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SMMF Summit Financial

Filed: 5 Aug 21, 12:27pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021
or
☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the transition period from ___________ to __________.

Commission File Number 0-16587 
smmf-20210630_g1.jpg
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
West Virginia55-0672148
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
300 North Main Street 
MoorefieldWest Virginia26836
(Address of principal executive offices)(Zip Code)
(304) 530-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesNo

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).
YesNo

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).
YesNo








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


Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
12,996,260 shares outstanding as of August 4, 2021



Table of Contents

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


Item 1. Financial Statements


Consolidated Balance Sheets (unaudited)

June 30,
2021
December 31,
2020
Dollars in thousands, except per share amounts(unaudited)(*)
ASSETS  
Cash and due from banks$18,707 $19,522 
Interest bearing deposits with other banks176,282 80,265 
Cash and cash equivalents194,989 99,787 
Debt securities available for sale (at fair value)345,742 286,127 
Debt securities held to maturity (at amortized cost; estimated fair value - $102,388 - 2021, $103,157 - 2020)98,995 99,914 
   Less: allowance for credit losses
        Debt securities held to maturity, net98,995 99,914 
Other investments10,661 14,185 
Loans held for sale1,783 1,998 
Loans, net of unearned fees2,429,770 2,412,153 
    Less: allowance for credit losses(33,885)(32,246)
         Loans, net2,395,885 2,379,907 
Property held for sale13,170 15,588 
Premises and equipment, net53,104 52,537 
Accrued interest and fees receivable10,397 11,989 
Goodwill and other intangible assets, net53,858 55,123 
Cash surrender value of life insurance policies and annuities60,087 59,438 
Other assets33,862 29,791 
Total assets$3,272,533 $3,106,384 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Liabilities  
Deposits  
Non-interest bearing$503,097 $440,818 
Interest bearing2,226,108 2,154,833 
Total deposits2,729,205 2,595,651 
Short-term borrowings140,146 140,146 
Long-term borrowings689 699 
Subordinated debentures29,432 29,364 
Subordinated debentures owed to unconsolidated subsidiary trusts19,589 19,589 
Other liabilities38,265 39,355 
Total liabilities2,957,326 2,824,804 
Commitments and Contingencies00
Shareholders' Equity  
Preferred stock, $1.00 par value, authorized 250,000 shares; issued: 2021 - 1,50014,920 
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2021 - 12,995,260 shares and 2020 - 12,985,708 shares; outstanding: 2021 - 12,963,057 shares and 2020 - 12,942,00495,511 94,964 
Unallocated common stock held by Employee Stock Ownership Plan - 2021 - 32,203 shares and 2020 - 43,704 shares(347)(472)
Retained earnings198,022 181,643 
Accumulated other comprehensive income7,101 5,445 
Total shareholders' equity315,207 281,580 
Total liabilities and shareholders' equity$3,272,533 $3,106,384 
(*) - Derived from audited consolidated financial statements
See Notes to Consolidated Financial Statements


Consolidated Statements of Income (unaudited)

 For the Three Months Ended June 30,For the Six Months Ended June 30,
Dollars in thousands, except per share amounts2021202020212020
Interest income    
Interest and fees on loans    
Taxable$27,593 $25,466 $55,012 $50,555 
Tax-exempt104 158 222 304 
Interest and dividends on securities    
Taxable1,351 1,453 2,646 3,211 
Tax-exempt851 800 1,713 1,352 
Interest on interest bearing deposits with other banks56 60 123 158 
Total interest income29,955 27,937 59,716 55,580 
Interest expense    
Interest on deposits2,136 4,186 4,632 9,537 
Interest on short-term borrowings464 499 933 1,129 
Interest on long-term borrowings and subordinated debentures544 186 1,089 405 
Total interest expense3,144 4,871 6,654 11,071 
Net interest income26,811 23,066 53,062 44,509 
Provision for credit losses1,000 3,000 2,500 8,250 
Net interest income after provision for credit losses25,811 20,066 50,562 36,259 
Noninterest income    
Trust and wealth management fees683 582 1,321 1,247 
Mortgage origination revenue898 641 1,896 855 
Service charges on deposit accounts1,093 882 2,193 2,145 
Bank card revenue1,519 1,087 2,860 2,020 
Realized securities gains, net127 602 1,038 
Bank owned life insurance and annuities income275 275 573 539 
Other120 131 244 255 
Total noninterest income4,715 3,598 9,689 8,099 
Noninterest expenses    
Salaries, commissions and employee benefits8,230 7,655 16,665 15,160 
Net occupancy expense1,131 977 2,305 1,860 
Equipment expense1,598 1,360 3,180 2,789 
Professional fees428 417 766 804 
Advertising and public relations138 93 228 244 
Amortization of intangibles382 410 787 839 
FDIC premiums488 110 765 275 
Bank card expense685 560 1,259 1,063 
Foreclosed properties expense746 240 972 1,207 
Acquisition-related expenses454 637 893 1,425 
Other2,756 2,738 5,649 4,529 
Total noninterest expenses17,036 15,197 33,469 30,195 
Income before income tax expense13,490 8,467 26,782 14,163 
Income tax expense2,930 1,518 5,863 2,708 
Net income10,560 6,949 20,919 11,455 
Dividends on preferred shares139 139 
Net income applicable to common shares$10,421 $6,949 $20,780 $11,455 
Basic earnings per common share$0.80 $0.54 $1.61 $0.89 
Diluted earnings per common share$0.80 $0.54 $1.60 $0.88 
See Notes to Consolidated Financial Statements 


Consolidated Statements of Comprehensive Income (unaudited)

For the Three Months Ended 
 June 30,
Dollars in thousands20212020
Net income$10,560 $6,949 
Other comprehensive (loss) income:  
Net unrealized loss on cashflow hedge of:
2021 - $(3,678), net of deferred taxes of $(883); 2020 - $(1,072), net of deferred taxes of $(257)
(2,795)(815)
Net unrealized gain on securities available for sale of:
2021 - $1,418, net of deferred taxes of $340 and reclassification adjustment for net realized gains included in net income of $127, net of tax of $30; 2020 - $4,350, net of deferred taxes of $1,044
1,078 3,306 
Total other comprehensive (loss) income(1,717)2,491 
Total comprehensive income$8,843 $9,440 



For the Six Months Ended 
 June 30,
Dollars in thousands20212020
Net income$20,919 $11,455 
Other comprehensive income:  
Net unrealized gain (loss) on cashflow hedge of:
2021 - $4,336, net of deferred taxes of $1,041; 2020 - $(2,499), net of deferred taxes of $(600)
3,295 (1,899)
Net unrealized (loss) gain on securities available for sale of:
2021 - $(2,157), net of deferred taxes of $(518) and reclassification adjustment for net realized gains included in net income of $602, net of tax of $144; 2020 - $3,534, net of deferred taxes of $848 and reclassification adjustment for net realized gains included in net income of $1,038, net of tax of $249
(1,639)2,686 
Total other comprehensive income1,656 787 
Total comprehensive income$22,575 $12,242 























See Notes to Consolidated Financial Statements


Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share
  amounts

Preferred
Stock and
Related
Surplus
Common
Stock and
Related
Surplus
Unallocated
Common
Stock Held
by ESOP
Retained
Earnings
Accumulated
Other
Compre-
hensive
Income
Total
Share-
holders'
Equity
Balance March 31, 2021$$95,234 $(410)$189,803 $8,818 $293,445 
Three Months Ended June 30, 2021     
Net income   10,560  10,560 
Other comprehensive loss    (1,717)(1,717)
Vesting of RSUs - 3,400 shares 0    0 
Share-based compensation expense 126    126 
Issuance of 1,500 shares of preferred stock, net of issuance costs14,920     14,920 
Unallocated ESOP shares committed to be released - 5,750 shares 79 63   142 
Common stock issuances from reinvested dividends - 3,193 shares 72    72 
Preferred stock cash dividends declared—   (139) (139)
Common stock cash dividends declared ($0.17 per share)   (2,202) (2,202)
Balance, June 30, 2021$14,920 $95,511 $(347)$198,022 $7,101 $315,207 
Balance March 31, 2020$$94,439 $(653)$161,408 $831 $256,025 
Three Months Ended June 30, 2020     
Net income— — — 6,949 — 6,949 
Other comprehensive income — — — 2,491 2,491 
Vesting of RSUs - 651 shares— — — — 
Share-based compensation expense— 161 — — — 161 
Unallocated ESOP shares committed to be released - 5,599 shares— 31 60 — — 91 
Retirement of 8,722 shares of common stock— (162)— — — (162)
Common stock issuances from reinvested dividends - 4,273 shares— 70 — — — 70 
Common stock cash dividends declared ($0.17 per share)— — — (2,194)— (2,194)
Balance, June 30, 2020$$94,539 $(593)$166,163 $3,322 $263,431 














See Notes to Consolidated Financial Statements


Consolidated Statements of Shareholders’ Equity (unaudited)

Dollars in thousands, except per share
  amounts

Preferred
Stock and
Related
Surplus
Common
Stock and
Related
Surplus
Unallocated
Common
Stock Held
by ESOP
Retained
Earnings
Accumulated
Other
Compre-
hensive
Income
Total
Share-
holders'
Equity
Balance December 31, 2020$$94,964 $(472)$181,643 $5,445 $281,580 
Six Months Ended June 30, 2021     
Net income   20,919  20,919 
Other comprehensive income    1,656 1,656 
Exercise of SARs - 380 shares 0    0 
Vesting of RSUs - 3,400 shares 0    0 
Share-based compensation expense 252    252 
Issuance of 1,500 shares of preferred stock, net of issuance costs14,920     14,920 
Unallocated ESOP shares committed to be released - 11,501 shares 153 125   278 
Common stock issuances from reinvested dividends - 5,772 shares 142    142 
Preferred stock cash dividends declared   (139) (139)
Common stock cash dividends declared ($0.34 per share)   (4,401) (4,401)
Balance, June 30, 2021$14,920 $95,511 $(347)$198,022 $7,101 $315,207 
Balance December 31, 2019$$80,084 $(714)$165,859 $2,535 $247,764 
Six Months Ended June 30, 2020     
Impact of adoption of ASC 326— — — (6,756)— $(6,756)
Net income— — — 11,455 — 11,455 
Other comprehensive income— — — — 787 787 
Vesting of RSUs - 651 shares— — — — 
Share-based compensation expense— 323 — — — 323 
Unallocated ESOP shares committed to be released - 11,198 shares— 101 121 — — 222 
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 - 6,987 shares— 121 — — — 121 
Common stock cash dividends declared ($0.34 per share)— — — (4,395)— (4,395)
Balance, June 30, 2020$$94,539 $(593)$166,163 $3,322 $263,431 








See Notes to Consolidated Financial Statements


Consolidated Statements of Cash Flows (unaudited)

 Six Months Ended
Dollars in thousandsJune 30,
2021
June 30,
2020
Cash Flows from Operating Activities  
Net income$20,919 $11,455 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation1,722 1,516 
Provision for credit losses2,500 8,250 
Share-based compensation expense252 323 
Deferred income tax benefit(278)(2,984)
Loans originated for sale(70,502)(35,082)
Proceeds from sale of loans72,095 32,917 
Gains on loans held for sale(1,378)(555)
Realized securities gains, net(602)(1,038)
Loss (gain) on disposal of assets79 (123)
Write-downs of foreclosed properties741 1,164 
Amortization of securities premiums, net2,002 1,303 
Accretion related to acquisitions, net(773)(800)
Amortization of intangibles787 839 
Earnings on bank owned life insurance and annuities(649)(540)
Decrease (increase) in accrued interest receivable1,592 (1,843)
(Increase) decrease in other assets(180)116 
Increase (decrease) in other liabilities357 (226)
Net cash provided by operating activities28,684 14,692 
Cash Flows from Investing Activities  
Proceeds from maturities and calls of debt securities available for sale3,055 2,200 
Proceeds from sales of debt securities available for sale8,241 74,750 
Principal payments received on debt securities available for sale14,812 12,278 
Purchases of debt securities available for sale(88,360)(41,880)
Purchases of held to maturity securities0 (80,732)
Purchases of other investments(109)(8,148)
Proceeds from redemptions of other investments3,138 12,365 
Net loan originations(18,513)(230,848)
Purchases of premises and equipment(2,289)(6,201)
Proceeds from disposal of premises and equipment0 
Improvements to property held for sale0 (1,072)
Proceeds from sales of repossessed assets & property held for sale1,948 1,494 
Purchase of life insurance contracts and annuities0 (8,456)
Cash and cash equivalents from acquisitions, net of cash consideration paid 2020 - $27,2150 183,697 
Net cash used in investing activities(78,077)(90,544)
Cash Flows from Financing Activities  
Net increase in demand deposit, NOW and savings accounts189,650 256,358 
Net decrease in time deposits(55,567)(79,539)
Net decrease in short-term borrowings0 (108,400)
Repayment of long-term borrowings(10)(9)
Purchase of interest rate cap0 (5,850)
Proceeds from issuance of common stock, net of issuance costs142 33 
Proceeds from issuance of preferred stock, net of issuance costs14,920 
Purchase and retirement of common stock0 (1,444)
Dividends paid on common stock(4,401)(4,395)
Dividends paid on preferred stock(139)
Net cash provided by financing activities144,595 56,754 
Increase (decrease) in cash and cash equivalents95,202 (19,098)
continued
See Notes to Consolidated Financial Statements


Consolidated Statements of Cash Flows (unaudited) - continued

Six Months Ended
Dollars in thousandsJune 30,
2021
June 30,
2020
Cash and cash equivalents:  
Beginning99,787 61,888 
Ending$194,989 $42,790 
Supplemental Disclosures of Cash Flow Information  
Cash payments for:  
Interest$6,815 $11,288 
Income taxes$6,265 $3,745 
Supplemental Disclosures of Noncash Investing and Financing Activities 
Real property and other assets acquired in settlement of loans$342 $177 
Right of use assets obtained in exchange for lease obligations$0 $3,293 
Supplemental Disclosures of Noncash Transactions Included in Acquisition
Assets acquired$0 $171,645 
Liabilities assumed$0 $365,379 











































See Notes to Consolidated Financial Statements



NOTE 1.  BASIS OF PRESENTATION

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

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

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

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

NOTE 2.  SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE

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

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

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

Pending Adoption

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







NOTE 3.  FAIR VALUE MEASUREMENTS

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
 Balance atFair Value Measurements Using:
Dollars in thousandsJune 30, 2021Level 1Level 2Level 3
Debt securities available for sale    
U.S. Government sponsored agencies$41,658 $$41,658 $
Mortgage backed securities:    
Government sponsored agencies56,573 56,573 
Nongovernment sponsored entities17,596 17,596 
State and political subdivisions83,452 83,452 
Corporate debt securities33,850 33,850 
Asset-backed securities47,278 47,278 
Tax-exempt state and political subdivisions65,335 65,335 
Total debt securities available for sale$345,742 $$345,742 $
Derivative financial assets
Interest rate caps$9,885 $$9,885 $
Derivative financial liabilities    
Interest rate swaps$1,645 $$1,645 $
 Balance atFair Value Measurements Using:
Dollars in thousandsDecember 31, 2020Level 1Level 2Level 3
Debt securities available for sale    
U.S. Government sponsored agencies$35,157 $$35,157 $
Mortgage backed securities:    
Government sponsored agencies59,046 59,046 
Nongovernment sponsored entities16,687 16,687 
State and political subdivisions50,905 50,905 
Corporate debt securities26,427 26,427 
Asset-backed securities46,126 46,126 
Tax-exempt state and political subdivisions51,779 51,779 
Total debt securities available for sale$286,127 $$286,127 $
Derivative financial assets
Interest rate caps$6,653 $$6,653 $
Derivative financial liabilities    
Interest rate swaps$2,747 $$2,747 $

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


 Balance atFair Value Measurements Using:
Dollars in thousandsJune 30, 2021Level 1Level 2Level 3
Residential mortgage loans held for sale$1,783 $$1,783 $
Collateral-dependent loans with an ACLL    
Commercial real estate$10,281 $$9,835 $446 
Construction and development318 318 
Residential real estate551 303 248 
Total collateral-dependent loans with an ACLL$11,150 $$10,456 $694 
Property held for sale    
Commercial real estate$1,557 $$1,557 $
Construction and development10,005 9,511 494 
Residential real estate187 187 
Total property held for sale$11,749 $$11,255 $494 

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



The carrying values and estimated fair values of our financial instruments are summarized below:
 June 30, 2021Fair Value Measurements Using:
Dollars in thousandsCarrying
Value
Estimated
Fair
Value
Level 1Level 2Level 3
Financial assets    
Cash and cash equivalents$194,989 $194,989 $$194,989 $
Debt securities available for sale345,742 345,742 345,742 
Debt securities held to maturity98,995 102,388 102,388 
Other investments10,661 10,661 10,661 
Loans held for sale, net1,783 1,783 1,783 
Loans, net2,395,885 2,385,591 10,456 2,375,135 
Accrued interest receivable10,397 10,397 10,397 
     Cash surrender value of life insurance policies and annuities60,087 60,087 60,087 
Derivative financial assets9,885 9,885 9,885 
 $3,128,424 $3,121,523 $$746,388 $2,375,135 
Financial liabilities    
Deposits$2,729,205 $2,724,786 $$2,724,786 $
Short-term borrowings140,146 140,146 140,146 
Long-term borrowings689 834 834 
Subordinated debentures29,432 29,432 29,432 
Subordinated debentures owed to unconsolidated
  subsidiary trusts
19,589 19,589 19,589 
Accrued interest payable568 568 568 
Derivative financial liabilities1,645 1,645 1,645 
 $2,921,274 $2,917,000 $$2,917,000 $
 December 31, 2020Fair Value Measurements Using:
Dollars in thousandsCarrying
Value
Estimated
Fair
Value
Level 1Level 2Level 3
Financial assets    
Cash and cash equivalents$99,787 $99,787 $$99,787 $
Debt securities available for sale286,127 286,127 286,127 
Debt securities held to maturity99,914 103,157 103,157 
Other investments14,185 14,185 14,185 
Loans held for sale, net1,998 1,998 1,998 
Loans, net2,379,907 2,384,275 12,095 2,372,180 
Accrued interest receivable11,989 11,989 11,989 
Cash surrender value of life insurance policies59,438 59,438 59,438 
Derivative financial assets6,653 6,653 6,653 
 $2,959,998 $2,967,609 $$595,429 $2,372,180 
Financial liabilities    
Deposits$2,595,651 $2,597,326 $$2,597,326 $
Short-term borrowings140,146 140,146 140,146 
Long-term borrowings699 866 866 
Subordinated debentures29,364 29,364 29,364 
Subordinated debentures owed to unconsolidated
  subsidiary trusts
19,589 19,589 19,589 
Accrued interest payable745 745 745 
Derivative financial liabilities2,747 2,747 2,747 
 $2,788,941 $2,790,783 $$2,790,783 $




NOTE 4.  EARNINGS PER SHARE

The computations of basic and diluted earnings per share follow:
 For the Three Months Ended June 30,
 20212020
Dollars in thousands,except per share amountsNet Income
(Numerator)
Common
Shares
(Denominator)
Per
Share
Net Income
(Numerator)
Common
Shares
(Denominator)
Per
Share
Net income$10,560   $6,949   
Less preferred stock dividends(139)0 
Basic earnings per share$10,421 12,952,357 $0.80 $6,949 12,911,979 $0.54 
Effect of dilutive securities:  
Stock options4,534  4,227  
Stock appreciation rights ("SARs")51,244 27,598 
Restricted stock units ("RSUs")5,579 
Diluted earnings per share$10,421 13,013,714 $0.80 $6,949 12,943,804 $0.54 

 For the Six Months Ended June 30,
 20212020
Dollars in thousands,except per share amountsNet Income
(Numerator)
Common
Shares
(Denominator)
Per
Share
Net Income
(Numerator)
Common
Shares
(Denominator)
Per
Share
Net income$20,919   $11,455   
Less preferred stock dividends(139)0 
Basic earnings per share$20,780 12,947,228 $1.61 $11,455 12,940,590 $0.89 
Effect of dilutive securities:  
Stock options4,522  4,371  
Stock appreciation rights ("SARs")50,513 38,001 
Restricted stock units ("RSUs")5,626 183 
Diluted earnings per share$20,780 13,007,889 $1.60 $11,455 12,983,146 $0.88 


Stock option, SAR and RSU grants are disregarded in this computation if they are determined to be anti-dilutive.  All stock options were dilutive for the three and six months ended June 30, 2021 and the six months ended June 30, 2020. Our anti-dilutive stock options for the quarter ended June 30, 2020 were 300 shares. Our anti-dilutive SARs for the three and six months ended June 30, 2021 and June 30, 2020 were 222,740. All RSUs were dilutive for the three and six months ended June 30, 2021. Our anti-dilutive RSUs for the three and six months ended June 30, 2020 were 15,733 and 13,780, respectively.



NOTE 5.  DEBT SECURITIES

Debt Securities Available for Sale

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities available for sale at June 30, 2021 and December 31, 2020 are summarized as follows:
 June 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Available for Sale    
Taxable debt securities    
U.S. Government and agencies and corporations$41,717 $304 $363 $41,658 
Residential mortgage-backed securities:    
Government-sponsored agencies55,274 1,594 295 56,573 
Nongovernment-sponsored entities17,761 102 267 17,596 
State and political subdivisions    
General obligations27,669 510 146 28,033 
Water and sewer revenues13,955 409 14,363 
Lease revenues5,812 262 21 6,053 
Income tax revenues5,047 340 5,387 
Jail authority revenues4,018 95 4,113 
Insurance premium revenues5,070 17 16 5,071 
Other revenues19,623 920 111 20,432 
Corporate debt securities33,934 97 181 33,850 
Asset-backed securities47,164 295 181 47,278 
Total taxable debt securities277,044 4,945 1,582 280,407 
Tax-exempt debt securities    
State and political subdivisions    
General obligations39,530 1,740 208 41,062 
Water and sewer revenues7,497 618 8,115 
Lease revenues5,654 573 6,227 
Other revenues9,204 728 9,931 
Total tax-exempt debt securities61,885 3,659 209 65,335 
Total debt securities available for sale$338,929 $8,604 $1,791 $345,742 



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

Accrued interest receivable on debt securities available for sale totaled $1.8 million and $1.7 million at June 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.
 June 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
California$24,918 $932 $182 $25,668 
Texas14,546 756 42 15,260 
Florida12,775 493 31 13,237 
Washington11,186 280 115 11,351 
Virginia10,799 408 11,206 

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 debt securities available for sale at June 30, 2021, are summarized as follows:
Dollars in thousandsAmortized
Cost
Estimated
Fair Value
Due in one year or less$37,382 $37,845 
Due from one to five years86,225 87,983 
Due from five to ten years86,879 87,616 
Due after ten years128,443 132,298 
Total$338,929 $345,742 
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 six months ended June 30, 2021 and 2020 are as follows:
 Proceeds fromGross realized
Dollars in thousandsSalesCalls and
Maturities
Principal
Payments
GainsLosses
For the Six Months Ended 
 June 30,
2021$8,241 $3,055 $14,812 $628 $26 
2020$74,750 $2,200 $12,278 $1,038 $

Provided below is a summary of debt securities available for sale which were in an unrealized loss position at June 30, 2021 and December 31, 2020.
 June 30, 2021
 Less than 12 months12 months or moreTotal
Dollars in thousands# of securities in loss positionEstimated
Fair Value
Unrealized
Loss
Estimated
Fair Value
Unrealized
Loss
Estimated
Fair Value
Unrealized
Loss
Taxable debt securities      
U.S. Government agencies and corporations40$8,691 $17 $24,162 $346 $32,853 $363 
Residential mortgage-backed securities:      
Government-sponsored agencies102,898 62 8,836 233 11,734 295 
Nongovernment-sponsored entities78,923 103 2,895 164 11,818 267 
State and political subdivisions:      
General obligations1412,710 146 12,710 146 
Water and sewer revenues11,516 1,516 
Lease revenues21,474 21 1,474 21 
Insurance premium revenues13,045 16 3,045 16 
Other revenues65,173 111 5,173 111 
Corporate debt securities109,683 169 1,988 12 11,671 181 
Asset-backed securities105,262 20 18,844 161 24,106 181 
Tax-exempt debt securities      
State and political subdivisions:      
General obligations820,628 208 20,628 208 
Other revenues1156 156 
Total110$80,003 $874 $56,881 $917 $136,884 $1,791 






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

We do not intend to sell the above securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases.  We believe that this decline in value is primarily attributable to changes in market interest rates, and in some cases limited market liquidity and is not due to credit quality as none of these securities are in default and all carry above investment grade ratings. Accordingly, 0 allowance for credit losses has been recognized relative to these securities.

Debt Securities Held to Maturity

The amortized cost, unrealized gains, unrealized losses and estimated fair values of debt securities held to maturity at June 30, 2021 and December 31, 2020 are summarized as follows:
 June 30, 2021
 AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Debt Securities Held to Maturity    
Tax-exempt debt securities    
State and political subdivisions    
General obligations$72,500 $2,770 $$75,270 
Water and sewer revenues8,284 208 8,492 
Lease revenues4,356 64 4,420 
Sales tax revenues4,616 81 4,694 
Other revenues9,239 283 10 9,512 
Total debt securities held to maturity$98,995 $3,406 $13 $102,388 

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


Accrued interest receivable on debt securities held to maturity totaled $1.1 million and $1.2 million at June 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.

June 30, 2021
AmortizedUnrealizedEstimated
Dollars in thousandsCostGainsLossesFair Value
Texas$15,548 $592 $$16,140 
California9,979 367 10,346 
Pennsylvania8,710 334 9,044 
Florida7,660 278 7,938 
Michigan7,097 195 10 7,282 

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

June 30, 2021
Dollars in thousandsAAAAAABBBBelow Investment Grade
Tax-exempt state and political subdivisions$15,593 $75,859 $7,543 $$
December 31, 2020
Dollars in thousandsAAAAAABBBBelow Investment Grade
Tax-exempt state and political subdivisions$15,735 $76,585 $7,594 $$

We owned 0 past due or nonaccrual held to maturity debt securities at June 30, 2021 or December 31, 2020.

The maturities, amortized cost and estimated fair values of held to maturity debt securities at June 30, 2021, are summarized as follows:
Dollars in thousandsAmortized
Cost
Estimated
Fair Value
Due in one year or less$$
Due from one to five years
Due from five to ten years2,017 2,051 
Due after ten years96,978 100,337 
Total$98,995 $102,388 
There were 0 proceeds from calls and maturities of debt securities held to maturity for the six months ended June 30, 2021 or 2020.

At June 30, 2021, 0 allowance for credit losses on debt securities held to maturity has been recognized.












NOTE 6.  LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

Loans

The following table presents the amortized cost of loans held for investment:
Dollars in thousandsJune 30,
2021
December 31,
2020
Commercial$326,468 $306,885 
Commercial real estate - owner occupied  
Professional & medical122,403 107,151 
Retail141,703 126,451 
Other128,058 118,258 
Commercial real estate - non-owner occupied
Hotels & motels116,745 121,502 
Mini-storage49,875 60,550 
Multifamily196,964 175,988 
Retail143,931 135,405 
Other276,900 192,120 
Construction and development  
Land & land development102,670 107,342 
Construction140,788 91,100 
Residential 1-4 family real estate  
Personal residence279,970 305,093 
Rental - small loan118,269 120,426 
Rental - large loan71,694 74,185 
Home equity72,956 81,588 
Mortgage warehouse lines105,288 251,810 
Consumer32,732 33,906 
Other
Credit cards1,690 1,855 
Overdrafts666 538 
Total loans, net of unearned fees2,429,770 2,412,153 
Less allowance for credit losses - loans33,885 32,246 
Loans, net$2,395,885 $2,379,907 

Accrued interest and fees receivable on loans totaled $7.4 million and $9.1 million at June 30, 2021 and December 31, 2020, respectively and is included in accrued interest and fees receivable in the accompanying consolidated balance sheets.

COVID-19 Loan Deferments. In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. Certain borrowers continue to be unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At June 30, 2021, we had 3 loans in COVID-19 related deferment with an aggregate outstanding balance of approximately $8.7 million.




The following table presents the contractual aging of the amortized cost basis of past due loans by class as of June 30, 2021 and December 31, 2020.
 At June 30, 2021
 Past Due 90 days or more and Accruing
Dollars in thousands30-59 days60-89 days90 days or moreTotalCurrent
Commercial$414 $32 $525 $971 $325,497 $
Commercial real estate - owner occupied      
  Professional & medical122,403 
  Retail432 336 768 140,935 
  Other301 336 637 127,421 
Commercial real estate - non-owner occupied
  Hotels & motels116,745 
  Mini-storage49,875 
  Multifamily196,964 
  Retail336 336 143,595 
  Other317 317 276,583 
Construction and development      
  Land & land development1,874 37 621 2,532 100,138 
  Construction140,788 
Residential 1-4 family real estate      
  Personal residence2,531 1,030 899 4,460 275,510 
  Rental - small loan323 282 2,023 2,628 115,641 
  Rental - large loan71,694 
  Home equity312 51 170 533 72,423 
Mortgage warehouse lines105,288 
Consumer313 112 16 441 32,291 
Other
Credit cards1,688 
Overdrafts666 
Total$6,068 $1,976 $5,581 $13,625 $2,416,145 $
 


 At December 31, 2020
 Past Due 90 days or more and Accruing
Dollars in thousands30-59 days60-89 days90 days or moreTotalCurrent
Commercial$60 $$318 $378 $306,507 $
Commercial real estate - owner occupied      
  Professional & medical220 457 677 106,474 
  Retail54 2,259 2,313 124,138 
  Other150 150 118,108 
Commercial real estate - non-owner occupied
  Hotels & motels121,502 
  Mini-storage60,550 
  Multifamily175,988 
  Retail657 657 134,748 
  Other315 315 191,805 
Construction and development     
  Land & land development47 70 117 107,225 
  Construction91,100 
Residential 1-4 family real estate      
  Personal residence3,750 1,071 1,656 6,477 298,616 
  Rental - small loan1,129 487 719 2,335 118,091 
  Rental - large loan769 769 73,416 
  Home equity758 197 955 80,633 
Mortgage warehouse lines251,810 
Consumer190 44 72 306 33,600 
Other
Credit cards1,848 
Overdrafts538 
Total$6,982 $1,602 $6,872 $15,456 $2,396,697 $

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


June 30,December 31,
20212020
Dollars in thousandsNonaccrualNonaccrual
with No
Allowance for
Credit Losses
- Loans
NonaccrualNonaccrual
with No
Allowance for
Credit Losses
- Loans
Commercial$968 $$525 $
Commercial real estate - owner occupied  
  Professional & medical73 536 
  Retail10,125 336 12,193 2,258 
  Other377 384 
Commercial real estate - non-owner occupied
  Hotels & motels3,202 
  Mini-storage
  Multifamily
  Retail336 336 809 657 
  Other317 315 
Construction and development  
  Land & land development621 461 70 
  Construction165 
Residential 1-4 family real estate  
  Personal residence3,475 465 3,424 
  Rental - small loan2,930 495 1,603 108 
  Rental - large loan
  Home equity395 210 236 
Mortgage warehouse lines
Consumer36 73 
Other
Credit cards
Overdrafts
Total$22,855 $2,303 $20,333 $3,023 

At June 30, 2021, we had troubled debt restructurings ("TDRs") of $22.0 million, of which $19.6 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 0 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 six months ended June 30, 2021 and June 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. There were 0 restructurings during the quarter ending June 30, 2021 or 2020.

For the Six Months Ended 
 June 30, 2021
For the Six Months Ended 
 June 30, 2020
Dollars in thousandsNumber of
Modifications
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
Number of
Modifications
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
Commercial real estate - owner occupied
  Other$$$361 $361 
Total$$$361 $361 



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 
 June 30, 2021
For the Three Months Ended 
 June 30, 2020
Dollars in thousandsNumber
of
Defaults
Recorded
Investment
at Default Date
Number
of
Defaults
Recorded
Investment
at Default Date
Commercial real estate - owner occupied
  Other$$361 
Residential 1-4 family real estate
   Personal residence49 
Total1$49 $361 

For the Six Months Ended 
 June 30, 2021
For the Six Months Ended 
 June 30, 2020
Dollars in thousandsNumber
of
Defaults
Recorded
Investment
at Default Date
Number
of
Defaults
Recorded
Investment
at Default Date
Commercial real estate - owner occupied
  Other$$361 
Residential 1-4 family real estate
   Personal residence49 
   Rental - small loan399 
Total2$448 $361 

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

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

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

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

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

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

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of June 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:


June 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng
Revolving- TermTotal
CommercialPass$95,452 $46,957 $36,327 $7,150 $13,413 $17,786 $100,244 $$317,329 
Special Mention437 991 33 1,942 69 563 4,472 8,507 
Substandard119 86 20 42 365 632 
Total Commercial95,889 47,948 36,479 9,178 13,502 18,391 105,081 0 326,468 
Commercial Real Estate
   - Owner Occupied
Professional & medicalPass27,222 18,606 15,985 1,839 23,410 26,112 2,975 116,149 
Special Mention1,159 5,023 6,182 
Substandard72 72 
Total Professional & Medical27,222 19,837 15,985 1,839 23,410 31,135 2,975 0 122,403 
RetailPass26,398 27,002 26,503 5,653 9,468 31,316 2,168 128,508 
Special Mention432 758 — 1,190 
Substandard10,443 149 429 984 12,005 
Total Retail26,398 27,002 36,946 5,653 10,049 32,503 3,152 0 141,703 
OtherPass12,854 30,968 14,189 16,906 9,410 40,626 2,043 126,996 
Special Mention61 625 686 
Substandard337 39 376 
Total Other12,915 30,968 14,189 16,906 9,410 41,588 2,082 0 128,058 
Total Commercial Real Estate -
   Owner Occupied
66,535 77,807 67,120 24,398 42,869 105,226 8,209 0 392,164 
Commercial Real Estate
   - Non-Owner Occupied
Hotels & motelsPass3,371 23,614 16,103 9,787 20,982 2,566 76,423 
Special Mention37,120 37,120 
Substandard2,928 274 3,202 
Total Hotels & Motels0 6,299 60,734 16,103 9,787 21,256 2,566 0 116,745 
Mini-storagePass246 7,587 10,968 14,727 4,597 10,403 222 48,750 
Special Mention49 49 
Substandard1,076 1,076 
Total Mini-storage246 7,587 10,968 14,727 4,597 11,528 222 0 49,875 
MultifamilyPass29,826 38,647 22,477 26,686 17,776 56,402 4,611 196,425 
Special Mention494 45 539 
Substandard0 
Total Multifamily29,826 39,141 22,477 26,686 17,776 56,447 4,611 0 196,964 
RetailPass18,009 42,648 26,981 10,254 9,274 28,923 6,655 142,744 
Special Mention787 787 
Substandard400 400 


June 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng
Revolving- TermTotal
Total Retail18,009 42,648 26,981 10,254 9,274 30,110 6,655 0 143,931 
OtherPass88,640 75,569 20,247 24,000 9,089 53,302 2,264 273,111 
Special Mention0 
Substandard576 3,213 3,789 
Total Other88,640 75,569 20,247 24,576 9,089 56,515 2,264 0 276,900 
Total Commercial Real Estate -
   Non-Owner Occupied
136,721 171,244 141,407 92,346 50,523 175,856 16,318 0 784,415 
Construction and Development
Land & land developmentPass10,278 19,190 23,099 7,345 3,714 23,426 12,918 99,970 
Special Mention158 66 640 864 
Substandard1,836 1,836 
Total Land & land development10,278 19,348 23,165 7,345 3,714 25,902 12,918 0 102,670 
ConstructionPass37,312 55,332 41,368 2,037 4,238 140,287 
Special Mention0 
Substandard331 170 501 
Total Construction37,312 55,332 41,368 2,368 0 0 4,408 0 140,788 
Total Construction and
   Development
47,590 74,680 64,533 9,713 3,714 25,902 17,326 0 243,458 
Residential 1-4 Family Real Estate
Personal residencePass24,890 38,904 21,732 22,538 17,323 132,657 258,044 
Special Mention505 129 400 11,259 12,293 
Substandard713 813 459 7,648 9,633 
Total Personal Residence24,890 38,904 22,950 23,480 18,182 151,564 0 0 279,970 
Rental - small loanPass17,275 16,210 15,794 12,205 8,053 36,960 4,427 110,924 
Special Mention108 244 253 2,074 122 2,803 
Substandard370 473 541 530 2,611 17 4,542 
Total Rental - Small Loan17,275 16,688 16,511 12,999 8,585 41,645 4,566 0 118,269 
Rental - large loanPass15,289 15,858 5,101 7,008 3,487 17,427 3,130 67,300 
Special Mention774 774 
Substandard3,620 3,620 
Total Rental - Large Loan15,289 15,858 5,101 7,008 3,487 21,821 3,130 0 71,694 
Home equityPass283 30 13 23 19 1,302 68,642 70,312 
Special Mention40 94 1,635 1,769 
Substandard403 472 875 
Total Home Equity283 30 13 23 59 1,799 70,749 0 72,956 
Total Residential 1-4 Family Real
   Estate
57,737 71,480 44,575 43,510 30,313 216,829 78,445 0 542,889 


June 30, 2021
Dollars in thousandsRisk Rating20212020201920182017PriorRevolvi-
ng
Revolving- TermTotal
Mortgage warehouse linesPass105,288 105,288 
Special Mention0 
Substandard0 
Total Mortgage Warehouse Lines0 0 0 0 0 0 105,288 0 105,288 
ConsumerPass7,933 9,227 6,578 2,901 973 2,023 1,016 30,651 
Special Mention464 670 291 128 120 63 11 1,747 
Substandard45 136 67 12 43 26 334 
Total Consumer8,442 10,033 6,936 3,041 1,098 2,129 1,053 0 32,732 
Other
Credit cardsPass1,690 1,690 
Special Mention0 
Substandard0 
Total Credit Cards1,690 0 0 0 0 0 0 0 1,690 
OverdraftsPass666 666 
Special Mention
Substandard
Total Overdrafts666 0 0 0 0 0 0 0 666 
Total Other2,356 0 0 0 0 0 0 0 2,356 
Total$415,270 $453,192 $361,050 $182,186 $142,019 $544,333 $331,720 $0 $2,429,770 

December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng
Revolving- TermTotal
CommercialPass$112,335 $46,323 $20,936 $16,723 $11,087 $12,336 $78,107 $$297,847 
Special Mention38 1,956 77 201 909 407 3,597 
Substandard1,039 177 215 29 40 56 3,885 5,441 
Total Commercial113,383 46,538 23,107 16,829 11,328 13,301 82,399 0 306,885 
Commercial Real Estate
   - Owner Occupied
Professional & medicalPass19,454 16,414 2,540 26,578 3,322 28,905 3,079 100,292 
Special Mention1,171 5,152 6,323 
Substandard79 321 136 536 
Total Professional & Medical20,704 16,735 2,540 26,578 3,458 34,057 3,079 0 107,151 
RetailPass28,351 28,547 5,238 10,288 6,041 31,087 2,199 111,751 
Special Mention432 824 1,259 
Substandard10,524 157 2,360 400 13,441 


December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng
Revolving- TermTotal
Total Retail28,351 39,071 5,238 10,877 6,044 34,271 2,599 0 126,451 
OtherPass28,712 13,722 17,699 9,845 13,119 32,486 1,496 117,079 
Special Mention694 694 
Substandard444 41 485 
Total Other28,712 13,722 17,699 9,845 13,119 33,624 1,537 0 118,258 
Total Commercial Real Estate -
   Owner Occupied
77,767 69,528 25,477 47,300 22,621 101,952 7,215 0 351,860 
Commercial Real Estate
   - Non-Owner Occupied
Hotels & motelsPass3,428 23,821 18,894 9,880 7,389 14,252 3,160 80,824 
Special Mention2,994 37,398 286 40,678 
Substandard0 
Total Hotels & Motels6,422 61,219 18,894 9,880 7,389 14,538 3,160 0 121,502 
Mini-storagePass10,159 19,022 15,046 3,986 6,228 4,780 170 59,391 
Special Mention50 50 
Substandard1,109 1,109 
Total Mini-storage10,159 19,022 15,046 3,986 6,228 5,939 170 0 60,550 
MultifamilyPass39,814 27,090 27,198 19,294 10,762 47,751 2,844 174,753 
Special Mention48 48 
Substandard1,187 1,187 
Total Multifamily39,814 28,277 27,198 19,294 10,762 47,799 2,844 0 175,988 
RetailPass44,359 27,357 11,169 9,361 4,414 30,381 6,502 133,543 
Special Mention446 540 986 
Substandard152 724 876 
Total Retail44,359 27,357 11,169 9,513 4,860 31,645 6,502 0 135,405 
OtherPass75,272 20,483 24,663 10,626 26,989 28,293 1,794 188,120 
Special Mention142 142 
Substandard0 
Doubtful576 3,282 3,858 
Total Other75,272 20,483 25,239 10,626 26,989 31,717 1,794 0 192,120 
Total Commercial Real Estate -
   Non-Owner Occupied
176,026 156,358 97,546 53,299 56,228 131,638 14,470 0 685,565 
Construction and Development
Land & land developmentPass27,084 25,468 10,943 4,149 6,370 21,882 9,320 105,216 
Special Mention70 12 644 726 
Substandard11 1,383 1,400 
Total Land & land development27,084 25,538 10,961 4,149 6,381 23,909 9,320 0 107,342 


December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng
Revolving- TermTotal
ConstructionPass50,060 34,480 2,833 885 1,325 89,583 
Special Mention0 
Substandard1,352 165 1,517 
Total Construction50,060 35,832 2,833 885 0 165 1,325 0 91,100 
Total Construction and
   Development
77,144 61,370 13,794 5,034 6,381 24,074 10,645 0 198,442 
Residential 1-4 Family Real Estate
Personal residencePass51,120 31,415 27,052 23,069 23,759 126,293 282,708 
Special Mention242 131 267 254 12,020 12,914 
Substandard46 849 540 126 7,910 9,471 
Total Personal Residence51,120 31,703 28,032 23,876 24,139 146,223 0 0 305,093 
Rental - small loanPass18,762 20,113 14,512 10,705 10,941 34,643 4,047 113,723 
Special Mention110 253 251 192 1,749 62 2,620 
Substandard1,163 46 2,874 4,083 
Total Rental - Small Loan18,872 21,529 14,763 10,708 11,179 39,266 4,109 0 120,426 
Rental - large loanPass16,926 5,484 9,456 5,323 9,133 20,515 2,188 69,025 
Special Mention1,430 32 1,462 
Substandard3,698 3,698 
Total Rental - Large Loan16,926 6,914 9,456 5,323 9,133 24,245 2,188 0 74,185 
Home equityPass429 565 347 502 89 2,174 74,974 79,080 
Special Mention40 96 1,596 1,732 
Substandard32 28 424 292 776 
Total Home Equity429 565 379 570 89 2,694 76,862 0 81,588 
Total Residential 1-4 Family Real
   Estate
87,347 60,711 52,630 40,477 44,540 212,428 83,159 0 581,292 
Mortgage warehouse linesPass251,810 251,810 
Special Mention0 
Substandard0 
Total Mortgage Warehouse Lines0 0 0 0 0 0 251,810 0 251,810 
ConsumerPass12,785 9,257 4,239 1,609 1,237 1,516 822 31,465 
Special Mention991 454 214 155 70 49 18 1,951 
Substandard245 127 31 51 26 490 
Total Consumer14,021 9,838 4,484 1,770 1,358 1,569 866 0 33,906 
Other
Credit cardsPass1,855 1,855 
Special Mention0 
Substandard0 


December 31, 2020
Dollars in thousandsRisk Rating20202019201820172016PriorRevolvi-
ng
Revolving- TermTotal
Total Credit Cards1,855 0 0 0 0 0 0 0 1,855 
OverdraftsPass538 538 
Special Mention
Substandard
Total Overdrafts538 0 0 0 0 0 0 0 538 
Total Other2,393 0 0 0 0 0 0 0 2,393 
Total$548,081 $404,343 $217,038 $164,709 $142,456 $484,962 $450,564 $0 $2,412,153 

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

For the Three Months Ended June 30, 2021
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance
Provision
for
Credit
Losses -
Loans

Adjustment
for PCD
Acquired
Loans
Charge-
offs
RecoveriesEnding
Balance
Commercial$2,772 $20 $$(97)$14 $2,709 
Commercial real estate - owner occupied
  Professional & medical742 244 986 
  Retail4,001 (482)3,519 
  Other538 18 556 
Commercial real estate - non-owner occupied
  Hotels & motels2,945 (376)2,569 
  Mini-storage180 (23)157 
  Multifamily1,533 101 1,637 
  Retail1,331 140 1,471 
  Other1,168 257 1,425 
Construction and development
  Land & land development3,911 (208)3,705 
  Construction5,620 597 6,217 
Residential 1-4 family real estate
  Personal residence3,232 (197)(35)50 3,050 
  Rental - small loan2,537 77 (75)2,546 
  Rental - large loan2,495 (64)2,431 
  Home equity579 (5)(26)551 
Mortgage warehouse lines
Consumer242 (81)(23)34 172 
Other
  Credit cards15 (9)16 
  Overdrafts201 19 (78)26 168 
Total$34,042 $45 $$(343)$141 $33,885 


For the Six Months Ended June 30, 2021
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance
Provision
for
Credit
Losses -
Loans

Adjustment
for PCD
Acquired
Loans
Charge-
offs
RecoveriesEnding
Balance
Commercial$2,304 $609 $$(223)$19 $2,709 
Commercial real estate - owner occupied
  Professional & medical954 35 (3)986 
  Retail3,173 346 3,519 
  Other610 (54)556 
Commercial real estate - non-owner occupied
  Hotels & motels2,135 434 2,569 
  Mini-storage337 (180)157 
  Multifamily1,547 87 1,637 
  Retail981 490 1,471 
  Other1,104 321 1,425 
Construction and development
  Land & land development4,084 (386)3,705 
  Construction4,648 1,569 6,217 
Residential 1-4 family real estate
  Personal residence3,559 (484)(109)84 3,050 
  Rental - small loan2,736 (130)(89)29 2,546 
  Rental - large loan3,007 (576)2,431 
  Home equity713 (146)(26)10 551 
Mortgage warehouse lines
Consumer216 (35)(75)66 172 
Other
  Credit cards17 (12)16 
  Overdrafts121 123 (160)84 168 
Total$32,246 $2,030 $$(697)$306 $33,885 



For the Twelve Months Ended December 31, 2020
Allowance for Credit Losses - Loans
Dollars in thousandsBeginning
Balance
Impact of
Adoption
of ASC
326
Provision
for
Credit
Losses -
Loans

Adjustment
for PCD
Acquired
Loans
Charge-
offs
RecoveriesEnding
Balance
Commercial$1,221 $1,064 $85 $$(99)$33 $2,304 
Commercial real estate - owner occupied
  Professional & medical1,058 (390)1,290 (1,005)954 
  Retail820 (272)2,311 152 162 3,173 
  Other821 (137)(104)29 610 
Commercial real estate - non-owner occupied
  Hotels & motels1,235 (936)1,836 2,135 
  Mini-storage485 (311)48 115 337 
  Multifamily1,534 (155)122 38 1,547 
  Retail964 279 (22)101 (343)981 
  Other1,721 (1,394)700 58 19 1,104 
Construction and development
  Land & land development600 2,136 1,202 111 (7)42 4,084 
  Construction242 996 3,159 251 4,648 
Residential 1-4 family real estate
  Personal residence1,275 1,282 980 182 (252)92 3,559 
  Rental - small loan532 1,453 657 96 (140)138 2,736 
  Rental - large loan49 2,884 58 16 3,007 
  Home equity138 308 246 (24)45 713 
Mortgage warehouse lines
Consumer379 (238)166 (239)148 216 
Other
  Credit cards12 35 (40)10 17 
  Overdrafts182 251 (460)148 121 
Total$13,074 $6,926 $12,743 $1,206 $(2,609)$906 $32,246 

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


June 30, 2021
Loan BalancesAllowance for Credit Losses - Loans
Dollars in thousandsLoans Individually Evaluated
Loans Collectively Evaluated (1)
TotalLoans Individually EvaluatedLoans Collectively EvaluatedTotal
Commercial$4,770 $321,698 $326,468 $$2,709 $2,709 
Commercial real estate - owner occupied
  Professional & medical2,125 120,278 122,403 213 773 986 
  Retail16,003 125,700 141,703 2,129 1,390 3,519 
  Other128,058 128,058 556 556 
Commercial real estate - non-owner occupied
  Hotels & motels3,202 113,543 116,745 786 1,783 2,569 
  Mini-storage1,076 48,799 49,875 157 157 
  Multifamily196,964 196,964 1,637 1,637 
  Retail3,091 140,840 143,931 1,471 1,471 
  Other5,737 271,163 276,900 129 1,296 1,425 
Construction and development
  Land & land development2,334 100,336 102,670 660 3,045 3,705 
  Construction140,788 140,788 6,217 6,217 
Residential 1-4 family real estate
  Personal residence465 279,505 279,970 — 3,050 3,050 
  Rental - small loan1,634 116,635 118,269 135 2,411 2,546 
  Rental - large loan3,222 68,472 71,694 2,431 2,431 
  Home equity733 72,223 72,956 551 551 
Mortgage warehouse lines105,288 105,288 
Consumer32,732 32,732 172 172 
Other
Credit cards1,690 1,690 16 16 
Overdrafts666 666 168 168 
             Total$44,392 $2,385,378 $2,429,770 $4,052 $29,833 $33,885 

(1) Included in the loans collectively evaluated are $47.8 million in fully guaranteed or cash secured loans, which are excluded from the pools collectively evaluated and carry no reserve.



December 31, 2020
Loan BalancesAllowance for Credit Losses - Loans
Dollars in thousandsLoans Individually Evaluated
Loans Collectively Evaluated (1)
TotalLoans Individually EvaluatedLoans Collectively EvaluatedTotal
Commercial$4,851 $302,034 $306,885 $$2,296 $2,304 
Commercial real estate - owner occupied
  Professional & medical2,171 104,980 107,151 223 731 954 
  Retail17,458 108,993 126,451 2,258 915 3,173 
  Other118,258 118,258 610 610 
Commercial real estate - non-owner occupied
  Hotels & motels121,502 121,502 2,135 2,135 
  Mini-storage1,109 59,441 60,550 111 226 337 
  Multifamily1,187 174,801 175,988 135 1,412 1,547 
  Retail3,473 131,932 135,405 981 981 
  Other5,857 186,263 192,120 129 975 1,104 
Construction and development
  Land & land development1,891 105,451 107,342 623 3,461 4,084 
  Construction1,352 89,748 91,100 135 4,513 4,648 
Residential 1-4 family real estate
  Personal residence305,093 305,093 3,559 3,559 
  Rental - small loan1,300 119,126 120,426 102 2,634 2,736 
  Rental - large loan3,288 70,897 74,185 3,007 3,007 
  Home equity523 81,065 81,588 713 713 
Consumer33,906 33,906 216 216 
Other
Credit cards1,855 1,855 17 17 
Overdrafts538 538 121 121 
Mortgage warehouse lines251,810 251,810 
             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 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:


June 30, 2021
Dollars in thousandsReal Estate
Secured
Loans
Non-Real Estate
Secured Loans
Total LoansAllowance for Credit Losses
- Loans
Commercial$$4,770 $4,770 $
Commercial real estate - owner occupied
  Professional & medical2,125 2,125 213 
  Retail16,003 16,003 2,129 
  Other
Commercial real estate - non-owner occupied
  Hotels & motels3,202 3,202 786 
  Mini-storage1,076 1,076 
  Multifamily
  Retail3,091 3,091 
  Other5,737 5,737 129 
Construction and development
  Land & land development2,334 2,334 660 
  Construction
Residential 1-4 family real estate
  Personal residence465 465 
  Rental - small loan1,634 1,634 135 
  Rental - large loan3,222 3,222 
  Home equity733 733 
Consumer
Other
Credit cards
Overdrafts
             Total$39,622 $4,770 $44,392 $4,052 

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




NOTE 7.  GOODWILL AND OTHER INTANGIBLE ASSETS

The following tables present our goodwill activity for the quarter ending June 30, 2021 and the balance of other intangible assets at June 30, 2021 and December 31, 2020.
 
Dollars in thousandsGoodwill Activity
Balance, January 1, 2021$45,495 
Reclassifications from goodwill(479)
Acquired goodwill
Balance, June 30, 2021$45,016 
 Other Intangible Assets
Dollars in thousandsJune 30, 2021December 31, 2020
Identifiable intangible assets  
Gross carrying amount$15,650 $15,650 
Less: accumulated amortization(6,808)(6,022)
Net carrying amount$8,842 $9,628 

We recorded amortization expense of $382,000 and $787,000 for the three and six months ended June 30, 2021 and $410,000 and $839,000 for the three and six months ended June 30, 2020, relative to our identifiable intangible assets.  

Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years and thereafter:
Core Deposit
Dollars in thousandsIntangible
Six month period ending December 31, 2021$761 
Year ending December 31, 20221,409 
Year ending December 31, 20231,272 
Year ending December 31, 20241,134 
Year ending December 31, 2025998 
Thereafter3,198 

NOTE 8.  DEPOSITS

The following is a summary of interest bearing deposits by type as of June 30, 2021 and December 31, 2020:
Dollars in thousandsJune 30,
2021
December 31,
2020
Demand deposits, interest bearing$1,005,725 $934,185 
Savings deposits677,000 621,168 
Time deposits543,383 599,480 
Total$2,226,108 $2,154,833 

Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $23.5 million and $55.5 million at June 30, 2021 and December 31, 2020, respectively.

A summary of the scheduled maturities for all time deposits as of June 30, 2021 is as follows:
Dollars in thousands 
Six month period ending December 31, 2021$204,236 
Year ending December 31, 2022232,623 
Year ending December 31, 202358,984 
Year ending December 31, 202417,703 
Year ending December 31, 202514,658 
Thereafter15,179 
Total$543,383 


The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $107.5 million at June 30, 2021 and $81.4 million at December 31, 2020.


NOTE 9.  BORROWED FUNDS

Short-term borrowings:    A summary of short-term borrowings is presented below:
 Six Months Ended June 30,
 20212020
Dollars in thousandsShort-term
FHLB
Advances
Federal Funds
Purchased
and Lines
of Credit
Short-term
FHLB
Advances
Federal Funds
Purchased
and Lines
of Credit
Balance at June 30$140,000 $146 $90,800 $145 
Average balance outstanding for the period140,000 146 107,530 145 
Maximum balance outstanding at any month end during period140,000 146 161,600 145 
Weighted average interest rate for the period0.35 %0.25 %1.10 %0.83 %
Weighted average interest rate for balances    
     outstanding at June 300.31 %0.25 %0.39 %0.25 %
Year Ended December 31, 2020
Dollars in thousandsShort-term
FHLB
Advances
Federal Funds
Purchased
and Lines
of Credit
Balance at December 31$140,000 146 
Average balance outstanding for the period130,241 170 
Maximum balance outstanding at any month end
    during period
215,700 146 
Weighted average interest rate for the period0.67 %0.50 %
Weighted average interest rate for balances
     outstanding at December 310.35 %0.25 %

Long-term borrowings:  Our long-term borrowings of $689,000 and $699,000 at June 30, 2021 and December 31, 2020, respectively, consisted of a 5.34% fixed rate advance from the Federal Home Loan Bank (“FHLB”), maturing in 2026. This FHLB advance is collateralized by a blanket lien of $1.42 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”).  The debentures held by the trusts are their sole assets.  These subordinated debentures totaled $19.6 million at June 30, 2021 and December 31, 2020.

The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines.  In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill.  The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
 


A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
Dollars in thousands Long-term
borrowings
Subordinated debenturesSubordinated
debentures owed
to unconsolidated
subsidiary trusts
Year Ending December 31,2021$10 $$
 202221 
 202322 
 202423 
 202524 
 Thereafter589 30,000 19,589 
  $689 $30,000 $19,589 

NOTE 10.  SHARE-BASED COMPENSATION

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

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

A summary of our SAR and stock option activity during the first six months of 2021 and 2020 is as follows:
 For the Six Months Ended June 30,
 2021
Options/SARs
Aggregate
Intrinsic
Value (in thousands)
Remaining
Contractual
Term (Yrs.)
Weighted-Average
Exercise Price
Outstanding, January 1329,203 $20.47 
Granted
Exercised(800)12.01 
Forfeited
Expired
Outstanding, June 30328,403 $1,103 5.85$20.49 
Exercisable, June 30218,216 $1,103 5.18$18.53 




 For the Six Months Ended June 30,
 2020
Options/SARs
Aggregate
Intrinsic
Value
(in thousands)
Remaining
Contractual
Term (Yrs.)
Weighted-Average
Exercise Price
Outstanding, January 1330,703 $20.44 
Granted
Exercised
Forfeited
Expired
Outstanding, June 30330,703 $529 6.83$20.44 
Exercisable, June 30179,375 $529 5.77$17.03 

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

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

We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited.  During the first six months of 2021 and 2020, total stock compensation expense for all share-based arrangements was $252,000 and $323,000 and the related deferred tax benefits were approximately $61,000 and $78,000. At June 30, 2021 our total unrecognized compensation expense related to all nonvested awards not yet recognized totaled $1.01 million and is expected to be recognized over the next 1.69 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 thousandsJune 30,
2021
Commitments to extend credit: 
Revolving home equity and credit card lines$92,035 
Construction loans162,749 
Other loans280,803 
Standby letters of credit22,459 
Total$558,046 

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

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

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

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

The provision for credit losses on unfunded commitments was $470,000 and $1.0 million for the six months ended June 30, 2021 and 2020 and $955,000 and $493,000 for the three months ended June 30, 2021 and 2020. The ACL on off-balance-sheet credit exposures totaled $4.66 million at June 30, 2021 compared to $4.19 million at December 31, 2020.

Litigation

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

NOTE 12. PREFERRED STOCK

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

NOTE 13.  REGULATORY MATTERS

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



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