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, ~~2020~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.

Commission File Number 0-16587

Summit Financial Group, Inc.

(Exact name of registrant as specified in its charter)


West Virginia			55-0672148
(State or other jurisdiction of			(IRS Employer
incorporation or organization)			Identification No.)


300 North Main Street
Moorefield	West Virginia	26836
(Address of principal executive offices)		(Zip Code)

(304) 530-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☑			No			☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes			☑			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $2.50 per share	SMMF	NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.

Common Stock, $2.50 par value

~~12,982,493~~13,003,145 shares outstanding as of November ~~2, 2020~~3, 2021

Table of Contents


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated balance sheets September 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	4

		Consolidated statements of income for the three ~~months~~ and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	5

		Consolidated statements of comprehensive income for the three ~~months~~ and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	6

		Consolidated statements of shareholders’ equity for the three ~~months~~ and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	7

		Consolidated statements of cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	9

		Notes to consolidated financial statements (unaudited)	11

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4648

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6 161

	Item 4.	Controls and Procedures	6266
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	6367

	Item 1A.	Risk Factors	6 363

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None

	Item 3.	Defaults upon Senior Securities	None

	Item 4.	Mine Safety Disclosures	None

	Item 5.	Other Information	None

	Item 6.	Exhibits	6568

EXHIBIT INDEX			6669

SIGNATURES			6770

Item 1. Financial Statements

Consolidated Balance Sheets (unaudited)

September 30,
2020 December 31,
2019
Dollars in thousands, except per share amounts (unaudited) (*)
ASSETS
Cash and due from banks $ 16,257 $ 28,137
Interest bearing deposits with other banks 92,729 33,751
Cash and cash equivalents 108,986 61,888
Debt securities available for sale 297,989 276,355
Debt securities held to maturity (estimated fair value - $92,786) 91,600 0
Other investments 10,766 12,972
Loans held for sale 2,538 1,319
Loans, net of unearned income 2,251,804 1,913,499
Less: allowance for credit losses - loans (29,354) (13,074)
Loans, net 2,222,450 1,900,425
Property held for sale 17,831 19,276
Premises and equipment, net 52,880 44,168
Accrued interest receivable 10,978 8,439
Goodwill and other intangible assets 48,101 23,022
Cash surrender value of life insurance policies and annuities 57,029 43,603
Other assets 25,714 12,025
Total assets $ 2,946,862 $ 2,403,492
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 420,070 $ 260,553
Interest bearing 2,031,821 1,652,684
Total deposits 2,451,891 1,913,237
Short-term borrowings 140,145 199,345
Long-term borrowings 703 717
Subordinated debentures 29,336 0
Subordinated debentures owed to unconsolidated subsidiary trusts 19,589 19,589
Other liabilities 33,235 22,840
Total liabilities 2,674,899 2,155,728
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1.00 par value, authorized 250,000 shares 0 0
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2020 - 12,981,717 shares and 2019 - 12,474,641 shares; outstanding: 2020 - 12,932,415 shares and 2019 - 12,408,542 94,717 80,084
Unallocated common stock held by Employee Stock Ownership Plan - 2020 - 49,302 shares and 2019 - 66,099 shares (532) (714)
Retained earnings 173,588 165,859
Accumulated other comprehensive income 4,190 2,535
Total shareholders' equity 271,963 247,764
Total liabilities and shareholders' equity $ 2,946,862 $ 2,403,492


	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 banks	189,862		80,265
Cash and cash equivalents	211,109		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, net	98,528		99,914
Other investments	10,649		14,185
Loans held for sale	1,393		1,998
Loans, net of unearned fees	2,554,110		2,412,153
Less: allowance for credit losses	(32,406)		(32,246)
Loans, net	2,521,704		2,379,907
Property held for sale	12,450		15,588
Premises and equipment, net	56,818		52,537
Accrued interest and fees receivable	10,484		11,989
Goodwill and other intangible assets, net	63,977		55,123
Cash surrender value of life insurance policies and annuities	60,241		59,438
Other assets	36,857		29,791
Total assets	$	3,508,951	$	3,106,384

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing	$	575,542	$	440,818
Interest bearing	2,380,398		2,154,833
Total deposits	2,955,940		2,595,651
Short-term borrowings	140,146		140,146
Long-term borrowings	684		699
Subordinated debentures	29,466		29,364
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589
Other liabilities	39,837		39,355
Total liabilities	3,185,662		2,824,804
Commitments and Contingencies	0		0

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 earnings	207,703		181,643
Accumulated other comprehensive income	5,088		5,445
Total shareholders' equity	323,289		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

Table of Contents

Consolidated Statements of Income (unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands, except per share amounts	Dollars in thousands, except per share amounts	2020		2019		2020		2019		Dollars in thousands, except per share amounts	2021		2020		2021		2020
Interest income	Interest income									Interest income
Interest and fees on loans	Interest and fees on loans									Interest and fees on loans
Taxable	Taxable	$	26,656	$	24,786	$	77,211	$	71,877	Taxable	$	28,340	$	26,656	$	83,352	$	77,211
Tax-exempt	Tax-exempt	151		154		455		467		Tax-exempt	76		151		299		455
Interest and dividends on securities	Interest and dividends on securities									Interest and dividends on securities
Taxable	Taxable	1,445		1,566		4,656		4,859		Taxable	1,432		1,445		4,078		4,656
Tax-exempt	Tax-exempt	937		618		2,288		2,307		Tax-exempt	916		937		2,629		2,288
Interest on interest bearing deposits with other banks	Interest on interest bearing deposits with other banks	57		125		216		490		Interest on interest bearing deposits with other banks	118		57		240		216
Total interest income	Total interest income	29,246		27,249		84,826		80,000		Total interest income	30,882		29,246		90,598		84,826
Interest expense	Interest expense									Interest expense
Interest on deposits	Interest on deposits	3,552		6,214		13,088		17,745		Interest on deposits	1,832		3,552		6,464		13,088
Interest on short-term borrowings	Interest on short-term borrowings	734		1,371		1,863		4,240		Interest on short-term borrowings	470		734		1,404		1,863
Interest on long-term borrowings and subordinated debentures	Interest on long-term borrowings and subordinated debentures	194		244		600		758		Interest on long-term borrowings and subordinated debentures	543		194		1,631		600
Total interest expense	Total interest expense	4,480		7,829		15,551		22,743		Total interest expense	2,845		4,480		9,499		15,551
Net interest income	Net interest income	24,766		19,420		69,275		57,257		Net interest income	28,037		24,766		81,099		69,275
Provision for credit losses	Provision for credit losses	3,250		500		11,500		1,050		Provision for credit losses	—		3,250		2,500		11,500
Net interest income after provision for credit losses	Net interest income after provision for credit losses	21,516		18,920		57,775		56,207		Net interest income after provision for credit losses	28,037		21,516		78,599		57,775
Noninterest income	Noninterest income									Noninterest income
Insurance commissions		44		40		75		1,821

Trust and wealth management fees	Trust and wealth management fees	622		632		1,870		1,830		Trust and wealth management fees	718		622		2,039		1,870
Mortgage origination revenue	Mortgage origination revenue	780		77		1,636		392		Mortgage origination revenue	742		780		2,638		1,636
Service charges on deposit accounts	Service charges on deposit accounts	1,138		1,312		3,283		3,716		Service charges on deposit accounts	1,338		1,138		3,530		3,283
Bank card revenue	Bank card revenue	1,237		924		3,257		2,631		Bank card revenue	1,509		1,237		4,369		3,257
Realized securities gains, net		1,522		453		2,560		1,535
Gain on sale of Summit Insurance Services, LLC		0		0		0		1,906
Realized securities gains (losses), net										Realized securities gains (losses), net	(68)		1,522		534		2,560

Bank owned life insurance and annuities income	Bank owned life insurance and annuities income	795		247		1,334		733		Bank owned life insurance and annuities income	160		795		733		1,334
Other	Other	69		74		292		235		Other	168		113		413		367
Total noninterest income	Total noninterest income	6,207		3,759		14,307		14,799		Total noninterest income	4,567		6,207		14,256		14,307
Noninterest expenses	Noninterest expenses									Noninterest expenses
Salaries, commissions and employee benefits	Salaries, commissions and employee benefits	8,108		7,044		23,709		21,966		Salaries, commissions and employee benefits	8,745		8,108		25,410		23,709
Net occupancy expense	Net occupancy expense	1,057		799		2,917		2,602		Net occupancy expense	1,254		1,057		3,559		2,917
Equipment expense	Equipment expense	1,474		1,296		4,263		3,694		Equipment expense	1,908		1,474		5,088		4,263
Professional fees	Professional fees	364		388		1,168		1,266		Professional fees	374		364		1,140		1,168
Advertising and public relations	Advertising and public relations	145		177		389		484		Advertising and public relations	254		145		482		389
Amortization of intangibles	Amortization of intangibles	412		404		1,251		1,300		Amortization of intangibles	390		412		1,176		1,251
FDIC premiums	FDIC premiums	320		0		595		88		FDIC premiums	354		320		1,119		595
Bank card expense	Bank card expense	589		455		1,652		1,367		Bank card expense	705		589		1,964		1,652
Foreclosed properties expense, net		607		305		1,815		2,236
Foreclosed properties expense										Foreclosed properties expense	370		607		1,342		1,815

Merger-related expenses		28		74		1,453		519
Acquisition-related expenses										Acquisition-related expenses	273		28		1,167		1,453
Other	Other	2,405		1,864		6,493		6,473		Other	2,716		2,405		8,365		6,493
Total noninterest expenses	Total noninterest expenses	15,509		12,806		45,705		41,995		Total noninterest expenses	17,343		15,509		50,812		45,705
Income before income tax expense	Income before income tax expense	12,214		9,873		26,377		29,011		Income before income tax expense	15,261		12,214		42,043		26,377
Income tax expense	Income tax expense	2,594		1,812		5,302		5,293		Income tax expense	3,023		2,594		8,886		5,302
Net income	Net income	$	9,620	$	8,061	$	21,075	$	23,718	Net income	12,238		9,620		33,157		21,075

Dividends on preferred shares										Dividends on preferred shares	225		—		364		—
Net income applicable to common shares										Net income applicable to common shares	$	12,013	$	9,620	$	32,793	$	21,075

Basic earnings per common share	Basic earnings per common share	$	0.74	$	0.65	$	1.63	$	1.89	Basic earnings per common share	$	0.93	$	0.74	$	2.53	$	1.63
Diluted earnings per common share	Diluted earnings per common share	$	0.74	$	0.65	$	1.62	$	1.88	Diluted earnings per common share	$	0.92	$	0.74	$	2.52	$	1.62

See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Comprehensive Income (unaudited)

For the Three Months Ended
September 30,
Dollars in thousands 2020 2019
Net income $ 9,620 $ 8,061
Other comprehensive income:
Net unrealized gain on cashflow hedge of:
2020 - $555, net of deferred taxes of $133; 2019 - $70, net of deferred taxes of $17
422 53
Net unrealized gain on securities available for sale of:
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; 2019 - $2,068, net of deferred taxes of $496 and reclassification adjustment for net realized gains included in net income of $453, net of tax of $109
446 1,572
Total other comprehensive income 868 1,625
Total comprehensive income $ 10,488 $ 9,686

For the Nine Months Ended
September 30,
Dollars in thousands 2020 2019
Net income $ 21,075 $ 23,718
Other comprehensive income:
Net unrealized loss on cashflow hedge of:
2020 - $(1,943), net of deferred taxes of $(466); 2019 - $(487), net of deferred taxes of $(117)
(1,477) (370)
Net unrealized gain on securities available for sale of:
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; 2019 - $7,315, net of deferred taxes of $1,755 and reclassification adjustment for net realized gains included in net income of $1,535, net of tax of $368
3,132 5,560
Net unrealized loss on pension plan of:
2019 - $(432), net of deferred taxes of $(104)
0 (328)
Total other comprehensive income 1,655 4,862
Total comprehensive income $ 22,730 $ 28,580


	For the Three Months Ended September 30,
Dollars in thousands	2021		2020
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 thousands	2021		2020
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

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share amounts Common
Stock and
Related
Surplus Unallocated
Common
Stock Held
by ESOP Retained
Earnings Accumulated
Other
Compre-
hensive
Income Total
Share-
holders'
Equity
Balance at 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
Balance June 30, 2019 $ 80,946 $ (828) $ 153,362 $ 2,221 $ 235,701
Three Months Ended September 30, 2019
Net income — — 8,061 — 8,061
Other comprehensive income — — — 1,625 1,625
Share-based compensation expense 149 — — — 149
Unallocated ESOP shares committed to be released - 5,251 shares 80 56 — — 136
Retirement of 52,460 shares of common stock (1,453) — — — (1,453)
Common stock issuances from reinvested dividends - 2,227 shares 58 — — — 58
Common stock cash dividends declared ($0.15 per share) — — (1,855) — (1,855)
Balance, September 30, 2019 $ 79,780 $ (772) $ 159,568 $ 3,846 $ 242,422


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

Table of Contents

Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share amounts Common
Stock and
Related
Surplus Unallocated Common Stock Held by ESOP Retained
Earnings Accumulated
Other
Compre-
hensive
Income
(Loss) Total
Share-
holders'
Equity
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 0 — — — 0
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
Balance, December 31, 2018 $ 80,431 $ (939) $ 141,354 $ (1,016) $ 219,830
Nine Months Ended September 30, 2019
Net income — — 23,718 — 23,718
Other comprehensive income — — — 4,862 4,862
Exercise of stock options and SARs - 17,255 shares 7 — — — 7
Share-based compensation expense 430 — — — 430
Unallocated ESOP shares committed to be released - 15,481 shares 222 167 — — 389
Retirement of 417,577 shares of common stock (10,405) — — — (10,405)
Acquisition of Peoples Bankshares, Inc. - shares, net of 465,931 issuance costs 8,918 — — — 8,918
Common stock issuances from reinvested dividends - 6,781 shares 177 — — — 177
Common stock cash dividends declared ($0.44 per share) — — (5,504) — (5,504)
Balance, September 30, 2019 $ 79,780 $ (772) $ 159,568 $ 3,846 $ 242,422


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

Table of Contents

Consolidated Statements of Cash Flows (unaudited)


		Nine Months Ended					Nine Months Ended
Dollars in thousands	Dollars in thousands	September 30, 2020		September 30, 2019		Dollars in thousands	September 30, 2021		September 30, 2020
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income	Net income	$	21,075	$	23,718	Net income	$	33,157	$	21,075
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	2,359		1,921		Depreciation	2,650		2,359
Provision for credit losses	Provision for credit losses	11,500		1,050		Provision for credit losses	2,500		11,500
Share-based compensation expense	Share-based compensation expense	402		430		Share-based compensation expense	448		402
Deferred income tax benefit	Deferred income tax benefit	(3,459)		(336)		Deferred income tax benefit	44		(3,459)
Loans originated for sale	Loans originated for sale	(64,279)		(13,710)		Loans originated for sale	(94,025)		(64,279)
Proceeds from sale of loans	Proceeds from sale of loans	64,195		13,292		Proceeds from sale of loans	96,519		64,195
Gains on loans held for sale	Gains on loans held for sale	(1,135)		(270)		Gains on loans held for sale	(1,890)		(1,135)
Realized securities gains, net	Realized securities gains, net	(2,560)		(1,535)		Realized securities gains, net	(534)		(2,560)
(Gain) loss on disposal of assets		(167)		213
Gain on sale of Summit Insurance Services, LLC		0		(1,906)
Loss (gain) on disposal of assets						Loss (gain) on disposal of assets	113		(167)

Write-downs of foreclosed properties	Write-downs of foreclosed properties	1,719		1,578		Write-downs of foreclosed properties	1,006		1,719
Amortization of securities premiums, net	Amortization of securities premiums, net	2,135		1,826		Amortization of securities premiums, net	3,163		2,135
Accretion related to acquisitions, net	Accretion related to acquisitions, net	(1,133)		(842)		Accretion related to acquisitions, net	(1,271)		(1,133)
Amortization of intangibles	Amortization of intangibles	1,251		1,300		Amortization of intangibles	1,176		1,251
Earnings on bank owned life insurance and annuities	Earnings on bank owned life insurance and annuities	(1,413)		(830)		Earnings on bank owned life insurance and annuities	(803)		(1,413)
(Increase) decrease in accrued interest receivable		(1,617)		434
(Increase) decrease in other assets		(48)		221
(Decrease) increase in other liabilities		(1,225)		2,935
Decrease (increase) in accrued interest receivable						Decrease (increase) in accrued interest receivable	1,657		(1,617)
Increase in other assets						Increase in other assets	(207)		(48)
Increase (decrease) in other liabilities						Increase (decrease) in other liabilities	642		(1,225)
Net cash provided by operating activities	Net cash provided by operating activities	27,600		29,489		Net cash provided by operating activities	44,345		27,600
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Proceeds from maturities and calls of securities available for sale		2,810		1,766
Proceeds from maturities and calls of debt securities available for sale						Proceeds from maturities and calls of debt securities available for sale	6,455		2,810
Proceeds from maturities and calls of held to maturity securities	Proceeds from maturities and calls of held to maturity securities	1,000		0		Proceeds from maturities and calls of held to maturity securities	—		1,000
Proceeds from sales of securities available for sale		105,597		133,174
Principal payments received on securities available for sale		17,952		18,501
Purchases of securities available for sale		(52,783)		(63,504)
Proceeds from sales of debt securities available for sale						Proceeds from sales of debt securities available for sale	15,704		105,597
Principal payments received on debt securities available for sale						Principal payments received on debt securities available for sale	22,925		17,952
Purchases of debt securities available for sale						Purchases of debt securities available for sale	(190,653)		(52,783)
Purchases of held to maturity securities	Purchases of held to maturity securities	(93,234)		0		Purchases of held to maturity securities	—		(93,234)
Purchases of other investments	Purchases of other investments	(14,245)		(12,035)		Purchases of other investments	(343)		(14,245)

Proceeds from redemptions of other investments	Proceeds from redemptions of other investments	16,461		14,332		Proceeds from redemptions of other investments	3,139		16,461
Net loan originations	Net loan originations	(264,600)		(118,893)		Net loan originations	(90,086)		(264,600)
Purchases of premises and equipment	Purchases of premises and equipment	(8,077)		(7,238)		Purchases of premises and equipment	(3,683)		(8,077)
Proceeds from disposal of premises and equipment	Proceeds from disposal of premises and equipment	9		11		Proceeds from disposal of premises and equipment	59		9
Improvements to property held for sale	Improvements to property held for sale	(1,249)		(88)		Improvements to property held for sale	100		(1,249)
Proceeds from sales of repossessed assets & property held for sale	Proceeds from sales of repossessed assets & property held for sale	2,007		2,789		Proceeds from sales of repossessed assets & property held for sale	2,457		2,007
Purchase of life insurance contracts and annuities	Purchase of life insurance contracts and annuities	(9,298)		0		Purchase of life insurance contracts and annuities	—		(9,298)
Proceeds from sale of Summit Insurance Services, LLC		0		7,117
Cash and cash equivalents from acquisitions, net of cash consideration paid 2020 - $27,215; 2019 - $12,740		183,688		20,589

Cash and cash equivalents from acquisitions, net of cash consideration paid 2021 - $9,807 2020 - $27,215						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	Net cash used in investing activities	(113,962)		(3,479)		Net cash used in investing activities	(138,227)		(113,962)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts	Net increase in demand deposit, NOW and savings accounts	307,957		45,706		Net increase in demand deposit, NOW and savings accounts	275,730		307,957
Net (decrease) increase in time deposits		(130,841)		39,621
Net decrease in time deposits						Net decrease in time deposits	(78,560)		(130,841)
Net decrease in short-term borrowings	Net decrease in short-term borrowings	(59,199)		(102,390)		Net decrease in short-term borrowings	—		(59,199)

Repayment of long-term borrowings	Repayment of long-term borrowings	(14)		(13)		Repayment of long-term borrowings	(15)		(14)
Proceeds from subordinated debt, net of issuance costs	Proceeds from subordinated debt, net of issuance costs	29,336		0		Proceeds from subordinated debt, net of issuance costs	—		29,336

Purchase of interest rate cap	Purchase of interest rate cap	(5,850)		0		Purchase of interest rate cap	—		(5,850)
Proceeds from issuance of common stock, net of issuance costs	Proceeds from issuance of common stock, net of issuance costs	105		98		Proceeds from issuance of common stock, net of issuance costs	213		105
Proceeds from issuance of preferred stock, net of issuance costs						Proceeds from issuance of preferred stock, net of issuance costs	14,920		—
Purchase and retirement of common stock	Purchase and retirement of common stock	(1,444)		(10,405)		Purchase and retirement of common stock	—		(1,444)

Exercise of stock options	Exercise of stock options	0		7		Exercise of stock options	13		—
Dividends paid on common stock	Dividends paid on common stock	(6,590)		(5,504)		Dividends paid on common stock	(6,733)		(6,590)

Net cash provided by (used in) financing activities		133,460		(32,880)
Increase (decrease) in cash and cash equivalents		47,098		(6,870)
Dividends paid on preferred stock						Dividends paid on preferred stock	(364)		—
Net cash provided by financing activities						Net cash provided by financing activities	205,204		133,460
Increase in cash and cash equivalents						Increase in cash and cash equivalents	111,322		47,098
continued	continued					continued
See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements					See Notes to Consolidated Financial Statements

Table of Contents

Consolidated Statements of Cash Flows (unaudited) - continued


		Nine Months Ended					Nine Months Ended
Dollars in thousands	Dollars in thousands	September 30, 2020		September 30, 2019		Dollars in thousands	September 30, 2021		September 30, 2020
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning	Beginning	61,888		59,540		Beginning	99,787		61,888
Ending	Ending	$	108,986	$	52,670	Ending	$	211,109	$	108,986

Supplemental Disclosures of Cash Flow Information	Supplemental Disclosures of Cash Flow Information					Supplemental Disclosures of Cash Flow Information
Cash payments for:	Cash payments for:					Cash payments for:
Interest	Interest	$	15,887	$	22,548	Interest	$	9,671	$	15,887
Income taxes	Income taxes	$	9,145	$	6,080	Income taxes	$	9,017	$	9,145

Supplemental Disclosures of Noncash Investing and Financing Activities	Supplemental Disclosures of Noncash Investing and Financing Activities					Supplemental Disclosures of Noncash Investing and Financing Activities
Real property and other assets acquired in settlement of loans	Real property and other assets acquired in settlement of loans	$	902	$	4,060	Real property and other assets acquired in settlement of loans	$	532	$	902
Right of use assets obtained in exchange for lease obligations	Right of use assets obtained in exchange for lease obligations	$	3,293	$	0	Right of use assets obtained in exchange for lease obligations	$	1,950	$	3,293

Supplemental Disclosures of Noncash Transactions Included in Acquisition	Supplemental Disclosures of Noncash Transactions Included in Acquisition					Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired	Assets acquired	$	171,645	$	100,377	Assets acquired	$	58,054	$	171,645
Liabilities assumed	Liabilities assumed	$	365,379	$	114,151	Liabilities assumed	$	164,085	$	365,379

See Notes to Consolidated Financial Statements

Table of Contents

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, ~~2019~~2020.

Certain amounts in the prior financial statements have been reclassified to conform to the current year presentation. Such reclassifications were immaterial and ~~the COVID-19 risk factor in Part II. Item 1A Risk Factors of this quarterly report~~had no impact on ~~Form 10-Q.~~total shareholders’ equity or net income for any period.

The results of operations for the three and nine months ended September 30, ~~2020~~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 ~~2019~~2020 audited financial statements and Annual Report on Form 10-K.

NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

Recently Adopted

~~During June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. Accounting Standards Codification Topic 326 ("ASC 326"),~~ ~~Financial Instruments - Credit Losses~~, as amended, among other things, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques previously applied are still permitted, although the inputs to those techniques have changed to reflect the full amount of expected credit losses. In addition, ASC 326 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration.

We adopted ASC 326 on January 1, 2020 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. We recorded a net reduction of retained earnings of $6.76 million upon adoption. The transition adjustment includes an increase in the allowance for credit losses for loans ("ACLL") of $6.93 million and an increase in the allowance for credit losses on off-balance sheet credit exposures of $2.43 million, net of the corresponding increases in deferred tax assets of $2.13 million. The adjustments to the allowance for credit losses ("ACL") for both loans and off-balance sheet credit exposures are combined and reported on our income statement as credit loss expense. Further information regarding our policies and methodology used to estimate the ACLL is presented in Note 6 - Loans and Allowance for Credit Losses for Loans. Further information regarding our policies and methodology used to estimate the ACL on off-balance-sheet credit exposures is presented in Note 11 - Commitments and Contingencies.

We adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, we did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining credit discount on the PCI loans was recorded as an offset to the ACLL at the time of adoption and is netted in the above adjustment. The remaining adjustment for noncredit factors on these loans will be accreted into interest income on a level-yield method over the life of the loans.

Additionally, we evaluated each acquired loan for PCD status at the time of adoption. We identified loans with a net balance of $9.4 million that should be considered PCD. We considered the remaining discount at the time of adoption to be for noncredit factors on these loans and it will be accreted into interest income on a level-yield method over the life of the loans.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement~~. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain

~~Table of Contents~~

~~disclosure requirements in Topic 820 are also removed or modified. The amendments were effective for us January 1, 2020 and did not have a material impact on our consolidated financial statements.~~

In March 2020 (revised April 2020), various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus ("COVID-19"). The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC 310-40, ~~Receivables - Troubled Debt Restructurings by Creditors~~, (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the COVID-19 crisis to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time. See Note 6 of the accompanying consolidated financial statements for disclosure of the impact to date.

~~Pending Adoption~~

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, and interim periods within those fiscal years. Early~~2020. The adoption ~~is permitted. We are currently assessing the impact that~~of ASU 2019-12 ~~will~~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 ~~permitted.We do~~ not ~~expect~~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 ~~2020-01 to~~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.

~~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. We do not expect the adoption of ASU 2020-06 to have a material impact on our consolidated financial statements.

Table of Contents

1211

NOTE 3. FAIR VALUE MEASUREMENTS

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


		Balance at		Fair Value Measurements Using:							Balance at		Fair Value Measurements Using:
Dollars in thousands	Dollars in thousands	September 30, 2020		Level 1		Level 2		Level 3		Dollars in thousands	September 30, 2021		Level 1		Level 2		Level 3
Securities available for sale
Debt securities available for sale										Debt securities available for sale
U.S. Government sponsored agencies	U.S. Government sponsored agencies	$	36,766	$	0	$	36,766	$	0	U.S. Government sponsored agencies	$	38,510	$	—	$	38,510	$	—
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Government sponsored agencies	Government sponsored agencies	62,351		0		62,351		0		Government sponsored agencies	63,328		—		63,328		—
Nongovernment sponsored entities	Nongovernment sponsored entities	15,190		0		15,190		0		Nongovernment sponsored entities	19,906		—		19,906		—
State and political subdivisions	State and political subdivisions	52,300		0		52,300		0		State and political subdivisions	147,189		—		147,189		—
Corporate debt securities	Corporate debt securities	25,956		0		25,956		0		Corporate debt securities	30,837		—		30,837		—
Asset-backed securities	Asset-backed securities	46,035		0		46,035		0		Asset-backed securities	46,492		—		46,492		—

Tax-exempt state and political subdivisions	Tax-exempt state and political subdivisions	59,391		0		59,391		0		Tax-exempt state and political subdivisions	78,479		—		78,479		—
Total securities available for sale		$	297,989	$	0	$	297,989	$	0
Total debt securities available for sale										Total debt securities available for sale	$	424,741	$	—	$	424,741	$	—

Derivative financial assets	Derivative financial assets									Derivative financial assets
Interest rate cap		$	4,611	$	0	$	4,611	$	0
Interest rate caps										Interest rate caps	$	10,380	$	—	$	10,380	$	—

Derivative financial liabilities	Derivative financial liabilities									Derivative financial liabilities
Interest rate swaps	Interest rate swaps	$	3,067	$	0	$	3,067	$	0	Interest rate swaps	$	1,349	$	—	$	1,349	$	—


		Balance at		Fair Value Measurements Using:							Balance at		Fair Value Measurements Using:
Dollars in thousands	Dollars in thousands	December 31, 2019		Level 1		Level 2		Level 3		Dollars in thousands	December 31, 2020		Level 1		Level 2		Level 3
Securities available for sale
Debt securities available for sale										Debt securities available for sale
U.S. Government sponsored agencies	U.S. Government sponsored agencies	$	20,864	$	0	$	20,864	$	0	U.S. Government sponsored agencies	$	35,157	$	—	$	35,157	$	—
Mortgage backed securities:	Mortgage backed securities:									Mortgage backed securities:
Government sponsored agencies	Government sponsored agencies	70,975		0		70,975		0		Government sponsored agencies	59,046		—		59,046		—
Nongovernment sponsored entities	Nongovernment sponsored entities	10,229		0		10,229		0		Nongovernment sponsored entities	16,687		—		16,687		—
State and political subdivisions	State and political subdivisions	49,973		0		49,973		0		State and political subdivisions	50,905		—		50,905		—
Corporate debt securities	Corporate debt securities	18,200		0		18,200		0		Corporate debt securities	26,427		—		26,427		—
Asset-backed securities	Asset-backed securities	33,014		0		33,014		0		Asset-backed securities	46,126		—		46,126		—

Tax-exempt state and political subdivisions	Tax-exempt state and political subdivisions	73,100		0		73,100		0		Tax-exempt state and political subdivisions	51,779		—		51,779		—
Total securities available for sale		$	276,355	$	0	$	276,355	$	0
Total debt securities available for sale										Total debt securities available for sale	$	286,127	$	—	$	286,127	$	—

Derivative financial assets										Derivative financial assets
Interest rate caps										Interest rate caps	$	6,653	$	—	$	6,653	$	—

Derivative financial liabilities	Derivative financial liabilities									Derivative financial liabilities
Interest rate swaps	Interest rate swaps	$	988	$	0	$	988	$	0	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.

Balance at Fair Value Measurements Using:
Dollars in thousands September 30, 2020 Level 1 Level 2 Level 3
Residential mortgage loans held for sale $ 2,538 $ 0 $ 2,538 $ 0
Collateral-dependent loans with an ACLL
Commercial $ 8 $ 0 $ 8 $ 0
Commercial real estate 7,954 0 7,954 0
Construction and development 355 0 355 0
Residential real estate 90 0 90 0
Total collateral-dependent loans with an ACLL $ 8,407 $ 0 $ 8,407 $ 0
Property held for sale
Commercial real estate $ 1,125 $ 0 $ 1,125 $ 0
Construction and development 14,049 0 13,428 621
Residential real estate 500 0 500 0
Total property held for sale $ 15,674 $ 0 $ 15,053 $ 621

Table of Contents


	Balance at		Fair Value Measurements Using:
Dollars in thousands	September 30, 2021		Level 1		Level 2		Level 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 development	318		—		318		—
Residential real estate	526		—		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 development	9,636		—		9,142		494
Residential real estate	27		—		27		—
Total property held for sale	$	11,211	$	—	$	10,717	$	494


	Balance at		Fair Value Measurements Using:
Dollars in thousands	December 31, 2020		Level 1		Level 2		Level 3
Residential mortgage loans held for sale	$	1,998	$	—	$	1,998	$	—

Collateral-dependent impaired loans
Commercial	$	8	$	—	$	8	$	—
Commercial real estate	9,914		—		9,914		—
Construction and development	1,576		—		1,576		—
Residential real estate	597		—		597		—

Total collateral-dependent impaired loans	$	12,095	$	—	$	12,095	$	—

Property held for sale

Commercial real estate	$	1,557	$	—	$	1,557	$	—
Construction and development	11,595		—		10,974		621
Residential real estate	476		—		476		—
Total property held for sale	$	13,628	$	—	$	13,007	$	621

Table of Contents

~~Collateral dependent loans with an ACLL were categorized as impaired loans with specific reserves prior to the adoption of ASC 326.~~

Balance at Fair Value Measurements Using:
Dollars in thousands December 31, 2019 Level 1 Level 2 Level 3
Residential mortgage loans held for sale $ 1,319 $ 0 $ 1,319 $ 0
Collateral-dependent impaired loans
Commercial $ 4,831 $ 0 $ 4,831 $ 0
Commercial real estate 1,863 0 1,863 0
Construction and development 425 0 425 0
Residential real estate 692 0 566 126
Total collateral-dependent impaired loans $ 7,811 $ 0 $ 7,685 $ 126
Property held for sale
Commercial real estate $ 1,304 $ 0 $ 1,304 $ 0
Construction and development 12,182 0 12,182 0
Residential real estate 705 0 705 0
Total property held for sale $ 14,191 $ 0 $ 14,191 $ 0

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


		September 30, 2020				Fair Value Measurements Using:							September 30, 2021				Fair Value Measurements Using:
Dollars in thousands	Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets	Financial assets											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	108,986	$	108,986	$	0	$	108,986	$	0	Cash and cash equivalents	$	211,109	$	211,109	$	—	$	211,109	$	—
Securities available for sale		297,989		297,989		0		297,989		0
Securities held to maturity		91,600		92,786		0		92,786		0
Debt securities available for sale												Debt securities available for sale	424,741		424,741		—		424,741		—
Debt securities held to maturity												Debt securities held to maturity	98,528		100,793		—		100,793		—
Other investments	Other investments	10,766		10,766		0		10,766		0		Other investments	10,649		10,649		—		10,649		—
Loans held for sale, net	Loans held for sale, net	2,538		2,538		0		2,538		0		Loans held for sale, net	1,393		1,393		—		1,393		—
Loans, net	Loans, net	2,222,450		2,228,148		0		8,407		2,219,741		Loans, net	2,521,704		2,519,969		—		3,039		2,516,930
Accrued interest receivable	Accrued interest receivable	10,978		10,978		0		10,978		0		Accrued interest receivable	10,484		10,484		—		10,484		—
Cash surrender value of life insurance policies and annuities												Cash surrender value of life insurance policies and annuities	60,241		60,241		—		60,241		—
Derivative financial assets	Derivative financial assets	4,611		4,611		0		4,611		0		Derivative financial assets	10,380		10,380		—		10,380		—
Cash surrender value of life insurance policies and annuities		57,029		57,029		0		57,029		0
		$	2,806,947	$	2,813,831	$	0	$	594,090	$	2,219,741		$	3,349,229	$	3,349,759	$	—	$	832,829	$	2,516,930
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits	$	2,451,891	$	2,456,247	$	0	$	2,456,247	$	0	Deposits	$	2,955,940	$	2,956,162	$	—	$	2,956,162	$	—
Short-term borrowings	Short-term borrowings	140,145		140,145		0		140,145		0		Short-term borrowings	140,146		140,146		—		140,146		—
Long-term borrowings	Long-term borrowings	703		882		0		882		0		Long-term borrowings	684		820		—		820		—
Subordinated debentures	Subordinated debentures	29,336		29,336		0		29,336		0		Subordinated debentures	29,466		31,719		—		—		31,719
Subordinated debentures owed to unconsolidated subsidiary trusts	Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		0		19,589		0		Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	Accrued interest payable	898		898		0		898		0		Accrued interest payable	557		557		—		557		—
Derivative financial liabilities	Derivative financial liabilities	3,067		3,067		0		3,067		0		Derivative financial liabilities	1,349		1,349		—		1,349		—
		$	2,645,629	$	2,650,164	$	0	$	2,650,164	$	0		$	3,147,731	$	3,150,342	$	—	$	3,118,623	$	31,719


	December 31, 2020				Fair Value Measurements Using:
Dollars in thousands	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	99,787	$	99,787	$	—	$	99,787	$	—
Debt securities available for sale	286,127		286,127		—		286,127		—
Debt securities held to maturity	99,914		103,157		—		103,157		—
Other investments	14,185		14,185		—		14,185		—
Loans held for sale, net	1,998		1,998		—		1,998		—
Loans, net	2,379,907		2,384,275		—		12,095		2,372,180
Accrued interest receivable	11,989		11,989		—		11,989		—
Cash surrender value of life insurance policies and annuities	59,438		59,438		—		59,438		—
Derivative financial assets	6,653		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 borrowings	140,146		140,146		—		140,146		—
Long-term borrowings	699		866		—		866		—
Subordinated debentures	29,364		29,364		—		29,364		—
Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		19,589		—		19,589		—
Accrued interest payable	745		745		—		745		—
Derivative financial liabilities	2,747		2,747		—		2,747		—
	$	2,788,941	$	2,790,783	$	—	$	2,790,783	$	—

Table of Contents

December 31, 2019 Fair Value Measurements Using:
Dollars in thousands Carrying
Value Estimated
Fair
Value Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 61,888 $ 61,888 $ 0 $ 61,888 $ 0
Securities available for sale 276,355 276,355 0 276,355 0
Other investments 12,972 12,972 0 12,972 0
Loans held for sale, net 1,319 1,319 0 1,319 0
Loans, net 1,900,425 1,901,020 0 7,685 1,893,335
Accrued interest receivable 8,439 8,439 0 8,439 0
Cash surrender value of life insurance policies 43,603 43,603 0 43,603 0
$ 2,305,001 $ 2,305,596 $ 0 $ 412,261 $ 1,893,335
Financial liabilities
Deposits $ 1,913,237 $ 1,918,610 $ 0 $ 1,918,610 $ 0
Short-term borrowings 199,345 199,345 0 199,345 0
Long-term borrowings 717 854 0 854 0
Subordinated debentures owed to unconsolidated
subsidiary trusts 19,589 19,589 0 19,589 0
Accrued interest payable 1,234 1,234 0 1,234 0
Derivative financial liabilities 988 988 0 988 0
$ 2,135,110 $ 2,140,620 $ 0 $ 2,140,620 $ 0

NOTE 4. EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:

For the Three Months Ended September 30,
2020 2019
Dollars in thousands,except per share amounts Net Income
(Numerator) Common
Shares
(Denominator) Per
Share Net Income
(Numerator) Common
Shares
(Denominator) Per
Share
Net income $ 9,620 $ 8,061
Basic earnings per share $ 9,620 12,922,158 $ 0.74 $ 8,061 12,412,982 $ 0.65
Effect of dilutive securities:
Stock options 4,182 4,654
Stock appreciation rights (SARs) 23,244 50,142
Restricted stock units (RSUs) 0 0
Diluted earnings per share $ 9,620 12,949,584 $ 0.74 $ 8,061 12,467,778 $ 0.65


		For the Nine Months Ended September 30,											For the Three Months Ended September 30,
		2020					2019						2021					2020
Dollars in thousands,except per share amounts	Dollars in thousands,except per share amounts	Income (Numerator)		Common Shares (Denominator)	Per Share		Income (Numerator)		Common Shares (Denominator)	Per Share		Dollars in thousands,except per share amounts	Net Income (Numerator)		Common Shares (Denominator)	Per Share		Net Income (Numerator)		Common Shares (Denominator)	Per Share
Net income	Net income	$	21,075				$	23,718				Net income	$	12,238				$	9,620

Less preferred stock dividends												Less preferred stock dividends	(225)					—

Basic earnings per share	Basic earnings per share	$	21,075	12,934,401	$	1.63	$	23,718	12,555,411	$	1.89	Basic earnings per share	$	12,013	12,964,575	$	0.93	$	9,620	12,922,158	$	0.74

Effect of dilutive securities:	Effect of dilutive securities:											Effect of dilutive securities:
Stock options	Stock options			4,308					5,006			Stock options			789					4,182
Stock appreciation rights (SARs)				33,082					53,965
Restricted stock units (RSUs)				0					0
Stock appreciation rights ("SARs")												Stock appreciation rights ("SARs")			48,827					23,244
Restricted stock units ("RSUs")												Restricted stock units ("RSUs")			4,481					—

Diluted earnings per share	Diluted earnings per share	$	21,075	12,971,913	$	1.62	$	23,718	12,614,382	$	1.88	Diluted earnings per share	$	12,013	13,018,672	$	0.92	$	9,620	12,949,584	$	0.74

~~Table of Contents~~


	For the Nine Months Ended September 30,
	2021					2020
Dollars in thousands,except per share amounts	Net 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 options			3,278					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 ~~stock appreciation right (SAR)~~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, ~~2020~~2021 and ~~our~~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 ~~stock options for the three and nine months ended September 30, 2019 were 7,700 shares. Our anti-dilutive~~ SARs for the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019~~2020 were ~~222,740~~222,740. All RSUs were dilutive for the three and ~~84,615, respectively.~~nine months ended September 30, 2021. Our anti-dilutive RSUs for the ~~quarter~~three and nine months ended September 30, 2020 were 15,082 and 13,780, respectively.

Table of Contents

NOTE 5. DEBT SECURITIES

Debt Securities Available for ~~Sale:~~Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized as follows:


		September 30, 2020									September 30, 2021
		Amortized		Unrealized				Estimated			Amortized		Unrealized				Estimated
Dollars in thousands	Dollars in thousands	Cost		Gains		Losses		Fair Value		Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale (carried at estimated fair value)
Debt Securities Available for Sale										Debt Securities Available for Sale
Taxable debt securities	Taxable debt securities									Taxable debt securities
U.S. Government and agencies and corporations	U.S. Government and agencies and corporations	$	36,818	$	366	$	418	$	36,766	U.S. Government and agencies and corporations	$	38,611	$	242	$	343	$	38,510
Residential mortgage-backed securities:	Residential mortgage-backed securities:									Residential mortgage-backed securities:
Government-sponsored agencies	Government-sponsored agencies	60,678		2,072		399		62,351		Government-sponsored agencies	62,313		1,482		467		63,328
Nongovernment-sponsored entities	Nongovernment-sponsored entities	15,255		187		252		15,190		Nongovernment-sponsored entities	20,061		67		222		19,906
State and political subdivisions	State and political subdivisions									State and political subdivisions
General obligations	General obligations	12,756		749		0		13,505		General obligations	81,480		431		1,497		80,414
Water and sewer revenues	Water and sewer revenues	9,602		667		0		10,269		Water and sewer revenues	15,958		360		64		16,254
Lease revenues	Lease revenues	5,837		344		3		6,178		Lease revenues	5,811		240		33		6,018
Income tax revenues	Income tax revenues	5,055		435		0		5,490		Income tax revenues	6,489		293		5		6,777

Sales tax revenues										Sales tax revenues	7,337		22		128		7,231

Other revenues	Other revenues	15,550		1,309		1		16,858		Other revenues	29,988		835		328		30,495
Corporate debt securities	Corporate debt securities	26,438		42		524		25,956		Corporate debt securities	30,973		97		233		30,837
Asset-backed securities	Asset-backed securities	47,291		14		1,270		46,035		Asset-backed securities	46,291		286		85		46,492
Total taxable debt securities	Total taxable debt securities	235,280		6,185		2,867		238,598		Total taxable debt securities	345,312		4,355		3,405		346,262
Tax-exempt debt securities	Tax-exempt debt securities									Tax-exempt debt securities
State and political subdivisions	State and political subdivisions									State and political subdivisions
General obligations	General obligations	29,149		2,828		17		31,960		General obligations	48,494		1,479		632		49,341
Water and sewer revenues	Water and sewer revenues	8,290		669		0		8,959		Water and sewer revenues	7,474		488		—		7,962
Lease revenues	Lease revenues	7,283		743		0		8,026		Lease revenues	5,635		521		—		6,156

Other revenues	Other revenues	9,725		733		12		10,446		Other revenues	14,565		576		121		15,020
Total tax-exempt debt securities	Total tax-exempt debt securities	54,447		4,973		29		59,391		Total tax-exempt debt securities	76,168		3,064		753		78,479

Total available for sale securities		$	289,727	$	11,158	$	2,896	$	297,989
Total debt securities available for sale										Total debt securities available for sale	$	421,480	$	7,419	$	4,158	$	424,741

Table of Contents


		December 31, 2019									December 31, 2020
		Amortized		Unrealized				Estimated			Amortized		Unrealized				Estimated
Dollars in thousands	Dollars in thousands	Cost		Gains		Losses		Fair Value		Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale (carried at estimated fair value)
Debt Securities Available for Sale										Debt Securities Available for Sale
Taxable debt securities	Taxable debt securities									Taxable debt securities
U.S. Government and agencies and corporations	U.S. Government and agencies and corporations	$	21,036	$	212	$	384	$	20,864	U.S. Government and agencies and corporations	$	35,190	$	361	$	394	$	35,157
Residential mortgage-backed securities:	Residential mortgage-backed securities:									Residential mortgage-backed securities:
Government-sponsored agencies	Government-sponsored agencies	70,379		1,031		435		70,975		Government-sponsored agencies	57,399		1,996		349		59,046
Nongovernment-sponsored entities	Nongovernment-sponsored entities	10,253		17		41		10,229		Nongovernment-sponsored entities	16,799		132		244		16,687
State and political subdivisions	State and political subdivisions									State and political subdivisions
General obligations	General obligations	12,603		25		171		12,457		General obligations	15,065		804		4		15,865
Water and sewer revenues	Water and sewer revenues	7,170		71		114		7,127		Water and sewer revenues	10,176		620		—		10,796
Lease revenues	Lease revenues	5,310		25		77		5,258		Lease revenues	4,825		341		—		5,166
University revenues		5,917		164		16		6,065
College and university revenues										College and university revenues	3,022		315		—		3,337
Income tax revenues										Income tax revenues	5,052		376		—		5,428
Other revenues	Other revenues	18,831		344		109		19,066		Other revenues	9,406		907		—		10,313
Corporate debt securities	Corporate debt securities	18,268		81		149		18,200		Corporate debt securities	26,483		56		112		26,427
Asset-backed securities	Asset-backed securities	33,826		0		812		33,014		Asset-backed securities	46,579		172		625		46,126
Total taxable debt securities	Total taxable debt securities	203,593		1,970		2,308		203,255		Total taxable debt securities	229,996		6,080		1,728		234,348
Tax-exempt debt securities	Tax-exempt debt securities									Tax-exempt debt securities
State and political subdivisions	State and political subdivisions									State and political subdivisions
General obligations	General obligations	36,673		2,526		0		39,199		General obligations	22,213		2,416		9		24,620
Water and sewer revenues	Water and sewer revenues	9,565		633		0		10,198		Water and sewer revenues	8,266		709		—		8,975
Lease revenues	Lease revenues	8,455		598		0		9,053		Lease revenues	7,195		799		—		7,994

Other revenues	Other revenues	13,929		728		7		14,650		Other revenues	9,487		711		8		10,190
Total tax-exempt debt securities	Total tax-exempt debt securities	68,622		4,485		7		73,100		Total tax-exempt debt securities	47,161		4,635		17		51,779

Total available for sale securities		$	272,215	$	6,455	$	2,315	$	276,355
Total debt securities available for sale										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 5 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, 2020									September 30, 2021
		Amortized		Unrealized				Estimated			Amortized		Unrealized				Estimated
Dollars in thousands	Dollars in thousands	Cost		Gains		Losses		Fair Value		Dollars in thousands	Cost		Gains		Losses		Fair Value

California	California	$	15,323	$	1,426	$	0	$	16,749	California	$	44,932	$	797	$	809	$	44,920
New York		10,455		959		0		11,414
Texas	Texas	9,887		844		0		10,731		Texas	26,731		564		410		26,885

Illinois		9,248		636		18		9,866
Oregon										Oregon	14,760		—		269		14,491
Florida	Florida	8,497		669		0		9,166		Florida	13,630		391		109		13,912

Michigan										Michigan	12,498		155		214		12,439

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

~~The maturities, amortized cost and estimated fair values of securities available for sale at September 30, 2020, are summarized as follows:~~

Dollars in thousands Amortized
Cost Estimated
Fair Value
Due in one year or less $ 32,295 $ 32,637
Due from one to five years 84,789 86,143
Due from five to ten years 67,999 68,841
Due after ten years 104,644 110,368
Total $ 289,727 $ 297,989

Table of Contents

The maturities, amortized cost and estimated fair values of debt securities available for sale at September 30, 2021, are summarized as follows:


Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	$	36,859	$	37,229
Due from one to five years	87,349		89,178
Due from five to ten years	84,030		84,348
Due after ten years	213,242		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, ~~2020~~2021 and ~~2019~~2020 are as follows:


			Proceeds from						Gross realized					Proceeds from						Gross realized
Dollars in thousands	Dollars in thousands		Sales		Calls and Maturities		Principal Payments		Gains		Losses		Dollars in thousands	Sales		Calls and Maturities		Principal Payments		Gains		Losses
For the Nine Months Ended September 30,	For the Nine Months Ended September 30,												For the Nine Months Ended September 30,
2021													2021	$	15,704	$	6,455	$	22,925	$	628	$	94

2020	2020												2020	$	105,597	$	2,810	$	17,952	$	2,560	$	—
		Securities available for sale	$	105,597	$	2,810	$	17,952	$	2,560	$	0

2019
		Securities available for sale	$	133,174	$	1,766	$	18,501	$	1,867	$	332

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


		September 30, 2020														September 30, 2021
			Less than 12 months				12 months or more				Total						Less than 12 months				12 months or more				Total
Dollars in thousands	Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities	Taxable debt securities														Taxable debt securities
U.S. Government agencies and corporations	U.S. Government agencies and corporations	34	$	15,995	$	61	$	12,427	$	357	$	28,422	$	418	U.S. Government agencies and corporations	39	$	4,979	$	13	$	22,296	$	330	$	27,275	$	343
Residential mortgage-backed securities:	Residential mortgage-backed securities:														Residential mortgage-backed securities:
Government-sponsored agencies	Government-sponsored agencies	12	6,031		49		9,327		350		15,358		399		Government-sponsored agencies	17	15,256		258		7,598		209		22,854		467
Nongovernment-sponsored entities	Nongovernment-sponsored entities	4	3,492		22		2,726		230		6,218		252		Nongovernment-sponsored entities	7	9,505		90		2,923		132		12,428		222
State and political subdivisions:	State and political subdivisions:														State and political subdivisions:
General obligations															General obligations	44	66,087		1,497		—		—		66,087		1,497
Water and sewer revenues															Water and sewer revenues	3	5,548		64		—		—		5,548		64
Lease revenues															Lease revenues	2	1,460		33		—		—		1,460		33

Lease revenues		1	1,515		3		0		0		1,515		3

Income tax revenues															Income tax revenues	1	720		5		—		—		720		5
Sales tax revenues															Sales tax revenues	2	6,451		128		—		—		6,451		128

Other revenues	Other revenues	1	1,513		1		0		0		1,513		1		Other revenues	11	13,335		328		—		—		13,335		328
Corporate debt securities	Corporate debt securities	10	8,381		410		1,886		114		10,267		524		Corporate debt securities	10	10,631		220		986		13		11,617		233
Asset-backed securities	Asset-backed securities	21	11,391		204		31,930		1,066		43,321		1,270		Asset-backed securities	9	8,680		34		9,333		51		18,013		85
Tax-exempt debt securities	Tax-exempt debt securities														Tax-exempt debt securities
State and political subdivisions:	State and political subdivisions:														State and political subdivisions:
General obligations	General obligations	1	972		17		0		0		972		17		General obligations	15	30,345		617		902		15		31,247		632

Other revenues	Other revenues	1	145		12		0		0		145		12		Other revenues	7	5,846		120		156		1		6,002		121
Total	Total	85	$	49,435	$	779	$	58,296	$	2,117	$	107,731	$	2,896	Total	167	$	178,843	$	3,407	$	44,194	$	751	$	223,037	$	4,158

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		December 31, 2019														December 31, 2020
			Less than 12 months				12 months or more				Total						Less than 12 months				12 months or more				Total
Dollars in thousands	Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Dollars in thousands	# of securities in loss position	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Taxable debt securities	Taxable debt securities														Taxable debt securities
U.S. Government agencies and corporations	U.S. Government agencies and corporations	15	$	0	$	0	$	14,903	$	384	$	14,903	$	384	U.S. Government agencies and corporations	36	$	12,611	$	54	$	14,384	$	340	$	26,995	$	394
Residential mortgage-backed securities:	Residential mortgage-backed securities:														Residential mortgage-backed securities:
Government-sponsored agencies	Government-sponsored agencies	21	12,298		96		15,174		339		27,472		435		Government-sponsored agencies	10	3,127		34		8,593		315		11,720		349
Nongovernment-sponsored entities	Nongovernment-sponsored entities	4	8,323		41		0		0		8,323		41		Nongovernment-sponsored entities	6	6,770		35		2,751		209		9,521		244
State and political subdivisions:	State and political subdivisions:														State and political subdivisions:
General obligations	General obligations	10	10,581		171		0		0		10,581		171		General obligations	1	362		4		—		—		362		4
Water and sewer revenues		4	4,421		114		0		0		4,421		114
Lease revenues		4	4,235		77		0		0		4,235		77
University revenues		1	1,307		16		0		0		1,307		16
Other revenues		6	6,517		109		0		0		6,517		109

Corporate debt securities	Corporate debt securities	6	1,686		3		3,739		146		5,425		149		Corporate debt securities	6	3,952		16		1,904		96		5,856		112
Asset-backed securities	Asset-backed securities	15	3,441		34		29,573		778		33,014		812		Asset-backed securities	16	2,010		2		31,862		623		33,872		625
Tax-exempt debt securities	Tax-exempt debt securities														Tax-exempt debt securities
State and political subdivisions:	State and political subdivisions:														State and political subdivisions:

General obligations															General obligations	1	924		9		—		—		924		9

Other revenues	Other revenues	2	1,183		7		0		0		1,183		7		Other revenues	2	415		1		151		7		566		8
Total	Total	88	$	53,992	$	668	$	63,389	$	1,647	$	117,381	$	2,315	Total	78	$	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:~~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
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Debt Securities Held to Maturity
















Tax-exempt debt securities
State and political subdivisions
General obligations	$	72,154	$	1,928	$	15	$	74,067
Water and sewer revenues	8,238		135		7		8,366
Lease revenues	4,336		21		—		4,357


Sales tax revenues	4,599		68		19		4,648




Other revenues	9,201		184		30		9,355


Total debt securities held to maturity	$	98,528	$	2,336	$	71	$	100,793


		September 30, 2020									December 31, 2020
		Amortized		Unrealized				Estimated			Amortized		Unrealized				Estimated
Dollars in thousands	Dollars in thousands	Cost		Gains		Losses		Fair Value		Dollars in thousands	Cost		Gains		Losses		Fair Value
Held to Maturity (carried at amortized cost)
Debt Securities Held to Maturity										Debt Securities Held to Maturity

Tax-exempt debt securities	Tax-exempt debt securities									Tax-exempt debt securities
State and political subdivisions	State and political subdivisions									State and political subdivisions
General obligations	General obligations	$	69,731	$	1,081	$	37	$	70,775	General obligations	$	73,179	$	2,524	$	—	$	75,703
Water and sewer revenues	Water and sewer revenues	7,181		104		8		7,277		Water and sewer revenues	8,375		256		—		8,631

Lease revenues										Lease revenues	4,395		88		—		4,483

Sales tax revenues	Sales tax revenues	4,665		28		45		4,648		Sales tax revenues	4,649		94		3		4,740

Other revenues	Other revenues	10,023		154		91		10,086		Other revenues	9,316		309		25		9,600
Total tax-exempt debt securities		91,600		1,367		181		92,786

Total		$	91,600	$	1,367	$	181	$	92,786

Total debt securities held to maturity										Total debt securities held to maturity	$	99,914	$	3,271	$	28	$	103,157

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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 5 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.

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	September 30, 2021
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Texas	$	15,475	$	439	$	7	$	15,907
California	9,927		262		4		10,185
Pennsylvania	8,672		253		—		8,925
Florida	7,628		139		—		7,767
Michigan	7,065		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, 2020
Amortized Unrealized Estimated
Dollars in thousands Cost Gains Losses Fair Value
Texas $ 14,528 $ 182 $ 0 $ 14,710
California 10,132 216 8 10,340
Pennsylvania 8,823 41 8 8,856
Michigan 7,191 25 43 7,173
Nevada 6,976 0 6 6,970


	September 30, 2021
Dollars in thousands	AAA		AA		A		BBB		Below Investment Grade
Tax-exempt state and political subdivisions	$	15,522	$	75,490	$	7,516	$	—	$	—

	December 31, 2020
Dollars in thousands	AAA		AA		A		BBB		Below 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, ~~2020,~~2021, are summarized as follows:


Dollars in thousands	Dollars in thousands	Amortized Cost		Estimated Fair Value		Dollars in thousands	Amortized Cost		Estimated Fair Value
Due in one year or less	Due in one year or less	$	0	$	0	Due in one year or less	$	—	$	—
Due from one to five years	Due from one to five years	0		0		Due from one to five years	—		—
Due from five to ten years	Due from five to ten years	2,048		2,090		Due from five to ten years	2,006		2,024
Due after ten years	Due after ten years	89,552		90,696		Due after ten years	96,522		98,769

Held to Maturity		$	91,600	$	92,786
Total						Total	$	98,528	$	100,793

~~The~~There were no proceeds from ~~sales,~~ calls and maturities of debt securities held to maturity ~~securities, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized,~~ for the nine months ended September 30, ~~2020 are as follows:~~2021.

Proceeds from Gross realized
Dollars in thousands Sales Calls and
Maturities Principal
Payments Gains Losses
For the Nine Months Ended
September 30,
2020
Securities held to maturity $ 0 $ 1,000 $ 0 $ 0 $ 0
The proceeds from calls and maturities of debt securities held to maturity totaled $1.0 million for the nine month ended September 30, 2020.

In accordance with ASC 326, an allowance for credit losses on held to maturity securities is a contra-asset valuation account, that is deducted from the amortized cost basis of securities carried at amortized cost to present management's best estimate of the net amount expected to be collected. Held to maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management measures expected credit losses on held to maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held to maturity securities from the estimate of credit losses. At September 30, ~~2020,~~2021, no allowance for credit losses on debt securities held to maturity ~~securities~~ has been recognized.

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NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES ~~FOR~~ON LOANS

Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and the ACLL. Interest on loans is accrued daily on the outstanding balances. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life.

Generally, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest on nonaccrual loans is recognized primarily using the cost-recovery method. Loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loans.

Commercial-related loans or portions thereof are charged off to the ACLL when the loss has been confirmed. This determination is made on a case by case basis considering many factors, including the prioritization of our claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity. We deem a loss confirmed when a

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loan or a portion of a loan is classified “loss” in accordance with bank regulatory classification guidelines, which state, “Assets classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted”.

Consumer-related loans are generally charged to the ACLL upon reaching specified stages of delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For example, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier. Residential mortgage loans are generally charged off to net realizable value no later than when the account becomes 180 days past due. Other consumer loans, if collateralized, are generally charged down to net realizable value at 120 days past due.

The following table presents the amortized cost of loans held for investment:


Dollars in thousands	Dollars in thousands	September 30, 2020		December 31, 2019		Dollars in thousands	September 30, 2021		December 31, 2020
Commercial	Commercial	$	350,985	$	220,452	Commercial	$	317,855	$	306,885
Commercial real estate - owner occupied	Commercial real estate - owner occupied					Commercial real estate - owner occupied
Professional & medical	Professional & medical	94,635		81,973		Professional & medical	132,500		107,151
Retail	Retail	100,926		100,993		Retail	163,350		126,451
Other	Other	116,941		93,253		Other	143,352		118,258
Commercial real estate - non-owner occupied	Commercial real estate - non-owner occupied					Commercial real estate - non-owner occupied
Hotels & motels	Hotels & motels	120,324		128,665		Hotels & motels	121,765		121,502
Mini-storage	Mini-storage	57,601		50,913		Mini-storage	56,992		60,550
Multifamily	Multifamily	152,561		164,398		Multifamily	233,401		175,988
Retail	Retail	108,326		102,989		Retail	154,120		135,405
Other	Other	179,812		182,242		Other	268,793		192,120
Construction and development	Construction and development					Construction and development
Land & land development	Land & land development	97,343		84,112		Land & land development	99,718		107,342
Construction	Construction	66,878		37,523		Construction	127,432		91,100
Residential 1-4 family real estate	Residential 1-4 family real estate					Residential 1-4 family real estate
Personal residence	Personal residence	263,315		260,843		Personal residence	270,951		305,093
Rental - small loan	Rental - small loan	104,694		101,080		Rental - small loan	123,937		120,426
Rental - large loan	Rental - large loan	73,836		63,986		Rental - large loan	71,977		74,185
Home equity	Home equity	82,991		76,568		Home equity	71,496		81,588
Mortgage warehouse lines	Mortgage warehouse lines	243,730		126,237		Mortgage warehouse lines	161,628		251,810
Consumer	Consumer	34,655		35,021		Consumer	32,285		33,906
Other	Other					Other
Credit cards	Credit cards	1,637		1,453		Credit cards	1,783		1,855
Overdrafts	Overdrafts	614		798		Overdrafts	775		538
Total loans, net of unearned fees	Total loans, net of unearned fees	2,251,804		1,913,499		Total loans, net of unearned fees	2,554,110		2,412,153
Less allowance for credit losses - loans	Less allowance for credit losses - loans	29,354		13,074		Less allowance for credit losses - loans	32,406		32,246
Loans, net	Loans, net	$	2,222,450	$	1,900,425	Loans, net	$	2,521,704	$	2,379,907

~~Allowance for Credit Losses - Loans~~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.

~~The ACLL is a valuation allowance, estimated at each balance sheet date in accordance with ASC 326, that is deducted from~~

COVID-19 Loan Deferments. In December 2020, the ~~amortized cost basis~~Consolidated Appropriates Act of ~~loans~~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 ~~present~~ the ~~net amount expected~~COVID-19 pandemic. Certain borrowers continue to be ~~collected. The amount~~unable to meet their contractual payment obligations because of the ~~ACLL represents~~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 ~~best estimate~~customers have requested such an additional deferral. In the absence of ~~current expected credit losses~~other intervening factors, such short-term modifications made on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms, adjusted for expected prepayments when appropriate (the “life-of-loan” concept). The contractual term excludes expected extensions, renewals and modifications unless (i) management has a ~~reasonable expectation that a~~good faith basis are not categorized as troubled debt ~~restructuring will be executed~~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 individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimationaggregate outstanding balance of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The ACLL losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty, but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.approximately $7.2 million.

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Expected credit losses are reflected in the ACLL through a charge to provision for credit losses. When we deem all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACLL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACLL when received.

~~Loan Pools.~~ In calculating the ACLL, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. We have identified the pools of financial assets with similar risk characteristics for measuring expected credit losses as presented in the table of amortized cost of loans held for investment above.

~~We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.~~

~~Residential 1-4 family rentals are classified as small loan if the original loan amount is less than $600,000 and classified as large loan if the original loan amount equals or exceeds $600,000.~~

The Company’s methodology for estimating the ACLL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodology applies historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. Our methodology reverts to historical loss information immediately when it can no longer develop reasonable and supportable forecasts.

~~Loss-Rate Method.~~ We use a loss-rate (“cohort”) method to estimate expected credit losses for all loan pools. The cohort method identifies and captures the balances of pooled loans with similar risk characteristics, as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining lives, or until the loans are “exhausted” (reached an acceptable stage at which a significant majority of all losses are expected to have been recognized). This method encompasses loan balances for as long as the loans are outstanding, so while significant history is required to represent the life-of-loan concept, this method does not require as much history due to its inclusion of loan balances in multiple cohort periods.

~~Qualitative Factors.~~ We qualitatively adjust our loan loss rates for risk factors that are not otherwise considered within our model but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease our estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.

One Q-Factor adjustment to our loss rates is consideration of reasonable and supportable forecasts of economic conditions. In arriving at a reasonable and supportable economic forecast, we primarily consider the forecasted unemployment rates for the U.S., West Virginia and Virginia as loss drivers for each segmented loan pool. Secondarily, we consider the following forecasted economic data for one or more of our segmented loan pools depending on the nature of the underlying loan pool: housing price indices (U.S., West Virginia & Virginia), single-family housing starts (West Virginia & Virginia), multi-family housing starts (West Virginia & Virginia), personal income growth (U.S., West Virginia & Virginia), U.S. consumer confidence, rental vacancy rates (U.S.), and U.S. % change in gross domestic product.

Other risks that we may consider in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iii) changes in the experience, ability, and depth of our lending management and staff, (iv) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (v) changes in the quality of our credit review function, (vi) changes in the value of the underlying collateral for loans that are non-collateral dependent, (vii) the existence, growth, and effect of any concentrations of credit and (viii) other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.

~~Collateral Dependent Loans.~~ We may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis

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and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.

~~Troubled Debt Restructuring.~~ A loan that has been modified or renewed is considered a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACLL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. TDRs that are considered material ($500,000 and greater) are evaluated individually to determine the required ACLL. TDRs that are not considered material may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACLL.

~~The following table presents the activity in the ACLL by portfolio segment during the first nine months of 2020:~~

For the Nine Months Ended September 30, 2020
Allowance for Credit Losses - Loans
Dollars in thousands Beginning
Balance
Prior to
Adoption of
ASC 326 Impact of
Adoption
of ASC
326 Provision
for
Credit
Losses -
Loans
Adjustment
for PCD
Acquired
Loans Charge-
offs Recoveries Ending
Balance
Commercial $ 1,221 $ 1,064 $ 662 $ 0 $ (99) $ 27 $ 2,875
Commercial real estate - owner occupied
  Professional & medical 1,058 (390) 1,209 0 (1,005) 0 872
  Retail 820 (272) 2,285 153 0 162 3,148
  Other 821 (137) (6) 0 0 0 678
Commercial real estate - non-owner occupied
  Hotels & motels 1,235 (936) 1,833 0 0 0 2,132
  Mini-storage 485 (311) 58 0 0 0 232
  Multifamily 1,534 8 (900) 0 0 38 680
  Retail 964 279 403 0 (343) 2 1,305
  Other 1,721 (1,394) 600 0 0 0 927
Construction and development
  Land & land development 600 2,136 1,334 111 (4) 39 4,216
  Construction 242 996 2,150 0 0 0 3,388
Residential 1-4 family real estate
  Personal residence 1,275 1,282 (35) 146 (45) 49 2,672
  Rental - small loan 532 1,453 283 0 (123) 127 2,272
  Rental - large loan 49 2,884 (317) 0 0 0 2,616
  Home equity 138 308 499 0 (23) 39 961
Mortgage warehouse lines 0 0 0 0 0 0 0
Consumer 379 (238) 194 0 (212) 101 224
Other
  Credit cards 0 12 28 0 (33) 9 16
  Overdrafts 0 182 128 0 (288) 118 140
Total $ 13,074 $ 6,926 $ 10,408 $ 410 $ (2,175) $ 711 $ 29,354

The following table presents, as of September 30, 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.

~~Table of Contents~~

September 30, 2020
Loan Balances Allowance for Credit Losses - Loans
Dollars in thousands Loans Individually Evaluated
Loans Collectively Evaluated (1)
Total Loans Individually Evaluated Loans Collectively Evaluated Total
Commercial $ 4,242 $ 346,743 $ 350,985 $ 20 $ 2,855 $ 2,875
Commercial real estate - owner occupied
  Professional & medical 2,197 92,438 94,635 230 642 872
  Retail 16,220 84,706 100,926 2,142 1,006 3,148
  Other 0 116,941 116,941 0 678 678
Commercial real estate - non-owner occupied
  Hotels & motels 0 120,324 120,324 0 2,132 2,132
  Mini-storage 0 57,601 57,601 0 232 232
  Multifamily 0 152,561 152,561 0 680 680
  Retail 2,507 105,819 108,326 57 1,248 1,305
  Other 5,229 174,583 179,812 0 927 927
Construction and development
  Land & land development 1,621 95,722 97,343 640 3,576 4,216
  Construction 0 66,878 66,878 0 3,388 3,388
Residential 1-4 family real estate
  Personal residence 0 263,315 263,315 0 2,672 2,672
  Rental - small loan 726 103,968 104,694 44 2,228 2,272
  Rental - large loan 4,445 69,391 73,836 0 2,616 2,616
  Home equity 523 82,468 82,991 0 961 961
Consumer 0 34,655 34,655 0 224 224
Other
Credit cards 0 1,637 1,637 0 16 16
Overdrafts 0 614 614 0 140 140
Mortgage warehouse lines 0 243,730 243,730 0 0 0
             Total $ 37,710 $ 2,214,094 $ 2,251,804 $ 3,133 $ 26,221 $ 29,354

~~(1) Included in the loans collectively evaluated are $106.4 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no reserve.~~

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:

~~Table of Contents~~

September 30, 2020
Dollars in thousands Real Estate
Secured
Loans Non-Real Estate
Secured Loans Total Loans Allowance for Credit Losses
- Loans
Commercial $ 0 $ 4,243 $ 4,243 $ 20
Commercial real estate - owner occupied
  Professional & medical 0 0 0 0
  Retail 11,937 0 11,937 2,142
  Other 0 0 0 0
Commercial real estate - non-owner occupied
  Hotels & motels 0 0 0 0
  Mini-storage 0 0 0 0
  Multifamily 0 0 0 0
  Retail 653 0 653 57
  Other 2,890 0 2,890 0
Construction and development
  Land & land development 995 0 995 640
  Construction 0 0 0 0
Residential 1-4 family real estate
  Personal residence 0 0 0 0
  Rental - small loan 726 0 726 44
  Rental - large loan 4,444 0 4,444 0
  Home equity 0 0 0 0
Consumer 0 0 0 0
Other
Credit cards 0 0 0 0
Overdrafts 0 0 0 0
             Total $ 21,645 $ 4,243 $ 25,888 $ 2,903

The following table presents the activity in the ACLL by portfolio segment for the year ended December 31, 2019, as determined in accordance with ASC 310 prior to the January 1, 2020 adoption of ASC 326:

For the Year Ended December 31, 2019
Allowance for Credit Losses - Loans
Dollars in thousands Beginning
Balance Charge-
offs Recoveries Provision Ending
Balance
Commercial $ 1,705 $ (281) $ 17 $ (295) $ 1,146
Commercial real estate
Owner occupied 2,214 (2) 21 467 2,700
Non-owner occupied 5,742 (170) 1 366 5,939
Construction and development
Land & land development 339 (2) 108 155 600
Construction 64 0 0 178 242
Residential real estate
Non-jumbo 2,090 (979) 125 576 1,812
Jumbo 379 0 0 (368) 11
Home equity 167 (24) 19 (24) 138
Mortgage warehouse lines 0 0 0 0 0
Consumer 79 (285) 168 173 135
Other 268 (360) 121 322 351
Total $ 13,047 $ (2,103) $ 580 $ 1,550 $ 13,074

~~Table of Contents~~

The following table presents the contractual aging of the amortized cost basis of past due loans by class as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


		At September 30, 2020													At September 30, 2021
		Past Due										90 days or more and Accruing			Past Due										90 days or more and Accruing
Dollars in thousands	Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current				Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	Commercial	$	160	$	42	$	412	$	614	$	350,371	$	0	Commercial	$	298	$	42	$	385	$	725	$	317,130	$	—
Commercial real estate - owner occupied	Commercial real estate - owner occupied													Commercial real estate - owner occupied
Professional & medical	Professional & medical	116		0		453		569		94,066		0		Professional & medical	—		—		—		—		132,500		—
Retail	Retail	307		591		2,445		3,343		97,583		0		Retail	—		—		146		146		163,204		—
Other	Other	0		0		149		149		116,792		0		Other	—		124		150		274		143,078		—
Commercial real estate - non-owner occupied	Commercial real estate - non-owner occupied													Commercial real estate - non-owner occupied
Hotels & motels	Hotels & motels	0		0		0		0		120,324		0		Hotels & motels	—		—		—		—		121,765		—
Mini-storage	Mini-storage	0		0		0		0		57,601		0		Mini-storage	—		—		—		—		56,992		—
Multifamily	Multifamily	0		417		0		417		152,144		0		Multifamily	101		56		—		157		233,244		—
Retail	Retail	0		0		821		821		107,505		0		Retail	—		—		337		337		153,783		—
Other	Other	0		310		53		363		179,449		0		Other	—		—		—		—		268,793		—
Construction and development	Construction and development													Construction and development
Land & land development	Land & land development	93		329		2		424		96,919		0		Land & land development	1,215		—		—		1,215		98,503		—
Construction	Construction	0		0		0		0		66,878		0		Construction	—		—		—		—		127,432		—
Residential 1-4 family real estate	Residential 1-4 family real estate													Residential 1-4 family real estate
Personal residence	Personal residence	3,062		579		1,112		4,753		258,562		0		Personal residence	2,086		979		843		3,908		267,043		—
Rental - small loan	Rental - small loan	243		0		794		1,037		103,657		0		Rental - small loan	197		228		1,270		1,695		122,242		—
Rental - large loan	Rental - large loan	0		0		1,127		1,127		72,709		0		Rental - large loan	—		—		—		—		71,977		—
Home equity	Home equity	516		156		137		809		82,182		0		Home equity	211		64		173		448		71,048		—
Mortgage warehouse lines	Mortgage warehouse lines	0		0		0		0		243,730		0		Mortgage warehouse lines	—		—		—		—		161,628		—
Consumer	Consumer	128		32		27		187		34,468		0		Consumer	110		89		40		239		32,046		—
Other	Other													Other
Credit cards	Credit cards	1		0		2		3		1,634		2		Credit cards	1		—		2		3		1,780		2
Overdrafts	Overdrafts	0		0		0		0		614		0		Overdrafts	—		—		—		—		775		—
Total	Total	$	4,626	$	2,456	$	7,534	$	14,616	$	2,237,188	$	2	Total	$	4,219	$	1,582	$	3,346	$	9,147	$	2,544,963	$	2

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2622


		At December 31, 2019													At December 31, 2020
		Past Due										90 days or more and Accruing			Past Due										90 days or more and Accruing
Dollars in thousands	Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current				Dollars in thousands	30-59 days		60-89 days		90 days or more		Total		Current
Commercial	Commercial	$	216	$	0	$	483	$	699	$	219,753	$	0	Commercial	$	60	$	—	$	318	$	378	$	306,507	$	—
Commercial real estate - owner occupied	Commercial real estate - owner occupied													Commercial real estate - owner occupied
Professional & medical	Professional & medical	0		137		1,602		1,739		80,234		0		Professional & medical	220		—		457		677		106,474		—
Retail	Retail	118		0		2,434		2,552		98,441		0		Retail	54		—		2,259		2,313		124,138		—
Other	Other	0		0		0		0		93,253		0		Other	—		—		150		150		118,108		—
Commercial real estate - non-owner occupied	Commercial real estate - non-owner occupied													Commercial real estate - non-owner occupied
Hotels & motels	Hotels & motels	0		0		0		0		128,665		0		Hotels & motels	—		—		—		—		121,502		—
Mini-storage	Mini-storage	0		0		0		0		50,913		0		Mini-storage	—		—		—		—		60,550		—
Multifamily	Multifamily	809		0		7		816		163,582		0		Multifamily	—		—		—		—		175,988		—
Retail	Retail	71		179		968		1,218		101,771		0		Retail	—		—		657		657		134,748		—
Other	Other	0		0		387		387		181,855		0		Other	—		—		315		315		191,805		—
Construction and development	Construction and development													Construction and development
Land & land development	Land & land development	208		28		188		424		83,688		0		Land & land development	47		—		70		117		107,225		—
Construction	Construction	0		0		138		138		37,385		0		Construction	—		—		—		—		91,100		—
Residential 1-4 family real estate	Residential 1-4 family real estate													Residential 1-4 family real estate
Personal residence	Personal residence	3,361		806		937		5,104		255,739		0		Personal residence	3,750		1,071		1,656		6,477		298,616		—
Rental - small loan	Rental - small loan	810		21		940		1,771		99,309		0		Rental - small loan	1,129		487		719		2,335		118,091		—
Rental - large loan	Rental - large loan	0		0		0		0		63,986		0		Rental - large loan	769		—		—		769		73,416		—
Home equity	Home equity	760		0		223		983		75,585		0		Home equity	758		—		197		955		80,633		—
Mortgage warehouse lines	Mortgage warehouse lines	0		0		0		0		126,237		0		Mortgage warehouse lines	—		—		—		—		251,810		—
Consumer	Consumer	190		79		70		339		34,682		0		Consumer	190		44		72		306		33,600		—
Other	Other													Other
Credit cards	Credit cards	19		6		42		67		1,386		42		Credit cards	5		—		2		7		1,848		2
Overdrafts	Overdrafts	0		0		0		0		798		0		Overdrafts	—		—		—		—		538		—
Total	Total	$	6,562	$	1,256	$	8,419	$	16,237	$	1,897,262	$	42	Total	$	6,982	$	1,602	$	6,872	$	15,456	$	2,396,697	$	2

~~Nonaccrual loans:~~ The following table presents the nonaccrual loans included in the net balance of loans at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table of Contents


	September 30,				December 31,
	2021				2020
Dollars in thousands	Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans		Nonaccrual		Nonaccrual with No Allowance for Credit Losses - Loans
Commercial	$	459	$	35	$	525	$	—
Commercial real estate - owner occupied
Professional & medical	—		—		536		—
Retail	789		146		12,193		2,258
Other	340		—		384		—
Commercial real estate - non-owner occupied
Hotels & motels	3,160		—		—		—
Mini-storage	—		—		—		—
Multifamily	—		—		—		—
Retail	337		207		809		657
Other	17		—		315		—
Construction and development
Land & land development	448		448		70		—
Construction	—		—		165		—
Residential 1-4 family real estate
Personal residence	2,334		—		3,424		—
Rental - small loan	2,981		110		1,603		108
Rental - large loan	—		—		—		—
Home equity	199		131		236		—
Mortgage warehouse lines	—		—		—		—
Consumer	46		—		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 thousands	Number 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

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2724

September 30, December 31,
2020 2019
Dollars in thousands Nonaccrual Nonaccrual
with No
Allowance for
Credit Losses
- Loans Nonaccrual Nonaccrual
with No
Allowance for
Credit Losses
- Loans
Commercial $ 553�� $ 0 $ 864 $ 76
Commercial real estate - owner occupied
  Professional & medical 453 0 1,602 0
  Retail 2,551 2,268 2,552 2,262
  Other 383 0 43 0
Commercial real estate - non-owner occupied
  Hotels & motels 0 0 0 0
  Mini-storage 52 0 57 0
  Multifamily 0 0 38 31
  Retail 821 168 1,120 527
  Other 53 — 388 40
Construction and development
  Land & land development 2 0 188 0
  Construction 0 0 138 0
Residential 1-4 family real estate
  Personal residence 2,093 0 2,485 423
  Rental - small loan 1,702 105 1,635 150
  Rental - large loan 1,127 1,127 0 0
  Home equity 182 0 284 0
Mortgage warehouse lines 0 0 0 0
Consumer 29 0 74 0
Other
Credit cards 0 0 0 0
Overdrafts 0 0 0 0
Total $ 10,001 $ 3,668 $ 11,468 $ 3,509


	For the Nine Months Ended September 30, 2021					For the Nine Months Ended September 30, 2020
Dollars in thousands	Number 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 thousands	Number 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 thousands	Number 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.

~~OLEM (Special Mention):~~Special Mention: Commercial loans categorized as ~~OLEM~~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.

Table of Contents

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.

~~Table of Contents~~

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, 2020																				September 30, 2021
Dollars in thousands	Dollars in thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total		Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		Revolvi- ng		Revolving- Term		Total

Commercial	Commercial	Pass	$	152,812	$	51,021	$	23,084	$	20,745	$	13,647	$	14,098	$	67,155	$	0	$	342,562	Commercial	Pass	$	90,931	$	40,069	$	34,789	$	6,605	$	9,970	$	14,940	$	112,577	$	—	$	309,881
		Special Mention	10		40		1,959		81		90		918		558		0		3,656			Special Mention	486		980		31		43		71		549		4,988		—		7,148
		Substandard	1,039		191		198		46		41		89		3,163		0		4,767			Substandard	137		—		111		53		26		15		484		—		826

Total Commercial	Total Commercial		153,861		51,252		25,241		20,872		13,778		15,105		70,876		0		350,985		Total Commercial		91,554		41,049		34,931		6,701		10,067		15,504		118,049		—		317,855

Commercial Real Estate - Owner Occupied	Commercial Real Estate - Owner Occupied																				Commercial Real Estate - Owner Occupied

Professional & medical	Professional & medical	Pass	7,435		14,460		2,580		27,117		3,370		30,154		2,689		0		87,805		Professional & medical	Pass	37,987		26,127		7,293		4,747		23,338		23,806		2,779		—		126,077
		Special Mention	1,178		0		0		0		0		5,199		0		0		6,377			Special Mention	—		1,153		—		—		—		4,980		—		—		6,133
		Substandard	0		320		0		0		133		0		0		0		453			Substandard	—		71		—		—		219		—		—		—		290

Total Professional & Medical	Total Professional & Medical		8,613		14,780		2,580		27,117		3,503		35,353		2,689		0		94,635		Total Professional & Medical		37,987		27,351		7,293		4,747		23,557		28,786		2,779		—		132,500

Retail	Retail	Pass	4,691		28,183		5,222		10,721		6,040		28,879		2,236		0		85,972		Retail	Pass	44,833		30,499		34,141		9,207		9,517		29,277		2,471		—		159,945
		Special Mention	0		1,239		0		591		6		848		50		0		2,734			Special Mention	—		—		—		—		—		740		—		—		740
		Substandard	0		9,669		0		0		0		2,551		0		0		12,220			Substandard	—		—		1,876		—		555		234		—		—		2,665

Total Retail	Total Retail		4,691		39,091		5,222		11,312		6,046		32,278		2,286		0		100,926		Total Retail		44,833		30,499		36,017		9,207		10,072		30,251		2,471		—		163,350

Other	Other	Pass	24,437		15,558		16,567		9,539		13,284		34,420		1,635		0		115,440		Other	Pass	30,324		31,332		14,335		16,870		7,631		39,879		1,946		—		142,317
		Special Mention	0		0		0		0		0		760		0		0		760			Special Mention	60		45		—		—		—		590		—		—		695
		Substandard	0		0		0		358		0		342		41		0		741			Substandard	—		—		—		—		—		301		39		—		340

Total Other	Total Other		24,437		15,558		16,567		9,897		13,284		35,522		1,676		0		116,941		Total Other		30,384		31,377		14,335		16,870		7,631		40,770		1,985		—		143,352

Total Commercial Real Estate - Owner Occupied	Total Commercial Real Estate - Owner Occupied		37,741		69,429		24,369		48,326		22,833		103,153		6,651		0		312,502		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	Commercial Real Estate - Non-Owner Occupied																				Commercial Real Estate - Non-Owner Occupied

Hotels & motels	Hotels & motels	Pass	3,457		61,244		15,796		9,901		10,417		14,692		4,817		0		120,324		Hotels & motels	Pass	1,747		3,342		32,325		16,029		7,024		20,657		444		—		81,568
		Special Mention	0		0		0		0		0		0		0		0		0			Special Mention	—		—		37,037		—		—		—		—		—		37,037
		Substandard	0		0		0		0		0		0		0		0		0			Substandard	—		2,896		—		—		—		264		—		—		3,160

Total Hotels & Motels	Total Hotels & Motels		3,457		61,244		15,796		9,901		10,417		14,692		4,817		0		120,324		Total Hotels & Motels		1,747		6,238		69,362		16,029		7,024		20,921		444		—		121,765

Mini-storage	Mini-storage	Pass	6,200		19,974		14,971		4,029		7,239		4,869		267		0		57,549		Mini-storage	Pass	8,836		7,493		10,911		14,568		4,552		10,544		40		—		56,944
		Special Mention	0		0		0		0		0		52		0		0		52			Special Mention	—		—		—		—		—		48		—		—		48
		Substandard	0		0		0		0		0		0		0		0		0			Substandard	—		—		—		—		—		—		—		—		—

Total Mini-storage			6,200		19,974		14,971		4,029		7,239		4,921		267		0		57,601

Multifamily		Pass	17,022		26,957		26,917		18,556		11,271		49,091		2,648		0		152,462
		Special Mention	0		0		0		0		0		99		0		0		99
		Substandard	0		0		0		0		0		0		0		0		0

Total Multifamily			17,022		26,957		26,917		18,556		11,271		49,190		2,648		0		152,561

Table of Contents


	September 30, 2021
Dollars in thousands	Risk Rating	2021	2020	2019	2018	2017	Prior	Revolvi- ng	Revolving- Term	Total
Total Mini-storage		8,836	7,493	10,911	14,568	4,552	10,592	40	—	56,992

Multifamily	Pass	49,770	38,286	45,966	24,370	15,828	53,811	4,681	—	232,712
	Special Mention	—	588	—	—	—	101	—	—	689
	Substandard	—	—	—	—	—	—	—	—	—

Total Multifamily		49,770	38,874	45,966	24,370	15,828	53,912	4,681	—	233,401


Retail	Pass	35,227	42,582	24,122	8,821	9,055	26,324	6,610	—	152,741
	Special Mention	—	—	—	—	—	979	—	—	979
	Substandard	—	—	—	—	—	400	—	—	400

Total Retail		35,227	42,582	24,122	8,821	9,055	27,703	6,610	—	154,120

Other	Pass	100,701	75,164	14,409	8,557	11,516	53,083	1,910	—	265,340
	Special Mention	—	—	—	575	—	—	—	—	575
	Substandard	—	—	—	—	—	2,878	—	—	2,878

Total Other		100,701	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 development	Pass	18,045	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 development		18,045	16,542	22,479	7,128	3,555	25,224	6,745	—	99,718

Construction	Pass	51,372	57,903	7,188	2,067	—	—	8,401	—	126,931
	Special Mention	—	—	—	—	—	—	—	—	—
	Substandard	—	—	—	330	—	171	—	—	501

Total Construction		51,372	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 residence	Pass	34,742	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 Residence		34,742	36,393	20,491	21,175	17,133	141,017	—	—	270,951

Rental - small loan	Pass	25,763	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 Loan		25,763	15,882	15,407	12,530	8,365	40,773	5,217	—	123,937

Rental - large loan	Pass	23,163	14,161	5,071	6,430	3,954	14,127	1,456	—	68,362

Table of Contents


	September 30, 2021
Dollars in thousands	Risk Rating	2021		2020		2019		2018		2017		Prior		Revolvi- ng		Revolving- Term		Total
	Special Mention	—		—		—		—		—		30		—		—		30
	Substandard	—		—		—		—		—		3,585		—		—		3,585

Total Rental - Large Loan		23,163		14,161		5,071		6,430		3,954		17,742		1,456		—		71,977

Home equity	Pass	142		115		12		23		19		1,333		67,557		—		69,201
	Special Mention	—		—		—		—		—		94		1,541		—		1,635
	Substandard	—		—		—		—		—		404		256		—		660

Total Home Equity		142		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 lines	Pass	—		—		—		—		—		—		161,628		—		161,628
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Mortgage Warehouse Lines		—		—		—		—		—		—		161,628		—		161,628

Consumer	Pass	11,005		7,681		5,397		2,405		700		1,896		1,131		—		30,215
	Special Mention	670		513		254		94		112		56		12		—		1,711
	Substandard	102		133		46		9		3		38		28		—		359

Total Consumer		11,777		8,327		5,697		2,508		815		1,990		1,171		—		32,285

Other

Credit cards	Pass	1,783		—		—		—		—		—		—		—		1,783
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Credit Cards		1,783		—		—		—		—		—		—		—		1,783

Overdrafts	Pass	775		—		—		—		—		—		—		—		775
	Special Mention	—		—		—		—		—		—		—		—		—
	Substandard	—		—		—		—		—		—		—		—		—

Total Overdrafts		775		—		—		—		—		—		—		—		775

Total Other		2,558		—		—		—		—		—		—		—		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 thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total

Commercial	Pass	$	112,335	$	46,323	$	20,936	$	16,723	$	11,087	$	12,336	$	78,107	$	—	$	297,847
	Special Mention	9		38		1,956		77		201		909		407		—		3,597
	Substandard	1,039		177		215		29		40		56		3,885		—		5,441

Total Commercial		113,383		46,538		23,107		16,829		11,328		13,301		82,399		—		306,885

Table of Contents


	December 31, 2020
Dollars in thousands	Risk Rating	2020	2019	2018	2017	2016	Prior	Revolvi- ng	Revolving- Term	Total
Commercial Real Estate - Owner Occupied

Professional & medical	Pass	19,454	16,414	2,540	26,578	3,322	28,905	3,079	—	100,292
	Special Mention	1,171	—	—	—	—	5,152	—	—	6,323
	Substandard	79	321	—	—	136	—	—	—	536

Total Professional & Medical		20,704	16,735	2,540	26,578	3,458	34,057	3,079	—	107,151

Retail	Pass	28,351	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 Retail		28,351	39,071	5,238	10,877	6,044	34,271	2,599	—	126,451

Other	Pass	28,712	13,722	17,699	9,845	13,119	32,486	1,496	—	117,079
	Special Mention	—	—	—	—	—	694	—	—	694
	Substandard	—	—	—	—	—	444	41	—	485

Total Other		28,712	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 & motels	Pass	3,428	23,821	18,894	9,880	7,389	14,252	3,160	—	80,824
	Special Mention	2,994	37,398	—	—	—	286	—	—	40,678
	Substandard	—	—	—	—	—	—	—	—	—

Total Hotels & Motels		6,422	61,219	18,894	9,880	7,389	14,538	3,160	—	121,502

Mini-storage	Pass	10,159	19,022	15,046	3,986	6,228	4,780	170	—	59,391
	Special Mention	—	—	—	—	—	50	—	—	50
	Substandard	—	—	—	—	—	1,109	—	—	1,109

Total Mini-storage		10,159	19,022	15,046	3,986	6,228	5,939	170	—	60,550

Multifamily	Pass	39,814	27,090	27,198	19,294	10,762	47,751	2,844	—	174,753
	Special Mention	—	—	—	—	—	48	—	—	48
	Substandard	—	1,187	—	—	—	—	—	—	1,187

Total Multifamily		39,814	28,277	27,198	19,294	10,762	47,799	2,844	—	175,988


Retail	Pass	44,359	27,357	11,169	9,361	4,414	30,381	6,502	—	133,543
	Special Mention	—	—	—	—	446	540	—	—	986
	Substandard	—	—	—	152	—	724	—	—	876

Total Retail		44,359	27,357	11,169	9,513	4,860	31,645	6,502	—	135,405

Other	Pass	75,272	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 Other		75,272	20,483	25,239	10,626	26,989	31,717	1,794	—	192,120

Table of Contents


		September 30, 2020											December 31, 2020
Dollars in thousands	Dollars in thousands	Risk Rating	2020	2019	2018	2017	2016	Prior	Revolvi- ng	Revolving- Term	Total	Dollars in thousands	Risk Rating	2020	2019	2018	2017	2016	Prior	Revolvi- ng	Revolving- Term	Total
Retail		Pass	13,044	23,808	9,980	8,399	5,410	40,150	6,158	0	106,949
		Special Mention	0	0	0	168	0	556	0	0	724
		Substandard	0	0	0	0	0	653	0	0	653

Total Retail			13,044	23,808	9,980	8,567	5,410	41,359	6,158	0	108,326

Other		Pass	34,265	20,985	51,645	11,077	27,276	29,466	1,697	0	176,411
		Special Mention	0	0	0	0	0	458	0	0	458
		Substandard	0	0	0	0	0	2,943	0	0	2,943

Total Other			34,265	20,985	51,645	11,077	27,276	32,867	1,697	0	179,812

Total Commercial Real Estate - Non-Owner Occupied	Total Commercial Real Estate - Non-Owner Occupied		73,988	152,968	119,309	52,130	61,613	143,029	15,587	0	618,624	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	Construction and Development											Construction and Development

Land & land development	Land & land development	Pass	12,711	29,048	10,899	4,844	6,709	22,665	8,361	0	95,237	Land & land development	Pass	27,084	25,468	10,943	4,149	6,370	21,882	9,320	—	105,216
		Special Mention	0	0	13	0	0	955	0	0	968		Special Mention	—	70	12	—	—	644	—	—	726
		Substandard	0	0	6	0	14	1,118	0	0	1,138		Substandard	—	—	6	—	11	1,383	—	—	1,400

Total Land & land development	Total Land & land development		12,711	29,048	10,918	4,844	6,723	24,738	8,361	0	97,343	Total Land & land development		27,084	25,538	10,961	4,149	6,381	23,909	9,320	—	107,342

Construction	Construction	Pass	31,366	30,661	1,959	895	0	0	1,997	0	66,878	Construction	Pass	50,060	34,480	2,833	885	—	—	1,325	—	89,583
		Special Mention	0	0	0	0	0	0	0	0	0		Special Mention	—	—	—	—	—	—	—	—	—
		Substandard	0	0	0	0	0	0	0	0	0		Substandard	—	1,352	—	—	—	165	—	—	1,517

Total Construction	Total Construction		31,366	30,661	1,959	895	0	0	1,997	0	66,878	Total Construction		50,060	35,832	2,833	885	—	165	1,325	—	91,100

Total Construction and Development	Total Construction and Development		44,077	59,709	12,877	5,739	6,723	24,738	10,358	0	164,221	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	Residential 1-4 Family Real Estate											Residential 1-4 Family Real Estate

Personal residence	Personal residence	Pass	28,233	28,257	25,264	19,494	22,875	117,412	0	0	241,535	Personal residence	Pass	51,120	31,415	27,052	23,069	23,759	126,293	—	—	282,708
		Special Mention	0	187	63	352	76	12,908	0	0	13,586		Special Mention	—	242	131	267	254	12,020	—	—	12,914
		Substandard	0	46	463	213	186	7,286	0	0	8,194		Substandard	—	46	849	540	126	7,910	—	—	9,471

Total Personal Residence	Total Personal Residence		28,233	28,490	25,790	20,059	23,137	137,606	0	0	263,315	Total Personal Residence		51,120	31,703	28,032	23,876	24,139	146,223	—	—	305,093

Rental - small loan	Rental - small loan	Pass	15,175	15,938	12,684	11,630	10,586	28,501	4,570	0	99,084	Rental - small loan	Pass	18,762	20,113	14,512	10,705	10,941	34,643	4,047	—	113,723
		Special Mention	111	491	251	3	196	1,789	163	0	3,004		Special Mention	110	253	251	3	192	1,749	62	—	2,620
		Substandard	0	0	0	0	45	2,561	0	0	2,606		Substandard	—	1,163	—	—	46	2,874	—	—	4,083

Total Rental - Small Loan	Total Rental - Small Loan		15,286	16,429	12,935	11,633	10,827	32,851	4,733	0	104,694	Total Rental - Small Loan		18,872	21,529	14,763	10,708	11,179	39,266	4,109	—	120,426

Rental - large loan	Rental - large loan	Pass	13,396	6,089	10,906	5,423	8,317	21,491	2,306	0	67,928	Rental - large loan	Pass	16,926	5,484	9,456	5,323	9,133	20,515	2,188	—	69,025
		Special Mention	0	1,430	0	0	0	33	0	0	1,463		Special Mention	—	1,430	—	—	—	32	—	—	1,462
		Substandard	0	0	0	0	1,127	3,318	0	0	4,445		Substandard	—	—	—	—	—	3,698	—	—	3,698

Total Rental - Large Loan	Total Rental - Large Loan		13,396	7,519	10,906	5,423	9,444	24,842	2,306	0	73,836	Total Rental - Large Loan		16,926	6,914	9,456	5,323	9,133	24,245	2,188	—	74,185

Home equity	Home equity	Pass	131	0	90	46	266	1,434	78,799	0	80,766	Home equity	Pass	429	565	347	502	89	2,174	74,974	—	79,080
		Special Mention	0	0	0	40	0	162	1,426	0	1,628		Special Mention	—	—	—	40	—	96	1,596	—	1,732
		Substandard	0	0	0	0	0	355	242	0	597		Substandard	—	—	32	28	—	424	292	—	776

Total Home Equity	Total Home Equity		131	0	90	86	266	1,951	80,467	0	82,991	Total Home Equity		429	565	379	570	89	2,694	76,862	—	81,588

Total Residential 1-4 Family Real Estate												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 lines												Mortgage warehouse lines	Pass	—	—	—	—	—	—	251,810	—	251,810
													Special Mention	—	—	—	—	—	—	—	—	—
													Substandard	—	—	—	—	—	—	—	—	—

Total Mortgage Warehouse Lines												Total Mortgage Warehouse Lines		—	—	—	—	—	—	251,810	—	251,810

Table of Contents


		September 30, 2020																				December 31, 2020
Dollars in thousands	Dollars in thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total		Dollars in thousands	Risk Rating	2020		2019		2018		2017		2016		Prior		Revolvi- ng		Revolving- Term		Total

Total Residential 1-4 Family Real Estate			57,046		52,438		49,721		37,201		43,674		197,250		87,506		0		524,836

Mortgage warehouse lines		Pass	0		0		0		0		0		0		243,730		0		243,730
		Special Mention	0		0		0		0		0		0		0		0		0
		Substandard	0		0		0		0		0		0		0		0		0

Total Mortgage Warehouse Lines			0		0		0		0		0		0		243,730		0		243,730

Consumer	Consumer	Pass	10,441		10,748		5,139		1,977		1,432		1,679		862		0		32,278		Consumer	Pass	12,785		9,257		4,239		1,609		1,237		1,516		822		—		31,465
		Special Mention	789		549		270		170		81		62		17		0		1,938			Special Mention	991		454		214		155		70		49		18		—		1,951
		Substandard	178		132		22		15		59		5		28		0		439			Substandard	245		127		31		6		51		4		26		—		490

Total Consumer	Total Consumer		11,408		11,429		5,431		2,162		1,572		1,746		907		0		34,655		Total Consumer		14,021		9,838		4,484		1,770		1,358		1,569		866		—		33,906

Other	Other																				Other

Credit cards	Credit cards	Pass	1,637		0		0		0		0		0		0		0		1,637		Credit cards	Pass	1,855		—		—		—		—		—		—		—		1,855
		Special Mention	0		0		0		0		0		0		0		0		0			Special Mention	—		—		—		—		—		—		—		—		—
		Substandard	0		0		0		0		0		0		0		0		0			Substandard	—		—		—		—		—		—		—		—		—

Total Credit Cards	Total Credit Cards		1,637		0		0		0		0		0		0		0		1,637		Total Credit Cards		1,855		—		—		—		—		—		—		—		1,855

Overdrafts	Overdrafts	Pass	614		0		0		0		0		0		0		0		614		Overdrafts	Pass	538		—		—		—		—		—		—		—		538
		Special Mention	0		0		0		0		0		0		0		0		0			Special Mention	—		—		—		—		—		—		—		—		—
		Substandard	0		0		0		0		0		0		0		0		0			Substandard	—		—		—		—		—		—		—		—		—

Total Overdrafts	Total Overdrafts		614		0		0		0		0		0		0		0		614		Total Overdrafts		538		—		—		—		—		—		—		—		538

Total Other	Total Other		2,251		0		0		0		0		0		0		0		2,251		Total Other		2,393		—		—		—		—		—		—		—		2,393

Total	Total		$	380,372	$	397,225	$	236,948	$	166,430	$	150,193	$	485,021	$	435,615	$	0	$	2,251,804	Total		$	548,081	$	404,343	$	217,038	$	164,709	$	142,456	$	484,962	$	450,564	$	—	$	2,412,153

At September 30, 2020, we had TDRs of $25.2 million, of which $21.3 million were current with respect to restructured contractual payments. At December 31, 2019, our TDRs totaled $25.7 million, of which $22.9 million were current with respect to restructured contractual payments. There were 0 commitments to lend additional funds under these restructurings at either balance sheet date.

Allowance for Credit Losses - Loans

The following ~~table~~tables presents the activity in the ACLL by ~~class the TDRs that were restructured~~portfolio segment during the three and nine months ended September 30, ~~2020~~2021 and ~~September 30, 2019. 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.twelve months ended December 31, 2020:

Table of Contents

For the Three Months Ended
September 30, 2020 For the Three Months Ended
September 30, 2019
Dollars in thousands Number 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 0 0 0
Rental - small loan 1 399 399 0 0 0
Total 2 $ 447 $ 447 0 $ 0 $ 0

For the Nine Months Ended
September 30, 2020 For the Nine Months Ended
September 30, 2019
Dollars in thousands Number 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 1 $ 325 $ 325
Commercial real estate - non-owner occupied
  Multifamily 0 0 0 1 35 35
  Retail 0 0 0 2 162 162
  Other 0 0 0 1 127 127
Residential 1-4 family real estate
  Personal residence 1 48 48 3 151 151
  Rental - small loan 1 399 399 4 259 259
Consumer 0 0 0 1 16 16
Total 3 $ 808 $ 808 13 $ 1,075 $ 1,075

For the Three Months Ended
September 30, 2020 For the Three Months Ended
September 30, 2019
Dollars in thousands Number
of
Defaults Recorded
Investment
at Default Date Number
of
Defaults Recorded
Investment
at Default Date
Commercial real estate - owner occupied
  Other 1 $ 361 0 $ 0
Commercial real estate - non-owner occupied
  Other 0 0 1 126
Residential 1-4 family real estate
   Personal residence 1 49 2 122
   Rental - small loan 0 0 1 52
Total 2 $ 410 4 $ 300


	For the Three Months Ended September 30, 2021
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending 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
Other	556		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
Construction	6,217		(241)		—		—		—		5,976
Residential 1-4 family real estate
Personal residence	3,050		(31)		—		(189)		21		2,851
Rental - small loan	2,546		143		20		—		48		2,757
Rental - large loan	2,431		(144)		—		—		—		2,287
Home equity	551		(15)		—		—		3		539
Mortgage warehouse lines	—		—		—		—		—		—
Consumer	172		(5)		—		(24)		26		169
Other
Credit cards	16		4		—		(4)		1		17
Overdrafts	168		58		—		(78)		49		197
Total	$	33,885	$	(1,200)	$	91	$	(528)	$	158	$	32,406

Table of Contents


									For the Nine Months Ended September 30, 2021
		For the Nine Months Ended September 30, 2020			For the Nine Months Ended September 30, 2019				Allowance for Credit Losses - Loans
Dollars in thousands	Dollars in thousands	Number of Defaults	Recorded Investment at Default Date		Number of Defaults	Recorded Investment at Default Date		Dollars in thousands	Beginning Balance		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending Balance

Commercial								Commercial	$	2,304	$	655	$	—	$	(222)	$	22	$	2,759
Commercial real estate - owner occupied	Commercial real estate - owner occupied							Commercial real estate - owner occupied

Professional & medical								Professional & medical	954		(11)		71		(3)		—		1,011
Retail								Retail	3,173		(1,446)		—		—		1		1,728
Other	Other	1	$	361	0	$	0	Other	610		(8)		—		—		—		602
Commercial real estate - non-owner occupied	Commercial real estate - non-owner occupied							Commercial real estate - non-owner occupied

Hotels & motels								Hotels & motels	2,135		463		—		—		—		2,598
Mini-storage								Mini-storage	337		(161)		—		—		—		176
Multifamily								Multifamily	1,547		544		—		(233)		7		1,865
Retail								Retail	981		597		—		—		—		1,578
Other	Other	0	—		1	126		Other	1,104		651		—		—		—		1,755

Construction and development								Construction and development
Land & land development								Land & land development	4,084		(552)		—		—		9		3,541
Construction								Construction	4,648		1,328		—		—		—		5,976
Residential 1-4 family real estate	Residential 1-4 family real estate							Residential 1-4 family real estate
Personal residence	Personal residence	1	49		2	122		Personal residence	3,559		(515)		—		(298)		105		2,851
Rental - small loan	Rental - small loan	0	0		1	52		Rental - small loan	2,736		13		20		(89)		77		2,757

Rental - large loan								Rental - large loan	3,007		(720)		—		—		—		2,287
Home equity								Home equity	713		(161)		—		(26)		13		539
Mortgage warehouse lines								Mortgage warehouse lines	—		—		—		—		—		—
Consumer								Consumer	216		(39)		—		(100)		92		169
Other								Other
Credit cards								Credit cards	17		11		—		(16)		5		17
Overdrafts								Overdrafts	121		181		—		(237)		132		197
Total	Total	2	$	410	4	$	300	Total	$	32,246	$	830	$	91	$	(1,224)	$	463	$	32,406

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	For the Twelve Months Ended December 31, 2020
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Impact of Adoption of ASC 326		Provision for Credit Losses - Loans		Adjustment for PCD Acquired Loans		Charge- offs		Recoveries		Ending 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
Other	821		(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
Construction	242		996		3,159		251		—		—		4,648
Residential 1-4 family real estate
Personal residence	1,275		1,282		980		182		(252)		92		3,559
Rental - small loan	532		1,453		657		96		(140)		138		2,736
Rental - large loan	49		2,884		58		16		—		—		3,007
Home equity	138		308		246		—		(24)		45		713
Mortgage warehouse lines	—		—		—		—		—		—		—
Consumer	379		(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 ~~we had~~segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans ~~modifications to interest only or principal and interest deferrals on outstanding loan balances~~described above.

Table of $117.7 million in connection with the COVID-19 relief provided by the CARES Act. These modifications and deferrals were not considered troubled debt restructurings as permitted by provisions in the CARES Act.Contents


	September 30, 2021
	Loan Balances						Allowance for Credit Losses - Loans
Dollars in thousands	Loans Individually Evaluated		Loans Collectively Evaluated (1)		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
Commercial	$	180	$	317,675	$	317,855	$	—	$	2,759	$	2,759
Commercial real estate - owner occupied
Professional & medical	2,100		130,400		132,500		207		804		1,011
Retail	6,290		157,060		163,350		—		1,728		1,728
Other	—		143,352		143,352		—		602		602
Commercial real estate - non-owner occupied
Hotels & motels	3,160		118,605		121,765		743		1,855		2,598
Mini-storage	1,069		55,923		56,992		—		176		176
Multifamily	—		233,401		233,401		—		1,865		1,865
Retail	3,066		151,054		154,120		—		1,578		1,578
Other	5,676		263,117		268,793		68		1,687		1,755
Construction and development
Land & land development	2,300		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 loan	1,571		122,366		123,937		212		2,545		2,757
Rental - large loan	3,189		68,788		71,977		—		2,287		2,287
Home equity	523		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

~~On January 1, 2020, we purchased~~(1) Included in the loans ~~for~~collectively evaluated are $30.9 million in fully guaranteed or cash secured loans, which ~~there was, at~~are excluded from the ~~time~~pools collectively evaluated and carry no allowance.

Table of ~~acquisition, more than significant deterioration~~Contents


	December 31, 2020
	Loan Balances						Allowance for Credit Losses - Loans
Dollars in thousands	Loans Individually Evaluated		Loans Collectively Evaluated (1)		Total		Loans Individually Evaluated		Loans Collectively Evaluated		Total
Commercial	$	4,851	$	302,034	$	306,885	$	8	$	2,296	$	2,304
Commercial real estate - owner occupied
Professional & medical	2,171		104,980		107,151		223		731		954
Retail	17,458		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-storage	1,109		59,441		60,550		111		226		337
Multifamily	1,187		174,801		175,988		135		1,412		1,547
Retail	3,473		131,932		135,405		—		981		981
Other	5,857		186,263		192,120		129		975		1,104
Construction and development
Land & land development	1,891		105,451		107,342		623		3,461		4,084
Construction	1,352		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 loan	1,300		119,126		120,426		102		2,634		2,736
Rental - large loan	3,288		70,897		74,185		—		3,007		3,007
Home equity	523		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 ~~quality since origination (PCD loans). The carrying amount~~losses, and the related ACLL allocated to those loans:

Table of ~~these loans at acquisition is as follows:~~Contents


~~Dollars in thousands~~	~~January 1, 2020~~
~~Purchase price of PCD loans at acquisition~~	$	~~1,877~~
~~Allowance for credit losses - loans at acquisition~~	~~410~~
~~Non-credit discount at acquisition~~	~~159~~
~~Par value of PCD loans at acquisition~~	~~1,308~~


	September 30, 2021
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - Loans
Commercial	$	—	$	180	$	180	$	—
Commercial real estate - owner occupied
Professional & medical	2,100		—		2,100		207
Retail	6,290		—		6,290		—
Other	—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels	3,160		—		3,160		743
Mini-storage	1,069		—		1,069		—
Multifamily	—		—		—		—
Retail	3,066		—		3,066		—
Other	5,676		—		5,676		68
Construction and development
Land & land development	2,300		—		2,300		653
Construction	—		—		—		—
Residential 1-4 family real estate
Personal residence	—		—		—		—
Rental - small loan	1,571		—		1,571		212
Rental - large loan	3,189		—		3,189		—
Home equity	523		—		523		—
Consumer	—		—		—		—
Other
Credit cards	—		—		—		—
Overdrafts	—		—		—		—
Total	$	28,944	$	180	$	29,124	$	1,883


	December 31, 2020
Dollars in thousands	Real Estate Secured Loans		Non-Real Estate Secured Loans		Total Loans		Allowance for Credit Losses - Loans
Commercial	$	—	$	4,851	$	4,851	$	8
Commercial real estate - owner occupied
Professional & medical	2,171		—		2,171		223
Retail	17,458		—		17,458		2,258
Other	—		—		—		—
Commercial real estate - non-owner occupied
Hotels & motels	—		—		—		—
Mini-storage	1,109		—		1,109		111
Multifamily	1,187		—		1,187		135
Retail	3,473		—		3,473		—
Other	5,857		—		5,857		129
Construction and development
Land & land development	1,891		—		1,891		623
Construction	1,352		—		1,352		135
Residential 1-4 family real estate
Personal residence	—		—		—		—
Rental - small loan	1,300		—		1,300		102
Rental - large loan	3,288		—		3,288		—
Home equity	523		—		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

~~During first~~In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during third quarter ~~2020,~~2021, we ~~evaluated recent potential triggering events that might be indicators that our~~performed the qualitative assessment of goodwill ~~was impaired. The events include, among others, the economic disruption~~ and ~~uncertainty surrounding the COVID-19 pandemic. We~~ determined that ~~there were 0~~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 ~~March 31, 2020.~~September 30, 2021.

The following tables present our goodwill activity for the quarter ending September 30, ~~2020~~2021 and the balance of other intangible assets at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Dollars in thousands

Goodwill Activity

Balance, January 1, ~~2020~~2021

~~12,658~~45,495

Reclassifications tofrom goodwill

0 (479)

Acquired goodwill

~~25,487~~10,331

Balance, September 30, ~~2020~~2021

~~38,145~~55,347


		Other Intangible Assets				Other Intangible Assets
Dollars in thousands	Dollars in thousands	September 30, 2020		December 31, 2019	Dollars in thousands		September 30, 2021			December 31, 2020

Identifiable intangible assets	Identifiable intangible assets										Identifiable intangible assets
Gross carrying amount	Gross carrying amount	$	15,569					$	14,727		Gross carrying amount	$	15,828	$	15,650
Less: accumulated amortization	Less: accumulated amortization	(5,613)						(4,363)			Less: accumulated amortization	(7,198)		(6,022)

Net carrying amount	Net carrying amount	$	9,956					$	10,364		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, ~~and $404,000 and $1,300,000 for the three and nine months ended September 30, 2019,~~ 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:

~~Table of Contents~~


	Core Deposit
Dollars in thousands	Intangible




Three month period ending December 31, ~~2020~~2021	$	~~408~~
~~Year ending December 31, 2021~~	~~1,532~~388
Year ending December 31, 2022	~~1,396~~1,440
Year ending December 31, 2023	~~1,260~~1,299
Year ending December 31, 2024	~~1,124~~1,158
Year ending December 31, 2025	1,019
Thereafter	~~4,165~~3,256

NOTE 8. DEPOSITS

The following is a summary of interest bearing deposits by type as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


Dollars in thousands	Dollars in thousands	September 30, 2020		December 31, 2019		Dollars in thousands	September 30, 2021		December 31, 2020
Demand deposits, interest bearing	Demand deposits, interest bearing	$	867,442	$	630,351	Demand deposits, interest bearing	$	1,121,028	$	934,185
Savings deposits	Savings deposits	598,564		418,096		Savings deposits	693,686		621,168
Time deposits	Time deposits	565,815		604,237		Time deposits	565,684		599,480
Total	Total	$	2,031,821	$	1,652,684	Total	$	2,380,398	$	2,154,833

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling ~~$64.1~~$14.7 million and ~~$150.6~~$55.5 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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A summary of the scheduled maturities for all time deposits as of September 30, ~~2020~~2021 is as follows:


Dollars in thousands
Three month period ending December 31, ~~2020~~2021	$	~~105,223~~
~~Year ending December 31, 2021~~	~~332,065~~109,130
Year ending December 31, 2022	~~60,820~~330,840
Year ending December 31, 2023	~~35,732~~69,604
Year ending December 31, 2024	~~15,635~~22,645
Year ending December 31, 2025	14,555
Thereafter	~~16,340~~18,910
Total	$	~~565,815~~565,684

The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled ~~$145.4~~$104.1 million at September 30, ~~2020~~2021 and ~~$198.1~~$81.4 million at December 31, ~~2019.~~2020.

NOTE 9. BORROWED FUNDS

Short-term borrowings: A summary of short-term borrowings is presented below:


		Nine Months Ended September 30,													Nine Months Ended September 30,
		2020						2019							2021						2020
Dollars in thousands	Dollars in thousands	Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit			Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit			Dollars in thousands	Short-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	Balance at September 30	$	140,000		$	145		$	206,550		$	144		Balance at September 30	$	140,000		$	146		$	140,000		$	145
Average balance outstanding for the period	Average balance outstanding for the period	126,964			145			196,058			564			Average balance outstanding for the period	140,000			146			126,964			145
Maximum balance outstanding at any month end during period	Maximum balance outstanding at any month end during period	215,700			145			225,200			144			Maximum balance outstanding at any month end during period	140,000			146			215,700			145
Weighted average interest rate for the period	Weighted average interest rate for the period	0.79		%	0.64		%	2.63		%	2.48		%	Weighted average interest rate for the period	0.34		%	0.25		%	0.79		%	0.64		%
Weighted average interest rate for balances	Weighted average interest rate for balances													Weighted average interest rate for balances
outstanding at September 30	outstanding at September 30	0.36		%	0.25		%	2.15		%	2.00		%	outstanding at September 30	0.32		%	0.25		%	0.36		%	0.25		%

~~Table of Contents~~


		Year Ended December 31, 2019			Year Ended December 31, 2020
Dollars in thousands	Dollars in thousands	Short-term FHLB Advances				Federal Funds Purchased and Lines of Credit		Dollars in thousands	Short-term FHLB Advances			Federal Funds Purchased and Lines of Credit
Balance at December 31	Balance at December 31	$	199,200			145		Balance at December 31	$	140,000		146
Average balance outstanding for the period	Average balance outstanding for the period	193,992				458		Average balance outstanding for the period	130,241			170
Maximum balance outstanding at any month end during period	Maximum balance outstanding at any month end during period	237,400				145		Maximum balance outstanding at any month end during period	215,700			146
Weighted average interest rate for the period	Weighted average interest rate for the period	2.48		%		2.43	%	Weighted average interest rate for the period	0.67		%	0.50	%
Weighted average interest rate for balances	Weighted average interest rate for balances							Weighted average interest rate for balances
outstanding at December 31	outstanding at December 31	1.83		%		1.75	%	outstanding at December 31	0.35		%	0.25	%

Long-term borrowings: Our long-term borrowings of ~~$703,000~~$684,000 and ~~$717,000~~$699,000 at September 30, ~~2020~~2021 and December 31, ~~2019,~~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 ~~$1.25~~$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. ~~As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.~~ 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 3 statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the ~~“debentures”~~

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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, ~~2020~~2021 and December 31, ~~2019.~~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	Dollars in thousands		Long-term borrowings		Subordinated debentures		Subordinated debentures owed to unconsolidated subsidiary trusts		Dollars in thousands		Long-term borrowings		Subordinated debentures		Subordinated debentures owed to unconsolidated subsidiary trusts
Year Ending December 31,	Year Ending December 31,	2020	$	5	$	0	$	0	Year Ending December 31,	2021	$	5	$	—	$	—
		2021	20		0		0			2022	21		—		—
		2022	21		0		0			2023	22		—		—
		2023	22		0		0			2024	23		—		—
		2024	22		0		0			2025	24		—		—
		Thereafter	613		29,336		19,589			Thereafter	589		30,000		19,589
			$	703	$	29,336	$	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.

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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.


	2021 grant with 7 year expiration		2021 grant with 5 year expiration
Risk-free interest rate	1.06	%	0.74	%
Expected dividend yield	3.00	%	3.00	%
Expected common stock volatility	55.59	%	55.59	%
Expected life	7 years		5.5 years

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A summary of our SAR and stock option activity during the first nine months of ~~2020~~2021 and ~~2019~~2020 is as follows:


		For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
		2020							2021
		Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price			Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	Outstanding, January 1	330,703				$	20.44	Outstanding, January 1	329,203				$	20.47
Granted	Granted	0				0		Granted	177,489				21.85
Exercised	Exercised	0				0		Exercised	(5,800)				3.85
Forfeited	Forfeited	0				0		Forfeited	—				—
Expired	Expired	0				0		Expired	—				—
Outstanding, September 30	Outstanding, September 30	330,703	$	349	6.58	$	20.44	Outstanding, September 30	500,892	$	1,808	7.12	$	21.15

Exercisable, September 30	Exercisable, September 30	179,375	$	349	5.52	$	17.03	Exercisable, September 30	213,216	$	1,287	5.00	$	18.90


		For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
		2019							2020
		Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price			Options/SARs	Aggregate Intrinsic Value (in thousands)		Remaining Contractual Term (Yrs.)	Weighted-Average Exercise Price
Outstanding, January 1	Outstanding, January 1	232,091				$	17.36	Outstanding, January 1	330,703				$	20.44
Granted	Granted	138,125				23.94		Granted	—				—
Exercised	Exercised	(31,413)				11.83		Exercised	—				—
Forfeited	Forfeited	0				0		Forfeited	—				—
Expired	Expired	0				0		Expired	—				—
Outstanding, September 30	Outstanding, September 30	338,803	$	1,745	7.41	$	20.56	Outstanding, September 30	330,703	$	349	6.58	$	20.44

Exercisable, September 30	Exercisable, September 30	112,989	$	1,063	5.59	$	16.32	Exercisable, September 30	179,375	$	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 22nd anniversary of the grant date. ~~During 2019, we granted 2,892 RSUs which will vest ratably over 3 years. A summary~~


	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2020	15,686	$	20.40
Granted	—	—
Forfeited	—	—
Vested	(3,400)	19.61
Nonvested, September 30, 2021	12,286	$	20.62

Table of ~~our RSU activity and related information is as follows.~~Contents

Dollars in thousands, except per share amounts RSUs Weighted Average Grant Date Fair Value
Nonvested, December 31, 2019 2,892 25.93
Granted 12,841 18.19
Forfeited 0 0
Vested (651) 25.60
Nonvested, September 30, 2020 15,082 20.45
41


	RSUs	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2019	2,892	$	25.93
Granted	12,841	18.19
Forfeited	—	—
Vested	(651)	25.60
Nonvested, September 30, 2020	15,082	$	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 ~~2020~~2021 and ~~2019,~~2020, total stock compensation expense for all share-based arrangements was ~~$402,000~~$448,000 and ~~$430,000~~$402,000 and the related deferred tax benefits were approximately ~~$96,000~~$108,000 and ~~$103,000. For the three months ended September 30, 2020 and 2019, total stock compensation expense for all share-based~~

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~~arrangements was $80,000 and $149,000 and the related deferred tax benefits were approximately $19,000 and $36,000.~~$96,000. At September 30, ~~2020~~2021 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled ~~$1.37~~$2.41 million and is expected to be recognized over the next ~~1.87~~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 thousands	September 30, ~~2020~~2021
Commitments to extend credit:
Revolving home equity and credit card lines	$	~~88,214~~95,601
Construction loans	~~110,896~~198,224
Other loans	~~320,318~~333,636
Standby letters of credit	~~11,200~~25,025
Total	$	~~530,628~~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 ~~ACL on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period~~provision for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on unfunded commitments ~~expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 6 - Loans~~was $1.67 million and ~~Allowance for Credit Losses as if such commitments were funded.~~

~~The impact to the ACL on off-balance sheet credit exposures upon adoption of ASC 326 was $2.43 million, followed by a nine month 2020 provision of~~ $1.09 million ~~resulting in a~~for the nine months ended September 30, 2021 and 2020 ~~balance of $3.52 million.~~

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 ~~12.~~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, ~~2020,~~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, ~~2020~~2021 and December 31, ~~2019.~~ 2020.

Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended.

Actual
Minimum Required Capital - Basel III Minimum Required To Be Well Capitalized
Dollars in thousands Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2020
CET1 (to risk weighted assets)
Summit $ 231,568 9.9 % N/A N/A N/A N/A
Summit Community 276,361 11.8 % 163,943 7.0 % 152,233 6.5 %
Tier I Capital (to risk weighted assets)
Summit 250,568 10.7 % N/A N/A N/A N/A
Summit Community 276,361 11.8 % 199,074 8.5 % 187,363 8.0 %
Total Capital (to risk weighted assets)
Summit 301,774 12.9 % N/A N/A N/A N/A
Summit Community 297,567 12.7 % 246,020 10.5 % 234,305 10.0 %
Tier I Capital (to average assets)
Summit 250,568 8.7 % N/A N/A N/A N/A
Summit Community 276,361 9.6 % 115,150 4.0 % 143,938 5.0 %

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		Actual			Minimum Required Capital - Basel III Fully Phased-in			Minimum Required To Be Well Capitalized				Actual				Minimum Required Capital - Basel III			Minimum Required To Be Well Capitalized
Dollars in thousands	Dollars in thousands	Amount	Ratio		Amount	Ratio		Amount	Ratio		Dollars in thousands	Amount		Ratio		Amount	Ratio		Amount	Ratio
As of December 31, 2019
As of September 30, 2021											As of September 30, 2021
CET1 (to risk weighted assets)	CET1 (to risk weighted assets)										CET1 (to risk weighted assets)
Summit	Summit	224,679	11.1	%	N/A	N/A		N/A	N/A		Summit	$	252,581	9.0	%	N/A	N/A		N/A	N/A
Summit Community	Summit Community	244,045	12.1	%	141,183	7.0	%	131,099	6.5	%	Summit Community	313,549		11.2	%	195,968	7.0	%	181,970	6.5	%
Tier I Capital (to risk weighted assets)	Tier I Capital (to risk weighted assets)										Tier I Capital (to risk weighted assets)
Summit	Summit	243,679	12.1	%	N/A	N/A		N/A	N/A		Summit	286,501		10.2	%	N/A	N/A		N/A	N/A
Summit Community	Summit Community	244,045	12.1	%	171,437	8.5	%	161,352	8.0	%	Summit Community	313,549		11.2	%	237,961	8.5	%	223,964	8.0	%
Total Capital (to risk weighted assets)	Total Capital (to risk weighted assets)										Total Capital (to risk weighted assets)
Summit	Summit	256,753	12.7	%	N/A	N/A		N/A	N/A		Summit	341,088		12.1	%	N/A	N/A		N/A	N/A
Summit Community	Summit Community	257,119	12.7	%	212,579	10.5	%	202,456	10.0	%	Summit Community	338,670		12.1	%	293,887	10.5	%	279,893	10.0	%
Tier I Capital (to average assets)	Tier I Capital (to average assets)										Tier I Capital (to average assets)
Summit	Summit	243,679	10.5	%	N/A	N/A		N/A	N/A		Summit	286,501		8.4	%	N/A	N/A		N/A	N/A
Summit Community	Summit Community	244,045	10.6	%	92,092	4.0	%	115,116	5.0	%	Summit Community	313,549		9.2	%	136,326	4.0	%	170,407	5.0	%


	Actual			Minimum Required Capital - Basel III			Minimum Required To Be Well Capitalized
Dollars in thousands	Amount	Ratio		Amount	Ratio		Amount	Ratio
As of December 31, 2020
CET1 (to risk weighted assets)
Summit	233,768	9.3	%	N/A	N/A		N/A	N/A
Summit Community	279,540	11.1	%	176,286	7.0	%	163,695	6.5	%
Tier I Capital (to risk weighted assets)
Summit	252,768	10.0	%	N/A	N/A		N/A	N/A
Summit Community	279,540	11.1	%	214,062	8.5	%	201,470	8.0	%
Total Capital (to risk weighted assets)
Summit	305,309	12.1	%	N/A	N/A		N/A	N/A
Summit Community	302,716	12.0	%	264,877	10.5	%	252,263	10.0	%
Tier I Capital (to average assets)
Summit	252,768	8.6	%	N/A	N/A		N/A	N/A
Summit Community	279,540	9.5	%	117,701	4.0	%	147,126	5.0	%

NOTE ~~13.~~14. DERIVATIVE FINANCIAL INSTRUMENTS

Cash flow hedges

We have entered into 3 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 12 interest rate ~~cap to hedge the risk of variability in its cash flows above .75% of the three month LIBOR benchmark 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 2 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 ~~as follows:~~

•~~Under the terms of~~with a ~~$9.95 million~~total original notional ~~interest rate swap expiring January 15, 2025, we will pay a fixed rate~~amount of ~~4.33% and receive a variable rate equal to one month LIBOR plus 2.40 percent.~~

•Under the terms of a $11.3 million original notional interest rate swap expiring January 15, 2026, we will pay a fixed rate of 4.30% and receive a variable rate equal to one month LIBOR plus 2.18 percent.$21.3 million.

A summary of our derivative financial instruments as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 follows:

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	September 30, 2021
	Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands			Asset		Liability		Hedge 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 accounts	100,000		2,090		—		—

FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	17,712	$	—	$	780	$	—

September 30, 2020
Notional
Amount Derivative Fair Value Net Ineffective
Dollars in thousands Asset Liability Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings $ 80,000 $ 0 $ 1,652 $ 0
Interest rate cap
Short term borrowings $ 100,000 $ 4,611 $ 0 $ 0
FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans $ 18,349 $ 0 $ 1,415 $ 0


		December 31, 2019									December 31, 2020
		Notional Amount		Derivative Fair Value				Net Ineffective			Notional Amount		Derivative Fair Value				Net Ineffective
Dollars in thousands	Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)		Dollars in thousands			Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES	CASH FLOW HEDGES									CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps	Pay-fixed/receive-variable interest rate swaps									Pay-fixed/receive-variable interest rate swaps
Short term borrowings	Short term borrowings	$	70,000	$	0	$	679	$	0	Short term borrowings	$	80,000	$	—	$	1,457	$	—

Interest rate cap hedging:										Interest rate cap hedging:
Short term borrowings										Short term borrowings	$	100,000	$	5,652	$	—	$	—
Indexed interest bearing demand deposit accounts										Indexed interest bearing demand deposit accounts	100,000		1,001		—		—

FAIR VALUE HEDGES	FAIR VALUE HEDGES									FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps	Pay-fixed/receive-variable interest rate swaps									Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	Commercial real estate loans	$	18,809	$	0	$	309	$	0	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 ~~14.~~15. ACQUISITIONS

~~Cornerstone Financial Services Inc. Acquisition~~

On January 1, 2020, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired 100% of the ownership of Cornerstone Financial Services Inc. ("Cornerstone") and its subsidiary Cornerstone Bank, headquartered in West Union, West Virginia. With this transaction, Summit further expands its footprint into the central region of West Virginia. Pursuant to the Agreement and Plan of Merger dated September 17, 2019, Cornerstone's shareholders received cash in the amount of $5,700.00 per share or 228 shares of Summit common stock, or a combination of cash and Summit stock, subject to proration to result in approximately 50% cash and 50% stock consideration in the aggregate. Total stock consideration was $15.4 million or 570,000 shares of Summit common stock and cash consideration was $14.3 million. Cornerstone's assets and liabilities approximated $195 million and $176 million, respectively, at December 31, 2019 and was deemed immaterial to our financial statements.

~~We accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805,~~ ~~Business Combinations~~ and accordingly, the assets and liabilities of Cornerstone were recorded 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 $10.82 million in connection with the acquisition (not deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing or upon a triggering event. 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 January 1, 2020 in connection with the acquisition of Cornerstone, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill.

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(Dollars in thousands) As Recorded by Cornerstone Estimated Fair Value Adjustments Estimated Fair Values as Recorded by Summit
Cash consideration $ 14,250
Stock consideration 15,441
Total consideration 29,691
Identifiable assets acquired:
Cash and cash equivalents $ 60,284 $ 0 $ 60,284
Securities available for sale, at fair value 90,075 (47) 90,028
Loans
Purchased performing 37,965 188 38,153
Purchased credit deteriorated 1,877 (569) 1,308
Allowance for loan losses (312) 312 0
Premises and equipment 806 (142) 664
Property held for sale 10 0 10
Core deposit intangibles 0 717 717
Other assets 4,324 (74) 4,250
Total identifiable assets acquired $ 195,029 $ 385 $ 195,414
Identifiable liabilities assumed:
Deposits 173,027 239 173,266
Other liabilities 3,286 (7) 3,279
Total identifiable liabilities assumed $ 176,313 $ 232 $ 176,545
Net identifiable assets acquired $ 18,716 $ 153 $ 18,869
Preliminary goodwill resulting from acquisition $ 10,822

MVB Bank Branches Acquisition

On ~~April 24, 2020,~~July 10, 2021, SCB ~~expanded its presence in the Eastern Panhandle of West Virginia by acquiring three~~acquired four MVB Bank locations located in ~~Berkeley~~southern West Virginia: one in Kanawha County, ~~West Virginia~~one in Putnam County, and ~~one~~two in Cabell County. In addition, SCB acquired two MVB Bank ~~location~~drive-up banking locations in ~~Jefferson County, West Virginia.~~Cabell County. Summit assumed certain deposits and loans totaling approximately ~~$195.0~~$164 million and ~~$35.3~~$54 million, respectively.

The purchase price was ~~$50.3~~$9.8 million ~~consisting of (i)~~equaling the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 8.00%, (ii) the aggregate amount of cash on hand as of the closing date, (iii) the aggregate net book value of all assets being assumed (excluding cash on hand, real property and accrued interest with respect to the loans acquired), (iv) the appraised value of the real property acquired, and (v) accrued interest with respect to the loans acquired.6.00%.

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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 ~~$14.67~~$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 ~~April 24, 2020~~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.

~~Table of Contents~~


(Dollars in thousands)	(Dollars in thousands)	As Recorded by MVB		Estimated Fair Value Adjustments		Estimated Fair Values as Recorded by Summit		(Dollars in thousands)	As Recorded by MVB		Estimated Fair Value Adjustments		Estimated Fair Values as Recorded by Summit
Cash consideration	Cash consideration					$	12,965	Cash consideration					$	9,807
Total consideration	Total consideration					12,965		Total consideration					9,807

Identifiable assets acquired:	Identifiable assets acquired:							Identifiable assets acquired:
Cash and cash equivalents	Cash and cash equivalents	$	800	$	0	$	800	Cash and cash equivalents	$	946	$	—	$	946
Loans	Loans							Loans
Purchased performing	Purchased performing	35,127		(1,185)		33,942		Purchased performing	53,440		478		53,918
Purchased credit deteriorated								Purchased credit deteriorated	488		(91)		397
Premises and equipment	Premises and equipment	2,376		(42)		2,334		Premises and equipment	3,431		(129)		3,302
Core deposit intangibles	Core deposit intangibles	0		125		125		Core deposit intangibles	—		178		178
Other assets	Other assets	114		0		114		Other assets	260		—		260
Total identifiable assets acquired	Total identifiable assets acquired	$	38,417	$	(1,102)	$	37,315	Total identifiable assets acquired	$	58,565	$	436	$	59,001

Identifiable liabilities assumed:	Identifiable liabilities assumed:							Identifiable liabilities assumed:
Deposits	Deposits	188,134		598		188,732		Deposits	163,081		959		164,040
Other liabilities	Other liabilities	102		0		102		Other liabilities	45		—		45
Total identifiable liabilities assumed	Total identifiable liabilities assumed	$	188,236	$	598	$	188,834	Total identifiable liabilities assumed	$	163,126	$	959	$	164,085

Net liabilities assumed	Net liabilities assumed	$	(149,819)	$	(1,700)	$	(151,519)	Net liabilities assumed	$	(104,561)	$	(523)	$	(105,084)

Net cash received from MVB	Net cash received from MVB					136,854		Net cash received from MVB					94,753

Preliminary goodwill resulting from acquisition	Preliminary goodwill resulting from acquisition					$	14,665	Preliminary goodwill resulting from acquisition					$	10,331

~~The following is a description of the methods used to determine the fair values of significant assets and liabilities presented for both transactions above.~~

~~Cash and cash equivalents:~~ The carrying amount of these assets approximates their fair value based on the short-term nature of these assets, with the exception of certificates of deposits held at other banks, which were adjusted to fair value based upon current interest rates.

~~Securities~~: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.

~~Loans:~~ Fair values for loans are based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, collectibility, fixed or variable interest rate, term of loan, amortization status and current market rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns, if any.

~~Premises and equipment:~~ The fair value of Cornerstone's real property was determined based upon appraisals by licensed appraisers. The fair value of tangible personal property, which is not material, was assumed to equal the carrying value by Cornerstone.

~~Core deposit intangible:~~ This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits.

~~Deposits:~~ The fair values of the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.

~~Loans acquired in a business combination are recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan losses.~~

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Prior to adoption of ASC 326 on January 1, 2020, loans acquired in a business combination that had evidence of credit deterioration since origination and for which it was probable at the date of acquisition that we would not collect all contractually required principal and interest payments were considered purchased credit-impaired (PCI) loans. When determining fair value, PCI loans were identified as of the date of acquisition based upon evidence of credit quality such as internal risk grades and past due and nonaccrual status. The difference between contractually required payments of principal and interest at acquisition and the cash flows expected to be collected at acquisition was accounted for as a"nonaccretable difference," and was available to absorb future credit losses on those loans. For purposes of determining the nonaccretable difference, no prepayments were generally assumed in determining contractually required payments of principal and interest or cash flows expected to be collected. Subsequent decreases to the expected cash flows generally resulted in a provision for loan losses. Subsequent significant increases in cash flows could have resulted in a reversal of the provision for loan losses to the extent of prior charges, or a transfer from nonaccretable difference to accretable yield. Further, any excess of cash flows expected at acquisition over the estimated fair value was accounted for as accretable yield and was recognized as interest income over the remaining life of the loan when there was a reasonable expectation about the amount and timing of such cash flows.

Subsequent to adoption of ASC 326 on January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date.

Loans not designated PCD loans as of the acquisition date are designated purchased performing loans. We account for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition.

The following presents the financial effects of adjustments recognized in the statements of income for the three and nine months ended September 30, 2020 and 2019 related to business combinations that occurred during 2016, 2017, 2019 and 2020.

Income increase (decrease)
Three Months Ended September 30, Nine Months Ended September 30,
Dollars in thousands 2020 2019 2020 2019
Interest and fees on loans $ 161 $ 137 $ 680 $ 604
Interest expense on deposits 175 77 461 247
Amortization of intangibles (412) (404) (1,251) (1,234)
Income before income tax expense $ (76) $ (190) $ (110) $ (383)

~~Pending WinFirst Acquisition~~

On September 28, 2020, we entered into a Definitive Merger Agreement with WinFirst Financial Corp. ("WinFirst"). Pursuant to the terms of the merger agreement, Summit will acquire all of the outstanding shares of common stock of WinFirst in exchange for cash in the amount of $21.7 million. Total merger consideration received by WinFirst shareholders is subject to an adjustment if WinFirst's adjusted shareholders’ equity as of the effective date of the merger deviates from the range mutually determined by the parties. WinFirst's assets approximated $146 million at September 30, 2020.

We anticipate the acquisition will close by year-end 2020, subject to customary closing conditions, including regulatory approval and approval of WinFirst's shareholders. Following the consummation of the merger, WinFirst's wholly-owned subsidiary WinFirst Bank will be consolidated with Summit's subsidiary, Summit Community Bank, Inc.

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NOTE ~~15.~~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, ~~2020~~2021 and ~~2019.~~2020.


		For the Three Months Ended September 30, 2020											For the Three Months Ended September 30, 2021
Dollars in thousands	Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains (Losses) on Available-for-Sale Securities		Total		Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	Beginning balance	$	(140)	$	48	$	(2,417)	$	5,831	$	3,322	Beginning balance	$	(199)	$	(40)	$	2,163	$	5,177	$	7,101
Other comprehensive income before reclassification		0		0		422		1,603		2,025
Amounts reclassified from accumulated other comprehensive income		0		0		0		(1,157)		(1,157)
Net current period other comprehensive income		0		0		422		446		868
Other comprehensive income (loss) before reclassification												Other comprehensive income (loss) before reclassification	—		—		689		(2,754)		(2,065)
Amounts reclassified from accumulated other comprehensive income, net of tax												Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		52		52
Net current period other comprehensive income (loss)												Net current period other comprehensive income (loss)	—		—		689		(2,702)		(2,013)
Ending balance	Ending balance	$	(140)	$	48	$	(1,995)	$	6,277	$	4,190	Ending balance	$	(199)	$	(40)	$	2,852	$	2,475	$	5,088

For the Three Months Ended September 30, 2019
Dollars in thousands Gains and Losses on Pension Plan Gains and Losses on Other Post-Retirement Benefits Gains and Losses on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Total
Beginning balance $ (328) $ 139 $ (737) $ 3,147 $ 2,221
Other comprehensive income income before reclassification 0 0 53 1,916 1,969
Amounts reclassified from accumulated other comprehensive income 0 0 0 (344) (344)
Net current period other comprehensive income 0 0 53 1,572 1,625
Ending balance $ (328) $ 139 $ (684) $ 4,719 $ 3,846

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For the Nine Months Ended September 30, 2020
Dollars in thousands Gains and Losses on Pension Plan Gains and Losses on Other Post-Retirement Benefits Gains and Losses on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Total
Beginning balance $ (140) $ 48 $ (518) $ 3,145 $ 2,535
Other comprehensive income (loss) before reclassification 0 0 (1,477) 5,078 3,601
Amounts reclassified from accumulated other comprehensive income 0 0 0 (1,946) (1,946)
Net current period other comprehensive income (loss) 0 0 (1,477) 3,132 1,655
Ending balance $ (140) $ 48 $ (1,995) $ 6,277 $ 4,190
46


		For the Nine Months Ended September 30, 2019											For the Three Months Ended September 30, 2020
Dollars in thousands	Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains (Losses) on Available-for-Sale Securities		Total		Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
Beginning balance	Beginning balance	$	0	$	139	$	(314)	$	(841)	$	(1,016)	Beginning balance	$	(140)	$	48	$	(2,417)	$	5,831	$	3,322
Other comprehensive income (loss) before reclassification		(328)		0		(370)		6,727		6,029
Amounts reclassified from accumulated other comprehensive income		0		0		0		(1,167)		(1,167)
Net current period other comprehensive income (loss)		(328)		0		(370)		5,560		4,862
Other comprehensive income before reclassification												Other comprehensive income before reclassification	—		—		422		1,603		2,025
Amounts reclassified from accumulated other comprehensive income, net of tax												Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(1,157)		(1,157)
Net current period other comprehensive income												Net current period other comprehensive income	—		—		422		446		868
Ending balance	Ending balance	$	(328)	$	139	$	(684)	$	4,719	$	3,846	Ending balance	$	(140)	$	48	$	(1,995)	$	6,277	$	4,190


	For the Nine Months Ended September 30, 2021
Dollars in thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
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 thousands	Gains and Losses on Pension Plan		Gains and Losses on Other Post-Retirement Benefits		Gains and Losses on Cash Flow Hedges		Unrealized Gains/Losses on Debt Securities Available for Sale		Total
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

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NOTE ~~16.~~17. INCOME TAXES

Our income tax expense for the three ~~months ended September 30, 2020~~ and ~~September 30, 2019 totaled $2.6 million and $1.8 million, respectively. For the~~ nine months ended September 30, ~~2020~~2021 and September 30, ~~2019 our income tax expense~~2020 totaled ~~$5.3~~$3.0 million and $8.9 million and $2.6 million and $5.3 ~~million.~~million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the three ~~months ended September 30, 2020~~ and ~~2019 was 21.2% and 18.4%, respectively, and for the~~ nine months ended September 30, 2021 and 2020 was 19.8% and ~~2019 waa~~21.1% and 21.2% and 20.1% ~~and 18.2%~~, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020 2019 2020 2019
Dollars in thousands Percent Percent Percent Percent
Applicable statutory rate 21.0 % 21.0 % 21.0 % 21.0 %
Increase (decrease) in rate resulting from:
Tax-exempt interest and dividends, net (1.9) % (1.6) % (2.2) % (2.0) %
State income taxes, net of Federal income tax benefit 1.9 % 1.9 % 1.6 % 1.8 %
Low-income housing and rehabilitation tax credits (0.1) % (0.5) % (0.6) % (0.6) %
Other, net 0.3 % (2.4) % 0.3 % (2.0) %
Effective income tax rate 21.2 % 18.4 % 20.1 % 18.2 %

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
	Percent		Percent		Percent		Percent
Applicable statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
Increase (decrease) in rate resulting from:
Tax-exempt interest and dividends, net	(1.3)	%	(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 rate	19.8	%	21.2	%	21.1	%	20.1	%

The components of applicable income tax expense for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 are as follows:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	Dollars in thousands	2020		2019		2020		2019		Dollars in thousands	2021		2020		2021		2020
Current	Current									Current
Federal	Federal	$	2,697	$	1,666	$	7,689	$	4,913	Federal	$	2,350	$	2,697	$	7,720	$	7,689
State	State	372		246		1,072		716		State	351		372		1,122		1,072
		3,069		1,912		8,761		5,629			2,701		3,069		8,842		8,761
Deferred	Deferred									Deferred
Federal	Federal	(416)		(88)		(3,025)		(294)		Federal	282		(416)		38		(3,025)
State	State	(59)		(12)		(434)		(42)		State	40		(59)		6		(434)
		(475)		(100)		(3,459)		(336)			322		(475)		44		(3,459)
Total	Total	$	2,594	$	1,812	$	5,302	$	5,293	Total	$	3,023	$	2,594	$	8,886	$	5,302

NOTE ~~17.~~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,					Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands	Dollars in thousands	2020		2019		2020		2019		Dollars in thousands	2021		2020		2021		2020
Service fees on deposit accounts	Service fees on deposit accounts	$	1,138	$	1,312	$	3,283	$	3,716	Service fees on deposit accounts	$	1,338	$	1,138	$	3,530	$	3,283
Bank card revenue	Bank card revenue	1,237		924		3,257		2,631		Bank card revenue	1,509		1,237		4,369		3,257
Trust and wealth management fees	Trust and wealth management fees	622		632		1,870		1,830		Trust and wealth management fees	718		622		2,039		1,870
Insurance commissions		44		40		75		1,821

Other	Other	69		66		292		224		Other	163		113		432		367
Net revenue from contracts with customers	Net revenue from contracts with customers	3,110		2,974		8,777		10,222		Net revenue from contracts with customers	3,728		3,110		10,370		8,777
Non-interest income within the scope of other ASC topics	Non-interest income within the scope of other ASC topics	3,097		785		5,530		4,577		Non-interest income within the scope of other ASC topics	839		3,097		3,886		5,530
Total noninterest income	Total noninterest income	$	6,207	$	3,759	$	14,307	$	14,799	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 ~~2019~~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 ~~January 1, 2020, we acquired Cornerstone Financial Service, Inc. ("Cornerstone") and its subsidiary, Cornerstone Bank, Inc., headquartered in West Union, West Virginia and 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. ~~Cornerstone's~~MVB's and ~~MVB's~~WinFirst's results are included in our financial statements from the acquisition dates forward, impacting comparisons to the prior-year periods. On May 1, 2019, we sold our insurance agency, Summit Insurance Services, LLC ("SIS"). Accordingly, their results are included in our financial statements only until date of sale, impacting comparisons to the first nine months of the prior-year.

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 ~~Cornerstone and MVB branch~~recent acquisitions and organic loan growth, average interest earning assets increased by ~~19.87%~~21.5% for the first nine months in ~~2020~~2021 compared to the same period of ~~2019~~2020 while our net interest earnings on a tax equivalent basis increased ~~20.71%~~17.0%. Our tax equivalent net interest margin ~~increased 2~~decreased 13 basis points as our yield on interest earning assets decreased 5954 basis points while our cost of interest bearing funds decreased 7050 basis points.

COVID-19 IMPACTS

Overview

Our business has been, and continues to be, impacted by the ~~recent~~ongoing COVID-19 pandemic. As further discussed in “Results of Operations,” the current interest rate environment, borrower credit quality and ongoing outbreak of COVID-19. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have led to shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings,market volatility, among other ~~things, throughout many parts of~~factors, continue to impact our performance. Although we are unable to estimate the ~~United States and, in particular,~~magnitude, we expect the ~~markets in which we operate. As the current~~ pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, its ultimate geographic spread; its severity; the duration of the outbreak; the impact to our clients, employees and vendors; the impact to the financial services and banking industry; and the ~~impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, by governmental authorities to contain the outbreak or to mitigate its impact (both~~resulting economic ~~and health-related).~~

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~~COVID-19 has negatively affected, and is expected to~~environment will continue to ~~negatively~~ affect our ~~business, financial position and~~future operating results. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.

Impact on our Operations

The resulting closures of non-essential businesses and related economic disruption has impacted our operations as well as the operations of our clients. In West Virginia and Virginia, financial services have been identified as essential services, and accordingly, our business remains open, with appropriate safety protocols implemented. ToSummit 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. ~~In order~~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 ~~protect employees~~historical norms of economic and assure workforce continuity and operational redundancy, we imposed business travel restrictions, enhanced our sanitizing protocols within our facilities and physically separated, to the extent possible, our critical operations workforce that cannot work remotely.social activity.

Impact on our Financial Position and Results of Operations

Lending and Credit Risks

~~COVID-19 has had a material impact on our loan credit risks for the first nine months of 2020.~~ While we have not ~~yet~~ 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. ~~Due~~Refer to ~~deteriorated forecasted economic scenarios since~~ the ~~pandemic was declared in early March, our need~~Credit Experience section of this Management's Discussion and Analysis of Financial Condition and Results of Operations for ~~additional ACL increased significantly. Should economic conditions worsen, we could experience~~ further ~~increases in our ACL and record additional~~details regarding Q3 2021 provision for credit ~~loss expense.~~losses.

We ~~have taken~~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 ~~are~~ either ~~modifying~~modified to interest only or ~~deferring~~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, ~~2020~~2021 and ~~June 30,~~December 31, 2020 classified by types of loans and impacted borrowers.


				Loan Balances Modified Due to COVID-19 as of September 30, 2020											Loan Balances Modified Due to COVID-19 as of September 30, 2021
Dollars in thousands	Dollars in thousands	Total Loan Balance as of 9/30/2020		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified		Dollars in thousands	Total Loan Balance as of 9/30/2021		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified
Hospitality industry	Hospitality industry	$	120,324	$	36,803	$	11,466	$	48,269	40.1	%	Hospitality industry	$	121,765	$	—	$	—	$	—	—	%
Non-owner occupied retail stores	Non-owner occupied retail stores	108,326		19,497		—		19,497		18.0	%	Non-owner occupied retail stores	154,120		7,223		—		7,223		4.7	%
Owner-occupied retail stores	Owner-occupied retail stores	100,926		1,601		1,409		3,010		3.0	%	Owner-occupied retail stores	163,350		—		—		—		—	%
Restaurants	Restaurants	7,968		—		—		—		—	%	Restaurants	12,200		—		—		—		—	%
Oil & gas industry	Oil & gas industry	24,404		914		—		914		3.7	%	Oil & gas industry	18,657		—		—		—		—	%
Other commercial	Other commercial	1,084,385		40,846		—		40,846		3.8	%	Other commercial	1,349,187		—		—		—		—	%
Total Commercial Loans	Total Commercial Loans	1,446,333		99,661		12,875		112,536		7.8	%	Total Commercial Loans	1,819,279		7,223		—		7,223		0.4	%
Residential 1-4 family personal	Residential 1-4 family personal	263,315		195		991		1,186		0.5	%	Residential 1-4 family personal	270,951		—		—		—		—	%
Residential 1-4 family rentals	Residential 1-4 family rentals	178,529		3,567		336		3,903		2.2	%	Residential 1-4 family rentals	195,914		—		—		—		—	%
Home equity	Home equity	82,991		—		—		—		—	%	Home equity	71,496		—		—		—		—	%
Total Residential Real Estate Loans	Total Residential Real Estate Loans	524,835		3,762		1,327		5,089		1.0	%	Total Residential Real Estate Loans	538,361		—		—		—		—	%
Consumer	Consumer	34,655		34		22		56		0.2	%	Consumer	32,285		—		—		—		—	%
Mortgage warehouse lines	Mortgage warehouse lines	243,730		—		—		—		0.0	%	Mortgage warehouse lines	161,627		—		—		—		0.0	%
Credit cards and overdrafts	Credit cards and overdrafts	2,251		—		—		—		0.0	%	Credit cards and overdrafts	2,558		—		—		—		0.0	%
Total Loans	Total Loans	$	2,251,804	$	103,457	$	14,224	$	117,681	5.2	%	Total Loans	$	2,554,110	$	7,223	$	—	$	7,223	0.3	%

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				Loan Balances Modified Due to COVID-19 as of June 30, 2020											Loan Balances Modified Due to COVID-19 as of December 31, 2020
Dollars in thousands	Dollars in thousands	Total Loan Balance as of 6/30/2020		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified		Dollars in thousands	Total Loan Balance as of 12/31/2020		Interest Only Payments		Payment Deferral		Total Loans Modified		Percentage of Loans Modified
Hospitality industry	Hospitality industry	$	119,204	$	55,849	$	43,030	$	98,879	82.9	%	Hospitality industry	$	121,502	$	40,513	$	12,930	$	53,443	44.0	%
Non-owner occupied retail stores	Non-owner occupied retail stores	109,078		38,354		13,802		52,156		47.8	%	Non-owner occupied retail stores	135,405		7,223		447		7,670		5.7	%
Owner-occupied retail stores	Owner-occupied retail stores	119,794		21,956		9,372		31,328		26.2	%	Owner-occupied retail stores	126,451		2,317		1,246		3,563		2.8	%
Restaurants	Restaurants	8,126		2,392		1,877		4,269		52.5	%	Restaurants	7,481		—		—		—		—	%
Oil & gas industry	Oil & gas industry	31,977		914		4,378		5,292		16.5	%	Oil & gas industry	17,152		—		—		—		—	%
Other commercial	Other commercial	1,005,740		88,285		34,634		122,919		12.2	%	Other commercial	1,134,759		12,006		286		12,292		1.1	%
Total Commercial Loans	Total Commercial Loans	1,393,919		207,750		107,093		314,843		22.6	%	Total Commercial Loans	1,542,750		62,059		14,909		76,968		5.0	%
Residential 1-4 family personal	Residential 1-4 family personal	267,170		3,933		13,404		17,337		6.5	%	Residential 1-4 family personal	305,093		159		1,754		1,913		0.6	%
Residential 1-4 family rentals	Residential 1-4 family rentals	180,415		20,348		6,032		26,380		14.6	%	Residential 1-4 family rentals	194,612		148		73		221		0.1	%
Home equity	Home equity	88,929		—		569		569		0.6	%	Home equity	81,588		—		—		—		—	%
Total Residential Real Estate Loans	Total Residential Real Estate Loans	536,514		24,281		20,005		44,286		8.3	%	Total Residential Real Estate Loans	581,293		307		1,827		2,134		0.4	%
Consumer	Consumer	34,640		595		605		1,200		3.5	%	Consumer	33,906		48		143		191		0.6	%
Mortgage warehouse lines	Mortgage warehouse lines	252,472		—		—		—		0.0	%	Mortgage warehouse lines	251,810		—		—		—		0.0	%
Credit cards and overdrafts	Credit cards and overdrafts	2,162		—		—		—		0.0	%	Credit cards and overdrafts	2,394		—		—		—		0.0	%
Total Loans	Total Loans	$	2,219,707	$	232,626	$	127,703	$	360,329	16.2	%	Total Loans	$	2,412,153	$	62,414	$	16,879	$	79,293	3.3	%

Modified loans with deferred payments ~~will~~ continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with bank regulatory guidance and Section ~~401(3)~~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, ~~2020. We anticipate that COVID-19 related loan modifications will continue throughout 2020.~~

Our loan interest income could be reduced due to COVID-19. While interest and fees will still accrue to income, through normal accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact.2021.

Capital and Liquidity

Although there is a high degree of uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic, management believes that our financial position, including high levels of capital and liquidity, will allow us to successfully endure the negative economic impacts of the crisis. 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, ~~2020,~~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 ~~9.6%~~9.2% at September 30, ~~2020,~~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, ~~2020,~~2021, the Company’s cash and cash equivalent balances were ~~$109.0~~$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, ~~2020,~~2021, the Company’s available-for-sale debt securities portfolio totaled ~~$298.0~~$424.7 million, ~~$162.1~~$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, ~~2020~~2021 was ~~$732.7~~$893.2 million, and it maintained ~~$169.2~~$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 ~~2020~~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.

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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 ~~2019~~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, ~~in accordance with the ASC 326 (as adopted on January 1, 2020),~~ 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 67 of the ~~accompanying consolidated financial statements~~Notes to the Consolidated Financial Statements in the 2020 Form 10-K for a discussion of the ~~methodogy~~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 ~~2019~~2020 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, ~~2019.~~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, ~~2020 decreased~~2021 was $32.8 million or $2.52 per diluted share compared to $21.1 million or $1.62 per diluted share ~~from $23.7 million or $1.88 per diluted share~~ for the same period of ~~2019. Net income~~2020. The increased earnings for the three months ended September 30, ~~2020 was $9.6 million, or $0.74 per diluted share, compared~~2021 were primarily attributable to ~~$8.1 million, or $0.65 per diluted share for the same period of 2019. Earnings for both the nine~~increased net interest income due to our growth and ~~three months ended September 30, 2020 were negatively impacted by increased~~decreased provision for credit losses partially offset by higher ~~net interest income,~~salaries, commissions and employee benefits. The increased ~~realized securities gains and higher mortgage origination revenue. In addition, negatively impacting~~ earnings for the nine months ended September 30, ~~2020~~2021 were ~~increased merger-related expenses and fewer insurance commissions due~~primarily attributable to ~~the sale of our insurance subsidiary in second quarter 2019 (which resulted in a $1.9 million pretax gain on sale during second quarter 2019). Partially offsetting these negative factors were~~ increased net interest ~~income.~~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 ~~2020~~2021 were ~~10.72%~~14.51% and ~~1.04%~~1.34%, respectively, compared with ~~13.48%~~10.72% and ~~1.40%~~1.04% for the same period of ~~2019.~~2020.

~~Cornerstone’s~~MVB's and ~~MVB's~~WinFirst's results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our ~~2020~~2021 results reflect increased levels of average balances, income and expense as compared to the same periods of ~~2019~~2020 results. At consummation (prior to fair value acquisition adjustments), ~~Cornerstone had total assets of $195.0 million, net loans of $39.8 million, and deposits of $173.0 million;~~ the MVB eastern panhandle branch transaction consisted primarily of ~~$35.1~~$33.9 million loans acquired and ~~$188.1~~$188.7 million deposits ~~assumed. Also impacting comparability~~assumed; WinFirst had total assets of ~~results is the sale~~$143.4 million, $122.8 million net loans and deposits of ~~SIS. Their results are included in our financial statements only until date~~$104.7 million; and MVB southern West Virginia branch transaction consisted primarily of ~~sale, impacting comparisons to the prior-year three~~$54.4 million loans acquired and ~~nine months ended September 30, however, historically SIS's results of operations accounted for less than $0.01 per share of the company's quarterly earnings.~~$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.

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Q3 ~~2020~~2021 compared to Q2 ~~2020~~2021

For the quarter ended September 30, ~~2020,~~2021, our net interest income on a fully taxable-equivalent basis increased ~~$1.7~~$1.2 million to ~~$25.06~~$28.3 million compared to ~~$23.32~~$27.1 million for the quarter end June 30, ~~2020.~~2021. Our taxable-equivalent earnings on interest earning assets increased ~~$1.3 million,~~$935,000, while the cost of interest bearing liabilities decreased ~~$391,000~~$299,000 (see Tables I and II).

For the three months ended September 30, ~~2020~~2021 average interest earning assets increased to ~~$2.74~~$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 ~~June 30, 2020, while average interest bearing liabilities increased to $2.21 billion for the three months ended~~ September 30, ~~2020~~2021 from ~~$2.02~~$2.41 billion for the three months ended June 30, ~~2020.~~2021.

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For the quarter ended September 30, ~~2020,~~2021, our net interest margin decreased to ~~3.64%~~3.47%, compared to ~~3.68%~~3.55% for the linked quarter, as ~~both~~ the yields on earning assets declined 15 basis points and the cost of our interest bearing funds decreased by 168 basis points. ~~At acquisition, Cornerstone's and MVB's deposit costs were significantly lower than Summit's cost of deposits, thus positively impacting our overall cost of funds.~~

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%~~3.41% and ~~3.61%~~3.50% for the three months ended September 30, ~~2020~~2021 and June 30, ~~2020.~~2021.

Q3 ~~2020~~2021 compared to Q3 ~~2019~~2020

For the quarter ended September 30, ~~2020,~~2021, our net interest income on a fully taxable-equivalent basis increased ~~$5.4~~$3.2 million to ~~$25.06~~$28.3 million compared to ~~$19.63~~$25.1 million for the quarter end September 30, ~~2019.~~2020. Our taxable-equivalent earnings on interest earning assets increased ~~$2.1~~$1.6 million, while the cost of interest bearing liabilities decreased ~~$3.3~~$1.6 million (see Tables I and II).

For the three months ended September 30, ~~2020~~2021 average interest earning assets increased ~~27.6%~~18.0% to ~~$2.74~~$3.23 billion compared to ~~$2.15~~$2.74 billion for the three months ended September 30, ~~2019,~~2020, while average interest bearing liabilities increased ~~23.3%~~15.0% from ~~$1.79 billion for the three months ended September 30, 2019 to~~ $2.21 billion for the three months ended September 30, ~~2020.~~2020 to $2.55 billion for the three months ended September 30, 2021.

For the quarter ended September 30, ~~2020,~~2021, our net interest margin ~~increased~~decreased to ~~3.64%~~3.47%, compared to ~~3.63%~~3.64% for the same period of ~~2019,~~2020, as the yields on earning assets decreased 7847 basis points, while the cost of our interest bearing funds decreased by 9237 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, ~~2019.~~2020.

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Table I - Average Balance Sheet and Net Interest Income Analysis	Table I - Average Balance Sheet and Net Interest Income Analysis																			Table I - Average Balance Sheet and Net Interest Income Analysis

		For the Quarter Ended																			For the Quarter Ended
		September 30, 2020						June 30, 2020						September 30, 2019							September 30, 2021						June 30, 2021						September 30, 2020
Dollars in thousands	Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets	Interest earning assets																			Interest earning assets
Loans, net of unearned fees (1)	Loans, net of unearned fees (1)																			Loans, net of unearned fees (1)
Taxable	Taxable	$	2,251,722	$	26,656	4.71	%	$	2,118,158	$	25,466	4.84	%	$	1,813,555	$	24,786	5.42	%	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)	Tax-exempt (2)	16,245		191		4.68	%	17,244		200		4.66	%	15,903		195		4.86	%	Tax-exempt (2)	7,871		96		4.84	%	11,370		132		4.66	%	16,245		191		4.68	%
Securities	Securities																			Securities
Taxable	Taxable	261,231		1,445		2.20	%	248,792		1,453		2.35	%	203,288		1,566		3.06	%	Taxable	315,082		1,432		1.80	%	285,092		1,351		1.90	%	261,231		1,445		2.20	%
Tax-exempt (2)	Tax-exempt (2)	150,350		1,186		3.14	%	120,385		1,012		3.38	%	79,387		782		3.91	%	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	Federal funds sold and interest bearing deposits with other banks	60,639		57		0.37	%	41,776		60		0.58	%	35,214		125		1.41	%	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 assets	Total interest earning assets	2,740,187		29,535		4.29	%	2,546,355		28,191		4.45	%	2,147,347		27,454		5.07	%	Total interest earning assets	3,233,433		31,145		3.82	%	3,054,599		30,210		3.97	%	2,740,187		29,535		4.29	%
Noninterest earning assets	Noninterest earning assets																			Noninterest earning assets
Cash & due from banks	Cash & due from banks	16,603						16,672						12,815						Cash & due from banks	20,077						19,095						16,603
Premises and equipment	Premises and equipment	52,329						50,457						43,160						Premises and equipment	55,908						53,210						52,329
Property held for sale	Property held for sale	17,801						18,122						21,180						Property held for sale	12,727						13,631						17,801
Other assets	Other assets	136,777						122,233						83,609						Other assets	163,248						156,839						136,777
Allowance for loan losses	Allowance for loan losses	(28,144)						(25,799)						(13,276)						Allowance for loan losses	(33,911)						(34,674)						(28,144)
Total assets	Total assets	$	2,935,553					$	2,728,040					$	2,294,835					Total assets	$	3,451,482					$	3,262,700					$	2,935,553
Interest bearing liabilities	Interest bearing liabilities																			Interest bearing liabilities
Interest bearing demand deposits	Interest bearing demand deposits	$	850,281	$	380	0.18	%	$	764,852	$	369	0.19	%	$	594,772	$	1,621	1.08	%	Interest bearing demand deposits	$	1,092,392	$	325	0.12	%	$	995,673	$	371	0.15	%	$	850,281	$	380	0.18	%
Savings deposits	Savings deposits	588,085		925		0.63	%	512,634		1,200		0.94	%	302,331		949		1.25	%	Savings deposits	691,411		602		0.35	%	665,735		634		0.38	%	588,085		925		0.63	%
Time deposits	Time deposits	585,092		2,247		1.53	%	625,717		2,617		1.68	%	674,869		3,644		2.14	%	Time deposits	571,445		905		0.63	%	562,605		1,131		0.81	%	585,092		2,247		1.53	%
Short-term borrowings	Short-term borrowings	165,555		734		1.76	%	95,744		499		2.10	%	202,425		1,372		2.69	%	Short-term borrowings	140,146		470		1.33	%	140,146		464		1.33	%	165,555		734		1.76	%
Long-term borrowings and capital trust securities	Long-term borrowings and capital trust securities	23,230		194		3.32	%	20,299		186		3.69	%	20,312		243		4.75	%	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 liabilities	Total interest bearing liabilities	2,212,243		4,480		0.81	%	2,019,246		4,871		0.97	%	1,794,709		7,829		1.73	%	Total interest bearing liabilities	2,545,118		2,845		0.44	%	2,413,853		3,144		0.52	%	2,212,243		4,480		0.81	%
Noninterest bearing liabilities and shareholders' equity	Noninterest bearing liabilities and shareholders' equity																			Noninterest bearing liabilities and shareholders' equity
Demand deposits	Demand deposits	421,741						417,992						240,193						Demand deposits	547,627						503,116						421,741
Other liabilities	Other liabilities	33,978						32,238						21,320						Other liabilities	38,789						36,842						33,978
Total liabilities	Total liabilities	2,667,962						2,469,476						2,056,222						Total liabilities	3,131,534						2,953,811						2,667,962

Shareholders' equity		267,591						258,564						238,613
Shareholders' equity - preferred																				Shareholders' equity - preferred	14,920						11,254						—
Shareholders' equity - common																				Shareholders' equity - common	305,028						297,635						267,591
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	2,935,553					$	2,728,040					$	2,294,835					Total liabilities and shareholders' equity	$	3,451,482					$	3,262,700					$	2,935,553
Net interest earnings	Net interest earnings			$	25,055					$	23,320					$	19,625			Net interest earnings			$	28,300					$	27,066					$	25,055
Net yield on interest earning assets	Net yield on interest earning assets					3.64	%					3.68	%					3.63	%	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 ~~$289,000, $254,000,~~$263,000, $255,000, and ~~$205,000~~$289,000 for the three months ended September 30, ~~2020,~~2021, June 30, ~~2020~~2021, and September 30, 2020, respectively.

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Table II - Changes in Net Interest Income Attributable to Rate and Volume	Table II - Changes in Net Interest Income Attributable to Rate and Volume													Table II - Changes in Net Interest Income Attributable to Rate and Volume

		For the Quarter Ended						For the Quarter Ended							For the Quarter Ended						For the Quarter Ended
		September 30, 2020 vs. June 30, 2020						September 30, 2020 vs. September 30, 2019							September 30, 2021 vs. June 30, 2021						September 30, 2021 vs. September 30, 2020
		Increase (Decrease) Due to Change in:						Increase (Decrease) Due to Change in:							Increase (Decrease) Due to Change in:						Increase (Decrease) Due to Change in:
Dollars in thousands	Dollars in thousands	Volume		Rate		Net		Volume		Rate		Net		Dollars in thousands	Volume		Rate		Net		Volume		Rate		Net
Interest earned on:	Interest earned on:													Interest earned on:
Loans	Loans													Loans
Taxable	Taxable	$	1,794	$	(604)	$	1,190	$	5,431	$	(3,561)	$	1,870	Taxable	$	751	$	(4)	$	747	$	2,860	$	(1,176)	$	1,684
Tax-exempt	Tax-exempt	(10)		1		(9)		4		(8)		(4)		Tax-exempt	(41)		5		(36)		(102)		7		(95)
Securities	Securities													Securities
Taxable	Taxable	79		(87)		(8)		381		(502)		(121)		Taxable	149		(68)		81		272		(285)		(13)
Tax-exempt	Tax-exempt	249		(75)		174		583		(179)		404		Tax-exempt	140		(59)		81		120		(147)		(27)
Federal funds sold and interest bearing deposits with other banks	Federal funds sold and interest bearing deposits with other banks	22		(25)		(3)		57		(125)		(68)		Federal funds sold and interest bearing deposits with other banks	41		21		62		102		(41)		61
Total interest earned on interest earning assets	Total interest earned on interest earning assets	2,134		(790)		1,344		6,456		(4,375)		2,081		Total interest earned on interest earning assets	1,040		(105)		935		3,252		(1,642)		1,610

Interest paid on:	Interest paid on:													Interest paid on:
Interest bearing demand deposits	Interest bearing demand deposits	42		(31)		11		498		(1,739)		(1,241)		Interest bearing demand deposits	35		(81)		(46)		92		(147)		(55)
Savings deposits	Savings deposits	165		(440)		(275)		603		(627)		(24)		Savings deposits	26		(58)		(32)		143		(466)		(323)
Time deposits	Time deposits	(153)		(217)		(370)		(443)		(954)		(1,397)		Time deposits	19		(245)		(226)		(52)		(1,290)		(1,342)
Short-term borrowings	Short-term borrowings	325		(90)		235		(221)		(417)		(638)		Short-term borrowings	—		6		6		(102)		(162)		(264)
Long-term borrowings and capital trust securities	Long-term borrowings and capital trust securities	27		(19)		8		31		(80)		(49)		Long-term borrowings and capital trust securities	—		(1)		(1)		276		73		349
Total interest paid on interest bearing liabilities	Total interest paid on interest bearing liabilities	406		(797)		(391)		468		(3,817)		(3,349)		Total interest paid on interest bearing liabilities	80		(379)		(299)		357		(1,992)		(1,635)

Net interest income	Net interest income	$	1,728	$	7	$	1,735	$	5,988	$	(558)	$	5,430	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	Table III - Average Balance Sheet and Net Interest Income Analysis													Table III - Average Balance Sheet and Net Interest Income Analysis

		For the Nine Months Ended													For the Nine Months Ended
		September 30, 2020						September 30, 2019							September 30, 2021						September 30, 2020
Dollars in thousands	Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate		Dollars in thousands	Average Balance		Earnings/ Expense		Yield/ Rate		Average Balance		Earnings/ Expense		Yield/ Rate
Interest earning assets	Interest earning assets													Interest earning assets
Loans, net of unearned fees (1)	Loans, net of unearned fees (1)													Loans, net of unearned fees (1)
Taxable	Taxable	$	2,102,331	$	77,211	4.91	%	$	1,758,645	$	71,877	5.46	%	Taxable	$	2,436,295	$	83,352	4.57	%	$	2,102,331	$	77,211	4.91	%
Tax-exempt (2)	Tax-exempt (2)	16,121		576		4.77	%	15,172		591		5.2	%	Tax-exempt (2)	10,622		377		4.75	%	16,121		576		4.77	%
Securities	Securities													Securities
Taxable	Taxable	256,322		4,657		2.43	%	200,947		4,858		3.23	%	Taxable	288,999		4,079		1.89	%	256,322		4,657		2.43	%
Tax-exempt (2)	Tax-exempt (2)	113,793		2,897		3.40	%	98,084		2,920		3.98	%	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	Federal funds sold and interest bearing deposits with other banks	46,074		215		0.62	%	41,642		490		1.57	%	Federal funds sold and interest bearing deposits with other banks	190,154		241		0.17	%	46,074		215		0.62	%
Total interest earning assets	Total interest earning assets	2,534,641		85,556		4.51	%	2,114,490		80,736		5.10	%	Total interest earning assets	3,079,105		91,377		3.97	%	2,534,641		85,556		4.51	%
Noninterest earning assets	Noninterest earning assets													Noninterest earning assets
Cash & due from banks	Cash & due from banks	15,901						12,941						Cash & due from banks	19,093						15,901
Premises and equipment	Premises and equipment	49,655						40,983						Premises and equipment	54,154						49,655
Property held for sale	Property held for sale	18,423						21,904						Property held for sale	13,731						18,423
Other assets	Other assets	120,228						87,080						Other assets	157,137						120,228
Allowance for loan losses	Allowance for loan losses	(25,618)						(13,283)						Allowance for loan losses	(33,765)						(25,618)
Total assets	Total assets	$	2,713,230					$	2,264,115					Total assets	$	3,289,455					$	2,713,230
Interest bearing liabilities	Interest bearing liabilities													Interest bearing liabilities
Interest bearing demand deposits	Interest bearing demand deposits	$	753,384	$	1,830	0.32	%	$	575,817	$	5,016	1.16	%	Interest bearing demand deposits	$	1,016,569	$	1,090	0.14	%	$	753,384	$	1,830	0.32	%
Savings deposits	Savings deposits	516,841		3,462		0.89	%	306,083		2,768		1.21	%	Savings deposits	666,642		1,881		0.38	%	516,841		3,462		0.89	%
Time deposits	Time deposits	608,551		7,796		1.71	%	667,565		9,960		1.99	%	Time deposits	572,547		3,493		0.82	%	608,551		7,796		1.71	%
Short-term borrowings	Short-term borrowings	127,109		1,863		1.96	%	196,622		4,241		2.88	%	Short-term borrowings	140,146		1,403		1.34	%	127,109		1,863		1.96	%
Long-term borrowings and capital trust securities	Long-term borrowings and capital trust securities	21,284		600		3.77	%	20,317		757		4.98	%	Long-term borrowings and capital trust securities	49,694		1,632		4.39	%	21,284		600		3.77	%
Total interest bearing liabilities	Total interest bearing liabilities	2,027,169		15,551		1.02	%	1,766,404		22,742		1.72	%	Total interest bearing liabilities	2,445,598		9,499		0.52	%	2,027,169		15,551		1.02	%
Noninterest bearing liabilities and shareholders' equity	Noninterest bearing liabilities and shareholders' equity													Noninterest bearing liabilities and shareholders' equity
Demand deposits	Demand deposits	393,128						243,356						Demand deposits	501,309						393,128
Other liabilities	Other liabilities	30,741						19,669						Other liabilities	37,856						30,741
Total liabilities	Total liabilities	2,451,038						2,029,429						Total liabilities	2,984,763						2,451,038

Shareholders' equity - preferred														Shareholders' equity - preferred	8,780						—
Shareholders' equity - common	Shareholders' equity - common	262,192						234,686						Shareholders' equity - common	295,912						262,192
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	2,713,230					$	2,264,115					Total liabilities and shareholders' equity	$	3,289,455					$	2,713,230
Net interest earnings	Net interest earnings			$	70,005					$	57,994			Net interest earnings			$	81,878					$	70,005
Net yield on interest earning assets	Net yield on interest earning assets					3.69	%					3.67	%	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 ~~$730,000~~$779,000 and ~~$737,000~~$730,000 for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

~~Table of Contents~~

Table IV - Changes in Net Interest Income Attributable to Rate and Volume
For the Nine Months Ended
September 30, 2020 versus September 30, 2019
Increase (Decrease) Due to Change in:
Dollars in thousands Volume Rate Net
Interest earned on:
Loans
Taxable $ 13,135 $ (7,801) $ 5,334
Tax-exempt 36 (51) (15)
Securities
Taxable 1,167 (1,368) (201)
Tax-exempt 433 (456) (23)
Federal funds sold and interest bearing deposits with other banks 47 (322) (275)
Total interest earned on interest earning assets 14,818 (9,998) 4,820
Interest paid on:
Interest bearing demand deposits 1,219 (4,405) (3,186)
Savings deposits 1,550 (856) 694
Time deposits (833) (1,331) (2,164)
Short-term borrowings (1,247) (1,131) (2,378)
Long-term borrowings and capital trust securities 35 (192) (157)
Total interest paid on interest bearing liabilities 724 (7,915) (7,191)
Net interest income $ 14,094 $ (2,083) $ 12,011

~~Noninterest Income~~

Total noninterest income for the nine months ended September 30, 2020 decreased 3.3% compared to the same period of 2019 principally due to lower insurance commissions due to the sale of SIS and the gain on sale of SIS recognized in 2019. On a quarterly basis, total noninterest income was 65.1% higher in 2020 compared to 2019 primarily due to higher realized securities gains. Also, mortgage origination revenue increased during 2020 due to higher volumes of secondary market loans driven primarily by historically low interest rates. ~~Further detail regarding noninterest income is reflected in the following table.~~

Table V - Noninterest Income
For the Quarter Ended September 30, For the Nine Months Ended September 30,
Dollars in thousands 2020 2019 2020 2019
Insurance commissions $ 44 $ 40 $ 75 $ 1,821
Trust and wealth management fees 622 632 1,870 1,830
Mortgage origination revenue 780 77 1,636 392
Service charges on deposit accounts 1,138 1,312 3,283 3,716
Bank card revenue 1,237 924 3,257 2,631
Realized securities gains 1,522 453 2,560 1,535
Gain on sale of Summit Insurance Services, LLC — — — 1,906
Bank owned life insurance income 795 247 1,334 733
Other 69 74 292 235
Total $ 6,207 $ 3,759 $ 14,307 $ 14,799

~~Noninterest Expense~~

~~Table of Contents~~

Total noninterest expense increased 21.1% for the three months ended September 30, 2020 compared to the same period of 2019 primarily due to higher salaries, commissions, and employee benefits and increased 8.8% for the nine months ended September 30, 2020 as compared to the same period of 2019 with lower foreclosed properties expense being offset by higher salaries, commissions, and employee benefits and increased merger expenses. Table VI below shows the breakdown of the changes.

Table VI - Noninterest Expense
For the Quarter Ended September 30, For the Nine Months Ended September 30,
Change Change
Dollars in thousands 2020
$
% 2019 2020 $ % 2019
Salaries, commissions, and employee benefits $ 8,108 $ 1,064 15.1 % $ 7,044 $ 23,709 $ 1,743 7.9 % $ 21,966
Net occupancy expense 1,057 258 32.3 % 799 2,917 315 12.1 % 2,602
Equipment expense 1,474 178 13.7 % 1,296 4,263 569 15.4 % 3,694
Professional fees 364 (24) (6.2) % 388 1,168 (98) (7.7) % 1,266
Advertising and public relations 145 (32) (18.1) % 177 389 (95) (19.6) % 484
Amortization of intangibles 412 8 2.0 % 404 1,251 (49) (3.8) % 1,300
FDIC premiums 320 320 n/a — 595 507 576.1 % 88
Bank card expense 589 134 29.5 % 455 1,652 285 20.8 % 1,367
Foreclosed properties expense, net 607 302 99.0 % 305 1,815 (421) (18.8) % 2,236
Merger-related expenses 28 (46) (62.2) % 74 1,453 934 180.0 % 519
Other 2,405 541 29.0 % 1,864 6,493 20 0.3 % 6,473
Total $ 15,509 $ 2,703 21.1 % $ 12,806 $ 45,705 $ 3,710 8.8 % $ 41,995

~~Salaries, commissions, and employee benefits:~~ The increases in these expenses for the three and nine months ended September 30, 2020 compared to the same periods of 2019 are primarily due to an increase in number of employees, resulting from the Cornerstone and MVB branch acquisitions, and general merit raises.

~~Equipment:~~ The increase in equipment expense is primarily increased depreciation and amortization related to various technological upgrades, both hardware and software, made during the past two years and also the Cornerstone and MVB branch acquisitions.

~~FDIC premiums:~~ For the 2020 periods, FDIC premiums increased as we fully utilized our FDIC's Small Bank Assessment Credits resulting from the reserve ratio meeting the required 1.38 percent threshold and also due to a higher assessment base due to growth in our balance sheet. We expect increased assessments to continue throughout 2020.

~~Foreclosed properties expense, net:~~ The decrease in foreclosed properties expense, net of gains/losses, for the nine months ended September 30, 2020 is primarily due to realized gains on sales in 2020 versus realized losses in the same period of 2019; the increase in these expenses for the three months ended September 30, 2020 is primarily due to higher writedowns of foreclosed properties to their fair value.

~~Merger-related expenses:~~ ~~Merger-related expenses during 2020 are related to the Cornerstone and MVB branch acquisitions.~~

~~Other:~~ The increase in other expenses for the three months ended September 30, 2020 is largely due to deferred director compensation plan expense of $325,000 in 2020 compared to $6,000 expense in the comparable period of 2019 as a result of the stock market's overall positive performance during Q3 2020. 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. However, for the nine months ended September 30, 2020, deferred director compensation expense totaled $316,000 compared to $664,000 for the comparable period of 2019 as the stock market's performance year-to-date 2020 has been significantly less than during the same period of 2019. Additionally, servicing charges related to mortgage warehouse lines increased to $580,000 for the 2020 period compared to $241,000 during the comparable period of 2019, which is reflective of our increased participations.

~~Income Taxes~~

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Our income tax expense for the three months ended September 30, 2020 and September 30, 2019 totaled $2.6 million and $1.8 million, respectively. For the nine months ended September 30, 2020 and September 30, 2019, our income taxes totaled $5.3 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, 2020 and 2019 was 21.2% and 18.4%, respectively and for the nine months ended September 30, 2020 and September 30, 2019 was 20.1% and 18.2%, respectively. Refer to Note 16 of the accompanying financial statements for further information regarding our income taxes.


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 thousands	Volume		Rate		Net
Interest earned on:
Loans
Taxable	$	11,623	$	(5,482)	$	6,141
Tax-exempt	(195)		(4)		(199)
Securities
Taxable	543		(1,121)		(578)
Tax-exempt	894		(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 deposits	808		(2,389)		(1,581)
Time deposits	(437)		(3,866)		(4,303)
Short-term borrowings	176		(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 ~~$11.5~~$2.50 million and ~~$1.05~~$11.50 million provisions for credit losses (for both funded loans and unfunded commitments) for the first nine months of ~~2020~~2021 and ~~2019.~~ 2020. The ~~projected economic impact~~following tables summarizes the changes in the various factors that comprise the provisions for credit losses.

Table of ~~COVID-19 on our loss drivers over the~~Contents


Table V - Provision for Credit Losses
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2021		2020		2021		2020
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 loans	793		—		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 experience	1,060		48		2,103		(126)
Reasonable and supportable economic forecasts	—		—		(573)		1,137
Individually evaluated credits	—		—		—		—
Acquired loan commitments	140		—		140		81
Total provision for unfunded commitment credit losses	1,200		48		1,670		1,092

Total provision for credit losses	$	—	$	3,250	$	2,500	$	11,500

Our reasonable and supportable ~~forecast period created the need~~economic forecasts at September 30, 2021 compared to September 30, 2020 improved markedly as our forecasts for ~~$7.2 million of additional ACL, which includes the ACL for unfunded commitments. Approximately $1.1 million of the provision was the~~unemployment and GDP now reflect 2021's strengthening economic recovery while early 2020 economic forecasts were extraordinarily negative as result of ~~additional ACLL due~~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 ~~acquisition~~full amount of ~~Cornerstone and MVB~~expected credit losses relative to loans. ~~Changes in loan volume and the mix in the underlying portfolio resulted in a $1.1 million increase in the ACLL for the quarter.~~

We incurred net loan charge-offs of ~~$1,014,000~~$761,000 in ~~third quarter 2020 (0.18~~first nine months of 2021 (0.04 percent of average loans annualized), ~~which included an $880,000 charge-off of a commercial real estate relationship which had previously been fully reserved and exhibited weakness prior to the COVID-19 pandemic,~~ compared to ~~$711,000~~$1.5 million net loan charge-offs during ~~third quarter 2019.~~first nine months of 2020. Net loan charge-offs totaled $370,000 and $1.0 million for the ~~nine~~three months ended September 30, ~~2020~~2021 and ~~2019 totaled $1.8 million and $1.2 million, respectively.~~2020.

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As illustrated in Table ~~VII~~VI below, our non-performing assets have decreased since year end ~~2019.~~2020.


Table VII - Summary of Non-Performing Assets
Table VI - Summary of Non-Performing Assets											Table VI - Summary of Non-Performing Assets
		September 30,						December 31,				September 30,						December 31,
Dollars in thousands	Dollars in thousands	2020			2019			2019			Dollars in thousands	2021			2020			2020
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	$	2		$	39		$	42		Accruing loans past due 90 days or more	$	2		$	2		$	2
Nonaccrual loans	Nonaccrual loans										Nonaccrual loans
Commercial	Commercial	553			835			764			Commercial	459			553			525
Commercial real estate	Commercial real estate	4,313			7,037			5,800			Commercial real estate	4,643			4,313			14,237
Commercial construction and development	Commercial construction and development	—			—			—			Commercial construction and development	—			—			—
Residential construction and development	Residential construction and development	2			191			326			Residential construction and development	448			2			235
Residential real estate	Residential real estate	5,104			4,461			4,404			Residential real estate	5,514			5,104			5,264
Consumer	Consumer	29			76			74			Consumer	47			29			72
Other	Other	—			100			100			Other	—			—			—
Total nonaccrual loans	Total nonaccrual loans	10,001			12,700			11,468			Total nonaccrual loans	11,111			10,001			20,333
Foreclosed properties	Foreclosed properties										Foreclosed properties
Commercial	Commercial	—			—			—			Commercial	—			—			—
Commercial real estate	Commercial real estate	2,499			1,514			1,930			Commercial real estate	2,192			2,499			2,581
Commercial construction and development	Commercial construction and development	4,154			4,910			4,601			Commercial construction and development	2,925			4,154			4,154
Residential construction and development	Residential construction and development	10,330			12,846			11,169			Residential construction and development	6,711			10,330			7,791
Residential real estate	Residential real estate	847			1,709			1,576			Residential real estate	622			847			1,062
Total foreclosed properties	Total foreclosed properties	17,830			20,979			19,276			Total foreclosed properties	12,450			17,830			15,588
Repossessed assets	Repossessed assets	—			16			17			Repossessed assets	—			—			—
Total nonperforming assets	Total nonperforming assets	$	27,833		$	33,734		$	30,803		Total nonperforming assets	$	23,563		$	27,833		$	35,923
Total nonperforming loans as a percentage of total loans	Total nonperforming loans as a percentage of total loans	0.44		%	0.69		%	0.60		%	Total nonperforming loans as a percentage of total loans	0.44		%	0.44		%	0.84		%
Total nonperforming assets as a percentage of total assets	Total nonperforming assets as a percentage of total assets	0.94		%	1.45		%	1.28		%	Total nonperforming assets as a percentage of total assets	0.67		%	0.94		%	1.16		%
Allowance for credit losses-loans as a percentage of nonperforming loans	Allowance for credit losses-loans as a percentage of nonperforming loans	293.45		%	101.59		%	113.58		%	Allowance for credit losses-loans as a percentage of nonperforming loans	291.64		%	293.45		%	158.57		%
Allowance for credit losses-loans as a percentage of period end loans	Allowance for credit losses-loans as a percentage of period end loans	1.30		%	0.70		%	0.68		%	Allowance for credit losses-loans as a percentage of period end loans	1.27		%	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, ~~2020~~2021 and ~~2019.~~2020.


Table VIII - Foreclosed Property Activity
Table VII - Foreclosed Property Activity										Table VII - Foreclosed Property Activity
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	Dollars in thousands	2020		2019		2020		2019		Dollars in thousands	2021		2020		2021		2020
Beginning balance	Beginning balance	$	17,954	$	21,390	$	19,276	$	21,432	Beginning balance	$	13,170	$	17,954	$	15,588	$	19,276
Acquisitions	Acquisitions	725		106		888		4,009		Acquisitions	190		725		532		888
Improvements	Improvements	177		55		1,249		88		Improvements	—		177		—		1,249
Disposals	Disposals	(470)		(439)		(1,863)		(2,972)		Disposals	(645)		(470)		(2,664)		(1,863)
Writedowns to fair value	Writedowns to fair value	(555)		(133)		(1,719)		(1,578)		Writedowns to fair value	(265)		(555)		(1,006)		(1,719)
Balance September 30		$	17,831	$	20,979	$	17,831	$	20,979
Balance March 31										Balance March 31	$	12,450	$	17,831	$	12,450	$	17,831

Refer to Note 67 of the ~~accompanying consolidated financial statements~~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, ~~2020~~2021 and December 31, 2019, our allowance for loan credit losses totaled $29.4 million, or 1.30% of total loans and $13.1 million, or 0.68% 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.

~~At September 30,~~ 2020 ~~and December 31, 2019~~ we had approximately ~~$17.8~~$12.5 million and ~~$19.3~~$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 thousands	2021		2020		2021		2020

Trust and wealth management fees	718		622		2,039		1,870
Mortgage origination revenue	742		780		2,638		1,636
Service charges on deposit accounts	1,338		1,138		3,530		3,283
Bank card revenue	1,509		1,237		4,369		3,257
Realized securities gains	(68)		1,522		534		2,560
Bank owned life insurance income	160		795		733		1,334
Other	168		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 thousands	2021		$		%		2020		2021		$		%		2020
Salaries, commissions, and employee benefits	$	8,745	$	637	7.9	%	$	8,108	$	25,410	$	1,701	7.2	%	$	23,709
Net occupancy expense	1,254		197		18.6	%	1,057		3,559		642		22.0	%	2,917
Equipment expense	1,908		434		29.4	%	1,474		5,088		825		19.4	%	4,263
Professional fees	374		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 premiums	354		34		10.6	%	320		1,119		524		88.1	%	595
Bank card expense	705		116		19.7	%	589		1,964		312		18.9	%	1,652
Foreclosed properties expense	370		(237)		(39.0)	%	607		1,342		(473)		(26.1)	%	1,815

Acquisition-related expenses	273		245		875.0	%	28		1,167		(286)		(19.7)	%	1,453
Other	2,716		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 ~~$2.95~~$3.51 billion at September 30, ~~2020~~2021 and ~~$2.40~~$3.11 billion at December 31, ~~2019.~~2020. Table IXX below is a summary of significant changes in our financial position between December 31, ~~2019~~2020 and September 30, ~~2020.~~2021.


Table IX - Summary of Significant Changes in Financial Position
Table X - Summary of Significant Changes in Financial Position															Table X - Summary of Significant Changes in Financial Position
				Increase (Decrease)
		Balance at December 31, 2019		Impact of Cornerstone Acquisition		Impact of MVB Branches Acquisition			Other Changes				Balance at September 30, 2020					Balance at December 31, 2020						Impact of MVB Branches Acquisition			Increase (Decrease)				Balance at September 30, 2021
Dollars in thousands	Dollars in thousands							Dollars in thousands												Balance at September 30, 2021
Assets	Assets																						Assets
Cash and cash equivalents	Cash and cash equivalents	$	61,888	$	46,034	137,654					$	(136,590)			$	108,986	Cash and cash equivalents				$	99,787				95,699			$	15,623			$	211,109
Securities available for sale		276,355		90,028		—			(68,394)				297,989
Securities held to maturity		—		—		—			91,600				91,600
Debt securities available for sale															Debt securities available for sale			286,127						—			138,614				424,741
Debt securities held to maturity															Debt securities held to maturity			99,914						—			(1,386)				98,528
Other investments	Other investments	12,972		349		—			(2,555)				10,766		Other investments			14,185						—			(3,536)				10,649
Loans, net	Loans, net	1,900,425		39,461		33,942			248,622				2,222,450		Loans, net			2,379,907						54,315			87,482				2,521,704
Property held for sale	Property held for sale	19,276		10		—			(1,455)				17,831		Property held for sale			15,588						—			(3,138)				12,450
Premises and equipment	Premises and equipment	44,168		664		2,334			5,714				52,880		Premises and equipment			52,537						3,302			979				56,818
Goodwill and other intangibles	Goodwill and other intangibles	23,022		11,539		14,790			(1,250)				48,101		Goodwill and other intangibles			55,123						10,509			(1,655)				63,977
Cash surrender value of life insurance policies		43,603		2,715		—			10,711				57,029
Cash surrender value of life insurance policies and annuities															Cash surrender value of life insurance policies and annuities			59,438						—			803				60,241
Other assets	Other assets	21,783		1,186		114			16,147				39,230		Other assets			43,778						260			4,696				48,734
Total assets	Total assets	$	2,403,492	$	191,986	$	188,834		$	162,550			$	2,946,862	Total assets			$	3,106,384					$	164,085		$	238,482			$	3,508,951

Liabilities	Liabilities														Liabilities
Deposits	Deposits	$	1,913,237	$	173,266	188,732			$	176,656			$	2,451,891	Deposits			$	2,595,651					164,040			$	196,249			$	2,955,940
Short-term borrowings	Short-term borrowings	199,345		—		—			(59,200)				140,145		Short-term borrowings			140,146						—			—				140,146
Long-term borrowings	Long-term borrowings	717		—		—			(14)				703		Long-term borrowings			699						—			(15)				684
Subordinated debentures	Subordinated debentures	—		—		—			29,336				29,336		Subordinated debentures			29,364						—			102				29,466
Subordinated debentures owed to unconsolidated subsidiary trusts	Subordinated debentures owed to unconsolidated subsidiary trusts	19,589		—		—			—				19,589		Subordinated debentures owed to unconsolidated subsidiary trusts			19,589						—			—				19,589
Other liabilities	Other liabilities	22,840		3,279		102			7,014				33,235		Other liabilities			39,355						45			437				39,837

Shareholders' Equity		247,764		15,441		—			8,758				271,963
Shareholders' Equity - preferred															Shareholders' Equity - preferred			—									14,920				14,920
Shareholders' Equity - common															Shareholders' Equity - common			281,580						—			26,789				308,369

Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	2,403,492	$	191,986	188,834			$	162,550			$	2,946,862	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 ~~2020:~~2021:

Cash and cash equivalents: Net ~~reduction~~increase of ~~$136.6~~$15.6 million is primarily attributable to repayments of short-term Federal Home Loan Bank ("FHLB") advances, funding of $101.3 million of PPP loans and the cash consideration of $14.3 million paid in conjunction with the Cornerstone acquisition.increased customer deposits.

~~Securities~~Debt securities available for sale: The net ~~decrease~~increase of ~~$68.4~~$138.6 million in debt securities available for sale is principally a result of ~~sales~~purchases of a large portion of the acquired Cornerstone securities portfolio and the sales of a portion of our tax-exempt municipals securities, whose proceeds were used to fund loan growth and calls and maturities of brokered and direct CDs.

~~Securities held to maturity:~~ ~~During second quarter 2020, we invested in various~~taxable municipal securities ~~that we have classified as held to maturity as we have the positive intent~~ and ~~ability to hold them to maturity. Accordingly, they are carried at cost, adjusted for amortization of premiums and accretion of discounts.~~tax-exempt municipal securities.

Loans: Mortgage warehouse lines of credit ~~grew $117.5~~declined $90.2 million during the first nine months of ~~2020 as we expanded~~2021 due to a reduction in size of our ~~existing line participations~~participation arrangement with a regional bank to fund residential mortgage warehouse lines of medium- and ~~established two new participations in light of strong~~large-sized mortgage ~~refinance and home purchase activity nationally.~~originators located throughout the United States. Excluding mortgage warehouse lines of credit, ~~and Cornerstone and MVB loans acquired, organic~~ loan growth was ~~$145.7~~$232.1 million during the first nine months of ~~2020, of~~2021, which ~~$101.3 growth was~~included $54 million acquired loans and net PPP ~~loans.~~

~~Other assets:~~ ~~During 2020, the largest increases in Other assets are as follows:~~

•~~Right-of-use asset increased $3.0 million due to a new operating lease entered into for a Reston, Virginia location~~

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•~~Net derivative assets increased $4.6 million due to a newly entered interest rate cap~~

•~~Deferred tax assets have increased $5.5 million primarily due to deferred taxes related to increased allowance for credit losses~~loans declining $52.2 million.

Deposits: During the first nine months of ~~2020,~~2021, noninterest bearing checking deposits increased ~~$159.5~~$134.7 million (which includes $39.7 million acquired deposits), interest bearing checking deposits grew ~~$237.1~~$186.8 million (which includes $62.5 million acquired deposits), and savings deposits grew ~~$180.5~~$72.5 million ~~and retail CDs increased $41.4~~(which includes $16.1 million acquired deposits), while brokered CDs declined ~~$86.4~~$40.8 million, retail CDs increased $6.6 million, net of $44.7 million acquired time deposits and Direct CDs decreased ~~$29.3~~$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.

~~Short-term borrowings:~~ The net decrease in short-term borrowings was attributable to repayments of short-term FHLB advances primarily using cash acquired in conjunction with the Cornerstone and MVB branches acquisitions and proceeds from sales of securities.

~~Subordinated debentures:~~ We issued $30 million of subordinated debt in Q3 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. As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR. This debt has a 10 year term and generally, is not prepayable by us within the first five years.

Shareholders' ~~equity:~~equity - common: Changes in common shareholders' equity are a result of net income, other comprehensive income ~~dividends~~ and ~~the impact on retained earnings for adoption of ASC 326 on January 1, 2020.~~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, ~~2020~~2021 and December 31, ~~2019.~~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 ~~$1.2~~$1.6 billion or ~~40.32%~~45.95% of total consolidated assets at September 30, ~~2020.~~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 ~~$873 million.~~$1.03 billion. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, these advances totaled approximately $141 ~~million and $200 million, respectively.~~million. At September 30, ~~2020,~~2021, we had additional borrowing capacity of ~~$733~~$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, ~~2020~~2021 was approximately ~~$169~~$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 ~~$298~~$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.

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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, ~~2020~~2021 totaled ~~$272.0~~$323.3 million compared to ~~$247.8~~$281.6 million at December 31, ~~2019.~~2020.

Refer to Note 1213 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, ~~2020.~~2021.


Table X - Contractual Cash Obligations
Table XI - Contractual Cash Obligations										Table XI - Contractual Cash Obligations
Dollars in thousands	Dollars in thousands	Long Term Debt		Subordinated Debentures		Capital Trust Securities		Operating Leases		Dollars in thousands	Long Term Debt		Subordinated Debentures		Capital Trust Securities		Operating Leases
2019		$	5	$	—	$	—	$	297
2020		20		—		—		480
2021	2021	21		—		—		443		2021	$	5	$	—	$	—	$	240
2022	2022	22		—		—		305		2022	21		—		—		967
2023	2023	22		—		—		261		2023	22		—		—		769
2024										2024	23		—		—		719
2025										2025	24		—		—		645
Thereafter	Thereafter	613		29,336		19,589		1,325		Thereafter	589		30,000		19,589		2,833
Total	Total	$	703	$	29,336	$	19,589	$	3,111	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, ~~2020~~2021 are presented in the following table.


Table XIXII - Off-Balance Sheet Arrangements	September 30,
Dollars in thousands	~~2020~~2021
Commitments to extend credit:
Revolving home equity and credit card lines	$	~~88,214~~95,601
Construction loans	~~110,896~~198,224
Other loans	~~320,318~~333,636
Standby letters of credit	~~11,200~~25,025
Total	$	~~530,628~~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 ~~well-matched over the near-term.~~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, ~~2020.~~2021. The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates ~~(gradual change~~(change over 12 months, stable ~~thereafter)~~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:					Estimated % Change in Net Interest Income over:
Change in	Change in	0 - 12 Months		13 - 24 Months		Change in	0 - 12 Months		13 - 24 Months
Interest Rates	Interest Rates	Actual		Actual		Interest Rates	Actual		Actual
Down 100 basis points (1)	Down 100 basis points (1)	0.32	%	-4.52	%	Down 100 basis points (1)	-0.9	%	-5.7	%
Up 200 basis points (1)	Up 200 basis points (1)	-2.87	%	-2.64	%	Up 200 basis points (1)	0.4	%	4.2	%
Up 200 basis points (2)	Up 200 basis points (2)	-1.51	%	-4.92	%	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, ~~2020,~~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, ~~2020~~2021 were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2020,~~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, ~~2019. The following risk factor is provided to supplement that discussion.~~

~~Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.~~

In March 2020, the World Health Organization declared COVID-19 as a global pandemic. The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our plans, the direct and indirect impact of the pandemic on our employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

~~The COVID-19 pandemic has contributed to:~~2020.

•~~Severe unemployment and business disruption and decreased consumer confidence and commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.~~

•~~Higher and more volatile credit loss expense and high potential for increased charge-offs.~~

•~~Ratings downgrades, credit deterioration and defaults in many industries, particularly restaurants, hospitality, entertainment, energy and commercial real estate.~~

•~~A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.~~

•~~A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.~~

•~~A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related fee income and demand for our services.~~

Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce and the availability of our critical vendors. While its effects continue to materialize, the COVID-19 crisis has resulted in a significant decrease in commercial activity throughout our market area as well as nationally. This decrease in commercial activity may cause our clients and vendors to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 crisis and public expectations about it, combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with severely deteriorating economic conditions including the unemployment rate, which, in turn, are likely to impact our borrowers' creditworthiness and our ability to make loans.

In addition, the economic pressures and uncertainties arising from the COVID-19 crisis may result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis, certain industries may take longer to recover -- particularly those that rely on travel or large gatherings -- as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including restaurants, hotels/lodging, entertainment, energy, retail and commercial real estate, among others, that have been significantly impacted by COVID-19, and we are continuing to monitor these customers closely.

~~Table of Contents~~

Any disruption to our ability to deliver financial products or services to, or interact with, our clients could result in losses or increased operational costs, harm our reputation or result in regulatory fines, penalties and other sanctions. The COVID-19 crisis could still greatly affect our routine and essential operations due to further limited access to or closures of our branch facilities and other physical offices; and government or regulatory agency orders, among other things. The business and operations of our third-party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact us.

The Federal Reserve has taken various actions and the U.S. government has enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic.

We face an increased risk of litigation and governmental, regulatory and third-party scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various governmental programs such as the Paycheck Protection Program loan program are complex and our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to our reputation.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

~~No repurchases~~The following table sets forth certain information regarding Summit's purchases of ~~Company shares were made during~~its common stock under the Repurchase Plan and for the benefit of Summits Employee Stock Ownership Plan for the quarter ended September 30, ~~2020.~~2021.

~~Period~~

~~Total Number of Shares Purchased~~

~~Average Price Paid per Share~~

~~Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs~~

~~Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs~~

~~July 1, 2020 - July 31, 2020~~

—

~~674,667~~

~~August 1, 2020 - August 31, 2020~~

—

~~674,667~~

~~September 1, 2020 - September 30, 2020~~

—

~~674,667~~


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2021 - July 31, 2021	—	$	—	—	674,667
Aug. 1, 2021 - Aug. 31, 2021	11,522	23.85		—	663,145
Sept. 1, 2021 - Sept. 30, 2021	14,856	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 2.1			Purchase and Assumption Agreement dated April 22, 2021, by and between MVB Bank, Inc. and Summit Community Bank, Inc.

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

Exhibit 3.ii			Articles of Amendment 2009

Exhibit 3.iii			Articles of Amendment 2011

Exhibit 3.iv			Amended and Restated Articles of Amendment 2021

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

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

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

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

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

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

Exhibit 101			Interactive Data File ~~(XBRL)~~(Inline XBRL)

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

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EXHIBIT INDEX

Exhibit No.

Description

Page
Number

Exhibit No.

Description

Page
Number

2.1

Purchase and Assumption Agreement dated April 22, 2021, by and between MVB Bank, Inc. and Summit Community Bank, Inc.

(a)

(3)

Articles of Incorporation and By-laws:

(3)

Articles of Incorporation and By-laws:

(i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc.

(b)

(ii) Articles of Amendment 2009

(c)

(i) Amended and Restated Articles of Incorporation of Summit Financial Group, Inc.

(a)

(iii) Articles of Amendment 2011

(d)

(ii) Articles of Amendment 2009

(b)

(iv) Amended and Restated Articles of Amendment 2021

(e)

(iii) Articles of Amendment 2011

(c)

(v) Amended and Restated By-laws of Summit Financial Group, Inc.

(f)

(iv) Amended and Restated By-laws of Summit Financial Group, Inc.

(d)

Statement re: Computation of Earnings per Share

31.1

Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer

31.1

Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer

31.2

Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer

31.2

Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer

32.1*

Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer

32.1*

Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer

32.2*

Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer

32.2*

Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer

101**

Interactive data file (XBRL)

101**

Interactive data file (Inline XBRL)

104

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

*Furnished, not filed.

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

(a)Incorporated by reference to Exhibit ~~3.i~~2.1 of Summit Financial Group, Inc.’s filing on Form ~~10-Q~~8-K dated ~~March 31, 2006.~~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.

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

~~(d)~~(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 ~~5, 2020~~4, 2021

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

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	0		—		—		—		0
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

Balance, December 31, 2018	$	80,431	$	(939)	$	141,354	$	(1,016)	$	219,830

Nine Months Ended September 30, 2019

Net income	—		—		23,718		—		23,718
Other comprehensive income	—		—		—		4,862		4,862
Exercise of stock options and SARs - 17,255 shares	7		—		—		—		7
Share-based compensation expense	430		—		—		—		430




Unallocated ESOP shares committed to be released - 15,481 shares	222		167		—		—		389
Retirement of 417,577 shares of common stock	(10,405)		—		—		—		(10,405)
Acquisition of Peoples Bankshares, Inc. - shares, net of 465,931 issuance costs	8,918		—		—		—		8,918
Common stock issuances from reinvested dividends - 6,781 shares	177		—		—		—		177
Common stock cash dividends declared ($0.44 per share)	—		—		(5,504)		—		(5,504)


Balance, September 30, 2019	$	79,780	$	(772)	$	159,568	$	3,846	$	242,422


	For the Year Ended December 31, 2019
	Allowance for Credit Losses - Loans
Dollars in thousands	Beginning Balance		Charge- offs		Recoveries		Provision		Ending Balance
Commercial	$	1,705	$	(281)	$	17	$	(295)	$	1,146
Commercial real estate
Owner occupied	2,214		(2)		21		467		2,700
Non-owner occupied	5,742		(170)		1		366		5,939
Construction and development
Land & land development	339		(2)		108		155		600
Construction	64		0		0		178		242
Residential real estate
Non-jumbo	2,090		(979)		125		576		1,812
Jumbo	379		0		0		(368)		11
Home equity	167		(24)		19		(24)		138
Mortgage warehouse lines	0		0		0		0		0
Consumer	79		(285)		168		173		135
Other	268		(360)		121		322		351

Total	$	13,047	$	(2,103)	$	580	$	1,550	$	13,074


(Dollars in thousands)	As Recorded by Cornerstone		Estimated Fair Value Adjustments		Estimated Fair Values as Recorded by Summit
Cash consideration					$	14,250
Stock consideration					15,441
Total consideration					29,691

Identifiable assets acquired:
Cash and cash equivalents	$	60,284	$	0	$	60,284
Securities available for sale, at fair value	90,075		(47)		90,028
Loans
Purchased performing	37,965		188		38,153
Purchased credit deteriorated	1,877		(569)		1,308
Allowance for loan losses	(312)		312		0
Premises and equipment	806		(142)		664
Property held for sale	10		0		10
Core deposit intangibles	0		717		717
Other assets	4,324		(74)		4,250
Total identifiable assets acquired	$	195,029	$	385	$	195,414

Identifiable liabilities assumed:
Deposits	173,027		239		173,266
Other liabilities	3,286		(7)		3,279
Total identifiable liabilities assumed	$	176,313	$	232	$	176,545

Net identifiable assets acquired	$	18,716	$	153	$	18,869

Preliminary goodwill resulting from acquisition					$	10,822


	Income increase (decrease)
	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in thousands	2020		2019		2020		2019
Interest and fees on loans	$	161	$	137	$	680	$	604
Interest expense on deposits	175		77		461		247
Amortization of intangibles	(412)		(404)		(1,251)		(1,234)
Income before income tax expense	$	(76)	$	(190)	$	(110)	$	(383)


Table IV - Changes in Net Interest Income Attributable to Rate and Volume

	For the Nine Months Ended
	September 30, 2020 versus September 30, 2019
	Increase (Decrease) Due to Change in:
Dollars in thousands	Volume		Rate		Net
Interest earned on:
Loans
Taxable	$	13,135	$	(7,801)	$	5,334
Tax-exempt	36		(51)		(15)
Securities
Taxable	1,167		(1,368)		(201)
Tax-exempt	433		(456)		(23)
Federal funds sold and interest bearing deposits with other banks	47		(322)		(275)
Total interest earned on interest earning assets	14,818		(9,998)		4,820

Interest paid on:
Interest bearing demand deposits	1,219		(4,405)		(3,186)
Savings deposits	1,550		(856)		694
Time deposits	(833)		(1,331)		(2,164)
Short-term borrowings	(1,247)		(1,131)		(2,378)
Long-term borrowings and capital trust securities	35		(192)		(157)
Total interest paid on interest bearing liabilities	724		(7,915)		(7,191)

Net interest income	$	14,094	$	(2,083)	$	12,011


Table V - Noninterest Income
	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
Dollars in thousands	2020		2019		2020		2019
Insurance commissions	$	44	$	40	$	75	$	1,821
Trust and wealth management fees	622		632		1,870		1,830
Mortgage origination revenue	780		77		1,636		392
Service charges on deposit accounts	1,138		1,312		3,283		3,716
Bank card revenue	1,237		924		3,257		2,631
Realized securities gains	1,522		453		2,560		1,535
Gain on sale of Summit Insurance Services, LLC	—		—		—		1,906
Bank owned life insurance income	795		247		1,334		733
Other	69		74		292		235
Total	$	6,207	$	3,759	$	14,307	$	14,799


Table VI - Noninterest Expense
	For the Quarter Ended September 30,								For the Nine Months Ended September 30,
			Change								Change
Dollars in thousands	2020		$		%		2019		2020		$		%		2019
Salaries, commissions, and employee benefits	$	8,108	$	1,064	15.1	%	$	7,044	$	23,709	$	1,743	7.9	%	$	21,966
Net occupancy expense	1,057		258		32.3	%	799		2,917		315		12.1	%	2,602
Equipment expense	1,474		178		13.7	%	1,296		4,263		569		15.4	%	3,694
Professional fees	364		(24)		(6.2)	%	388		1,168		(98)		(7.7)	%	1,266
Advertising and public relations	145		(32)		(18.1)	%	177		389		(95)		(19.6)	%	484
Amortization of intangibles	412		8		2.0	%	404		1,251		(49)		(3.8)	%	1,300
FDIC premiums	320		320		n/a		—		595		507		576.1	%	88
Bank card expense	589		134		29.5	%	455		1,652		285		20.8	%	1,367
Foreclosed properties expense, net	607		302		99.0	%	305		1,815		(421)		(18.8)	%	2,236

Merger-related expenses	28		(46)		(62.2)	%	74		1,453		934		180.0	%	519
Other	2,405		541		29.0	%	1,864		6,493		20		0.3	%	6,473
Total	$	15,509	$	2,703	21.1	%	$	12,806	$	45,705	$	3,710	8.8	%	$	41,995