SUMMIT FINANCIAL GROUP, INC. Management report and analysis of the financial position and operating results INTRODUCTION (Form 10-Q)

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

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

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

PREVIEW

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

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

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

COVID-19 IMPACTS

Overview

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

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

Loan and credit risks

While we have not experienced any material charge-offs related to COVID-19, our
allowance for credit losses ACL computation and resulting provision for credit
losses are significantly impacted by the estimated potential future economic
impact of the COVID-19 crisis. Refer to the Credit Experience section of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further details regarding Q3 2021 provision for credit losses.
We took actions to identify and assess our COVID-19 related credit exposures by
asset classes and borrower types. Depending on the demonstrated need of the
client, in certain cases, we either modified to interest only or deferred the
full loan payment. Accordingly, the following tables summarize the aggregate
balances of loans the Company has modified as result of COVID-19 as of September
30, 2021 and December 31, 2020 classified by types of loans and impacted
borrowers.
                                                           Loan Balances 

Amended due to COVID-19 as of September 30, 2021

                                      Total Loan
                                     Balance as of     Interest Only       Payment        Total Loans        Percentage of
Dollars in thousands                   9/30/2021         Payments          Deferral        Modified          Loans Modified
Hospitality industry               $      121,765    $            -    $           -    $          -                        -  %
Non-owner occupied retail stores          154,120             7,223                -           7,223                      4.7  %
Owner-occupied retail stores              163,350                 -                -               -                        -  %
Restaurants                                12,200                 -                -               -                        -  %
Oil & gas industry                         18,657                 -                -               -                        -  %
Other commercial                        1,349,187                 -                -               -                        -  %
      Total Commercial Loans            1,819,279             7,223                -           7,223                      0.4  %
Residential 1-4 family personal           270,951                 -                -               -                        -  %
Residential 1-4 family rentals            195,914                 -                -               -                        -  %
Home equity                                71,496                 -                -               -                        -  %

Total residential real estate

              Loans                       538,361                 -                -               -                        -  %
Consumer                                   32,285                 -                -               -                        -  %
Mortgage warehouse lines                  161,627                 -                -               -                      0.0  %
Credit cards and overdrafts                 2,558                 -                -               -                      0.0  %
           Total Loans             $    2,554,110    $        7,223    $           -    $      7,223                      0.3  %



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                                                          Loan Balances 

Amended due to COVID-19 as of December 31, 2020

                                      Total Loan
                                     Balance as of    Interest Only      Payment       Total Loans        Percentage of
Dollars in thousands                  12/31/2020         Payments        Deferral       Modified          Loans Modified
Hospitality industry               $      121,502    $      40,513    $    12,930    $     53,443                     44.0  %
Non-owner occupied retail stores          135,405            7,223            447           7,670                      5.7  %
Owner-occupied retail stores              126,451            2,317          1,246           3,563                      2.8  %
Restaurants                                 7,481                -              -               -                        -  %
Oil & gas industry                         17,152                -              -               -                        -  %
Other commercial                        1,134,759           12,006            286          12,292                      1.1  %
      Total Commercial Loans            1,542,750           62,059         14,909          76,968                      5.0  %
Residential 1-4 family personal           305,093              159          1,754           1,913                      0.6  %
Residential 1-4 family rentals            194,612              148             73             221                      0.1  %
Home equity                                81,588                -              -               -                        -  %

Total residential real estate

              Loans                       581,293              307          1,827           2,134                      0.4  %
Consumer                                   33,906               48            143             191                      0.6  %
Mortgage warehouse lines                  251,810                -              -               -                      0.0  %
Credit cards and overdrafts                 2,394                -              -               -                      0.0  %
           Total Loans             $    2,412,153    $      62,414    $    16,879    $     79,293                      3.3  %



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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

RESULTS OF OPERATIONS

Summary of income

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

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

Net interest income

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

Q3 2021 compared to Q2 2021

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

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

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

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

Q3 2021 vs. Q3 2020

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

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

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

Excluding the impact of accretion and amortization of fair value acquisition
accounting adjustments related to the interest earning assets and interest
bearing liabilities acquired by merger, Summit's net interest margin was 3.59%
for the three months ended September 30, 2020.
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Table I – Analysis of average balance sheet and net interest income

                                                                                                          For the Quarter Ended
                                                  September 30, 2021                                          June 30, 2021                                           September 30, 2020
                                     Average            Earnings/           Yield/             Average            Earnings/           Yield/             Average            Earnings/           Yield/
Dollars in thousands                 Balance             Expense             Rate              Balance             Expense             Rate              Balance             Expense             Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable                           $ 2,495,880          $  28,340             4.50  %        $ 2,455,757          $  27,593             4.51  %        $ 2,251,722          $  26,656             4.71  %
Tax-exempt (2)                          7,871                 96             4.84  %             11,370                132             4.66  %             16,245                191             4.68  %
Securities
Taxable                               315,082              1,432             1.80  %            285,092              1,351             1.90  %            261,231              1,445             2.20  %
Tax-exempt (2)                        166,285              1,159             2.77  %            147,703              1,078             2.93  %            150,350              1,186             3.17  %
Federal funds sold and interest
bearing deposits with other banks     248,315                118             0.19  %            154,677                 56             0.15  %             60,639                 57             0.37  %
  Total interest earning assets     3,233,433             31,145             3.82  %          3,054,599             30,210             3.97  %          2,740,187             29,535             4.29  %
Noninterest earning assets
Cash & due from banks                  20,077                                                    19,095                                                    16,603
Premises and equipment                 55,908                                                    53,210                                                    52,329
Property held for sale                 12,727                                                    13,631                                                    17,801
Other assets                          163,248                                                   156,839                                                   136,777
Allowance for loan losses             (33,911)                                                  (34,674)                                                  (28,144)
          Total assets            $ 3,451,482                                               $ 3,262,700                                               $ 2,935,553
Interest bearing liabilities
Interest bearing demand deposits  $ 1,092,392          $     325             0.12  %        $   995,673          $     371             0.15  %        $   850,281          $     380             0.18  %
Savings deposits                      691,411                602             0.35  %            665,735                634             0.38  %            588,085                925             0.63  %
Time deposits                         571,445                905             0.63  %            562,605              1,131             0.81  %            585,092              2,247             1.53  %
Short-term borrowings                 140,146                470             1.33  %            140,146                464             1.33  %            165,555                734             1.76  %
Long-term borrowings and capital
trust securities                       49,724                543             4.33  %             49,694                544             4.39  %             23,230                194             3.32  %
     Total interest bearing
           liabilities              2,545,118              2,845             0.44  %          2,413,853              3,144             0.52  %          2,212,243              4,480             0.81  %
Noninterest bearing liabilities
and shareholders' equity
Demand deposits                       547,627                                                   503,116                                                   421,741
Other liabilities                      38,789                                                    36,842                                                    33,978
Total liabilities                   3,131,534                                                 2,953,811                                                 2,667,962

Shareholders' equity - preferred       14,920                                                    11,254                                                 

Shareholders' equity - common         305,028                                                   297,635                                                   267,591
      Total liabilities and
      shareholders' equity        $ 3,451,482                                               $ 3,262,700                                               $

2 935 553

Net interest earnings                                  $  28,300                                                 $  27,066                                                 $  25,055
Net yield on interest earning assets                                         3.47  %                                                   3.55  %                                                   3.64  %



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

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Table II – Variations in net interest income attributable to rate and volume

                                                   For the Quarter Ended                                  For the Quarter Ended
                                           September 30, 2021 vs. June 30, 2021                 September 30, 2021 vs. September 30, 2020
                                           Increase (Decrease) Due to Change in:                  Increase (Decrease) Due to Change in:
Dollars in thousands                     Volume               Rate             Net             Volume             Rate               Net
Interest earned on:
Loans
Taxable                              $        751          $    (4)         $   747          $  2,860          $ (1,176)         $  1,684
Tax-exempt                                    (41)               5              (36)             (102)                7               (95)
Securities
Taxable                                       149              (68)              81               272              (285)              (13)
Tax-exempt                                    140              (59)              81               120              (147)              (27)
Federal funds sold and
interest bearing deposits with
other banks                                    41               21               62               102               (41)               61
Total interest earned on
interest earning assets                     1,040             (105)             935             3,252            (1,642)            1,610

Interest paid on:
Interest bearing demand
deposits                                       35              (81)             (46)               92              (147)              (55)
Savings deposits                               26              (58)             (32)              143              (466)             (323)
Time deposits                                  19             (245)            (226)              (52)           (1,290)           (1,342)
Short-term borrowings                           -                6                6              (102)             (162)             (264)
Long-term borrowings and
capital trust securities                        -               (1)              (1)              276                73               349
Total interest paid on
interest bearing liabilities                   80             (379)            (299)              357            (1,992)           (1,635)

     Net interest income             $        960          $   274          $ 1,234          $  2,895          $    350          $  3,245




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Table III – Analysis of average balance sheet and net interest income

                                                                                 For the Nine Months Ended
                                                      September 30, 2021                                          September 30, 2020
                                         Average            Earnings/           Yield/              Average            Earnings/            Yield/
Dollars in thousands                     Balance             Expense             Rate               Balance             Expense              Rate
Interest earning assets
Loans, net of unearned fees (1)
Taxable                               $ 2,436,295          $  83,352              4.57  %        $ 2,102,331          $  77,211               4.91  %
Tax-exempt (2)                             10,622                377              4.75  %             16,121                576               4.77  %
Securities
Taxable                                   288,999              4,079              1.89  %            256,322              4,657               2.43  %
Tax-exempt (2)                            153,035              3,328              2.91  %            113,793              2,897                3.4  %
Federal funds sold and interest
bearing deposits with other banks         190,154                241              0.17  %             46,074                215               0.62  %
    Total interest earning assets       3,079,105             91,377              3.97  %          2,534,641             85,556               4.51  %
Noninterest earning assets
Cash & due from banks                      19,093                                                     15,901
Premises and equipment                     54,154                                                     49,655
Property held for sale                     13,731                                                     18,423
Other assets                              157,137                                                    120,228
Allowance for loan losses                 (33,765)                                                   (25,618)
            Total assets              $ 3,289,455                                                $ 2,713,230
Interest bearing liabilities
Interest bearing demand deposits      $ 1,016,569          $   1,090              0.14  %        $   753,384          $   1,830               0.32  %
Savings deposits                          666,642              1,881              0.38  %            516,841              3,462               0.89  %
Time deposits                             572,547              3,493              0.82  %            608,551              7,796               1.71  %
Short-term borrowings                     140,146              1,403              1.34  %            127,109              1,863               1.96  %
Long-term borrowings and capital
trust securities                           49,694              1,632              4.39  %             21,284                600               3.77  %
 Total interest bearing liabilities     2,445,598              9,499              0.52  %          2,027,169             15,551               1.02  %
Noninterest bearing liabilities and
shareholders' equity
Demand deposits                           501,309                                                    393,128
Other liabilities                          37,856                                                     30,741
Total liabilities                       2,984,763                                                  2,451,038

Shareholders' equity - preferred            8,780                                                          -
Shareholders' equity - common             295,912                                                    262,192

Total liabilities and shareholders

               equity                 $ 3,289,455                                                $ 2,713,230
Net interest earnings                                      $  81,878                                                  $  70,005
Net yield on interest earning assets                                              3.56  %                                                     3.69  %



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

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Table IV – Variations in net interest income attributable to rate and volume

                                                                     For 

the nine months ended

                                                            September 30, 

2021 versus September 30, 2020

                                                               Increase (Decrease) Due to Change in:
Dollars in thousands                                   Volume                     Rate                    Net
Interest earned on:
Loans
Taxable                                         $          11,623           $      (5,482)          $       6,141
Tax-exempt                                                   (195)                     (4)                   (199)
Securities
Taxable                                                       543                  (1,121)                   (578)
Tax-exempt                                                    894                    (463)                    431
Federal funds sold and interest bearing
deposits with other banks                                     275                    (249)                     26
Total interest earned on interest earning
assets                                                     13,140                  (7,319)                  5,821

Interest paid on:
Interest bearing demand deposits                              501                  (1,241)                   (740)
Savings deposits                                              808                  (2,389)                 (1,581)
Time deposits                                                (437)                 (3,866)                 (4,303)
Short-term borrowings                                         176                    (636)                   (460)
Long-term borrowings and capital trust
securities                                                    918                     114                   1,032
Total interest paid on interest bearing
liabilities                                                 1,966                  (8,018)                 (6,052)

           Net interest income                  $          11,174           $         699           $      11,873



Credit Experience

For the purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which include loans that are 90 days or more past due and continue to accrue interest and unearned loans. Productive TORs are excluded from non-performing loans.

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

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

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Table V – Provision for credit losses

                                               For the Three Months Ended   

For the nine months ended

                                                       September 30,                      September 30,
Dollars in thousands                             2021                 2020           2021                 2020
Provision for credit losses-loans
Due to changes in:
Volume, mix and loss experience             $        176          $   1,060    $       4,180          $     309
Reasonable and supportable economic
forecasts                                              -                  -           (2,301)             6,063
Individually evaluated credits                    (2,169)             2,142           (1,842)             3,059
Acquired loans                                       793                  -              793                977
  Total provision for loan credit losses          (1,200)             3,202              830             10,408

Provision for credit losses-unfunded
commitments
Due to changes in:
Volume, mix and loss experience                    1,060                 48            2,103               (126)
Reasonable and supportable economic
forecasts                                              -                  -             (573)             1,137
Individually evaluated credits                         -                  -                -                  -
Acquired loan commitments                            140                  -              140                 81
  Total provision for unfunded commitment
               credit losses                       1,200                 48            1,670              1,092

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



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

TO September 30, 2021 and December 31, 2020, our allowance for loan losses totaled $ 32.4 million, i.e. 1.27% of total loans and $ 32.2 million, or 1.34% of total loans. The allowance for bad debt is considered adequate to cover an estimate of the total amount of expected bad debt related to loans.

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

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As illustrated in Table VI below, our non-performing assets have decreased since
year end 2020.
Table VI - Summary of Non-Performing Assets
                                                                   September 30,                  December 31,
Dollars in thousands                                         2021                2020                 2020
Accruing loans past due 90 days or more                  $        2          $        2          $          2
Nonaccrual loans
Commercial                                                      459                 553                   525
Commercial real estate                                        4,643               4,313                14,237
Commercial construction and development                           -                   -                     -
Residential construction and development                        448                   2                   235
Residential real estate                                       5,514               5,104                 5,264
Consumer                                                         47                  29                    72
Other                                                             -                   -                     -
Total nonaccrual loans                                       11,111              10,001                20,333
Foreclosed properties
Commercial                                                        -                   -                     -
Commercial real estate                                        2,192               2,499                 2,581
Commercial construction and development                       2,925               4,154                 4,154
Residential construction and development                      6,711              10,330                 7,791
Residential real estate                                         622                 847                 1,062
Total foreclosed properties                                  12,450              17,830                15,588
Repossessed assets                                                -                   -                     -
Total nonperforming assets                               $   23,563         

$ 27,833 $ 35,923
Total NPLs as a Percentage of Total Loans

                                                          0.44  %             0.44  %               0.84  %
Total nonperforming assets as a percentage of
total assets                                                   0.67  %             0.94  %               1.16  %
Allowance for credit losses-loans as a percentage
of nonperforming loans                                       291.64  %           293.45  %             158.57  %
Allowance for credit losses-loans as a percentage
of period end loans                                            1.27  %             1.30  %               1.34  %



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

The following table details the activity regarding our foreclosed properties for
the three and nine months ended September 30, 2021 and 2020.
Table VII - Foreclosed Property
Activity
                                          For the Three Months Ended                   For the Nine Months Ended
                                                  September 30,                               September 30,
Dollars in thousands                       2021                   2020                  2021                  2020
Beginning balance                    $       13,170          $    17,954          $       15,588          $  19,276
Acquisitions                                    190                  725                     532                888
Improvements                                      -                  177                       -              1,249
Disposals                                      (645)                (470)                 (2,664)            (1,863)
Writedowns to fair value                       (265)                (555)                 (1,006)            (1,719)
Balance March 31                     $       12,450          $    17,831          $       12,450          $  17,831



Refer to Note 7 of the Notes to the Consolidated Financial Statements in the
2020 Form 10-K for a discussion of the methodology information regarding our
past due loans, nonaccrual loans, troubled debt restructurings and information
regarding our methodology we employ on a quarterly basis to evaluate the overall
adequacy of our allowance for credit losses.

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

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Non-interest income

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

Table VIII – Non-interest income

                                            For the Quarter Ended September 

For the nine months ended

                                                          30,                              September 30,
Dollars in thousands                            2021               2020               2021               2020

Trust and wealth management fees                   718               622               2,039             1,870
Mortgage origination revenue                       742               780               2,638             1,636
Service charges on deposit accounts              1,338             1,138               3,530             3,283
Bank card revenue                                1,509             1,237               4,369             3,257
Realized securities gains                          (68)            1,522                 534             2,560
Bank owned life insurance income                   160               795                 733             1,334
Other                                              168               113                 413               367
                   Total                    $    4,567          $  6,207          $   14,256          $ 14,307



Noninterest Expense

Total noninterest expense increased 11.8% for the three months ended September
30, 2021 compared to the same period of 2020 primarily due to higher salaries,
commissions, and employee benefits and higher equipment expense. Total
noninterest expense increased 11.2% for the nine months ended September 30, 2021
compared to the same period of 2020 primarily due to higher salaries,
commissions, and employee benefits and other expenses that more than offset the
lower foreclosed properties expense. Table IX below shows the breakdown of the
changes.
Table IX- Noninterest Expense
                                                         For the Quarter Ended September 30,                                         For the Nine Months Ended September 30,
                                                                          Change                                                                        Change
Dollars in thousands                          2021                  $                %                2020                 2021                   $                %                2020
Salaries, commissions, and employee
benefits                                $       8,745          $   637      

7.9% $ 8,108 $ 25,410 $ 1,701

             7.2  %       $ 23,709
Net occupancy expense                           1,254              197               18.6  %          1,057                   3,559              642               22.0  %          2,917
Equipment expense                               1,908              434               29.4  %          1,474                   5,088              825               19.4  %          4,263
Professional fees                                 374               10                2.7  %            364                   1,140              (28)              (2.4) %          1,168
Advertising and public relations                  254              109               75.2  %            145                     482               93               23.9  %            389
Amortization of intangibles                       390              (22)              (5.3) %            412                   1,176              (75)              (6.0) %          1,251
FDIC premiums                                     354               34               10.6  %            320                   1,119              524               88.1  %            595
   Bank card expense                              705              116               19.7  %            589                   1,964              312               18.9  %          1,652
Foreclosed properties expense                     370             (237)             (39.0) %            607                   1,342             (473)   

(26.1)% 1,815

Acquisition-related expenses                      273              245              875.0  %             28                   1,167             (286)             (19.7) %          1,453
Other                                           2,716              311               12.9  %          2,405                   8,365            1,872               28.8  %          6,493
                 Total                  $      17,343          $ 1,834               11.8  %       $ 15,509          $       50,812          $ 5,107               11.2  %       $ 45,705



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

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

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

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

Costs linked to acquisitions: Costs linked to acquisitions during 2021 are linked to Win first and the MVB Bank branches (south West Virginia) and related to the acquisitions of Cornerstone and MVB (Eastern Panhandle West Virginia) branches in 2020.

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

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

Income Taxes

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