaluatedLoans Collectively EvaluatedTotal
Commercial$180 $317,675 $317,855 $— $2,759 $2,759 
Commercial real estate - owner occupied
  Professional & medical2,100 130,400 132,500 207 804 1,011 
  Retail6,290 157,060 163,350 — 1,728 1,728 
  Other— 143,352 143,352 — 602 602 
Commercial real estate - non-owner occupied
  Hotels & motels3,160 118,605 121,765 743 1,855 2,598 
  Mini-storage1,069 55,923 56,992 — 176 176 
  Multifamily— 233,401 233,401 — 1,865 1,865 
  Retail3,066 151,054 154,120 — 1,578 1,578 
  Other5,676 263,117 268,793 68 1,687 1,755 
Construction and development
  Land & land development2,300 97,418 99,718 653 2,888 3,541 
  Construction— 127,432 127,432 — 5,976 5,976 
Residential 1-4 family real estate
  Personal residence— 270,951 270,951 — 2,851 2,851 
  Rental - small loan1,571 122,366 123,937 212 2,545 2,757 
  Rental - large loan3,189 68,788 71,977 — 2,287 2,287 
  Home equity523 70,973 71,496 — 539 539 
Mortgage warehouse lines— 161,628 161,628 — — — 
Consumer— 32,285 32,285 — 169 169 
Other
Credit cards— 1,783 1,783 — 17 17 
Overdrafts— 775 775 — 197 197 
             Total$29,124 $2,524,986 $2,554,110 $1,883 $30,523 $32,406 

(1) Included in the loans collectively evaluated are $30.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

35

December 31, 2020
Loan BalancesAllowance for Credit Losses - Loans
Dollars in thousandsLoans Individually Evaluated
Loans Collectively Evaluated (1)
TotalLoans Individually EvaluatedLoans Collectively EvaluatedTotal
Commercial$4,851 $302,034 $306,885 $8 $2,296 $2,304 
Commercial real estate - owner occupied
  Professional & medical2,171 104,980 107,151 223 731 954 
  Retail17,458 108,993 126,451 2,258 915 3,173 
  Other— 118,258 118,258 — 610 610 
Commercial real estate - non-owner occupied
  Hotels & motels— 121,502 121,502 — 2,135 2,135 
  Mini-storage1,109 59,441 60,550 111 226 337 
  Multifamily1,187 174,801 175,988 135 1,412 1,547 
  Retail3,473 131,932 135,405 — 981 981 
  Other5,857 186,263 192,120 129 975 1,104 
Construction and development
  Land & land development1,891 105,451 107,342 623 3,461 4,084 
  Construction1,352 89,748 91,100 135 4,513 4,648 
Residential 1-4 family real estate
  Personal residence— 305,093 305,093 — 3,559 3,559 
  Rental - small loan1,300 119,126 120,426 102 2,634 2,736 
  Rental - large loan3,288 70,897 74,185 — 3,007 3,007 
  Home equity523 81,065 81,588 — 713 713 
Consumer— 33,906 33,906 — 216 216 
Other
Credit cards— 1,855 1,855 — 17 17 
Overdrafts— 538 538 — 121 121 
Mortgage warehouse lines— 251,810 251,810 — — — 
             Total$44,460 $2,367,693 $2,412,153 $3,724 $28,522 $32,246 

(1) Included in the loans collectively evaluated are $83.9 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no allowance.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:
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September 30, 2021
Dollars in thousandsReal Estate
Secured
Loans		Non-Real Estate
Secured Loans		Total LoansAllowance for Credit Losses
- Loans
Commercial$— $180 $180 $— 
Commercial real estate - owner occupied
  Professional & medical2,100 — 2,100 207 
  Retail6,290 — 6,290 — 
  Other— — — — 
Commercial real estate - non-owner occupied
  Hotels & motels3,160 — 3,160 743 
  Mini-storage1,069 — 1,069 — 
  Multifamily— — — — 
  Retail3,066 — 3,066 — 
  Other5,676 — 5,676 68 
Construction and development
  Land & land development2,300 — 2,300 653 
  Construction— — — — 
Residential 1-4 family real estate
  Personal residence— — — — 
  Rental - small loan1,571 — 1,571 212 
  Rental - large loan3,189 — 3,189 — 
  Home equity523 — 523 — 
Consumer— — — — 
Other
Credit cards— — — — 
Overdrafts— — — — 
             Total$28,944 $180 $29,124 $1,883 

December 31, 2020
Dollars in thousandsReal Estate
Secured
Loans		Non-Real Estate
Secured Loans		Total LoansAllowance for Credit Losses
- Loans
Commercial$— $4,851 $4,851 $8 
Commercial real estate - owner occupied
  Professional & medical2,171 — 2,171 223 
  Retail17,458 — 17,458 2,258 
  Other— — — — 
Commercial real estate - non-owner occupied
  Hotels & motels— — — — 
  Mini-storage1,109 — 1,109 111 
  Multifamily1,187 — 1,187 135 
  Retail3,473 — 3,473 — 
  Other5,857 — 5,857 129 
Construction and development
  Land & land development1,891 — 1,891 623 
  Construction1,352 — 1,352 135 
Residential 1-4 family real estate
  Personal residence— — — — 
  Rental - small loan1,300 — 1,300 102 
  Rental - large loan3,288 — 3,288 — 
  Home equity523 — 523 — 
Consumer— — — — 
Other
Credit cards— — — — 
Overdrafts— — — — 
             Total$39,609 $4,851 $44,460 $3,724 

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NOTE 7.  GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during third quarter 2021, we performed the qualitative assessment of goodwill and determined that the fair value was more likely than not greater than its carrying value. In performing the qualitative assessment, we considered certain events, and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value is less than the carrying value. No indicators of impairment were noted as of September 30, 2021.

The following tables present our goodwill activity for the quarter ending September 30, 2021 and the balance of other intangible assets at September 30, 2021 and December 31, 2020.
 
Dollars in thousandsGoodwill Activity
Balance, January 1, 2021$45,495 
Reclassifications from goodwill(479)
Acquired goodwill10,331 
Balance, September 30, 2021$55,347 
 Other Intangible Assets
Dollars in thousandsSeptember 30, 2021December 31, 2020
Identifiable intangible assets  
Gross carrying amount$15,828 $15,650 
Less: accumulated amortization
(7,198)(6,022)
Net carrying amount$8,630 $9,628 

We recorded amortization expense of $390,000 and $1,176,000 for the three and nine months ended September 30, 2021 and $412,000 and $1,251,000 for the three and nine months ended September 30, 2020, relative to our identifiable intangible assets.  

Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:
Core Deposit
Dollars in thousandsIntangible
Three month period ending December 31, 2021$388 
Year ending December 31, 20221,440 
Year ending December 31, 20231,299 
Year ending December 31, 20241,158 
Year ending December 31, 20251,019 
Thereafter3,256 

NOTE 8.  DEPOSITS

The following is a summary of interest bearing deposits by type as of September 30, 2021 and December 31, 2020:
Dollars in thousandsSeptember 30,
2021		December 31,
2020
Demand deposits, interest bearing$1,121,028 $934,185 
Savings deposits693,686 621,168 
Time deposits565,684 599,480 
Total$2,380,398 $2,154,833 

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $14.7 million and $55.5 million at September 30, 2021 and December 31, 2020, respectively.

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A summary of the scheduled maturities for all time deposits as of September 30, 2021 is as follows:
Dollars in thousands 
Three month period ending December 31, 2021$109,130 
Year ending December 31, 2022330,840 
Year ending December 31, 202369,604 
Year ending December 31, 202422,645 
Year ending December 31, 202514,555 
Thereafter18,910 
Total$565,684 
The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $104.1 million at September 30, 2021 and $81.4 million at December 31, 2020.

NOTE 9.  BORROWED FUNDS

Short-term borrowings:    A summary of short-term borrowings is presented below:
 Nine Months Ended September 30,
 20212020
Dollars in thousandsShort-term
FHLB
Advances		Federal Funds
Purchased
and Lines
of Credit		Short-term
FHLB
Advances		Federal Funds
Purchased
and Lines
of Credit
Balance at September 30$140,000 $146 $140,000 $145 
Average balance outstanding for the period140,000 146 126,964 145 
Maximum balance outstanding at any month end during period
140,000 146 215,700 145 
Weighted average interest rate for the period0.34 %0.25 %0.79 %0.64 %
Weighted average interest rate for balances    
     outstanding at September 300.32 %0.25 %0.36 %0.25 %
Year Ended December 31, 2020
Dollars in thousandsShort-term
FHLB
Advances		Federal Funds
Purchased
and Lines
of Credit
Balance at December 31$140,000 146 
Average balance outstanding for the period130,241 170 
Maximum balance outstanding at any month end
    during period		215,700 146 
Weighted average interest rate for the period0.67 %0.50 %
Weighted average interest rate for balances
     outstanding at December 310.35 %0.25 %

Long-term borrowings:  Our long-term borrowings of $684,000 and $699,000 at September 30, 2021 and December 31, 2020, respectively, consisted of a 5.34% fixed rate advance from the Federal Home Loan Bank (“FHLB”), maturing in 2026. This FHLB advance is collateralized by a blanket lien of $1.48 billion of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U.S. Government agencies and corporations.
 
Subordinated debentures: We issued $30 million of subordinated debentures, net of $664,000 debt issuance costs, during third quarter 2020 in a private placement transaction. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter the amount qualifying as Tier 2 capital is reduced by 20 percent each year until maturity. This subordinated debt bears interest at a fixed rate of 5.00% per year, from and including September 22, 2020 to, but excluding, September 30, 2025, payable quarterly in arrears. From and including September 30, 2025 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as published by the Federal Reserve Bank of New York, plus 487 basis points, payable quarterly in arrears. This debt has a 10 years term and generally, is not prepayable by us within the first five years.

Subordinated debentures owed to unconsolidated subsidiary trusts:  We have three statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the
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“debentures”).  The debentures held by the trusts are their sole assets.  These subordinated debentures totaled $19.6 million at September 30, 2021 and December 31, 2020.

The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines.  In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill.  The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
 
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
Dollars in thousands Long-term
borrowings		Subordinated debenturesSubordinated
debentures owed
to unconsolidated
subsidiary trusts
Year Ending December 31,2021$5 $— $— 
 202221 — — 
 202322 — — 
 202423 — — 
 202524 — — 
 Thereafter589 30,000 19,589 
  $684 $30,000 $19,589 

NOTE 10.  SHARE-BASED COMPENSATION

Under the 2014 Long-Term Incentive Plan (“2014 LTIP”), stock options, SARs and RSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees.

The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. 

During third quarter 2021, we granted 54,947 SARs with a $8.97 grant date fair value per SAR that become exercisable ratably over seven years (14.3% per year) and expire ten years after the grant date. Also during 2021, we granted 122,542 SARs with an $8.40 grant date fair value per SAR that become exercisable ratably over five years (20% per year) and expire ten years after the grant date. There were no grants of SARs or stock options during 2020.

The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs granted in 2021 are as follows:


2021 grant with 7 year expiration2021 grant with 5 year expiration
Risk-free interest rate1.06 %0.74 %
Expected dividend yield3.00 %3.00 %
Expected common stock volatility55.59 %55.59 %
Expected life7 years5.5 years

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A summary of our SAR and stock option activity during the first nine months of 2021 and 2020 is as follows:
 For the Nine Months Ended September 30,
 2021
Options/SARs
Aggregate
Intrinsic
Value (in thousands)
Remaining
Contractual
Term (Yrs.)		Weighted-Average
Exercise Price
Outstanding, January 1329,203 $20.47 
Granted177,489 21.85 
Exercised(5,800)3.85 
Forfeited— — 
Expired— — 
Outstanding, September 30500,892 $1,808 7.12$21.15 
Exercisable, September 30213,216 $1,287 5.00$18.90 


 For the Nine Months Ended September 30,
 2020
Options/SARs
Aggregate
Intrinsic
Value (in thousands)
Remaining
Contractual
Term (Yrs.)		Weighted-Average
Exercise Price
Outstanding, January 1330,703 $20.44 
Granted— — 
Exercised— — 
Forfeited— — 
Expired— — 
Outstanding, September 30330,703 $349 6.58$20.44 
Exercisable, September 30179,375 $349 5.52$17.03 

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years. During second quarter 2020, we granted 10,995 RSUs which will vest ratably over 4 years. During first quarter 2020, we granted 1,846 RSUs which will fully vest on the 2nd anniversary of the grant date.
RSUsWeighted Average Grant Date Fair Value
Nonvested, December 31, 202015,686 $20.40 
Granted— — 
Forfeited— — 
Vested(3,400)19.61 
Nonvested, September 30, 202112,286 $20.62 

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RSUsWeighted Average Grant Date Fair Value
Nonvested, December 31, 20192,892 $25.93 
Granted12,841 18.19 
Forfeited— — 
Vested(651)25.60 
Nonvested, September 30, 202015,082 $20.45 

We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited.  During the first nine months of 2021 and 2020, total stock compensation expense for all share-based arrangements was $448,000 and $402,000 and the related deferred tax benefits were approximately $108,000 and $96,000. At September 30, 2021 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $2.41 million and is expected to be recognized over the next 2.46 years.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet Arrangements

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

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

A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
Dollars in thousandsSeptember 30,
2021
Commitments to extend credit: 
Revolving home equity and credit card lines$95,601 
Construction loans198,224 
Other loans333,636 
Standby letters of credit25,025 
Total$652,486 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  We evaluate each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation.  Collateral held varies but may include accounts receivable, inventory, equipment or real estate.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments.  We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures

The provision for credit losses on unfunded commitments was $1.67 million and $1.09 million for the nine months ended September 30, 2021 and 2020 and $1.2 million and $48,000 for the three months ended September 30, 2021 and 2020. The
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ACL on off-balance-sheet credit exposures totaled $5.86 million at September 30, 2021 compared to $4.19 million at December 31, 2020.

Litigation

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

NOTE 12. PREFERRED STOCK

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

NOTE 13.  REGULATORY MATTERS

Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  Our bank subsidiary’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  We believe, as of September 30, 2021, that our bank subsidiary met all capital adequacy requirements to which they were subject.

The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
The following tables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of September 30, 2021 and December 31, 2020.
Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.
43

 
 Actual
Minimum Required Capital - Basel IIIMinimum Required To Be Well Capitalized
Dollars in thousandsAmountRatioAmountRatioAmountRatio
As of September 30, 2021      
CET1 (to risk weighted assets)
Summit$252,581 9.0 %N/AN/AN/AN/A
Summit Community313,549 11.2 %195,968 7.0 %181,970 6.5 %
Tier I Capital (to risk weighted assets)     
Summit286,501 10.2 %N/AN/AN/AN/A
Summit Community313,549 11.2 %237,961 8.5 %223,964 8.0 %
Total Capital (to risk weighted assets)     
Summit341,088 12.1 %N/AN/AN/AN/A
Summit Community338,670 12.1 %293,887 10.5 %279,893 10.0 %
Tier I Capital (to average assets)      
Summit286,501 8.4 %N/AN/AN/AN/A
Summit Community313,549 9.2 %136,326 4.0 %170,407 5.0 %
 
 Actual
Minimum Required Capital - Basel IIIMinimum Required To Be Well Capitalized
Dollars in thousandsAmountRatioAmountRatioAmountRatio
As of December 31, 2020    
CET1 (to risk weighted assets)
Summit233,768 9.3 %N/AN/AN/AN/A
Summit Community279,540 11.1 %176,286 7.0 %163,695 6.5 %
Tier I Capital (to risk weighted assets)     
Summit252,768 10.0 %N/AN/AN/AN/A
Summit Community279,540 11.1 %214,062 8.5 %201,470 8.0 %
Total Capital (to risk weighted assets)     
Summit305,309 12.1 %N/AN/AN/AN/A
Summit Community302,716 12.0 %264,877 10.5 %252,263 10.0 %
Tier I Capital (to average assets)      
Summit252,768 8.6 %N/AN/AN/AN/A
Summit Community279,540 9.5 %117,701 4.0 %147,126 5.0 %


NOTE  14.  DERIVATIVE FINANCIAL INSTRUMENTS

Cash flow hedges

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

•A $40 million notional interest rate swap expiring on October 18, 2021, was designated as a cash flow hedge of $40 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.19% and receive a variable rate equal to three month LIBOR.

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

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

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

•A $100 million notional interest rate cap with an effective date of July 20, 2020 and expiring on April 18, 2030, was designated as a cash flow hedge of $100 million of forecasted fixed rate Federal Home Loan Bank advances. Under the terms of this cap we will hedge the variability of cash flows when three month LIBOR is above .75%.
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•A $100 million notional interest rate cap with an effective date of December 29, 2020 and expiring on December 18, 2025, was designated as a cash flow hedge of $100 million of certain indexed interest bearing demand deposit accounts. Under the terms of this cap we will hedge the variability of cash flows when the indexed rate of SOFR is above 0.50%.

Fair value hedges

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

A summary of our derivative financial instruments as of September 30, 2021 and December 31, 2020 follows:
 September 30, 2021
 Notional
Amount		Derivative Fair ValueNet Ineffective
Dollars in thousandsAssetLiabilityHedge Gains/(Losses)
CASH FLOW HEDGES    
Pay-fixed/receive-variable interest rate swaps   
Short term borrowings$80,000 $— $569 $— 
Interest rate cap hedging:
Short term borrowings$100,000 $8,290 $— $— 
Indexed interest bearing demand deposit accounts100,000 2,090 — — 
FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans$17,712 $— $780 $— 
 December 31, 2020
 Notional
Amount		Derivative Fair ValueNet Ineffective
Dollars in thousandsAssetLiabilityHedge Gains/(Losses)
CASH FLOW HEDGES    
Pay-fixed/receive-variable interest rate swaps   
Short term borrowings$80,000 $— $1,457 $— 
Interest rate cap hedging:
Short term borrowings$100,000 $5,652 $— $— 
Indexed interest bearing demand deposit accounts100,000 1,001 — — 
FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans$18,192 $— $1,290 $— 

Loan commitments:  ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.

NOTE 15. ACQUISITIONS

MVB Bank Branches Acquisition

On July 10, 2021, SCB acquired four MVB Bank locations located in southern West Virginia: one in Kanawha County, one in Putnam County, and two in Cabell County. In addition, SCB acquired two MVB Bank drive-up banking locations in Cabell County. Summit assumed certain deposits and loans totaling approximately $164 million and $54 million, respectively.
The purchase price was $9.8 million equaling the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 6.00%.

45

This acquisition was determined to constitute a business combination in accordance with ASC 805, Business Combinations,and accordingly we accounted for the acquisition using the acquisition method of accounting, recording the assets and liabilities of MVB Bank at their acquisition date respective fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. We recognized preliminary goodwill of $10.33 million in connection with the acquisition (deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on July 10, 2021 in connection with the acquisition of the MVB Bank branches, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill.

(Dollars in thousands)As Recorded by MVBEstimated Fair Value AdjustmentsEstimated Fair Values as Recorded by Summit
Cash consideration$9,807 
Total consideration9,807 
Identifiable assets acquired:
Cash and cash equivalents$946 $— $946 
Loans
Purchased performing
53,440 478 53,918 
    Purchased credit deteriorated488 (91)397 
Premises and equipment3,431 (129)3,302 
Core deposit intangibles— 178 178 
Other assets260 — 260 
Total identifiable assets acquired
$58,565 $436 $59,001 
Identifiable liabilities assumed:
Deposits163,081 959 164,040 
Other liabilities45 — 45 
Total identifiable liabilities assumed
$163,126 $959 $164,085 
Net liabilities assumed$(104,561)$(523)$(105,084)
Net cash received from MVB94,753 
Preliminary goodwill resulting from acquisition$10,331 

NOTE 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ending September 30, 2021 and 2020.
For the Three Months Ended September 30, 2021
Dollars in thousandsGains and Losses on Pension PlanGains and Losses on Other Post-Retirement BenefitsGains and Losses on Cash Flow HedgesUnrealized Gains/Losses on Debt Securities Available for SaleTotal
Beginning balance$(199)$(40)$2,163 $5,177 $7,101 
Other comprehensive income (loss) before reclassification— — 689 (2,754)(2,065)
Amounts reclassified from accumulated other comprehensive income, net of tax— — — 52 52 
Net current period other comprehensive income (loss)— — 689 (2,702)(2,013)
Ending balance$(199)$(40)$2,852 $2,475 $5,088 
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For the Three Months Ended September 30, 2020
Dollars in thousandsGains and Losses on Pension PlanGains and Losses on Other Post-Retirement BenefitsGains and Losses on Cash Flow HedgesUnrealized Gains/Losses on Debt Securities Available for SaleTotal
Beginning balance$(140)$48 $(2,417)$5,831 $3,322 
Other comprehensive income before reclassification— — 422 1,603 2,025 
Amounts reclassified from accumulated other comprehensive income, net of tax— — — (1,157)(1,157)
Net current period other comprehensive income— — 422 446 868 
Ending balance$(140)$48 $(1,995)$6,277 $4,190 

For the Nine Months Ended September 30, 2021
Dollars in thousandsGains and Losses on Pension PlanGains and Losses on Other Post-Retirement BenefitsGains and Losses on Cash Flow HedgesUnrealized Gains/Losses on Debt Securities Available for SaleTotal
Beginning balance$(199)$(40)$(1,132)$6,816 $5,445 
Other comprehensive income (loss) before reclassification— — 3,984 (3,935)49 
Amounts reclassified from accumulated other comprehensive income, net of tax— — — (406)(406)
Net current period other comprehensive income (loss)— — 3,984 (4,341)(357)
Ending balance$(199)$(40)$2,852 $2,475 $5,088 

For the Nine Months Ended September 30, 2020
Dollars in thousandsGains and Losses on Pension PlanGains and Losses on Other Post-Retirement BenefitsGains and Losses on Cash Flow HedgesUnrealized Gains/Losses on Debt Securities Available for SaleTotal
Beginning balance$(140)$48 $(518)$3,145 $2,535 
Other comprehensive income (loss) before reclassification— — (1,477)5,078 3,601 
Amounts reclassified from accumulated other comprehensive income, net of tax— — — (1,946)(1,946)
Net current period other comprehensive income (loss)— — (1,477)3,132 1,655 
Ending balance$(140)$48 $(1,995)$6,277 $4,190 





NOTE 17. INCOME TAXES

Our income tax expense for the three and nine months ended September 30, 2021 and September 30, 2020 totaled $3.0 million and $8.9 million and $2.6 million and $5.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three and nine months ended September 30, 2021 and 2020 was 19.8% and 21.1% and 21.2% and 20.1% , respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and nine months ended September 30, 2021 and 2020 is as follows:
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For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2021202020212020
PercentPercentPercentPercent
Applicable statutory rate21.0 %21.0 %21.0 %21.0 %
Increase (decrease) in rate resulting from:
 
Tax-exempt interest and dividends, net
(1.3)%(1.9)%(1.4)%(2.2)%
State income taxes, net of Federal income tax benefit
2.08 %1.9 %2.12 %1.6 %
Low-income housing and rehabilitation tax credits(0.1)%(0.1)%(0.2)%(0.6)%
Other, net(1.9)%0.3 %(0.4)%0.3 %
Effective income tax rate19.8 %21.2 %21.1 %20.1 %

The components of applicable income tax expense for the three and nine months ended September 30, 2021 and 2020 are as follows:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
Dollars in thousands2021202020212020
Current  
Federal$2,350 $2,697 $7,720 $7,689 
State351 372 1,122 1,072 
 2,701 3,069 8,842 8,761 
Deferred   
Federal282 (416)38 (3,025)
State40 (59)6 (434)
 322 (475)44 (3,459)
Total$3,023 $2,594 $8,886 $5,302 

NOTE 18. REVENUE FROM CONTRACTS WITH CUSTOMERS

Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics: 
Three Months Ended September 30,Nine Months Ended September 30,
Dollars in thousands2021202020212020
Service fees on deposit accounts$1,338 $1,138 $3,530 $3,283 
Bank card revenue1,509 1,237 4,369 3,257 
Trust and wealth management fees718 622 2,039 1,870 
Other163 113 432 367 
Net revenue from contracts with customers 3,728 3,110 10,370 8,777 
Non-interest income within the scope of other ASC topics839 3,097 3,886 5,530 
Total noninterest income$4,567 $6,207 $14,256 $14,307 









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

The following discussion and analysis focuses on significant changes in our financial condition and results of operations of Summit Financial Group, Inc. (“Company” or “Summit”) and its operating subsidiary, Summit Community Bank (“Summit Community”), for the periods indicated.   This discussion and analysis should be read in conjunction with our 2020 audited consolidated financial statements and Annual Report on Form 10-K.

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

Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: the effect of the COVID-19 crisis, including the negative impacts and disruptions on the communities we serve, and the domestic and global economy, which may have an adverse effect on our business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations of our acquisitions; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements following the date of this filing.

OVERVIEW

On April 24, 2020, we acquired four MVB Bank ("MVB") branches in the eastern panhandle of West Virginia, on December 14, 2020, we acquired WinFirst Financial Corp. ("WinFirst") and its subsidiary WinFirst Bank, headquartered in Winchester, Kentucky and on July 12, 2021 we acquired four full-service MVB branch banking offices and two MVB drive-up banking locations in southern West Virginia. MVB's and WinFirst's results are included in our financial statements from the acquisition dates forward, impacting comparisons to the prior-year periods.

Our primary source of income is net interest income from loans and deposits.  Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.

Primarily due to our recent acquisitions and organic loan growth, average interest earning assets increased by 21.5% for the first nine months in 2021 compared to the same period of 2020 while our net interest earnings on a tax equivalent basis increased 17.0%.  Our tax equivalent net interest margin decreased 13 basis points as our yield on interest earning assets decreased 54 basis points while our cost of interest bearing funds decreased 50 basis points.

COVID-19 IMPACTS

Overview

Our business has been, and continues to be, impacted by the ongoing COVID-19 pandemic. As further discussed in “Results of Operations,” the current interest rate environment, borrower credit quality and market volatility, among other factors, continue to impact our performance. Although we are unable to estimate the magnitude, we expect the pandemic and the resulting economic environment will continue to affect our future operating results.

Impact on our Operations 
Summit continues to address the issues arising as a result of COVID-19 as we have implemented various plans, strategies and protocols to protect our employees, maintain services for clients, assure the functional continuity of our operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. While governmental entities have generally eased temporary business closures and all of our offices are now open as normal without restriction and approved
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vaccines are being administered throughout our footprint, it remains unknown when, or if, there will be a return to historical norms of economic and social activity.
Impact on our Financial Position and Results of Operations

Lending and Credit Risks

While we have not experienced any material charge-offs related to COVID-19, our allowance for credit losses ACL computation and resulting provision for credit losses are significantly impacted by the estimated potential future economic impact of the COVID-19 crisis. Refer to the Credit Experience section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for further details regarding Q3 2021 provision for credit losses.
We took actions to identify and assess our COVID-19 related credit exposures by asset classes and borrower types. Depending on the demonstrated need of the client, in certain cases, we either modified to interest only or deferred the full loan payment. Accordingly, the following tables summarize the aggregate balances of loans the Company has modified as result of COVID-19 as of September 30, 2021 and December 31, 2020 classified by types of loans and impacted borrowers.
Loan Balances Modified Due to COVID-19 as of September 30, 2021
Dollars in thousandsTotal Loan
Balance as of
9/30/2021		Interest Only
Payments		Payment
Deferral 		Total Loans
Modified		Percentage of
Loans Modified
Hospitality industry$121,765 $— $— $— — %
Non-owner occupied retail stores154,120 7,223 — 7,223 4.7 %
Owner-occupied retail stores163,350 — — — — %
Restaurants12,200 — — — — %
Oil & gas industry18,657 — — — — %
Other commercial1,349,187 — — — — %
Total Commercial Loans1,819,279 7,223 — 7,223 0.4 %
Residential 1-4 family personal270,951 — — — — %
Residential 1-4 family rentals195,914 — — — — %
Home equity71,496 — — — — %
Total Residential Real Estate Loans538,361 — — — — %
Consumer32,285 — — — — %
Mortgage warehouse lines161,627 — — — 0.0 %
Credit cards and overdrafts2,558 — — — 0.0 %
Total Loans$2,554,110 $7,223 $— $7,223 0.3 %

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Loan Balances Modified Due to COVID-19 as of December 31, 2020
Dollars in thousandsTotal Loan
Balance as of
12/31/2020		Interest Only
Payments		Payment
Deferral 		Total Loans
Modified		Percentage of
Loans Modified
Hospitality industry$121,502 $40,513 $12,930 $53,443 44.0 %
Non-owner occupied retail stores135,405 7,223 447 7,670 5.7 %
Owner-occupied retail stores126,451 2,317 1,246 3,563 2.8 %
Restaurants7,481 — — — — %
Oil & gas industry17,152 — — — — %
Other commercial1,134,759 12,006 286 12,292 1.1 %
Total Commercial Loans1,542,750 62,059 14,909 76,968 5.0 %
Residential 1-4 family personal305,093 159 1,754 1,913 0.6 %
Residential 1-4 family rentals194,612 148 73 221 0.1 %
Home equity81,588 — — — — %
Total Residential Real Estate Loans581,293 307 1,827 2,134 0.4 %
Consumer33,906 48 143 191 0.6 %
Mortgage warehouse lines251,810 — — — 0.0 %
Credit cards and overdrafts2,394 — — — 0.0 %
Total Loans$2,412,153 $62,414 $16,879 $79,293 3.3 %

Modified loans with deferred payments continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with bank regulatory guidance and Section 4013 of the CARES Act, as modified by the CAA, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral periods. COVID-19 related loan modifications are also deemed to be insignificant borrower concessions, and therefore, such modified loans were not classified as troubled-debt restructured loans as of September 30, 2021.
Capital and Liquidity
Our capital management activities, coupled with our historically strong earnings performance and prudent dividend practices, have allowed us to build and maintain strong capital reserves. At September 30, 2021, all of Summit’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company bank subsidiary’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 9.2% at September 30, 2021, which is well in excess of the well-capitalized regulatory minimum of 5.0%.

In addition, management believes the Company’s liquidity position is strong. The Company’s bank subsidiary maintains a funding base largely comprised of core noninterest bearing demand deposit accounts and low cost interest-bearing transactional deposit accounts with clients that operate or reside within the footprint of its branch bank network. At September 30, 2021, the Company’s cash and cash equivalent balances were $211.1 million. In addition, Summit maintains an available-for-sale debt securities portfolio, comprised primarily of highly liquid U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities, which serves as a ready source of liquidity. At September 30, 2021, the Company’s available-for-sale debt securities portfolio totaled $424.7 million, $307.9 million of which was unpledged as collateral. The Company bank subsidiary’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at September 30, 2021 was $893.2 million, and it maintained $258.1 million of borrowing availability at the Federal Reserve Bank of Richmond’s discount window.
The COVID-19 crisis is expected to continue to impact our financial results, as well as demand for our services and products during the remainder of 2021 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future revenues, earnings results, allowance for credit losses, capital reserves and liquidity are unknown at present.

CRITICAL ACCOUNTING POLICIES

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

Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 2020 Annual Report on Form 10-K.  These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, we have identified the determination of ACL, fair value measurements and accounting for acquired loans to be the accounting areas that require the most subjective or complex judgments and as such could be most subject to revision as new information becomes available. Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2020 Form 10-K for a discussion of the methodology we employ regarding the ACL.

For additional information regarding critical accounting policies, refer to Critical Accounting Policies section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2020 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2020.

RESULTS OF OPERATIONS

Earnings Summary

Net income applicable to common shares for the three months ended September 30, 2021 was $12.2 million, or $0.92 per diluted share, compared to $9.6 million, or $0.74 per diluted share for the same period of 2020. Net income applicable to common shares for the nine months ended September 30, 2021 was $32.8 million or $2.52 per diluted share compared to $21.1 million or $1.62 per diluted share for the same period of 2020. The increased earnings for the three months ended September 30, 2021 were primarily attributable to increased net interest income due to our growth and decreased provision for credit losses partially offset by higher salaries, commissions and employee benefits. The increased earnings for the nine months ended September 30, 2021 were primarily attributable to increased net interest income due to our growth, higher bank card revenue and decreased provision for credit losses partially offset by higher salaries, commissions and employee benefits, decreased realized securities gains and higher other operating expenses. Returns on average equity and assets for the first nine months of 2021 were 14.51% and 1.34%, respectively, compared with 10.72% and 1.04% for the same period of 2020.

MVB's and WinFirst's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our 2021 results reflect increased levels of average balances, income and expense as compared to the same periods of 2020 results. At consummation (prior to fair value acquisition adjustments), the MVB eastern panhandle branch transaction consisted primarily of $33.9 million loans acquired and $188.7 million deposits assumed; WinFirst had total assets of $143.4 million, $122.8 million net loans and deposits of $104.7 million; and MVB southern West Virginia branch transaction consisted primarily of $54.4 million loans acquired and $164.0 million deposits assumed.

Net Interest Income

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

Q3 2021 compared to Q2 2021

For the quarter ended September 30, 2021, our net interest income on a fully taxable-equivalent basis increased $1.2 million to $28.3 million compared to $27.1 million for the quarter end June 30, 2021. Our taxable-equivalent earnings on interest earning assets increased $935,000, while the cost of interest bearing liabilities decreased $299,000 (see Tables I and II).

For the three months ended September 30, 2021 average interest earning assets increased to $3.23 billion compared to $3.05 billion for the three months ended June 30, 2021, while average interest bearing liabilities increased to $2.55 billion for the three months ended September 30, 2021 from $2.41 billion for the three months ended June 30, 2021.

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For the quarter ended September 30, 2021, our net interest margin decreased to 3.47%, compared to 3.55% for the linked quarter, as the yields on earning assets declined 15 basis points and the cost of our interest bearing funds decreased by 8 basis points.

Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.41% and 3.50% for the three months ended September 30, 2021 and June 30, 2021.

Q3 2021 compared to Q3 2020

For the quarter ended September 30, 2021, our net interest income on a fully taxable-equivalent basis increased $3.2 million to $28.3 million compared to $25.1 million for the quarter end September 30, 2020. Our taxable-equivalent earnings on interest earning assets increased $1.6 million, while the cost of interest bearing liabilities decreased $1.6 million (see Tables I and II).

For the three months ended September 30, 2021 average interest earning assets increased 18.0% to $3.23 billion compared to $2.74 billion for the three months ended September 30, 2020, while average interest bearing liabilities increased 15.0% from $2.21 billion for the three months ended September 30, 2020 to $2.55 billion for the three months ended September 30, 2021.

For the quarter ended September 30, 2021, our net interest margin decreased to 3.47%, compared to 3.64% for the same period of 2020, as the yields on earning assets decreased 47 basis points, while the cost of our interest bearing funds decreased by 37 basis points.

Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.59% for the three months ended September 30, 2020.
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Table I - Average Balance Sheet and Net Interest Income Analysis
  
For the Quarter Ended
 September 30, 2021June 30, 2021September 30, 2020
Dollars in thousandsAverage
Balance		Earnings/
Expense		Yield/
Rate		Average
Balance		Earnings/
Expense		Yield/
Rate		Average
Balance		Earnings/
Expense		Yield/
Rate
Interest earning assets     
Loans, net of unearned fees (1)
     
Taxable$2,495,880 $28,340 4.50 %$2,455,757 $27,593 4.51 %$2,251,722 $26,656 4.71 %
Tax-exempt (2)7,871 96 4.84 %11,370 132 4.66 %16,245 191 4.68 %
Securities   
Taxable315,082 1,432 1.80 %285,092 1,351 1.90 %261,231 1,445 2.20 %
Tax-exempt (2)166,285 1,159 2.77 %147,703 1,078 2.93 %150,350 1,186 3.17 %
Federal funds sold and interest bearing deposits with other banks
248,315 118 0.19 %154,677 56 0.15 %60,639 57 0.37 %
Total interest earning assets3,233,433 31,145 3.82 %3,054,599 30,210 3.97 %2,740,187 29,535 4.29 %
Noninterest earning assets   
Cash & due from banks20,077   19,095 16,603 
Premises and equipment55,908   53,210 52,329 
Property held for sale12,727 13,631 17,801 
Other assets163,248   156,839 136,777 
Allowance for loan losses(33,911)  (34,674)(28,144)
Total assets$3,451,482   $3,262,700 $2,935,553 
Interest bearing liabilities   
Interest bearing demand deposits$1,092,392 $325 0.12 %$995,673 $371 0.15 %$850,281 $380 0.18 %
Savings deposits691,411 602 0.35 %665,735 634 0.38 %588,085 925 0.63 %
Time deposits571,445 905 0.63 %562,605 1,131 0.81 %585,092 2,247 1.53 %
Short-term borrowings140,146 470 1.33 %140,146 464 1.33 %165,555 734 1.76 %
Long-term borrowings and capital trust securities
49,724 543 4.33 %49,694 544 4.39 %23,230 194 3.32 %
Total interest bearing liabilities2,545,118 2,845 0.44 %2,413,853 3,144 0.52 %2,212,243 4,480 0.81 %
Noninterest bearing liabilities and shareholders' equity
   
Demand deposits547,627   503,116 421,741 
Other liabilities38,789   36,842 33,978 
Total liabilities3,131,534   2,953,811 2,667,962 
Shareholders' equity - preferred14,920 11,254 — 
Shareholders' equity - common305,028   297,635 267,591 
Total liabilities and shareholders' equity$3,451,482   $3,262,700 $2,935,553 
Net interest earnings $28,300  $27,066 $25,055 
Net yield on interest earning assets 3.47 %3.55 %3.64 %

(1)- For purposes of this table, nonaccrual loans are included in average loan balances.
(2)- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented. The tax equivalent adjustment resulted in an increase in interest income of $263,000, $255,000, and $289,000 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.

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Table II - Changes in Net Interest Income Attributable to Rate and Volume
 For the Quarter EndedFor the Quarter Ended
 September 30, 2021 vs. June 30, 2021September 30, 2021 vs. September 30, 2020
 Increase (Decrease) Due to Change in:Increase (Decrease) Due to Change in:
Dollars in thousandsVolumeRateNetVolumeRateNet
Interest earned on:    
Loans    
Taxable$751 $(4)$747 $2,860 $(1,176)$1,684 
Tax-exempt(41)5 (36)(102)7 (95)
Securities   
Taxable149 (68)81 272 (285)(13)
Tax-exempt140 (59)81 120 (147)(27)
Federal funds sold and interest bearing deposits with other banks
41 21 62 102 (41)61 
Total interest earned on interest earning assets
1,040 (105)935 3,252 (1,642)1,610 
Interest paid on:    
Interest bearing demand deposits
35 (81)(46)92 (147)(55)
Savings deposits26 (58)(32)143 (466)(323)
Time deposits19 (245)(226)(52)(1,290)(1,342)
Short-term borrowings— 6 6 (102)(162)(264)
Long-term borrowings and capital trust securities
— (1)(1)276 73 349 
Total interest paid on interest bearing liabilities
80 (379)(299)357 (1,992)(1,635)
Net interest income$960 $274 $1,234 $2,895 $350 $3,245 


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Table III - Average Balance Sheet and Net Interest Income Analysis
  
For the Nine Months Ended
 September 30, 2021September 30, 2020
Dollars in thousandsAverage
Balance		Earnings/
Expense		Yield/
Rate		Average
Balance		Earnings/
Expense		Yield/
Rate
Interest earning assets     
Loans, net of unearned fees (1)
     
Taxable$2,436,295 $83,352 4.57 %$2,102,331 $77,211 4.91 %
Tax-exempt (2)10,622 377 4.75 %16,121 576 4.77 %
Securities      
Taxable288,999 4,079 1.89 %256,322 4,657 2.43 %
Tax-exempt (2)153,035 3,328 2.91 %113,793 2,897 3.4 %
Federal funds sold and interest bearing deposits with other banks
190,154 241 0.17 %46,074 215 0.62 %
Total interest earning assets3,079,105 91,377 3.97 %2,534,641 85,556 4.51 %
Noninterest earning assets      
Cash & due from banks19,093   15,901   
Premises and equipment54,154   49,655   
Property held for sale13,731 18,423 
Other assets157,137   120,228   
Allowance for loan losses(33,765)  (25,618)  
Total assets$3,289,455   $2,713,230   
Interest bearing liabilities      
Interest bearing demand deposits$1,016,569 $1,090 0.14 %$753,384 $1,830 0.32 %
Savings deposits666,642 1,881 0.38 %516,841 3,462 0.89 %
Time deposits572,547 3,493 0.82 %608,551 7,796 1.71 %
Short-term borrowings140,146 1,403 1.34 %127,109 1,863 1.96 %
Long-term borrowings and capital trust securities
49,694 1,632 4.39 %21,284 600 3.77 %
Total interest bearing liabilities2,445,598 9,499 0.52 %2,027,169 15,551 1.02 %
Noninterest bearing liabilities and shareholders' equity
      
Demand deposits501,309   393,128   
Other liabilities37,856   30,741   
Total liabilities2,984,763   2,451,038   
Shareholders' equity - preferred8,780 — 
Shareholders' equity - common295,912   262,192   
Total liabilities and shareholders' equity$3,289,455   $2,713,230   
Net interest earnings $81,878  $70,005 
Net yield on interest earning assets 3.56 %3.69 %

(1)- For purposes of this table, nonaccrual loans are included in average loan balances.
(2)- Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21%. The tax equivalent adjustment resulted in an increase in interest income of $779,000 and $730,000 for the nine months ended September 30, 2021 and 2020, respectively.

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Table IV - Changes in Net Interest Income Attributable to Rate and Volume
 For the Nine Months Ended
 September 30, 2021 versus September 30, 2020
 Increase (Decrease) Due to Change in:
Dollars in thousandsVolumeRateNet
Interest earned on:   
Loans   
Taxable$11,623 $(5,482)$6,141 
Tax-exempt(195)(4)(199)
Securities   
Taxable543 (1,121)(578)
Tax-exempt894 (463)431 
Federal funds sold and interest bearing deposits with other banks
275 (249)26 
Total interest earned on interest earning assets
13,140 (7,319)5,821 
Interest paid on:   
Interest bearing demand deposits
501 (1,241)(740)
Savings deposits808 (2,389)(1,581)
Time deposits(437)(3,866)(4,303)
Short-term borrowings176 (636)(460)
Long-term borrowings and capital trust securities
918 114 1,032 
Total interest paid on interest bearing liabilities
1,966 (8,018)(6,052)
Net interest income$11,174 $699 $11,873 

Credit Experience

For purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which is comprised of loans 90 days or more past due and still accruing interest and nonaccrual loans. Performing TDRs are excluded from nonperforming loans.

The provision for credit losses represents charges to earnings necessary to maintain an adequate allowance to cover an estimate of the full amount of expected credit losses relative to loans. Our determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, change in the composition and risk characteristics of the loan portfolio, and the anticipated influence of national and local economic conditions.  The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary.

Our asset quality and mix of new loans required no provision for credit losses for the three months ended September 30, 2021 compared to $3.25 million for the three months ended September 30, 2020. We recorded $2.50 million and $11.50 million provisions for credit losses (for both funded loans and unfunded commitments) for the first nine months of 2021 and 2020. The following tables summarizes the changes in the various factors that comprise the provisions for credit losses.

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Table V - Provision for Credit Losses
 For the Three Months Ended 
 September 30,		For the Nine Months Ended 
 September 30,
Dollars in thousands2021202020212020
Provision for credit losses-loans
Due to changes in:
Volume, mix and loss experience$176 $1,060 $4,180 $309 
Reasonable and supportable economic forecasts— — (2,301)6,063 
Individually evaluated credits(2,169)2,142 (1,842)3,059 
Acquired loans793 — 793 977 
Total provision for loan credit losses(1,200)3,202 830 10,408 
Provision for credit losses-unfunded commitments
Due to changes in:
Volume, mix and loss experience1,060 48 2,103 (126)
Reasonable and supportable economic forecasts— — (573)1,137 
Individually evaluated credits— — — — 
Acquired loan commitments140 — 140 81 
Total provision for unfunded commitment credit losses1,200 48 1,670 1,092 
Total provision for credit losses$— $3,250 $2,500 $11,500 

Our reasonable and supportable economic forecasts at September 30, 2021 compared to September 30, 2020 improved markedly as our forecasts for unemployment and GDP now reflect 2021's strengthening economic recovery while early 2020 economic forecasts were extraordinarily negative as result of the COVID-19 pandemic.

At September 30, 2021 and December 31, 2020, our allowance for loan credit losses totaled $32.4 million, or 1.27% of total loans and $32.2 million, or 1.34% of total loans. The allowance for loan credit losses is considered adequate to cover an estimate of the full amount of expected credit losses relative to loans.

We incurred net loan charge-offs of $761,000 in first nine months of 2021 (0.04 percent of average loans annualized), compared to $1.5 million net loan charge-offs during first nine months of 2020. Net loan charge-offs totaled $370,000 and $1.0 million for the three months ended September 30, 2021 and 2020.

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As illustrated in Table VI below, our non-performing assets have decreased since year end 2020.
Table VI - Summary of Non-Performing Assets   
 September 30,December 31,
Dollars in thousands202120202020
Accruing loans past due 90 days or more$2 $2 $2 
Nonaccrual loans   
Commercial459 553 525 
Commercial real estate4,643 4,313 14,237 
Commercial construction and development— — — 
Residential construction and development448 2 235 
Residential real estate5,514 5,104 5,264 
Consumer47 29 72 
Other— — — 
Total nonaccrual loans11,111 10,001 20,333 
Foreclosed properties   
Commercial— — — 
Commercial real estate2,192 2,499 2,581 
Commercial construction and development2,925 4,154 4,154 
Residential construction and development6,711 10,330 7,791 
Residential real estate622 847 1,062 
Total foreclosed properties12,450 17,830 15,588 
Repossessed assets— — — 
Total nonperforming assets$23,563 $27,833 $35,923 
Total nonperforming loans as a percentage of total loans0.44 %0.44 %0.84 %
Total nonperforming assets as a percentage of total assets0.67 %0.94 %1.16 %
Allowance for credit losses-loans as a percentage of nonperforming loans291.64 %293.45 %158.57 %
Allowance for credit losses-loans as a percentage of period end loans1.27 %1.30 %1.34 %

A commercial real estate loan relationship totaling $9.5 million was impacted by the COVID-19 pandemic and on nonaccrual at year end 2020, was restored to full accrual status in third quarter 2021.

The following table details the activity regarding our foreclosed properties for the three and nine months ended September 30, 2021 and 2020.
Table VII - Foreclosed Property Activity
 For the Three Months Ended 
 September 30,		For the Nine Months Ended 
 September 30,
Dollars in thousands2021202020212020
Beginning balance$13,170 $17,954 $15,588 $19,276 
Acquisitions190 725 532 888 
Improvements— 177 — 1,249 
Disposals(645)(470)(2,664)(1,863)
Writedowns to fair value(265)(555)(1,006)(1,719)
Balance March 31$12,450 $17,831 $12,450 $17,831 
 
Refer to Note 7 of the Notes to the Consolidated Financial Statements in the 2020 Form 10-K for a discussion of the methodology information regarding our past due loans, nonaccrual loans, troubled debt restructurings and information regarding our methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for credit losses.

At September 30, 2021 and December 31, 2020 we had approximately $12.5 million and $15.6 million in foreclosed properties which were obtained as the result of foreclosure proceedings.  Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.

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Noninterest Income

Total noninterest income for the three months and nine months ended September 30, 2021 decreased 26.4% and 0.4%, respectively, compared to the same periods of 2020 principally due to fewer realized securities gains which more than offset the higher bank card revenue due to increased customer usage. We recorded higher mortgage origination revenue for the nine months ended September 30, 2021 compared to 2020 due to higher volumes of secondary market loans driven primarily by historically low interest rates; however, most recently, volumes are lower as mortgage refinance opportunities have become more limited. Further detail regarding noninterest income is reflected in the following table.

Table VIII - Noninterest Income  
 For the Quarter Ended September 30,For the Nine Months Ended September 30,
Dollars in thousands2021202020212020
Trust and wealth management fees718 622 2,039 1,870 
Mortgage origination revenue742 780 2,638 1,636 
Service charges on deposit accounts1,338 1,138 3,530 3,283 
Bank card revenue1,509 1,237 4,369 3,257 
Realized securities gains(68)1,522 534 2,560 
Bank owned life insurance income160 795 733 1,334 
Other168 113 413 367 
Total$4,567 $6,207 $14,256 $14,307 

Noninterest Expense

Total noninterest expense increased 11.8% for the three months ended September 30, 2021 compared to the same period of 2020 primarily due to higher salaries, commissions, and employee benefits and higher equipment expense. Total noninterest expense increased 11.2% for the nine months ended September 30, 2021 compared to the same period of 2020 primarily due to higher salaries, commissions, and employee benefits and other expenses that more than offset the lower foreclosed properties expense. Table IX below shows the breakdown of the changes.
Table IX- Noninterest Expense
 For the Quarter Ended September 30,For the Nine Months Ended September 30,
  Change  Change 
Dollars in thousands2021
 $
%20202021 $%2020
Salaries, commissions, and employee benefits
$8,745 $637 7.9 %$8,108 $25,410 $1,701 7.2 %$23,709 
Net occupancy expense1,254 197 18.6 %1,057 3,559 642 22.0 %2,917 
Equipment expense1,908 434 29.4 %1,474 5,088 825 19.4 %4,263 
Professional fees374 10 2.7 %364 1,140 (28)(2.4)%1,168 
Advertising and public relations
254 109 75.2 %145 482 93 23.9 %389 
Amortization of intangibles
390 (22)(5.3)%412 1,176 (75)(6.0)%1,251 
FDIC premiums354 34 10.6 %320 1,119 524 88.1 %595 
     Bank card expense705 116 19.7 %589 1,964 312 18.9 %1,652 
Foreclosed properties expense370 (237)(39.0)%607 1,342 (473)(26.1)%1,815 
Acquisition-related expenses273 245 875.0 %28 1,167 (286)(19.7)%1,453 
Other2,716 311 12.9 %2,405 8,365 1,872 28.8 %6,493 
Total$17,343 $1,834 11.8 %$15,509 $50,812 $5,107 11.2 %$45,705 

Salaries, commissions, and employee benefits: The increases in these expenses for the three and nine months ended September 30, 2021 compared to the same periods of 2020 is primarily due to an increase in number of employees, resulting from the MVB branches and WinFirst acquisitions, and general merit raises.

Equipment expense: Equipment expenses have increased primarily due to depreciation and amortization related to various technological upgrades, both hardware and software, including interactive teller machine upgrades and recent acquisitions.

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FDIC premiums: For the 2021 periods, FDIC premiums increased primarily due to a higher assessment base resulting from our balance sheet growth.

Foreclosed properties expense: The decrease in foreclosed properties expense, net of gains/losses, for the three and nine months ended September 30, 2021 is primarily due to lower writedowns of foreclosed properties to their estimated fair value.

Acquisition-related expenses: Acquisition-related expenses during 2021 are related to WinFirst and the MVB Bank branches (southern West Virginia) and related to the Cornerstone and MVB branch (Eastern Panhandle West Virginia) acquisitions during 2020.

Other: The increase in other expenses for the nine months ended September 30, 2021 compared to the same period of 2020 is largely due to the following:

•Deferred director compensation plan expense of $498,000 in 2021 compared to $190,000 in the comparable period of 2020 as a result of the stock market's overall positive performance during Q1 2021. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments
•During the first nine months of 2021, we incurred $289,000 in fraud/counterfeit losses compared to $99,000 during same period of 2020
•Secondary loan underwriting expenses were $130,000 higher during first nine months of 2021 due to higher volumes of secondary market loans driven primarily by historically low interest rates
•Debit card expense increased $207,000 for the nine months ended September 30, 2021 compared to the same period of 2020 due to increased card usage by customers
•Internet banking expense increased $216,000 due to increased internet banking activity by clients

Income Taxes

Our income tax expense for the three months ended September 30, 2021 and September 30, 2020 totaled $3.0 million and $2.6 million, respectively. For the nine months ended September 30, 2021 and September 30, 2020 our income tax expense totaled $8.9 million and $5.3 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended September 30, 2021 and 2020 was 19.8% and 21.2%, respectively and for the nine months ended September 30, 2021 and 2020 was 21.1% and 20.1%, respectively. Refer to Note 17 of the accompanying financial statements for further information regarding our income taxes.
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FINANCIAL CONDITION

Our total assets were $3.51 billion at September 30, 2021 and $3.11 billion at December 31, 2020.  Table X below is a summary of significant changes in our financial position between December 31, 2020 and September 30, 2021.
Table X - Summary of Significant Changes in Financial Position
 Balance at December 31, 2020Impact of MVB Branches AcquisitionIncrease (Decrease)Balance at September 30, 2021
Dollars in thousands
Assets   
Cash and cash equivalents$99,787 95,699 $15,623 $211,109 
Debt securities available for sale286,127 — 138,614 424,741 
Debt securities held to maturity99,914 — (1,386)98,528 
Other investments14,185 — (3,536)10,649 
Loans, net2,379,907 54,315 87,482 2,521,704 
Property held for sale15,588 — (3,138)12,450 
Premises and equipment52,537 3,302 979 56,818 
Goodwill and other intangibles55,123 10,509 (1,655)63,977 
   Cash surrender value of life insurance policies and annuities59,438 — 803 60,241 
Other assets43,778 260 4,696 48,734 
Total assets$3,106,384 $164,085 $238,482 $3,508,951 
Liabilities   
Deposits$2,595,651 164,040 $196,249 $2,955,940 
Short-term borrowings140,146 — — 140,146 
Long-term borrowings699 — (15)684 
   Subordinated debentures 29,364 — 102 29,466 
Subordinated debentures owed to
unconsolidated subsidiary trusts
19,589 — — 19,589 
Other liabilities39,355 45 437 39,837 
Shareholders' Equity - preferred— 14,920 14,920 
Shareholders' Equity - common281,580 — 26,789 308,369 
Total liabilities and shareholders' equity$3,106,384 164,085 $238,482 $3,508,951 

The following is a discussion of the significant changes in our financial position during the first nine months of 2021:

Cash and cash equivalents: Net increase of $15.6 million is primarily attributable to increased customer deposits.

Debt securities available for sale: The net increase of $138.6 million in debt securities available for sale is principally a result of purchases of taxable municipal securities and tax-exempt municipal securities.

Loans: Mortgage warehouse lines of credit declined $90.2 million during the first nine months of 2021 due to a reduction in size of our participation arrangement with a regional bank to fund residential mortgage warehouse lines of medium- and large-sized mortgage originators located throughout the United States. Excluding mortgage warehouse lines of credit, loan growth was $232.1 million during the first nine months of 2021, which included $54 million acquired loans and net PPP loans declining $52.2 million.

Deposits: During the first nine months of 2021, noninterest bearing checking deposits increased $134.7 million (which includes $39.7 million acquired deposits), interest bearing checking deposits grew $186.8 million (which includes $62.5 million acquired deposits), and savings deposits grew $72.5 million (which includes $16.1 million acquired deposits), while brokered CDs declined $40.8 million, retail CDs increased $6.6 million, net of $44.7 million acquired time deposits and Direct CDs decreased $0.4 million as we increased new commercial account relationships and also consumers received two Economic Incentive Payments during early 2021.
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Shareholders' equity - preferred: In April 2021, we sold through private placement 1,500 shares of 6% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series 2021, $1.00 par value, with a liquidation preference of $10,000 per share for net proceeds of $14.9 million.

Shareholders' equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income and common dividends.

Refer to Notes 5, 6, 8, and 9 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between September 30, 2021 and December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements.  Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which totaled approximately $1.6 billion or 45.95% of total consolidated assets at September 30, 2021.

Our liquidity strategy is to fund loan growth with deposits and other borrowed funds while maintaining an adequate level of short- and medium-term investments to meet normal daily loan and deposit activity.  As a member of the FHLB, we have access to approximately $1.03 billion.  As of September 30, 2021 and December 31, 2020, these advances totaled approximately $141 million.  At September 30, 2021, we had additional borrowing capacity of $893 million through FHLB programs.  We have established a line with the Federal Reserve Bank to be used as a contingency liquidity vehicle.  The amount available on this line at September 30, 2021 was approximately $259 million, which is secured by a pledge of certain consumer and our commercial and industrial loan portfolios.  We have a $6 million unsecured line of credit with a correspondent bank.  Also, we have a $425 million portfolio of available for sale debt securities which can be liquidated to meet liquidity needs.
 
Liquidity risk represents the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, customer or creditor perception of financial strength, and events unrelated to Summit such as war, terrorism, pandemic or financial institution market specific issues.  The Asset/Liability Management Committee (“ALCO”), comprised of members of senior management and certain members of the Board of Directors, oversees our liquidity risk management process.   The ALCO develops and recommends policies and limits governing our liquidity to the Board of Directors for approval with the objective of ensuring that we can obtain cost-effective funding to meet current and future obligations, as well as maintain sufficient levels of on-hand liquidity, under both normal and “stressed” circumstances.
 
We continuously monitor our liquidity position to ensure that day-to-day as well as anticipated funding needs are met.  We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity.

One of our continuous goals is maintenance of a strong capital position.  Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth.  Shareholders’ equity at September 30, 2021 totaled $323.3 million compared to $281.6 million at December 31, 2020.

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

Refer to Note 13 of the notes to the accompanying consolidated financial statements for additional information regarding regulatory restrictions on our capital as well as our subsidiaries’ capital.




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CONTRACTUAL CASH OBLIGATIONS

During our normal course of business, we incur contractual cash obligations.  The following table summarizes our contractual cash obligations at September 30, 2021.
Table XI - Contractual Cash Obligations 
Dollars in thousandsLong
Term
Debt		Subordinated DebenturesCapital
Trust
Securities		Operating
Leases
2021$5 $— $— $240 
202221 — — 967 
202322 — — 769 
202423 — — 719 
202524 — — 645 
Thereafter589 30,000 19,589 2,833 
Total$684 $30,000 $19,589 $6,173 

OFF-BALANCE SHEET ARRANGEMENTS

We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital.  These arrangements at September 30, 2021 are presented in the following table.

Table XII - Off-Balance Sheet ArrangementsSeptember 30,
Dollars in thousands2021
Commitments to extend credit: 
Revolving home equity and credit card lines$95,601 
Construction loans198,224 
Other loans333,636 
Standby letters of credit25,025 
Total$652,486 




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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk Management

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices.  Interest rate risk is our primary market risk and results from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, changes in relationships between rate indices and the potential exercise of imbedded options.  The principal objective of asset/liability management is to minimize interest rate risk and our actions in this regard are taken under the guidance of our Asset/Liability Management Committee (“ALCO”), which is comprised of members of senior management and members of the Board of Directors.  The ALCO actively formulates the economic assumptions that we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds.

Some amount of interest rate risk is inherent and appropriate to the banking business.  Our net income is affected by changes in the absolute level of interest rates.  Our interest rate risk position is asset sensitive. That is, absent any changes in the volumes of our interest earning assets or interest bearing liabilities, assets are likely to reprice faster than liabilities, resulting in an increase in net income in a rising rate environment.  Net income would decrease in a falling interest rate environment.  Net income is also subject to changes in the shape of the yield curve.  In general, a flattening yield curve would decrease our earnings due to the compression of earning asset yields and funding rates, while a steepening would increase earnings as margins widen.

Several techniques are available to monitor and control the level of interest rate risk.  We control interest rate risk principally by matching the maturities of our interest earning assets with similar maturing interest bearing liabilities and by hedging adverse risk exposures with derivative financial instruments such as interest rate swaps and caps. We primarily use earnings simulations modeling to monitor interest rate risk.  The earnings simulation model forecasts the effects on net interest income under a variety of interest rate scenarios that incorporate changes in the absolute level of interest rates and changes in the shape of the yield curve.  Each increase or decrease in interest rates is assumed to gradually take place over either the next 12 months or the next 24 months (as footnoted in table below), and then remain stable.  Assumptions used to project yields and rates for new loans and deposits are derived from historical analysis.  Securities portfolio maturities and prepayments are reinvested in like instruments.  Mortgage loan prepayment assumptions are developed from industry estimates of prepayment speeds.  Noncontractual deposit repricings are modeled on historical patterns.

The following table presents the estimated sensitivity of our net interest income to changes in interest rates, as measured by our earnings simulation model as of September 30, 2021.  The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates (change over 12 months, stable thereafter or change over 24 months, stable thereafter, see footnotes below) compared to net interest income with rates unchanged in the same period.  The estimated changes set forth below are dependent on the assumptions discussed above.
Estimated % Change in
Net Interest Income over:
Change in0 - 12 Months13 - 24 Months
Interest RatesActualActual
Down 100  basis points (1)-0.9 %-5.7 %
Up 200 basis points (1)0.4 %4.2 %
Up 200 basis points (2)0.3 %1.8 %
(1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
(2) assumes a parallel shift in the yield curve over 24 months, with no change thereafter


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Item 4. Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of September 30, 2021, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of September 30, 2021 were effective.  There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information


Item 1.  Legal Proceedings

Refer to Note 11 of the Notes to the Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings not reportable under this Item.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.


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

In February 2020, the Board of Directors authorized the open market repurchase of up to 750,000 shares of the issued and outstanding shares of Summit's common stock ("February 2020 Repurchase Plan"). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan may be discontinued, suspended, or restarted at any time at the Company's discretion.

The following table sets forth certain information regarding Summit's purchases of its common stock under the Repurchase Plan and for the benefit of Summits Employee Stock Ownership Plan for the quarter ended September 30, 2021.

PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2021 - July 31, 2021— $— — 674,667 
Aug. 1, 2021 - Aug. 31, 202111,522 23.85 — 663,145 
Sept. 1, 2021 - Sept. 30, 202114,856 24.07 — 648,289 


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



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Item 6. Exhibits
Exhibit 2.1Purchase and Assumption Agreement dated April 22, 2021, by and between MVB Bank, Inc. and Summit Community Bank, Inc.
Exhibit 3.iAmended and Restated Articles of Incorporation of Summit Financial Group, Inc.
  
Exhibit 3.iiArticles of Amendment 2009
  
Exhibit 3.iiiArticles of Amendment 2011
Exhibit 3.ivAmended and Restated Articles of Amendment 2021
  
Exhibit 3.vAmended and Restated By-Laws of Summit Financial Group, Inc.
  
Exhibit 11Statement re: Computation of Earnings per Share – Information contained in Note 4 to the Consolidated Financial Statements on page 13 of this Quarterly Report is incorporated herein by reference.
  
Exhibit 31.1Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
  
Exhibit 31.2Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
  
Exhibit 32.1Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer
  
Exhibit 32.2Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer
  
Exhibit 101Interactive Data File (Inline XBRL)
Exhibit 104Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
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EXHIBIT INDEX

Exhibit No.DescriptionPage
Number
2.1(a)
(3)Articles of Incorporation and By-laws: 
 (b)
 (c)
 (d)
(e)
 (f)
1114
   
31.1 
   
31.2 
   
32.1* 
   
32.2* 
101**Interactive data file (Inline XBRL) 
104Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

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

(a)Incorporated by reference to Exhibit 2.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 23, 2021.
(b)Incorporated by reference to Exhibit 3.2 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021.
(c)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated September 30, 2009.
(d)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated November 3, 2011.
(e)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated April 30, 2021.
(f)Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 10-Q dated March 26, 2020.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 SUMMIT FINANCIAL GROUP, INC.
 (registrant)
   
   
   
   
 By:/s/ H. Charles Maddy, III
 H. Charles Maddy, III,
 President and Chief Executive Officer
   
   
   
 By:/s/ Robert S. Tissue
 Robert S. Tissue,
 Executive Vice President and Chief Financial Officer
   
   
   
 By:/s/ Julie R. Markwood
 Julie R. Markwood,
 Senior Vice President and Chief Accounting Officer
   
   
Date:November 4, 2021  



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Document

   Exhibit 31.1
SARBANES-OXLEY ACT SECTION 302
CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, H. Charles Maddy, III, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Summit Financial Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in registrant’s internal control over financial reporting.

/s/ H. Charles Maddy, III
H. Charles Maddy, III,
President and Chief Executive Officer
Date:November 4, 2021



Document

Exhibit 31.2

SARBANES-OXLEY ACT SECTION 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Robert S. Tissue, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Summit Financial Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in registrant’s internal control over financial reporting.

/s/ Robert S. Tissue
Robert S. Tissue
Executive Vice President and Chief Financial Officer
Date:November 4, 2021

Document

Exhibit 32.1


SARBANES-OXLEY ACT SECTION 906
CERTIFICATION OF CHIEF EXECUTIVE OFFICER


In connection with this Quarterly Report of Summit Financial Group, Inc. ("Summit “) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, H. Charles Maddy, III, President and Chief Executive Officer of Summit, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act  of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Summit.
 /s/ H. Charles Maddy, III
 H. Charles Maddy, III,
 President and Chief Executive Officer
  
  
Date:November 4, 2021 



The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

Document

Exhibit 32.2


SARBANES-OXLEY ACT SECTION 906
CERTIFICATION OF CHIEF FINANCIAL OFFICER


In connection with this Quarterly Report of Summit Financial Group, Inc. ("Summit “) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert S. Tissue, Executive Vice President and Chief Financial Officer of Summit, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act  of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Summit.
 /s/ Robert S. Tissue
 Robert S. Tissue,
 Executive Vice President and Chief Financial Officer
  
  
Date:November 4, 2021 



The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.