UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20212023

(Exact name of registrant as specified in its charter)

 

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

In addition, Ronald L. Bowling and Gary L. Hinkle each qualify as a “financial expert” under the NASDAQ Marketplace Rules, which standards are different from the SEC rules. Under the NASDAQ Marketplace Rules, a “financial expert” must have past employment experience in finance or making loansaccounting, requisite professional certification in accounting or other comparable experience or background which results in the individual’s financial sophistication, including being a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Mr. Bowling and Mr. Hinkle have the necessary experience to such customers. Bank subsidiaries must comply withqualify them as “financial experts” under the applicable provisionsNASDAQ Marketplace Rules.

The Executive Officers of the Company as of April 1, 2024 are listed below including their present position and regulationsexperience during at least the past five years. Executive Officers are elected annually by the Board of Directors and serve at the pleasure of the Board.

H. Charles Maddy, III, age 61,has served as parta member of their ongoing customer relations.

Robert S. Tissue, age 60, has served as a bankExecutive Vice President and Chief Financial Officer of Summit Financial Group since 1998.

Section 16(a) of the Securities Exchange Act of 1934 and SEC regulations require the Company’s directors and executive officers and greater than ten percent shareholders to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with less than $10 billion in assets, is subjectthe SEC. Based solely on our review of copies of such reports received and/or written representations from such directors and executive officers and ten percent shareholders, the Company believes that all Section 16(a) filing requirements applicable to these federal consumer financial laws, but continues to be examined for compliance by the FDIC, its primary federal banking regulator.directors, executive officers and ten percent shareholders were complied with during fiscal year 2023.

 

The CFPB has issued final regulations implementing provisionsCompany is committed to maintaining strong corporate governance and operates within a comprehensive plan of corporate governance for the Dodd-Frank Act that require all creditors to determine a consumer’s ability to repay a mortgage loan before making a loan.  The final rule, referred to as the Ability-to Repay (ATR)/Qualified Mortgage (QM)purpose of defining responsibilities, setting high standards provide that a lender making a special type of loan, known as a Qualified Mortgage, is entitled to presume that the loan compliesprofessional and personal conduct and assuring compliance with the ATR safe harbor requirements.  The rule establishes different types of Qualified Mortgages that are generally identified as loans with restrictions on loan features, limits on fees being chargedsuch responsibilities and underwriting requirements.

We have a straightforward compensation program that Summit’s Quarterlyfocuses on a team approach and Annual Reports do not contain any untrue statementsupports long-term strategies of a material fact. The rules have several requirements, including requiring these officers certify that:  they are responsible for establishing, maintaining and regularly evaluating the effectivenessCompany. Each of our internal controls; they have made certain disclosuresnamed executive officers must demonstrate exceptional personal performance for a sustained period of time to remain part of our auditorsexecutive team. As a member of that team, each officer must contribute to the overall success of Summit rather than simply attain goals within that officer’s specific area of responsibility.

Our compensation program includes performance metrics that promote disciplined progress towards both short-term and long-term goals and that correlate to the auditprofitability objectives of and compliance committeeappropriate risk to the Company. The combination of performance-based compensation and equity-based awards, which derive their benefit from increases in shareholder value, provides the majority of our executive officers’ total compensation and furthers our core compensation principle of providing pay for both individual and Company-wide performance. The executive compensation program was designed and approved by the Compensation and Nominating Committee of the Board of Directors about our internal controls;(the “Committee”) and they have included information in Summit’s Quarterlythe Board of Directors of the Company.

•         retain executive officers by paying them competitively, motivate them to contribute to the Company’s success, and Annual Reports aboutreward them for their evaluation and whether thereperformance;

•         reward executive officers through annual performance-based compensation based on the achievement of specific operating goals that have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent todetermined by the evaluation.Committee;

Furthermore, in response to•         align the directivescompensation of the SOA, NASDAQ adopted substantially expanded corporate governance criteria forexecutive officers with the issuersinterests of securities quoted onour shareholders and motivate the NASDAQ Capital Market (the market on which ourexecutive officers to achieve the Company’s long-term goals through equity-based compensation;

•         encourage ownership of Company common stock by executive officers.

Our fundamental philosophy is listed for trading).  The NASDAQ rules govern, among other things,to link closely executive compensation with the enhancementachievement of annual financial performance goals, including, but not limited to, return on average tangible common equity, return on assets, net loan charge-offs and regulationbalance sheet growth. It is the Company’s practice to provide a mix of corporate disclosurecash and internal governance of listed companies andequity-based compensation that the Company believes balances the best interests of the authority, role and responsibilities of their boards of directors and, in particular, of “independent” members of such boards of directors, in the areas of nominations, corporate governance, compensationCompany’s executives and the monitoringCompany’s shareholders. The Company believes compensation should be structured to ensure that a significant portion of the auditcompensation opportunity will be directly related to shareholder value.

As discussed below, the program consists of, and internal financial control processes.

 

In addition, any transaction by a bank with an affiliate and any sale of assets or provisions of services to an affiliate generally must be on terms thatSalaries are substantially the same, or at least as favorable, to the bank as those prevailing at the time for comparable transactions with non-affiliated companies.

Executive Incentive Compensation is based on theiran evaluation of both individual results and Company performance against quantitative measures.

Long-term incentive awards, which consist of stock appreciation rights and restricted stock units issued under the performance ofCompany’s 2014 Long-Term Incentive Plan which was approved by the Company.

Shares of restricted stock and restricted stock units will be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a share of restricted stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.

Executive Salary Continuation Agreements and Supplemental Plans. In an effort to attract, reward, motivate and retain the most qualified people available, and to provide those people with a complete and reasonable compensation package, Summit Community. Summit offers comprehensive health and benefit options to its employees consistingbanking subsidiary have entered into Executive Salary Continuation Agreements (“Continuation Agreements”) with certain executives of health, dental, vision,the Company with an endorsement split dollar life insurance disabilityplan. In this section, Company includes Summit’s bank subsidiary.

The Company’s obligations under the retirement benefit portion of these agreements are unfunded; however, the Company has purchased life insurance paid vacation, paid illness,policies on each insurable executive that are actuarially designed to offset the annual expenses associated with the agreements and holidays. Summitwill, given reasonable actuarial assumptions, offset all of the costs of the agreements during the life of the executive and provide a complete recovery of all costs at the executive’s death. The Company is the sole owner of all policies and as Company assets, the policies are subject to claims of the Company’s general creditors.

Employee Stock Ownership Plan. The Company also maintains an Employee Stock Ownership Plan (ESOP) which covers substantially all employees. Any employee who is at least 21 years of age and is credited with at least 1,000 hours of service during the plan year is eligible to participate. Vesting occurs at the rate of 0% for the first year of credited service and 20% for the next five years thereafter. Under the provisions of the ESOP, employee participants in the ESOP are not permitted to contribute to the ESOP, rather the cost of the ESOP is borne by the Company through annual contributions in amounts determined by the Company’s Board of Directors. Discretionary contributions were made by the Company for 20212023 of 5%. As of December 31, 2021, the ESOP owned 4.3% of the Company’s common stock. In addition, the

401(k) Defined Contribution Plan. The Company has a defined contribution plan with 401(k) provisions covering substantially all employees. Any employee (other than a leased employee, owner employee, seasonal employee, or other employee who is not a common law employee) who is at least 21 years of age is eligible to participate. If the eligibility requirements are met, an employee may become a participant on the next semi-annual entry date of January 1st or July 1st. The employee is eligible for employer contributions after the employee has at least 12 months of service. Under the provisions of the plan, the Company matches 100% of the participant’s salary reduction contributions, up to 4% of such participant’s compensation. These matching contributions shall be fully vested at all times. The Company may also make optional contributions at the discretion of the Company’s Board of Directors. Vesting of discretionary contributions occurs at the rate of 0% for the first year of credited service, and 20% for the next five years thereafter. No discretionary contributions were made by the Company for 2023.

The Company has entered into Employment Agreements with the health and safety of our employees, customers, and communities. The COVID-19 pandemic presented challengesnamed executive officers in order to maintain employee and customer safety while continuing to be open for business. In response to this unprecedented crisis, we implemented various plans, strategies and protocols to protect our employees, maintain services for customers, assure the functionalensure continuity of our operating systems, controlsmanagement of the Company and processes, and mitigateto retain the financial risks posed by changing market conditions. In order to protect employees and assure workforce continuity and operational redundancy, we imposed business travel restrictions, enhanced our sanitizing protocols within our facilities and physically separated, topool of talent the extent possible, our critical operations workforce.Company has developed in a competitive marketplace. The Board of Directors determined that such arrangements were appropriate, especially in view of the entry of large regional bank holding companies into West Virginia. The Agreements were not undertaken in the belief that a change of control of the Company was imminent.

 

We are subjectEmployment Agreement — Mr. Maddy. On March 4, 2005, the Company entered into an Employment Agreement (the “Employment Agreement”) and a Change in Control Agreement (the “Change in Control Agreement”) with H. Charles Maddy, III, Chief Executive Officer of Summit. On December 31, 2008, the Employment Agreement and Change in Control Agreement were amended and restated to extensive government regulationcomply with Internal Revenue Code Section 409A. Under the terms of the Employment Agreement, Summit will review the Employment Agreement annually and supervision.may, with the approval of Mr. Maddy, extend the term of the Employment Agreement annually for additional one-year periods (so that the actual term of the Employment Agreement will always be between two and three years). The term of the Employment Agreement extends to March 4, 2025.

 

The Company andEmployment Agreement may be terminated based on one of the following:

If Mr. Maddy is terminated for cause based on his negligence, malfeasance, or misfeasance, then Mr. Maddy is entitled to receive his Base Salary without offset for compensation already paid prior to the effective date of termination. If Mr. Maddy is terminated for death or disability, Mr. Maddy is entitled to three times his Base Salary and customers,upon termination for death, Mr. Maddy’s family would receive continuation of their health insurance coverage benefits on the Federal Deposit Insurance fundsame terms as they previously received for one year. If Mr. Maddy terminates his employment based on a material breach by Summit, then Mr. Maddy is entitled to an amount equal to two times his Base Salary in effect for the year in which termination occurs without offset for compensation already paid prior to the effective date of termination. If Mr. Maddy voluntarily terminates, and there is no material breach by Summit, then Mr. Maddy does not receive a termination payment. In this case, Mr. Maddy is entitled to his Base Salary in effect for the year in which termination occurs, only for such period of his active full-time employment to the date of the termination.

If Mr. Maddy terminates for Good Reason (as defined below) or is terminated under circumstances constituting Wrongful Termination (as defined in the Change in Control Agreement) during the Transition Period, then Mr. Maddy would be entitled to a payment equal to three times the greater of (a) his Salary in effect immediately prior to the date of consummation of a Change of Control or (b) his Salary in effect on the date of termination of his Employment Agreement under the Change in Control Agreement. Mr. Maddy is also entitled to receive payment of cash incentive award, if any, under the Company’s Annual Incentive Plan and continuing participation in employee benefit plans and programs such as retirement, disability and medical insurance for the number of months between the date of his termination and the banking systemdate that is thirty-six (36) months after the date of consummation of the Change of Control.

If Mr. Maddy is terminated as a whole, not security holders. These regulations and supervisory guidance affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act instituted major changesresult of disability or death during the Transition Period, Mr. Maddy would receive a payment equal to three times the greater of (a) his Salary (as defined in the Agreement) in effect immediately prior to the date of consummation of the Change of Control or (b) his Salary in effect on the date of termination of his employment under the Change in Control Agreement.

Under the Change in Control Agreement, Mr. Maddy agrees not to engage, directly or indirectly, in the business of banking in the Restricted Area (as defined in the Change in Control Agreement) for a period of three years after expiration of the Transition Period. If Mr. Maddy’s employment with Summit is terminated for any reason other than Mr. Maddy’s disability, retirement, Good Reason, or termination at Mr. Maddy’s option, Mr. Maddy agrees that for a period of one year, he will not, directly or indirectly, engage in the business of banking in the Restricted Area.

Under the Change in Control Agreement, a “Change of Control” is defined in Internal Revenue Code Section 409A and financial institutions regulatory regimes. Other changesthe regulations issued thereunder and includes:

•        a change in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocationownership of a banking charter, other sanctionssubstantial portion of Summit’s assets which is defined to occur on the date that any one person, or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by regulatory agencies, civil money penalties and/such person or reputation damage. Inpersons) assets from Summit that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Summit immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of Summit, or the value of the assets being disposed of, determined without regard government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risksany liabilities associated with actual and perceived compliance failures. Anysuch assets.

Under the Change in Control Agreement, Mr. Maddy may voluntarily terminate his employment for Good Reason which arises if one of the foregoing could havefollowing occurs in combination with a Change of Control:

•         a material adverse effect on our business, financial condition and resultsreduction in the importance of operations.the executive’s job responsibilities without his consent;

 

See•         geographical relocation of the section captioned “Supervision and Regulation” included in Item 1. Business on page 1.executive without his consent, which is deemed to mean relocation to an office more than twenty (20) miles from his location at the time of a change of control;

 

We may become subject•         failure by the Company to obtain assumption of the Change in Control Agreement by its successor; or

The Employment Agreement and the Change in Control Agreement provide for an additional regulatory restrictionsgross-up payment by Summit to Mr. Maddy in the event that our regulatory capital levels decline.a payment or distribution pursuant to the Employment Agreement or the Change in Control Agreement would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. Any calculated gross-up payment amount is equal to one hundred percent (100%) of the excise tax plus one hundred percent (100%) of any federal, state and local income taxes plus the additional excise tax on the gross-up amount.

 

AlthoughIn connection with the proposed merger of Summit with and into Burke and Herbert Financial Services Corp. (the “Merger”), B&H Bank has entered into a written employment agreement with Mr. Maddy, to be effective as of the Merger, which will replace and supersede Mr. Maddy’s current employment agreement and change in control agreement with Summit. Therefore, upon and after the Merger, Mr. Maddy will cease to be eligible for payments and benefits under his current Summit agreements and will instead be eligible to such payments and benefits as are set forth in his new employment agreement.

Employment Agreements – Messrs. Tissue, Frye, and Jennings. On December 20, 2008, the Company entered into an Amended and Restated Employment Agreement with Scott C. Jennings, on December 24, 2008, the Company entered into an Amended and Restated Employment Agreement with Robert S. Tissue and on December 31, 2008 the Company entered into an Amended and Restated Employment Agreement with Patrick N. Frye in order to set forth the terms and conditions of their employment in a manner compliant with Internal Revenue Code Section 409A. The Amended and Restated Employment Agreements with Mr. Jennings, Mr. Frye and Mr. Tissue are substantially identical in all material respects and each is qualifiedreferred to as “well capitalized”the “Employment Agreement.”

Messrs. Tissue, Frye, and Jennings are entitled to certain termination payments under the regulatory frameworkEmployment Agreements. If either Mr. Tissue, Mr. Frye or Mr. Jennings is terminated Not for prompt corrective actionGood Cause (as defined by the Employment Agreement), then he is entitled to a payment from the Company equal to the base salary compensation set forth in the Employment Agreement for the remaining term of the Employment Agreement or severance pay equal to 100% of his then current annual base salary, whichever is greater. The termination payment is paid in a lump sum on the date of termination, subject to a six-month delay if required under Internal Revenue Code Section 409A.

The following table shows outstanding equity awards classified as exercisable and unexercisable held as of December 31, 2023, by the Company’s named executive officers.

(1)         The years of credited service under the Continuation Agreements begin on the effective date of the individual agreement with each named executive officer. Each individual Continuation Agreement was executed after the date of each named executive officer’s initial employment. The executives are not vested in the future.benefits under the Supplemental Plans until their retirement age under each individual Supplemental Plan; accordingly, they are not granted years of service under such plans.

 

(1)         Under the bank is required to submit a capital restoration plan2014 LTI Plan and the individual award agreements to the FDIC.  Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch office, except under certain circumstances, including the acceptance by the FDIC of a capital restoration planNEOs for the bank. Furthermore,SARs, upon a change of control, if a state non-member bank is classified as undercapitalized, the FDIC may take certain actions to correct the capital positionsuccessor or surviving corporation so agrees, some or all of the bank; if a bank is classified as significantly undercapitalizedoutstanding stock-settled stock appreciation rights will be assumed, or critically undercapitalized,replaced with the FDIC would be required to take onesame type of award with similar terms or more prompt corrective actions.  These actions would include, among other things, requiring sales of new securities to bolster capital; improvements in management; limits on interest rates paid; prohibitions on transactions with affiliates; termination of certain risky activities and restrictions on compensation paid to executive officers.  If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or receivership within ninety (90) days, unless the Federal Reserve determines that other action would better achieve the purposes of FDICIA regarding prompt corrective action with respect to undercapitalized banks.

 

•           Under the Federal Home Loan Bank of Pittsburgh, or the FHLB.  As of December 31, 2021, our FHLB borrowings maturing within one year totaled $140.0 million.  If we were unable to borrow from the FHLBfourth scenario, if Mr. Maddy terminates for Good Reason (as defined in the future, we may be required to seek higher cost funding sources, which could materially and adversely affect our net interest income.

•           Under the fifth scenario, if the integration processMr. Maddy is successful.

In addition, under the Change of Control Agreement, Mr. Maddy agrees not to engage, directly or indirectly, in the business financial conditionof banking in the Restricted Area (as defined in the Change of Control Agreement) for a period of three years after expiration of the Transition Period.

(6)         There are two (2) scenarios under which Messrs. Tissue, Frye and results of operations.

•           If Messrs. Tissue, Frye or Jennings are terminated for remediation costs, as well as for personal injuryGood Reason (as defined in the Employment Agreement) or are terminated under circumstances constituting Wrongful Termination (as defined in the Employment Agreement), then the terminated executive officer is entitled to a payment equal to his Salary (as defined in the Employment Agreement) multiplied by the number of months between the effective date of termination and property damage.  Environmental laws may require usthe date that is twenty four (24) months after the date of consummation of change of control, provided in no event shall the executive officer receive a lump sum payment that is less than 100% of his Salary. The amount in the severance column in the above table represents the severance amount under this scenario.

•         If Messrs. Tissue, Frye or Jennings terminate within six months of a change of control, the terminated executive officer is entitled to incur substantial expenses and may materially reduce the affected property’s value or limit our abilitya lump sum payment equal to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.  The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverseseventy-five percent (75%) of his Salary in effect on our financial condition and results of operations.

 

Changes(7)        Upon a change of control, under Mr. Ritchie’s Employment Agreement, if Mr. Ritchie is terminated for Good Reason (as defined in interest rates could reduce income and cash flow.  Our income and cash flow depend primarily on the differenceEmployment Agreement) or is terminated under circumstances constituting Wrongful Termination (as defined in the Employment Agreement), then Mr. Ritchie is entitled to a payment equal to his Salary (as defined in the Employment Agreement) multiplied by the number of months between the interest earned on loans and investment securitieseffective date of termination and the interest paid on deposits and other borrowings.  Interest rates are beyond our control and they fluctuate in response to general economic conditionsdate that is twenty four (24) months after the earlier of the date of termination and the policiesdate of various governmental and regulatory agencies,consummation of change of control, provided in particular, the FRB.  Changes in monetary policy, including changes in interest rates, will influence loan originations, purchasesno event shall Mr. Ritchie receive a lump sum payment that is less than 100% of investments, volumes of deposits and rates received on loans and investment securities and paid on deposits.  Our results of operations may be adversely affected by increases or decreases in interest rates or by the shape of the yield curve.

 

The following table sets forth certain information regarding Summit's purchasethe compensation earned by or awarded to each director who served on the Company’s Board of Directors in 2023 except for H. Charles Maddy, III whose compensation as a named executive officer of the Company is presented in the Summary Compensation Table.