SMMF Summit Financial Group Inc

Summit Financial Group, Inc. (“Company” or “Summit”) (NASDAQ: SMMF) today reported financial results for the second quarter of 2023, showcasing strong core operating performance marked by notable strength in its net interest margin. The Company’s continued success underscores its position as a reliable partner in the financial services industry, reflecting a sound strategy and solid operational execution.

The Company, which serves commercial and individual clients across West Virginia, the Washington D.C. metropolitan area, Virginia, Kentucky, the Eastern Shore of Maryland and Delaware through Summit Community Bank, Inc., reported net income applicable to common shares of $7.98 million, or $0.54 per diluted share, for the second quarter of 2023, as compared to $13.9 million, or $1.08 per diluted share, for the first quarter of 2023 and $11.8 million, or $0.92 per diluted share, for the second quarter of 2022. Lower earnings in Q2 2023 were driven primarily by significant acquisition-related expenses attributable to the acquisition of PSB Holding Corp. and its bank subsidiary, Provident State Bank, Inc. (“PSB”) and by higher provision for credit losses recorded on purchased non-credit deteriorated (“non-PCD”) loans from PSB and on a nonperforming commercial real estate participation loan.

"We are pleased to report strong core performance in second quarter of 2023, characterized by significant revenue growth, an improved net interest margin and strategic balance sheet expansion," noted H. Charles Maddy III, President, and Chief Executive Officer of Summit Financial Group. "The completion of our acquisition of PSB Holding Corp. and Provident State Bank, Inc. is an important milestone for Summit, as it expanded our footprint to the Eastern Shore of Maryland and Delaware, providing exciting growth opportunities in new markets," continued Mr. Maddy.

"Our net interest margin (NIM) increased by 6 basis points from the linked quarter, driven by higher yields on interest-earning assets and effective management of funding costs," said Mr. Maddy. Furthermore, our loan portfolio showed positive momentum, with total core loan portfolio, excluding acquired loans, increasing 6 percent on an annualized basis during the quarter, and over 9 percent since June 30, 2022" noted Mr. Maddy.

“Despite the recent acquisition, our efficiency ratio remains below 48 percent, near its all-time record low, affirming our long tradition of optimizing operational performance," continued Mr. Maddy. "As we move forward, Summit remains steadfast in our growth strategy and optimistic about our future. Our solid financial foundation, coupled with a talented team, positions us well to create long-term value for our shareholders through organic growth and strategic initiatives," concluded Mr. Maddy.

Key Highlights for the Second Quarter of 2023

• The Company completed its acquisition, effective April 1, 2023, of PSB headquartered in Preston, Maryland, expanding its footprint in the Eastern Shore of Maryland and Delaware.
• Net interest margin (“NIM”) increased 6 basis points to 3.89 percent from the linked quarter and by 23 basis points from the prior-year quarter. This increase was primarily driven by increased yields on interest-earning assets. However, it was partially offset by higher costs of deposits and other funding sources.
• Summit’s core deposits grew 12.9 percent during the second quarter of 2023 as result of the PSB acquisition. Excluding acquired deposits, Summit’s core deposits decreased 2.6 percent during Q2 2023.
• Total loans, excluding acquired loans, mortgage warehouse lines of credit, and PPP lending, increased 1.53 percent (6.12 percent annualized) during the second quarter of 2023 and 9.2 percent since June 30, 2022.  
• The Company’s provision for credit losses totaled $8.00 million in the second quarter of 2023 compared to $1.5 million in the linked quarter. Included in the Company’s Q2 2023 provision for credit losses was $3.01 million to establish an allowance on non-PCD loans acquired from PSB in accordance with the Current Expected Credit Loss (“CECL”) accounting standard and $3.66 million to recognize an allowance on a nonperforming commercial real estate loan participation.
• Total non-interest expense increased by 55.2 percent to $27.3 million. This increase is largely attributed to the acquisition of PSB including $4.16 million of acquisition-related expenses. Consequently, our annualized non-interest expense ratio increased to 2.41 percent of average assets from 1.97 percent in the previous quarter and 1.91 percent in the same quarter last year. Excluding acquisition-related expenses, annualized non-interest expense would have been 2.05 percent of average assets for Q2 2023.
• The Company achieved an efficiency ratio of 47.90 percent compared to 48.00 percent in the linked quarter and 47.45 percent in the prior-year quarter.
• Nonperforming assets (“NPAs”) increased to 0.35 percent of total assets at period end, up 4 basis points during the quarter but down 8 basis points from the prior-year quarter.

PSB Acquisition

On April 1, 2023, Summit completed its acquisition of PSB. Accordingly, PSB’s results of operations are included in Summit’s consolidated results of operation from the date of acquisition, and therefore Summit’s second quarter and first half 2023 results reflect increased levels of average balances, income and expense compared to its second quarter and first half 2022 results.

Upon acquisition, PSB had total assets of $568.3 million, loans amounting to $381.5 million, and deposits totaling $498.0 million. Through the first half of 2023, the acquisition-related expenses totaled $4.49 million, with $4.16 million of the costs being incurred in the second quarter.

Results from Operations

Net interest income totaled $40.3 million in the second quarter of 2023, marking an increase of 30.2 percent from the prior-year second quarter and 17.9 percent from the linked quarter. NIM for the first quarter 2023 was 3.89 percent compared to 3.83 percent for the linked quarter and 3.66 percent for the prior-year quarter.

Summit recorded an $8.0 million provision for credit losses in the second quarter of 2023, which includes $3.01 million to establish an allowance on non-PCD loans acquired from PSB in accordance with the CECL accounting standard and $3.66 million to provide an allowance to reflect a nonperforming loan participation with a regional bank secured by a shopping complex at the fair value of its collateral. The provision for credit losses was $1.5 million for the linked quarter and $2.0 million in the second quarter of 2022.

Noninterest income, consisting primarily of service fee income from community banking activities and trust and wealth management fees, for second quarter 2023 was $5.42 million compared to $4.39 million for the linked quarter and $3.86 million for the comparable period of 2022. The Company recorded realized securities losses on debt securities of $211,000 in the second quarter of 2023 and $59,000 in the linked quarter. In addition, the Company recognized net gains on equity investments of $150,000 in the second quarter 2023 compared to $45,000 in the linked quarter.

Mortgage origination revenue decreased to $169,000 in the second quarter of 2023 compared to $171,000 in the linked quarter and $317,000 for the year-ago period reflecting continuing negative impact of higher interest rates on demand for new mortgage loans.

Excluding gains and losses from debt securities and equity investments, the combined revenue from net interest income and non-interest income for Q2 2023 rose to $45.8 million. This represents an increase of 18.7 percent from $38.6 million in the linked quarter and a substantial 28.0 percent growth from $35.8 million recorded in the second quarter of 2022.

Total noninterest expense increased to $27.3 million in the second quarter of 2023, up 40.9 percent from $19.4 million in the linked quarter and up 55.2 percent from $17.6 million for the prior-year second quarter. These increases are primarily due to the operational costs of the recently acquired PSB and acquisition-related expenses of $4.16 million in Q2 2023.

Salary and benefit expenses of $12.2 million in the second quarter of 2023 increased from $10.8 million for the linked quarter and $10.0 million from the prior-year second quarter. This increase was primarily due to the PSB acquisition and higher group health insurance premiums.

Acquisition-related expenses consisting of contract termination costs, executive and employee severance benefits and legal and consulting fees, were $4.16 million for Q2 2023 compared to $331,000 for the linked quarter and $4,000 for Q2 2022.

Other expenses were $3.64 million for Q2 2023 were higher compared to $2.97 million for the linked quarter and $2.36 million in the year-ago period, principally as result of the PSB acquisition.

Summit’s efficiency ratio was 47.90 percent in the second quarter of 2023, marginally higher than the 47.45 percent for the second quarter of 2022 and down compared to 48.00 percent in the linked quarter. Non-interest expense to average assets was 2.41 percent in the second quarter of 2023 compared to 1.97 percent in the linked quarter and 1.91 percent in the year-ago quarter.

Balance Sheet

As of June 30, 2023, total assets were $4.6 billion, an increase of $635.6 million, or 16.2 percent since December 31, 2022. Excluding acquired PSB assets, total assets increased by $71.1 million, or 1.8 percent since December 31, 2022.

Total loans net of unearned fees increased to $3.6 billion as of June 30, 2023, from $3.1 billion at December 31, 2022, and increased 19.3 percent from the second quarter of 2022. Total loans, excluding those related to mortgage warehouse lending, PPP lending and acquired loans, reached $3.1 billion on June 30, 2023. This represents an increase of 1.53 percent (or 6.12 percent when annualized) during the quarter just ended.

Total commercial loans, including commercial and industrial (C&I) and commercial real estate (CRE) but excluding PPP lending, increased 13.3 percent (26.6 percent annualized) during second quarter to $2.3 billion as of June 30, 2023.

Residential real estate and consumer lending totaled $731.9 million on June 30, 2023, reflecting an increase of 19.3 percent (38.6 percent annualized) during the second quarter.

As of June 30, 2023, PPP balances were paid down to zero and mortgage warehouse lines of credit, sourced solely from a participation arrangement with a large regional bank, totaled $118.8 million compared to $130.4 million as of December 31, 2022, and $171.4 million at the year-ago period end.

Deposits totaled $3.7 billion on June 30, 2023, a 13.2 percent increase during the second quarter. Core deposits increased 12.9 percent during the second quarter 2023 to $3.6 billion. Excluding acquired deposits, core deposits decreased $82.7 million, or 2.6 percent during the second quarter 2023. Adjusted uninsured deposits (excluding uninsured public deposits otherwise secured or collateralized as required by law) were 31.9 percent of total deposits at June 30, 2023 compared to 29.8 percent at year-end 2022 and 25.6 percent at the year-ago period end.

Total shareholders’ equity was $413.2 million as of June 30, 2023, compared to $354.5 million at December 31, 2022. During the second quarter 2023, Summit issued 1,880,732 common shares at a fair value of $39.0 million as consideration in conjunction with the PSB acquisition. Summit paid a quarterly common dividend of $0.20 per share in the second quarter of 2023.

Tangible Book Value Per Share (“TBVPS”) decreased by $0.97 to $21.93 during the second quarter of 2023, representing a 4.3 percent decrease. This decline was primarily influenced by the acquisition of PSB, which represented TBVPS dilution of $1.52 resulting from the transaction’s issuance of 1,880,732 common shares and its creation of intangible assets of $15.6 million. Summit had 14,672,147 outstanding common shares at June 30, 2023, compared to 12,783,646 at year-end 2022.  

As announced in the first quarter of 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, of which 323,577 shares have been repurchased to date. The timing and quantity of stock purchases under this repurchase plan are at the discretion of management. During the second quarter of 2023, no shares of Summit’s common stock were repurchased under the Plan.

Asset Quality

The Company recorded net loan charge-offs (“NCOs”) of $3.8 million during the second quarter 2023, representing 0.50 percent of average loans annualized, compared to net loan recoveries of $63,000, representing (0.01) percent of average loans annualized, in the first quarter of 2023. NCOs of $159,000 represented 0.02 percent of average loans annualized in the year-ago period.

Summit’s allowance for loan credit losses was $45.7 million on June 30, 2023, $40.8 million at the end of the linked quarter, and $35.1 million on June 30, 2022. As of June 30, 2023, the allowance for loan credit losses stood at 1.29 percent of total loans, reflecting a slight increase compared to the rate of 1.26 percent recorded as of December 31, 2022. The allowance for loan credit losses was increased by $1.50 million in Q2 2023 as result of purchased credit deteriorated loans from PSB. In terms of the allowance's coverage, it represented 402.8 percent of nonperforming loans at June 30, 2023, in contrast to the figure of 497.2 percent at the prior year-end, December 31, 2022.

Summit’s allowance for credit losses on unfunded loan commitments was $7.33 million as of June 30, 2023, compared to $6.57 million at the end of the linked quarter. The allowance for credit losses on unfunded loan commitments increased $760,000 during the most recent quarter. The acquisition of PSB resulted in an increase to the allowance for credit losses on unfunded loan commitments of $235,000, while the remaining increase was principally the result of a change in the mix of our unfunded commitments.  Construction loan commitments, which on average have a higher historical loss ratio than do other loans, increased, while our mortgage warehouse unfunded lines of credit, which carry a lower loss factor, decreased.

As of March 31, 2023, nonperforming assets (“NPAs”), consisting of nonperforming loans, foreclosed properties, and repossessed assets, totaled $16.1 million, or 0.32 percent of assets, compared to NPAs of $12.9 million, or 0.33 percent of assets at year-end 2022.

About the Company

Summit Financial Group, Inc. is the $4.6 billion financial holding company for Summit Community Bank, Inc. Its talented bankers serve commercial and individual clients throughout West Virginia, the Washington, D.C. metropolitan area, Virginia, Kentucky, Eastern Shore of Maryland and Delaware. Summit’s focus on in-market commercial lending and providing other business banking services in dynamic markets is designed to leverage its highly efficient operations and core deposits in strong legacy locations. Residential and consumer lending, trust and wealth management, and other retail financial services are offered through convenient digital and mobile banking platforms, including MySummitBank.com and 53 full-service branch locations. More information on Summit Financial Group, Inc. (NASDAQ: SMMF), headquartered in West Virginia’s Eastern Panhandle in Moorefield, is available at SummitFGI.com.

Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with Generally Accepted Accounting Principles (GAAP), Summit’s management uses, and this press release contains or references, certain non-GAAP financial measures, such as tangible common equity/tangible assets; efficiency ratio; return on average tangible equity and return on average tangible common equity. Summit believes these financial measures provide information useful to investors in understanding our operational performance and business and performance trends which facilitate comparisons with the performance of others in the financial services industry. Although Summit believes that these non-GAAP financial measures enhance investors' understanding of Summit’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

Forward-Looking Statements

This press release 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 pandemic, 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 press release.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q2 2023 vs Q2 2022
		For the Quarter Ended						Percent
Dollars in thousands		6/30/2023			6/30/2022			Change
Statements of Income
	Interest income
	Loans, including fees	$	54,413		$	32,766		66.1	%
	Securities		6,247			2,752		127.0	%
	Other		203			45		351.1	%
	Total interest income		60,863			35,563		71.1	%
	Interest expense
	Deposits		17,851			2,622		580.8	%
	Borrowings		2,699			1,976		36.6	%
	Total interest expense		20,550			4,598		346.9	%
	Net interest income		40,313			30,965		30.2	%
	Provision for credit losses		8,000			2,000		300.0	%
	Net interest income after provision
	for credit losses		32,313			28,965		11.6	%
	Noninterest income
	Trust and wealth management fees		854			745		14.6	%
	Mortgage origination revenue		169			317		-46.7	%
	Service charges on deposit accounts		1,943			1,674		16.1	%
	Bank card revenue		1,987			1,618		22.8	%
	Net gains/(losses) on equity investments		150			(669	)	-122.4	%
	Net realized losses on debt securities		(211	)		(289	)	-27.0	%
	Bank owned life insurance and annuity income		431			331		30.2	%
	Other income		100			129		-22.5	%
	Total noninterest income		5,423			3,856		40.6	%
	Noninterest expense
	Salaries and employee benefits		12,156			10,030		21.2	%
	Net occupancy expense		1,528			1,258		21.5	%
	Equipment expense		2,361			1,791		31.8	%
	Professional fees		471			507		-7.1	%
	Advertising and public relations		264			165		60.0	%
	Amortization of intangibles		999			355		181.4	%
	FDIC premiums		742			190		290.5	%
	Bank card expense		951			810		17.4	%
	Foreclosed properties expense, net of (gains)/losses		48			141		-66.0	%
	Acquisition-related expense		4,163			4		n/m
	Other expenses		3,641			2,358		54.4	%
	Total noninterest expense		27,324			17,609		55.2	%
	Income before income taxes		10,412			15,212		-31.6	%
	Income taxes		2,203			3,198		-31.1	%
	Net income		8,209			12,014		-31.7	%
	Preferred stock dividends		225			225		n/a
	Net income applicable to common shares	$	7,984		$	11,789		-32.3	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Quarterly Performance Summary (unaudited)
Q2 2023 vs Q2 2022
		For the Quarter Ended						Percent
		6/30/2023			6/30/2022			Change
Per Share Data
	Earnings per common share
	Basic	$	0.54		$	0.92		-41.3	%
	Diluted	$	0.54		$	0.92		-41.3	%
	Cash dividends per common share	$	0.20		$	0.18		11.1	%
	Common stock dividend payout ratio		35.7	%		19.5	%	83.1	%
	Average common shares outstanding
	Basic		14,668,923			12,754,724		15.0	%
	Diluted		14,703,636			12,810,174		14.8	%
	Common shares outstanding at period end		14,672,147			12,763,422		15.0	%
Performance Ratios
	Return on average equity		7.99	%		14.48	%	-44.8	%
	Return on average tangible equity (C)(E)		10.86	%		18.28	%	-40.6	%
	Return on average tangible common equity (D)(E)		11.37	%		19.35	%	-41.2	%
	Return on average assets		0.73	%		1.30	%	-43.8	%
	Net interest margin (A)		3.89	%		3.66	%	6.3	%
	Efficiency ratio (B)		47.90	%		47.45	%	0.9	%

NOTES

(A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21%.

(B) – Computed on a tax equivalent basis excluding acquisition-related expenses, gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

(C) – Return on average tangible equity = (Net income + Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income + Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

    

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary (unaudited)
2023 vs 2022
		For the Six Months Ended						Percent
Dollars in thousands		6/30/2023			6/30/2022			Change
Statements of Income
	Interest income
	Loans, including fees	$	99,897		$	62,991		58.6	%
	Securities		11,066			5,374		105.9	%
	Other		375			91		312.1	%
	Total interest income		111,338			68,456		62.6	%
	Interest expense
	Deposits		31,851			4,349		632.4	%
	Borrowings		4,984			3,587		38.9	%
	Total interest expense		36,835			7,936		364.2	%
	Net interest income		74,503			60,520		23.1	%
	Provision for credit losses		9,500			3,950		140.5	%
	Net interest income after provision
	for credit losses		65,003			56,570		14.9	%
	Noninterest income
	Trust and wealth management fees		1,665			1,503		10.8	%
	Mortgage origination revenue		340			656		-48.2	%
	Service charges on deposit accounts		3,335			3,074		8.5	%
	Bank card revenue		3,555			3,109		14.3	%
	Net gains/(losses) on equity investments		195			(297	)	n/a
	Net realized losses on debt securities, net		(270	)		(442	)	-38.9	%
	Bank owned life insurance and annuity income		767			615		24.7	%
	Other income		222			183		21.3	%
	Total noninterest income		9,809			8,401		16.8	%
	Noninterest expense
	Salaries and employee benefits		22,963			19,731		16.4	%
	Net occupancy expense		2,861			2,499		14.5	%
	Equipment expense		4,391			3,634		20.8	%
	Professional fees		847			869		-2.5	%
	Advertising and public relations		434			337		28.8	%
	Amortization of intangibles		1,342			734		82.8	%
	FDIC premiums		1,072			580		84.8	%
	Bank card expense		1,648			1,524		8.1	%
	Foreclosed properties expense, net of (gains)/losses		62			51		21.6	%
	Acquisition-related expense		4,494			33		n/m
	Other expenses		6,609			4,817		37.2	%
	Total noninterest expense		46,723			34,809		34.2	%
	Income before income taxes		28,089			30,162		-6.9	%
	Income taxes		5,779			6,455		-10.5	%
	Net income		22,310			23,707		-5.9	%
	Preferred stock dividends		450			450		0.0	%
	Net income applicable to common shares	$	21,860		$	23,257		-6.0	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Six Month Performance Summary (unaudited)
2023 vs 2022
		For the Six Months Ended						Percent
		6/30/2023			6/30/2022			Change
Per Share Data
	Earnings per common share
	Basic	$	1.59		$	1.82		-12.6	%
	Diluted	$	1.59		$	1.82		-12.6	%
	Cash dividends per common share	$	0.40		$	0.36		11.1	%
	Common stock dividend payout ratio		25.1	%		19.8	%	27.1	%
	Average common shares outstanding
	Basic		13,731,594			12,750,037		7.7	%
	Diluted		13,772,592			12,805,873		7.5	%
	Common shares outstanding at period end		14,672,147			12,763,422		15.0	%
Performance Ratios
	Return on average equity		11.53	%		14.34	%	-19.6	%
	Return on average tangible equity (C) (E)		14.78	%		18.15	%	-18.6	%
	Return on average tangible common equity (D) (E)		15.52	%		18.87	%	-17.8	%
	Return on average assets		1.05	%		1.30	%	-19.2	%
	Net interest margin (A)		3.86	%		3.64	%	6.0	%
	Efficiency ratio (B)		47.95	%		48.42	%	-1.0	%

NOTES

(A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21%.

(B) – Computed on a tax equivalent basis excluding acquisition-related expenses, gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

(C) – Return on average tangible equity = (Net income + Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income applicable to common shares + Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)
		For the Quarter Ended
Dollars in thousands		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022
Statements of Income
	Interest income
	Loans, including fees	$	54,413		$	45,485		$	43,589		$	38,784		$	32,766
	Securities		6,247			4,819			4,181			3,497			2,752
	Other		203			171			70			170			45
	Total interest income		60,863			50,475			47,840			42,451			35,563
	Interest expense
	Deposits		17,851			14,000			10,194			6,140			2,622
	Borrowings		2,699			2,286			3,293			2,198			1,976
	Total interest expense		20,550			16,286			13,487			8,338			4,598
	Net interest income		40,313			34,189			34,353			34,113			30,965
	Provision for credit losses		8,000			1,500			1,500			1,500			2,000
	Net interest income after provision
	for credit losses		32,313			32,689			32,853			32,613			28,965
	Noninterest income
	Trust and wealth management fees		854			811			750			725			745
	Mortgage origination revenue		169			171			286			538			317
	Service charges on deposit accounts		1,943			1,392			1,526			1,550			1,674
	Bank card revenue		1,987			1,568			1,513			1,639			1,618
	Net gains/(losses) on equity investments		150			45			280			283			(669	)
	Net realized losses on debt securities		(211	)		(59	)		(24	)		(242	)		(289	)
	Bank owned life insurance and annuity income		431			336			367			229			331
	Other income		100			122			167			165			129
	Total noninterest income		5,423			4,386			4,865			4,887			3,856
	Noninterest expense
	Salaries and employee benefits		12,156			10,807			10,532			10,189			10,030
	Net occupancy expense		1,528			1,333			1,328			1,301			1,258
	Equipment expense		2,361			2,030			1,769			1,851			1,791
	Professional fees		471			376			386			372			507
	Advertising and public relations		264			170			280			276			165
	Amortization of intangibles		999			343			351			354			355
	FDIC premiums		742			330			352			292			190
	Bank card expense		951			696			679			726			810
	Foreclosed properties expense, net of (gains)/losses		48			15			159			26			141
	Acquisition-related expenses		4,163			331			81			-			4
	Other expenses		3,641			2,968			2,932			3,834			2,358
	Total noninterest expense		27,324			19,399			18,849			19,221			17,609
	Income before income taxes		10,412			17,676			18,869			18,279			15,212
	Income tax expense		2,203			3,575			3,783			3,856			3,198
	Net income		8,209			14,101			15,086			14,423			12,014
	Preferred stock dividends		225			225			225			225			225
	Net income applicable to common shares	$	7,984		$	13,876		$	14,861		$	14,198		$	11,789

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Five Quarter Performance Summary (unaudited)
		For the Quarter Ended
		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022
Per Share Data
	Earnings per common share
	Basic	$	0.54		$	1.09		$	1.16		$	1.11		$	0.92
	Diluted	$	0.54		$	1.08		$	1.16		$	1.11		$	0.92
	Cash dividends per common share	$	0.20		$	0.20		$	0.20		$	0.20		$	0.18
	Common stock dividend payout ratio		36.7	%		18.1	%		16.9	%		17.7	%		19.1	%
	Average common shares outstanding
	Basic		14,668,923			12,783,851			12,775,703			12,766,473			12,754,724
	Diluted		14,703,636			12,830,102			12,837,637			12,835,670			12,810,174
	Common shares outstanding at period end		14,672,147			12,786,404			12,783,646			12,774,645			12,763,422
Performance Ratios
	Return on average equity		7.99	%		15.55	%		17.50	%		17.05	%		14.48	%
	Return on average tangible equity (C)(E)		10.86	%		19.10	%		21.75	%		21.33	%		18.28	%
	Return on average tangible common equity (D)(E)		11.37	%		20.10	%		22.96	%		22.20	%		19.00	%
	Return on average assets		0.73	%		1.43	%		1.54	%		1.51	%		1.30	%
	Net interest margin (A)		3.89	%		3.83	%		3.80	%		3.84	%		3.66	%
	Efficiency ratio (B)		47.90	%		48.00	%		46.40	%		47.95	%		47.45	%

NOTES

(A) – Presented on a tax-equivalent basis assuming a federal tax rate of 21%.

(B) – Computed on a tax equivalent basis excluding acquisition-related expenses, gains/losses on sales of assets, write-downs of OREO properties to fair value and amortization of intangibles.

(C) – Return on average tangible equity = (Net income + Amortization of intangibles [after-tax]) / (Average shareholders’ equity – Average intangible assets).

(D) – Return on average tangible common equity = (Net income + Amortization of intangibles [after-tax]) / (Average common shareholders’ equity – Average intangible assets).

(E) -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Selected Balance Sheet Data (unaudited)
Dollars in thousands, except per share amounts		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022
Assets
	Cash and due from banks	$	23,341		$	16,488		$	16,469		$	16,141		$	17,921
	Interest bearing deposits other banks		39,902			54,328			28,248			29,510			31,680
	Debt securities, available for sale		512,038			431,933			405,201			383,965			368,049
	Debt securities, held to maturity		95,200			95,682			96,163			96,640			97,116
	Equity investments		30,818			29,867			29,494			20,314			19,905
	Other investments		16,014			12,696			16,029			18,105			18,329
	Loans, net		3,506,880			3,059,099			3,043,919			3,038,377			2,941,813
	Property held for sale		4,742			5,128			5,067			5,193			5,319
	Premises and equipment, net		60,967			54,491			53,981			54,628			55,034
	Goodwill and other intangible assets, net		76,423			61,807			62,150			62,502			62,856
	Cash surrender value of life insurance policies and annuities		84,790			72,019			71,640			71,216			71,073
	Derivative financial instruments		39,951			34,758			40,506			42,179			31,452
	Other assets		61,204			49,111			47,825			48,529			42,252
	Total assets	$	4,552,270		$	3,977,407		$	3,916,692		$	3,887,299		$	3,762,799
Liabilities and Shareholders' Equity
	Deposits	$	3,735,034		$	3,299,846		$	3,169,879		$	3,108,072		$	2,975,304
	Short-term borrowings		232,150			140,150			225,999			273,148			291,447
	Long-term borrowings and
	subordinated debentures, net		123,776			123,660			123,543			123,427			123,311
	Other liabilities		48,136			44,205			42,741			40,978			38,846
	Total liabilities		4,139,096			3,607,861			3,562,162			3,545,625			3,428,908
	Preferred stock and related surplus		14,920			14,920			14,920			14,920			14,920
	Common stock and related surplus		130,227			90,939			90,696			90,345			90,008
	Retained earnings		276,762			271,712			260,393			248,084			236,438
	Accumulated other comprehensive income (loss)		(8,735	)		(8,025	)		(11,479	)		(11,675	)		(7,475	)
	Total shareholders' equity		413,174			369,546			354,530			341,674			333,891
	Total liabilities and shareholders' equity	$	4,552,270		$	3,977,407		$	3,916,692		$	3,887,299		$	3,762,799
	Book value per common share	$	27.14		$	27.73		$	26.57		$	25.58		$	24.99
	Tangible book value per common share (A)(C)	$	21.93		$	22.90		$	21.70		$	20.69		$	20.07
	Tangible common equity to tangible assets (B)(C)		7.2	%		7.5	%		7.2	%		6.9	%		6.9	%

NOTES

(A)   – Tangible book value per share = (Common stock and related surplus plus Retained earnings plus Accumulated other comprehensive income/loss – Intangible assets) / Common shares outstanding.(B)   – Tangible common equity to tangible assets = (Common stock and related surplus plus Retained earnings plus Accumulated other comprehensive income/loss – Intangible assets) / (Total assets – Intangible assets).(C)   -- See Non-GAAP Financial Measures for additional information relating to the calculation of this item.

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Loan Composition (unaudited)
Dollars in thousands		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Commercial		$	511,457	$	498,268	$	501,844	$	512,771	$	455,202
Mortgage warehouse lines			118,785		86,240		130,390		194,740		171,399
Commercial real estate
Owner occupied			566,447		469,560		467,050		473,298		502,152
Non-owner occupied			1,193,927		1,036,358		1,004,368		960,627		963,646
Construction and development
Land and development			117,371		102,351		106,362		104,437		106,840
Construction			309,709		290,556		282,935		248,564		211,955
Residential real estate
Conventional			483,998		395,312		386,874		382,203		377,980
Jumbo			117,219		111,475		92,103		87,449		79,803
Home equity			86,050		70,167		71,986		72,756		71,136
Consumer			44,429		36,531		35,372		35,116		33,816
Other			3,169		3,117		3,534		3,166		2,947
Total loans, net of unearned fees			3,552,561		3,099,935		3,082,818		3,075,127		2,976,876
Less allowance for loan credit losses			45,681		40,836		38,899		36,750		35,063
Loans, net		$	3,506,880	$	3,059,099	$	3,043,919	$	3,038,377	$	2,941,813
Unfunded loan commitments		$	957,278	$	907,757	$	925,657	$	889,854	$	876,157

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Deposit Composition (unaudited)
Dollars in thousands		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Core deposits
Non-interest bearing checking		$	679,139	$	552,716	$	553,616	$	619,067	$	600,791
Interest bearing checking			2,024,341		1,886,011		1,743,299		1,475,643		1,238,368
Savings			512,129		462,631		496,751		582,922		645,099
Time deposits			375,860		278,410		294,630		338,668		386,562
Total core deposits			3,591,469		3,179,768		3,088,296		3,016,300		2,870,820
Brokered time deposits			54,399		71,451		32,790		32,778		32,767
Other non-core time deposits			89,166		48,627		48,793		58,994		71,717
Total deposits		$	3,735,034	$	3,299,846	$	3,169,879	$	3,108,072	$	2,975,304
Estimated uninsured deposits (A)		$	1,189,908	$	933,703	$	946,188	$	757,038	$	762,466
(A) - Excludes uninsured public funds otherwise secured or collateralized as required by law

SUMMIT FINANCIAL GROUP INC. (NASDAQ: SMMF)
Regulatory Capital Ratios (unaudited)
		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
Summit Financial Group, Inc.
	CET1 Risk-based Capital	8.7	%	8.9	%	8.6	%	8.2	%	8.2	%
	Tier 1 Risk-based Capital	9.5	%	9.8	%	9.5	%	9.2	%	9.2	%
	Total Risk-based Capital	13.3	%	14.0	%	13.5	%	13.1	%	13.3	%
	Tier 1 Leverage	8.4	%	8.7	%	8.5	%	8.4	%	8.4	%
Summit Community Bank, Inc.
	CET1 Risk-based Capital	11.3	%	11.9	%	11.6	%	11.3	%	11.4	%
	Tier 1 Risk-based Capital	11.3	%	11.9	%	11.6	%	11.3	%	11.4	%
	Total Risk-based Capital	12.5	%	13.1	%	12.6	%	12.2	%	12.4	%
	Tier 1 Leverage	9.9	%	10.6	%	10.4	%	10.3	%	10.4	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Asset Quality Information (unaudited)
		For the Quarter Ended
Dollars in thousands		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022
	Gross loan charge-offs	$	4,174		$	164		$	250		$	265		$	306
	Gross loan recoveries		(346	)		(227	)		(249	)		(257	)		(147	)
	Net loan charge-offs	$	3,828		$	(63	)	$	1		$	8		$	159
	Net loan charge-offs to average loans (annualized)		0.50	%		-0.01	%		0.00	%		0.00	%		0.02	%
	Allowance for loan credit losses	$	45,681		$	40,836		$	38,899		$	36,750		$	35,063
	Allowance for loan credit losses as a percentage
	of period end loans		1.29	%		1.32	%		1.26	%		1.19	%		1.18	%
	Allowance for credit losses on
	unfunded loan commitments ("ULC")	$	7,332		$	6,572		$	6,947		$	7,597		$	7,792
	Allowance for credit losses on ULC
	as a percentage of period end ULC		0.81	%		0.72	%		0.75	%		0.85	%		0.89	%
	Nonperforming assets:
	Nonperforming loans
	Commercial	$	254		$	402		$	93		$	347		$	345
	Commercial real estate		5,970			1,700			1,750			1,860			2,703
	Residential construction and development		772			813			851			902			1,053
	Residential real estate		4,298			4,322			5,117			6,083			6,799
	Consumer		46			65			12			8			37
	Total nonperforming loans		11,340			7,302			7,823			9,200			10,937
	Foreclosed properties
	Commercial real estate		297			297			297			297			440
	Commercial construction and development		2,187			2,187			2,187			2,332			2,332
	Residential construction and development		2,161			2,293			2,293			2,293			2,293
	Residential real estate		97			351			290			271			254
	Total foreclosed properties		4,742			5,128			5,067			5,193			5,319
	Other repossessed assets		-			-			-			-			-
	Total nonperforming assets	$	16,082		$	12,430		$	12,890		$	14,393		$	16,256
	Nonperforming loans to period end loans		0.32	%		0.24	%		0.25	%		0.30	%		0.37	%
	Nonperforming assets to period end assets		0.35	%		0.31	%		0.33	%		0.37	%		0.43	%

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Loans Past Due 30-89 Days (unaudited)
Dollars in thousands		6/30/2023		3/31/2023		12/31/2022		9/30/2022		6/30/2022
	Commercial	$	1,006	$	463	$	3,168	$	1,329	$	989
	Commercial real estate		513		1,000		641		1,550		4,084
	Construction and development		161		3,459		317		236		821
	Residential real estate		4,933		2,311		6,231		2,824		3,452
	Consumer		389		252		253		216		196
	Other		17		13		22		4		14
	Total	$	7,019	$	7,498	$	10,632	$	6,159	$	9,556

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
Q2 2023 vs Q1 2023 vs Q2 2022 (unaudited)
	Q2 2023								Q1 2023								Q2 2022
	Average			Earnings /		Yield /			Average			Earnings /		Yield /			Average			Earnings /		Yield /
Dollars in thousands	Balances			Expense		Rate			Balances			Expense		Rate			Balances			Expense		Rate
ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable	$	3,516,306		$	54,374	6.20	%		$	3,087,068		$	45,421	5.97	%		$	2,902,370		$	32,721	4.52	%
Tax-exempt (2)		4,144			49	4.74	%			6,086			81	5.40	%			5,127			57	4.46	%
Securities
Taxable		428,039			4,900	4.59	%			314,004			3,412	4.41	%			297,701			1,765	2.38	%
Tax-exempt (2)		209,931			1,705	3.26	%			216,430			1,781	3.34	%			178,043			1,249	2.81	%
Interest bearing deposits other banks
and Federal funds sold		35,218			203	2.31	%			34,330			171	2.02	%			37,757			45	0.48	%
Total interest earning assets		4,193,638			61,231	5.86	%			3,657,918			50,866	5.64	%			3,420,998			35,837	4.20	%
Noninterest earning assets
Cash & due from banks		23,588								17,387								16,351
Premises & equipment		60,872								54,112								55,449
Intangible assets		80,445								62,024								63,058
Other assets		212,104								190,533								165,788
Allowance for loan credit losses		(44,312	)							(39,507	)							(33,232	)
Total assets	$	4,526,335							$	3,942,467							$	3,688,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits		1,985,134			13,423	2.71	%			1,819,505			10,796	2.41	%		$	1,189,324		$	1,274	0.43	%
Savings deposits		528,694			2,000	1.52	%			480,207			1,917	1.62	%			672,353			689	0.41	%
Time deposits		513,236			2,428	1.90	%			389,252			1,287	1.34	%			517,360			659	0.51	%
Short-term borrowings		207,418			1,212	2.34	%			166,365			824	2.01	%			207,227			696	1.35	%
Long-term borrowings and
subordinated debentures		123,843			1,487	4.82	%			123,599			1,462	4.80	%			123,263			1,280	4.17	%
Total interest bearing liabilities		3,358,325			20,550	2.45	%			2,978,928			16,286	2.22	%			2,709,527			4,598	0.68	%
Noninterest bearing liabilities
Demand deposits		706,391								557,209								605,724
Other liabilities		50,863								43,508								41,307
Total liabilities		4,115,579								3,579,645								3,356,558
Shareholders' equity - preferred		14,920								14,920								14,920
Shareholders' equity - common		395,836								347,902								316,934
Total liabilities and
shareholders' equity	$	4,526,335							$	3,942,467							$	3,688,412
NET INTEREST EARNINGS				$	40,681							$	34,580							$	31,239
NET INTEREST MARGIN						3.89	%							3.83	%							3.66	%
(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 $368,000, $391,000, and $274,000 for Q2 2023,
Q1 2023 and Q2 2022, respectively.

   

SUMMIT FINANCIAL GROUP, INC. (NASDAQ: SMMF)
Average Balance Sheet, Interest Earnings & Expenses and Average Rates
YTD 2023 vs YTD 2022 (unaudited)
	YTD 2023								YTD 2022
	Average			Earnings /		Yield /			Average			Earnings /		Yield /
Dollars in thousands	Balances			Expense		Rate			Balances			Expense		Rate
ASSETS
Interest earning assets
Loans, net of unearned interest (1)
Taxable	$	3,302,776		$	99,794	6.09	%		$	2,837,467		$	62,900	4.47	%
Tax-exempt (2)		5,109			130	5.13	%			5,248			115	4.42	%
Securities
Taxable		371,330			8,312	4.51	%			308,872			3,420	2.23	%
Tax-exempt (2)		213,162			3,486	3.30	%			179,252			2,473	2.78	%
Interest bearing deposits other banks
and Federal funds sold		34,641			375	2.18	%			55,222			91	0.33	%
Total interest earning assets		3,927,018			112,097	5.76	%			3,386,061			68,999	4.11	%
Noninterest earning assets
Cash & due from banks		20,231								17,781
Premises & equipment		57,511								55,746
Intangible assets		71,285								63,242
Other assets		201,267								154,200
Allowance for loan losses		(41,925	)							(32,849	)
Total assets	$	4,235,387							$	3,644,181
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits	$	1,903,945		$	24,219	2.57	%		$	1,162,346		$	1,739	0.30	%
Savings deposits		504,392			3,917	1.57	%			686,157			1,262	0.37	%
Time deposits		451,774			3,715	1.66	%			529,791			1,348	0.51	%
Short-term borrowings		187,159			2,036	2.19	%			173,914			1,068	1.24	%
Long-term borrowings and
subordinated debentures		123,656			2,948	4.81	%			123,234			2,519	4.12	%
		3,170,926			36,835	2.34	%			2,675,442			7,936	0.60	%
Noninterest bearing liabilities
Demand deposits		630,390								596,365
Other liabilities		47,150								41,779
Total liabilities		3,848,466								3,313,586
Shareholders' equity - preferred		14,920								14,920
Shareholders' equity - common		372,001								315,675
Total liabilities and
shareholders' equity	$	4,235,387							$	3,644,181
NET INTEREST EARNINGS				$	75,262							$	61,063
NET INTEREST MARGIN						3.86	%							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 $759,000 and $543,000 for the
YTD 2023 and YTD 2022 periods, respectively.

Contact: Robert S. Tissue, Executive Vice President & CFOTelephone: (304) 530-0552Email: rtissue@summitfgi.com