THE MERGER

The following summary describes certain aspects of the merger, including all the terms of the merger agreement that the respective managements of PSB and Summit believe are material. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. The merger agreement is attached to this prospectus and proxy statement as Appendix A and is incorporated by reference in this prospectus and proxy statement. You are urged to read the merger agreement carefully, and in its entirety, as it is the legal document governing the merger.

Background and Negotiation of the Merger

The board of directors and executive management of PSB and Provident State Bank have regularly reviewed and assessed various business strategies, business objectives and considered various options to enhance shareholder value and enhance the liquidity of PSB stock, as well as expand product and service offerings to align more closely with the changing demographic and economy in the markets that it serves.

On May 4, 2022, Melissa A. Quirk, president and chief executive officer, and John A. Scaldara, chief financial officer met with the PSB board of directors for its annual strategic planning session to discuss business strategies and objectives. A representative of Piper Sandler was present to discuss the then current banking market and industry trends. After considering the information presented during the strategic planning session, the board concluded that it should spend more time reviewing the potential universe of acquirors and a potential sale of PSB.

The PSB board of directors had further discussions with representatives of Piper Sandler on May 11, 2022 regarding the market for bank and thrift mergers and acquisitions, after which the PSB board decided to pursue bid proposals from interested parties. The PSB board discussed independence as a viable option if the bids received were not satisfactory.

On May 25, 2022, the PSB board of directors authorized its Strategic Options Committee to review, assess and negotiate the terms of a potential transaction for consideration and approval by the full board of directors.

In early June 2022, the Strategic Options Committee approved the retention of Piper Sandler as financial advisor to PSB and negotiated and executed an engagement letter with Piper Sandler. The Strategic Options Committee directed management of PSB to prepare for the bid process.

Following its engagement, Piper Sandler assisted PSB in preparing an electronic data room with a variety of diligence materials that were provided to interested parties upon execution of a nondisclosure agreement in favor of PSB. The electronic data room was made available on September 12, 2022.

At the direction of the PSB board of directors, Piper Sandler commenced the marketing process on September 12, 2022. Ultimately, Piper Sandler contacted 45 potential acquirors, with 26 parties signing a nondisclosure agreement. Potential acquirors were required to submit letters of interest by October 19, 2022. Seven potential acquirors submitted letters. On October 21, 2022, one of the interested parties withdrew its letter due to a sudden decline in its stock price on October 20, 2022.

The Strategic Options Committee met on October 21, 2022 to review the indication of interest letters. The PSB board of directors met on October 26, 2022 to consider the terms of each proposal. A representative of Piper Sandler was present at the meeting and outlined the details for each of the seven proposals (including the terms of the indication of interest that was withdrawn due to a sudden decline in the interested party’s stock price). Following a thorough review of the seven proposals, during which representatives of Piper Sandler responded to questions raised by members of the board, the PSB board of directors authorized Ms. Quirk to execute and deliver the indication of interest provided by Summit, which included a 30-day exclusivity period for Summit

 

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and for PSB to pursue the completion of a definitive agreement with respect to the proposed transaction. The PSB board also authorized management of PSB to negotiate a definitive agreement with Summit. On October 31, 2022, Ms. Quirk executed and delivered the indication of interest letter to Summit.

On November 4, 2022, counsel for Summit, provided an initial draft of the merger agreement to PSB’s legal counsel. After consultation with PSB’s management, PSB’s legal counsel provided initial comments to Summit’s counsel on the merger agreement on November 17, 2022.

From November 4, 2022, through December 7, 2022, PSB and Summit, with assistance of their respective legal advisors, negotiated the terms of the definitive merger agreement and related documents, including a bank merger agreement, a voting agreement and a support agreement to be signed by each director. In addition, PSB and Summit and their respective legal advisors continued to discuss various matters related to the proposed combination of Summit and PSB. PSB and its representatives conducted reverse due diligence on Summit in November and completed the review in early December.

From November 8, 2022, through December 8, 2022, Piper Sandler and Summit discussed the methodology for calculating the exchange ratio for the common stock to be paid by Summit in the transaction as merger consideration. On December 8, 2022, Piper Sandler, at the direction of PSB, and Summit negotiated and agreed upon the exchange ratio.

On December 9, 2022, the Summit board of directors approved the merger.

On December 9, 2022, the PSB board of directors held a special meeting to review the terms of the merger agreement, the merger consideration, the various related agreements contemplated by the merger agreement, and the transactions contemplated by the merger agreement, including the merger. The PSB board of directors received presentations regarding the proposed merger and merger agreement from PSB’s counsel.

PSB’s counsel reviewed the terms of the merger agreement and related agreements, including the bank merger agreement, voting agreement and director support agreements. PSB’s counsel reviewed the legal duties of directors. Piper Sandler reviewed the financial aspects of the proposed merger and rendered its opinion to the PSB board of directors to the effect that (as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler, as set forth in the opinion) the exchange ratio was fair, from a financial point of view to the holders of PSB’s common stock. See “The Merger—Opinion of PSB’s Financial Advisor” on page [●] for more information.

The PSB board of directors deliberated and carefully considered the presentations by its financial advisor and legal counsel, as well as the factors described under “PSB’s Reasons for the Merger; Recommendation of the PSB Board of Directors” on page [●]. The board of directors also considered the interests of PSB shareholders, employees and the communities served by PSB. The board of directors determined that the proposed merger with Summit and the related transactions, as reflected in the merger agreement, were in the best interest of PSB and its shareholders. The board of directors unanimously approved the merger agreement and related agreements and documents. The board of directors also approved the submission of the merger agreement to PSB shareholders and recommended that PSB shareholders approve the merger agreement.

Summit and PSB issued a press release announcing the proposed merger the morning of December 12, 2022.

PSB’s Reasons for the Merger; Recommendation of the PSB Board of Directors

The PSB board of directors believes that the merger is in the best interest of PSB and its shareholders. Accordingly, the board of directors has unanimously approved the merger and the merger agreement and unanimously recommends that PSB’s shareholders vote “FOR” the PSB merger proposal.

 

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In reaching its decision to approve the merger and the merger agreement and to recommend the approval of the merger agreement and the merger to PSB’s shareholders, the PSB board of directors evaluated the merger and the merger agreement in consultation with executive management, its financial advisor, and Holland & Knight, its legal counsel. The PSB board of directors carefully considered the terms of the merger agreement and the value of the merger consideration to be received by PSB’s shareholders and ultimately determined that it was in the best interest of PSB and its shareholders for PSB to enter into the merger agreement with Summit. The PSB board of directors believes that partnering with Summit will maximize the long-term value of its shareholders’ investment in PSB, and that the merger will provide the combined company with additional resources necessary to compete more effectively in eastern Maryland and Delaware. The PSB board of directors believes that Summit common stock is publicly traded rendering it more easily tradeable and is more liquid than PSB’s common stock. In addition, the PSB board of directors believes that the customers and communities served by PSB will benefit from the combined company’s enhanced abilities to meet their banking needs.

In reaching its unanimous decision to approve the merger and the merger agreement and to recommend that PSB shareholders vote “FOR” the PSB merger proposal, the PSB board of directors considered many factors, including, without limitation, the following:

 

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The extensive review undertaken by the PSB board of directors with respect to the strategic alternatives available to PSB;

 

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The consideration being offered to PSB shareholders in relation to the book value per share, tangible book value per share, earnings per share and projected earnings per share of PSB;

 

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The results that could be expected to be obtained by PSB if it continued to operate independently and the potential future value of PSB common stock compared to the value of the merger consideration offered by Summit;

 

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The value of the merger consideration offered by Summit and the uncertainty whether or when the PSB common stock would attain a value equal to value of the merger consideration;

 

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The limited prospects for PSB to grow its franchise through acquisitions given PSB’s relatively small size, corporate structure and lack of liquidity in PSB common stock;

 

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Its understanding of the current and prospective environment in which PSB operates, including national, regional and local economic conditions, the interest rate environment, the competitive and regulatory environments for financial institutions generally, the increased regulatory burdens on financial institutions, the uncertainties of the regulatory environment in the future and the likely effect of these factors on PSB both with and without the merger;

 

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The expected future receipt by PSB shareholders of dividends after completion of the merger as Summit shareholders, based on Summit’s current and forecasted dividend yield;

 

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The feasibility and prospects of PSB continuing to operate independently, including PSB’s ability to compete with much larger regionally-based banks, and the potential future trading value of PSB common stock compared to the value of the merger consideration offered by Summit;

 

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The anticipated future earnings growth of PSB compared to the potential future earnings growth of Summit and the combined entity;

 

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The common stock consideration offered by Summit, including the opportunity for PSB shareholders to receive shares of Summit common stock on a tax-free basis for their shares of PSB common stock;

 

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The market capitalization and trading liquidity of Summit common stock in the event PSB shareholders desired to sell the shares of Summit common stock to be received by them upon completion of the merger;

 

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The addition of one of PSB’s directors to the Summit and Summit Community Bank boards of directors;

 

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The complementary geographic locations of the PSB and Summit branch networks;

 

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Summit’s significantly greater asset size compared to PSB;

 

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The absence of any trading market for PSB common stock;

 

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The fact that the merger consideration would be in the form of Summit common stock based upon a fixed exchange ratio, which will permit PSB shareholders with the ability to participate in the future performance of the combined company;

 

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The financial analysis of the merger and the opinion of Piper Sandler which was addressed to the PSB board of directors (in its capacity as such), dated December 9, 2022, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Piper Sandler, as set forth therein, the exchange ratio was fair, from a financial point of view, to the holders of PSB common stock, as more fully described below under “—Opinion of PSB’s Financial Advisor” on page [●];

 

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The analyses presented by Holland & Knight, PSB’s legal counsel, as to the structure of the merger, including the condition that the merger must qualify as a transaction that will permit PSB shareholders to receive Summit shares in exchange for their shares of PSB common stock on a tax-free basis for federal income tax purposes, the merger agreement, duties of the board of directors under applicable law, and the process that PSB (including its board of directors) employed in considering strategic transactions including the merger with Summit;

 

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The scale, scope, strength and diversity of operations, product lines and delivery systems that could be achieved by combining PSB with Summit;

 

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The additional products offered by Summit to its customers, the ability of the combined company to provide comprehensive financial services to its customers, and the potential for operating synergies and cross-marketing of products and services across the combined company;

 

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The potential value of an expansion of the Summit branch network adding PSB branch locations to Summit’s existing branch network in Virginia, West Virginia and Kentucky;

 

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The earnings prospects of the combined company after completion of the merger;

 

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The demonstrated ability of Summit to successfully integrate the operations of acquired companies and the high level of customer service delivered by Summit to its customers;

 

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The shared community banking philosophies of PSB and Summit, and each entity’s commitment to community service and support of community-based non-profit organizations and causes;

 

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The operations, financial condition and prospects of Summit and the expected financial impact of the merger on the combined company, including pro forma assets, earnings, deposits and capital ratios;

 

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The likelihood of successful integration and operation of the combined company;

 

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The likelihood of obtaining the regulatory approvals needed to complete the transaction;

 

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The potential cost-saving opportunities resulting from the merger; and

 

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The effects of the merger on PSB employees, including the prospects for continued employment and the severance or other benefits agreed to be provided to PSB employees.

The PSB board of directors also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, but not limited to, the following:

 

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The challenges of integrating PSB’s businesses, operations and employees with those of Summit;

 

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The need to obtain approval by shareholders of PSB, as well as regulatory approvals in order to complete the transaction;

 

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The risks associated with the operations of the combined company, including the ability to achieve the anticipated cost savings;

 

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The fact that PSB directors and executive officers have interests in the merger that are different from, or in addition to, those of other PSB shareholders, as more fully discussed under “The Merger —Interests of Certain PSB Directors and Executive Officers in the Merger” on page [●]; and

 

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The risks associated with entry into the merger agreement and conduct of PSB’s business before the merger is completed, and the impact that provisions of the merger agreement relating to payment of a termination fee by PSB may have on PSB receiving superior acquisition offers.

The PSB board of directors also considered the structural protections included in the merger agreement, such as the ability of PSB to terminate the merger agreement under certain circumstances, including, without limitation:

 

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The average closing price of Summit common stock declines by more than 15% from $28.35, and Summit common stock underperforms the NASDAQ Bank Index by more than 15%, all as calculated pursuant to the merger agreement, unless Summit agrees to increase the number of shares of Summit common stock to be issued to holders of PSB common stock or pay an additional cash payment with respect to each share of PSB common stock as part of the merger consideration;

 

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Summit materially breaches any of its covenants or agreements under the merger agreement, which material breach cannot be or has not been cured within 30 days after written notice of the breach to Summit; or

 

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Any required approval of any government authority is denied by final non-appealable action of such government authority, or the shareholders of PSB do not approve the merger at the PSB special meeting.

The PSB board of directors also noted that it could terminate the merger agreement in order to concurrently enter into an agreement with respect to an unsolicited acquisition proposal that was received and considered by PSB in compliance with the non-solicitation provisions of the merger agreement and that would, if consummated, result in a transaction that is more favorable to PSB shareholders than the merger. This termination right is conditioned on PSB providing notice of the unsolicited acquisition proposal to Summit, Summit not making a revised offer to PSB that is at least as favorable as the unsolicited acquisition proposal and PSB paying a $2,200,000 break-up fee to Summit. The amount of this potential fee was negotiated at arm’s-length and was deemed by PSB board of directors to be reasonable based upon the break-up fees paid in comparable transactions and the fact that multiple institutions had already been given an opportunity to bid prior to the merger agreement being approved. As of the date of this prospectus and proxy statement, no unsolicited acquisition proposals have been received. See “The Merger Agreement—Acquisition Proposals” on page [●] for more information.

The foregoing discussion of the information and factors considered by the PSB board of directors is not intended to be exhaustive, but includes the material factors considered by the board of directors. In view of the wide variety and complexity of factors considered in connection with its evaluation of the merger, the PSB board of directors did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The PSB board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The PSB board of directors based its recommendation on the totality of the information presented.

The PSB board of directors unanimously recommends that you vote “FOR” the PSB merger proposal. In considering the recommendation of the PSB board of directors with respect to the PSB

 

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merger proposal, PSB shareholders should be aware that PSB directors and executive officers may have interests in the merger that are different from, or in addition to, those of other shareholders. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending that the merger and the merger agreement be approved by the shareholders of PSB. See “The Merger—Interests of Certain PSB Directors and Executive Officers in the Merger” on page [●].

This summary of the reasoning of PSB’s board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements” on page [●].

Summit’s Reasons for the Merger

In reaching its decision to adopt and approve the merger agreement, the merger, the issuance of Summit common stock in connection with the merger and the other transactions contemplated by the merger agreement, the Summit board of directors consulted with Summit management, as well as its legal advisors, and considered a number of factors, including the following material factors:

 

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Summit’s, PSB’s and the combined entity’s business, operations, financial condition, risk profile, asset quality, earnings and prospects. In reviewing these factors, the Summit board of directors considered its view that PSB’s business and operations complement those of Summit and that the merger would result in a combined company with a well-balanced loan portfolio and an attractive funding base;

 

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The fact that the core deposits made up a significant majority of PSB’s funding mix;

 

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The potential of enhancing a regional banking franchise with additional scale and access to a broader base of middle market and small business prospects;

 

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PSB’s familiarity with Maryland and Delaware markets;

 

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the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company given its larger size, asset base, capital, and footprint;

 

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Management’s understanding of the current and prospective environment in which Summit and PSB operate, including national and local economic conditions, the competitive environment for financial institutions generally and the likely effect of these factors on Summit both with and without the proposed transaction;

 

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Management’s expectation regarding cost synergies, earnings accretion, tangible book value dilution and internal rate of return;

 

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Management’s due diligence examination of PSB;

 

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Sensitivity of the proposed transaction’s economic returns to a variety of factors, including changes to the amount of cost synergies, PSB’s pro forma earnings, PSB’s rates of growth and estimated mark-to-market of the associated loan portfolio;

 

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The market for alternative merger or acquisition transactions in the banking industry and the likelihood and timing of other material strategic transactions;

 

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The complementary nature of the cultures and product mix of the two companies, which management believes should facilitate integration and implementation of the transaction;

 

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Management’s expectation that the strong capital position maintained by each separate company prior to the completion of the merger will contribute to a strong capital position for the combined entity upon completion of the merger;

 

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The financial and other terms of the merger agreement, including the fixed exchange ratio, tax treatment and mutual deal protection and termination fee provisions, which it reviewed with its outside legal advisors;

 

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•

The potential risks associated with and management’s recent experience in achieving anticipated cost synergies and savings and successfully integrating PSB’s business, operations and workforce with those of Summit;

 

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The nature and amount of the merger-related costs and restructuring charges that will be incurred in connection with the merger;

 

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The potential risk of diverting management attention and resources from the operation of Summit’s business and towards the completion of the merger; and

 

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The regulatory and other approvals required in connection with the merger.

The foregoing discussion of the information and factors considered by the Summit board of directors is not intended to be exhaustive, but includes the material factors considered by the Summit board of directors. In reaching its decision to approve the merger agreement, the merger, the issuance of Summit common stock to PSB shareholders in connection with the merger, and the other transactions contemplated by the merger agreement, the Summit board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Summit board of directors considered all these factors as a whole, including discussions with, and questioning of, Summit management, and overall considered the factors to be favorable to, and to support, its determination.

Opinion of PSB’s Financial Advisor

PSB retained Piper Sandler to act as financial advisor to the PSB board of directors in connection with PSB’s consideration of a possible business combination. PSB selected Piper Sandler to act as its financial advisor because Piper Sandler is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Piper Sandler is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Piper Sandler acted as financial advisor to the PSB board of directors in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the December 9, 2022 meeting at which PSB’s board of directors considered the merger and the merger agreement, Piper Sandler delivered to the board of directors its oral opinion, which was subsequently confirmed in writing, to the effect that, as of such date, the exchange ratio was fair to the holders of PSB’s common stock from a financial point of view. The full text of Piper Sandler’s opinion is attached as Appendix B to this prospectus and proxy statement. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Piper Sandler in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of PSB common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Piper Sandler’s opinion was directed to the board of directors of PSB in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any shareholder of PSB as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. Piper Sandler’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of PSB common stock and did not address the underlying business decision of PSB to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for PSB or the effect of any other transaction in which PSB might engage. Piper Sandler also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of PSB or Summit, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder. Piper Sandler’s opinion was approved by Piper Sandler’s fairness opinion committee.

 

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In connection with its opinion, Piper Sandler reviewed and considered, among other things:

 

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a draft of the merger agreement, dated December 8, 2022;

 

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certain publicly available financial statements and other historical financial information of PSB and its banking subsidiary, Provident State Bank, that Piper Sandler deemed relevant;

 

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certain publicly available financial statements and other historical financial information of Summit and its banking subsidiary, Summit Community Bank, that Piper Sandler deemed relevant;

 

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certain internal financial projections for PSB for the years ending December 31, 2022 and December 31, 2023 with a long-term annual growth rate for the years ending December 31, 2024 through December 31, 2026 and estimated dividends per share for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of PSB;

 

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internal net income estimates for Summit for the years ending December 31, 2022 through December 31, 2026, as well as estimated dividends per share for Summit for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit;

 

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the pro forma financial impact of the merger on Summit based on certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, certain adjustments for current

 

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expected credit losses, which is referred to as CECL, accounting standards and estimated net income for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit;

 

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the publicly reported historical price and trading activity for PSB common stock and Summit common stock, including a comparison of certain stock trading information for PSB common stock, Summit common stock and certain stock indices, as well as similar publicly available information for certain other companies, the securities of which are publicly traded;

 

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a comparison of certain financial information for PSB and Summit with similar financial institutions for which information was publicly available;

 

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the financial terms of certain recent business combinations in the bank and thrift industry (on a nationwide basis), to the extent publicly available;

 

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the current market environment generally and the banking environment in particular; and

 

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such other information, financial studies, analyses and investigations and financial, economic and market criteria as Piper Sandler considered relevant.

Piper Sandler also discussed with certain members of the senior management of PSB and its representatives the business, financial condition, results of operations and prospects of PSB and held similar discussions with certain members of the senior management of Summit and its representatives regarding the business, financial condition, results of operations and prospects of Summit.

In performing its review, Piper Sandler relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Piper Sandler from public sources, that was provided to Piper Sandler by PSB or Summit or their respective representatives, or that was otherwise reviewed by Piper Sandler, and Piper Sandler assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Piper Sandler relied on the assurances of the respective managements of PSB and Summit that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading. Piper Sandler was not asked to and did not undertake an independent verification of any of such information and Piper Sandler did not assume any responsibility or liability for the accuracy or completeness thereof. Piper Sandler did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or

 

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otherwise) of PSB or Summit, nor was Piper Sandler furnished with any such evaluations or appraisals. Piper Sandler rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of PSB or Summit. Piper Sandler did not make an independent evaluation of the adequacy of the allowance for loan losses of PSB or Summit, or of the combined entity after the merger, and Piper Sandler did not review any individual credit files relating to PSB or Summit. Piper Sandler assumed, with PSB’s consent, that the respective allowances for loan losses for both PSB and Summit were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Piper Sandler used certain internal financial projections for PSB for the years ending December 31, 2022 and December 31, 2023 with a long-term annual growth rate for the years ending December 31, 2024 through December 31, 2026 and estimated dividends per share for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of PSB. In addition, Piper Sandler used internal net income estimates for Summit for the years ending December 31, 2022 through December 31, 2026, as well as estimated dividends per share for Summit for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit. Piper Sandler also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, certain adjustments for CECL accounting standards and estimated net income for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit. With respect to the foregoing information, the respective senior managements of PSB and Summit confirmed to Piper Sandler that such information reflected the best currently available projections, estimates and judgements of senior management as to the future financial performance of PSB and Summit, respectively, and Piper Sandler assumed that the financial results reflected in such information would be achieved. Piper Sandler expressed no opinion as to such information, or the assumptions on which such information was based. Piper Sandler also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of PSB or Summit since the date of the most recent financial statements made available to Piper Sandler. Piper Sandler assumed in all respects material to its analyses that PSB and Summit would remain as going concerns for all periods relevant to its analyses.

Piper Sandler also assumed, with PSB’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on PSB, Summit, the merger or any related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with PSB’s consent, Piper Sandler relied upon the advice that PSB received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Piper Sandler expressed no opinion as to any such matters.

Piper Sandler’s opinion was necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to Piper Sandler as of, the date thereof. Events occurring after the date thereof could materially affect Piper Sandler’s opinion. Piper Sandler has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Piper Sandler expressed no opinion as to the trading value of PSB common stock or Summit common stock at any time or what the value of Summit common stock will be once it is actually received by the holders of PSB common stock.

In rendering its opinion, Piper Sandler performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying Piper Sandler’s opinion or the presentation made by

 

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Piper Sandler to PSB’s board of directors, but is a summary of the material analyses performed and presented by Piper Sandler. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Piper Sandler believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Piper Sandler’s comparative analyses described below is identical to PSB or Summit and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or transaction values, as the case may be, of PSB and Summit and the companies to which they were compared. In arriving at its opinion, Piper Sandler did not attribute any particular weight to any analysis or factor that it considered. Rather, Piper Sandler made qualitative judgments as to the significance and relevance of each analysis and factor. Piper Sandler did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Piper Sandler made its determination as to the fairness of the exchange ratio to the holders of PSB common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Piper Sandler also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of PSB, Summit, and Piper Sandler. The analyses performed by Piper Sandler are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Piper Sandler prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the PSB board of directors at its December 9, 2022 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Piper Sandler’s analyses do not necessarily reflect the value of PSB common stock or Summit common stock or the prices at which PSB or Summit common stock may be sold at any time. The analyses of Piper Sandler and its opinion were among a number of factors taken into consideration by the PSB board of directors in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of the PSB board of directors with respect to the fairness of the exchange ratio.

 

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Summary of Proposed Merger Consideration and Implied Transaction Metrics.

Piper Sandler reviewed the financial terms of the proposed merger. Pursuant to the terms of the merger agreement, at the effective time of the merger each share of PSB common stock issued and outstanding immediately prior to the effective time of the merger, except for certain shares as set forth in the merger agreement, shall be converted into the right to receive 1.2347 shares of Summit common stock. Piper Sandler calculated an aggregate implied transaction value of approximately $53.9 million and an implied purchase price per share of $35.00 consisting of the implied value of 1,523,404 shares of PSB common stock and 75,700 options with a weighted average exercise price of $27.12, and based on the 20-day average stock price of Summit common stock ending on December 8, 2022. Based upon financial information for PSB as of or for the last twelve months, which is referred to as LTM, ended September 30, 2022, Piper Sandler calculated the following implied transaction metrics:

 

Price / LTM Earnings Per Share		12.6x
Price / 2022 Est. Earnings Per Share1		11.7x
Price / Tangible Book Value		141%
Tangible Book Value Premium / Core Deposits (CDs >$100K)2		3.4%
Tangible Book Value Premium / Core Deposits (CDs >$250K)3		3.2%
Market Premium as of December 8, 2022		40.8%

 

1	Based on estimated net income for PSB as provided by PSB management

2	Core deposits equal to total deposits less CDs greater than $100k

3	Core deposits equal to total deposits less CDs greater than $250k

Stock Trading History.

Piper Sandler reviewed the publicly available historical reported trading prices of PSB common stock and Summit common stock for the one-year and three-year periods ended December 8, 2022. Piper Sandler then compared the relationship between the movements in the price of PSB common stock and Summit common stock, respectively, to movements in their respective peer groups (as described below) as well as certain stock indices.

PSB’s One-Year Stock Performance

 

		Beginning Value December 8, 2021		Ending Value December 8, 2022
PSB		100%		86.5%
PSB Peer Group		100%		95.3%
S&P 500 Index		100%		84.3%
NASDAQ Bank Index		100%		83.4%

PSB’s Three-Year Stock Performance

 

		Beginning Value December 8, 2019		Ending Value December 8, 2022
PSB		100%		89.7%
PSB Peer Group		100%		105.3%
S&P 500 Index		100%		126.0%
NASDAQ Bank Index		100%		106.7%

 

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Summit’s One-Year Stock Performance

 

		Beginning Value December 8, 2021				Ending Value December 8, 2022
Summit			100%				101.6%
Summit Peer Group			100	%			93.7	%
S&P 500 Index			100%				84.3%
NASDAQ Bank Index			100%				83.4%

Summit’s Three-Year Stock Performance

 

		Beginning Value December 8, 2019		Ending Value December 8, 2022
Summit		100%		104.4%
Summit Peer Group		100%		105.8%
S&P 500 Index		100%		126.0%
NASDAQ Bank Index		100%		106.7%

Comparable Company Analyses.

Piper Sandler used publicly available information to compare selected financial information for PSB with a group of financial institutions selected by Piper Sandler. The PSB peer group included banks and thrifts headquartered in the District of Columbia, Delaware, Maryland and Virginia whose securities are publicly traded with total assets between $300 million and $900 million, but excluded targets of announced merger transactions and banks that did not report most recent quarter, which is referred to as MRQ, shares outstanding, which is referred to as the PSB Peer Group. The PSB Peer Group consisted of the following companies:

 

New Peoples Bankshares, Inc.		Touchstone Bankshares, Inc.
Village Bank and Trust Financial Corp.		Citizens Bancorp of Virginia, Inc.
Farmers and Merchants Bancshares, Inc.		Oak View Bankshares, Inc.
Bank of Botetourt		Glen Burnie Bancorp
National Capital Bancorp, Inc.		Peoples Bancorp, Inc.
Hartford Bank		The Farmers Bank of Appomattox

The analysis compared publicly available financial information for PSB with corresponding data for the PSB Peer Group as of or for the year ended September 30, 2022 (unless otherwise noted) with pricing data as of December 8, 2022. The table below sets forth the data for PSB and the median, mean, low and high data for the PSB Peer Group.

 

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PSB Comparable Company Analysis

 

		PSB				PSB Peer Group Median				PSB Peer Group Mean				PSB Peer Group Low				PSB Peer Group High
Total assets ($mm)			594				625				587				313				847
Loans / Deposits (%)			73.4				71.4				69.9				41.2				86.0
Non-performing assets / Total assets (%)1			0.50				0.46				0.45				0.00				1.17
Tangible common equity/Tangible assets (%)			6.37				6.91				6.96				3.45				9.20
Tier 1 Leverage Ratio (%)2			9.66				9.62				9.83				8.50				12.73
Total RBC Ratio (%)3			14.59				16.23				16.09				12.82				18.83
CRE / Total RBC Ratio (%)4			273				160				181				45				383
LTM Return on average assets (%)			0.73				0.87				0.85				0.34				1.18
LTM Return on average equity (%)			9.3				9.6				10.3				5.0				15.3
LTM Net interest margin (%)			3.21				3.23				3.21				2.61				3.61
LTM Efficiency ratio (%)			71.6				69.3				70.9				58.2				87.6
Price/Tangible book value (%)			100				105				118				75				192
Price/LTM Earnings per share (x)			9.0				9.3				9.8				7.5				18.9
Current Dividend Yield (%)			0.8				2.6				2.4				0.0				4.2
Market value ($mm)			38				49				46				21				79

 

1	Bank level financial data used for New Peoples Bankshares, Inc, Village Bank and Trust Financial Corp., Farmers and Merchants Bancshares, Inc., National Capital Bancorp, Inc., Touchstone Bankshares, Inc., Citizens Bancorp of Virginia, Inc., Oak View Bankshares, Inc., Glen Burnie Bancorp and PSB.

2	Bank level financial data used for New Peoples Bankshares, Inc, Village Bank and Trust Financial Corp., Farmers and Merchants Bancshares, Inc., National Capital Bancorp, Inc., Touchstone Bankshares, Inc., Oak View Bankshares, Inc. and PSB.

3	Bank level financial data used for New Peoples Bankshares, Inc, Village Bank and Trust Financial Corp., Farmers and Merchants Bancshares, Inc., National Capital Bancorp, Inc., Oak View Bankshares, Inc. and PSB.

4

Bank level financial data used for New Peoples Bankshares, Inc, Village Bank and Trust Financial Corp., Farmers and Merchants Bancshares, Inc., National Capital Bancorp, Inc., Touchstone Bankshares, Inc., Citizens Bancorp of Virginia, Inc., Oak View Bankshares, Inc., Glen Burnie Bancorp , Peoples Bancorp, Inc. and PSB.

Piper Sandler used publicly available information to perform a similar analysis for Summit by comparing selected financial information for Summit with a group of financial institutions selected by Piper Sandler. The Summit peer group included banks and thrifts headquartered in the Southeast region of the U.S. whose securities are traded on a major exchange (NASDAQ, NYSE, NYSEAM) with total assets between $2.5 billion and $7.5 billion, but excluded targets of announced merger transactions, which is referred to as the Summit Peer Group. The Summit Peer Group consisted of the following companies:

 

The First Bancshares, Inc.		MetroCity Bankshares, Inc.
City Holding Company		CapStar Financial Holdings, Inc.
SmartFinancial, Inc.		First Community Bankshares, Inc.
Capital City Bank Group, Inc.		MVB Financial Corp.
Carter Bankshares, Inc.		American National Bankshares Inc.
HomeTrust Bancshares, Inc.		Blue Ridge Bankshares, Inc.
Southern First Bancshares, Inc.		Colony Bankcorp, Inc.
Primis Financial Corp.

The analysis compared publicly available financial information for Summit with corresponding data for the Summit Peer Group as of or for the year ended September 30, 2022 (unless otherwise noted) with pricing data as of December 8, 2022. The table below sets forth the data for Summit and the median, mean, low and high data for the Summit Peer Group.

 

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Summit Comparable Company Analysis

 

		Summit				Summit Peer Group Median				Summit Peer Group Mean				Summit Peer Group Low				Summit Peer Group High
Total assets ($mm)			3,887				3,357				3,837				2,806				6,455
Loans / Deposits (%)			98.9				87.0				84.5				62.4				115.8
Non-performing assets / Total assets (%)1			0.84				0.42				0.49				0.10				1.15
Tangible common equity/Tangible assets (%)			6.91				7.61				8.02				6.22				10.50
Tier 1 Leverage Ratio (%)2			8.41				9.53				9.61				7.40				11.22
Total RBC Ratio (%)3			13.11				14.47				14.51				11.44				16.94
CRE / Total RBC Ratio (%)4			287				258				242				37				403
LTM Return on average assets (%)			1.38				1.03				1.11				0.61				2.27
LTM Return on average equity (%)			15.3				10.5				10.9				5.5				23.1
LTM Net interest margin (%)			3.65				3.21				3.34				2.84				4.10
LTM Efficiency ratio (%)			48.4				61.8				62.0				34.8				84.0
Price/Tangible book value (%)			133				139				162				105				329
Price/LTM Earnings per share (x)			7.1				11.5				12.0				7.4				16.2
Price/2022E Earnings per share (x)5			6.6				11.2				12.0				8.3				20.7
Price/2023E Earnings per share (x)5			6.5				9.5				9.7				7.4				14.2
Current Dividend Yield (%)			2.9				2.7				2.3				0.0				3.6
Market value ($mm)			351				395				499				237				1,423

 

1	Bank level financial data shown for SmartFinancial, Inc.

2	Bank level financial data shown for Blue Ridge Bankshares, Inc.

3	Bank level financial data shown for Blue Ridge Bankshares, Inc.

4	Bank level financial data shown for MetroCity Bankshares, Inc., Blue Ridge Bankshares, Inc. and Colony Bankcorp, Inc.

5	Based on publicly available median consensus analyst estimates

Analysis of Precedent Transactions.

Piper Sandler reviewed a group of recent merger and acquisition transactions. The group consisted of nationwide transactions involving bank and thrift targets that were announced between January 1, 2021 and December 8, 2022 where the target’s total assets at the time of announcement was between $400 million and $650 million; but excluded transactions with non-disclosed deal values and transactions with private investors, private equity buyers or credit union buyers, which is referred to as the Nationwide Precedent Transactions.

The Nationwide Precedent Transactions group was composed of the following transactions:

 

Acquiror		Target
First Community Bankshares, Inc.		Surrey Bancorp
Citizens Financial Services, Inc.		HV Bancorp, Inc.
TowneBank		Farmers Bankshares Inc.
MVB Financial Corp		Integrated Financial Holdings, Inc.
Bank First Corporation		Hometown Bancorp, Ltd.
Somerset Savings Bank, SLA		Regal Bancorp, Inc.
CrossFirst Bankshares, Inc.		Farmers & Stockmens Bank
Middlefield Banc Corp.		Liberty Bancshares, Inc.
Cambridge Bancorp		Northmark Bank
The First Bancshares, Inc.		Beach Bancorp, Inc.
BAWAG Group AG		Peak Bancorp Inc.

 

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Acquiror		Target
Home Bancorp, Inc.		Friendswood Capital Corporation
Alerus Financial Corporation		MPB BHC, INC.
InBankshares, Corp		Legacy Bank
BancFirst Corporation		Worthington National Bank
MidWestOne Financial Group, Inc.		Iowa First Bancshares Corp.
Business First Bancshares, Inc.		Texas Citizens Bancorp, Inc.
Community Bank System, Inc.		Elmira Savings Bank
BayCom Corp		Pacific Enterprise Bancorp
Seacoast Banking Corporation of Florida		Sabal Palm Bancorp, Inc.
Arbor Bancorp Inc.		FNBH Bancorp, Inc.
Finward Bancorp		Royal Financial, Inc.
First Western Financial, Inc.		Teton Financial Services, Inc.
Spencer Savings Bank, Savings and Loan Association		Mariner’s Bank
Southern California Bancorp		Bank of Santa Clarita
SmartFinancial, Inc.		Sevier County Bancshares, Inc.
Seacoast Banking Corporation of Florida		Legacy Bank of Florida

Using the latest publicly available information prior to the announcement of the relevant transaction, Piper Sandler reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share, core deposit premium, and one-day market premium. Piper Sandler compared the indicated transaction metrics for the merger to the median, mean, low and high metrics of the Nationwide Precedent Transactions group.

 

						Nationwide Precedent Transactions
		Summit/ PSB				Median				Mean				Low				High
Transaction Price / LTM Earnings Per Share (x)			12.6				16.6				17.2				8.8				50.9
Transaction Price / Tangible Book Value Per Share (%)			141				153				153				88				211
Tangible Book Value Premium to Core Deposits (%)			3.4				5.8				6.8				(3.0	)			16.2
1-Day Market Premium (%)			40.8				21.0				24.9				(43.1	)			83.4

Net Present Value Analyses.

Piper Sandler performed an analysis that estimated the net present value of a share of PSB common stock assuming PSB performed in accordance certain internal financial projections for PSB for the years ending December 31, 2022 and December 31, 2023 with a long-term annual growth rate for the years ending December 31, 2024 through December 31, 2026 and estimated dividends per share for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of PSB. To approximate the terminal value of a share of PSB common stock at December 31, 2026, Piper Sandler applied price to 2026 earnings multiples ranging from 8.0x to 11.0x and multiples of 2026 tangible book value ranging from 90% to 140%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of PSB common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of PSB common stock of $19.06 to $30.10 when applying multiples of earnings and $20.85 to $37.19 when applying multiples of tangible book value.

 

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Earnings Per Share Multiples

 

Discount Rate		8.0x				8.8x				9.5x				10.3x				11.0x
10.0%		$	22.12			$	24.11			$	26.11			$	28.11			$	30.10
11.0%		$	21.30			$	23.22			$	25.14			$	27.06			$	28.98
12.0%		$	20.52			$	22.37			$	24.22			$	26.07			$	27.92
13.0%		$	19.77			$	21.55			$	23.33			$	25.11			$	26.90
14.0%		$	19.06			$	20.77			$	22.49			$	24.21			$	25.92

Tangible Book Value Per Share Multiples

 

Discount Rate		90%				103%				115%				128%				140%
10.0%		$	24.20			$	27.45			$	30.69			$	33.94			$	37.19
11.0%		$	23.30			$	26.43			$	29.55			$	32.68			$	35.80
12.0%		$	22.44			$	25.45			$	28.46			$	31.47			$	34.48
13.0%		$	21.63			$	24.52			$	27.42			$	30.32			$	33.22
14.0%		$	20.85			$	23.64			$	26.43			$	29.22			$	32.01

Piper Sandler also considered and discussed with the PSB board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Piper Sandler performed a similar analysis, assuming PSB’s earnings varied from 20.0% above projections to 20.0% below projections. This analysis resulted in the following range of per share values for PSB’s common stock, applying the price to 2026 earnings multiples range of 8.0x to 11.0x referred to above and a discount rate of 12.04%.

Earnings Per Share Multiples

 

Annual Estimate Variance		8.0x				8.8x				9.5x				10.3x				11.0x
(20.0%)		$	16.55			$	18.02			$	19.50			$	20.98			$	22.46
(10.0%)		$	18.52			$	20.18			$	21.84			$	23.50			$	25.16
0.0%		$	20.49			$	22.33			$	24.18			$	26.03			$	27.87
10.0%		$	22.46			$	24.49			$	26.52			$	28.55			$	30.58
20.0%		$	24.43			$	26.64			$	28.86			$	31.07			$	33.29

Piper Sandler also performed an analysis that estimated the net present value per share of Summit common stock, assuming Summit performed in accordance with internal net income estimates for Summit for the years ending December 31, 2022 through December 31, 2026, as well as estimated dividends per share for Summit for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit. To approximate the terminal value of a share of Summit common stock at December 31, 2026, Piper Sandler applied price to 2026 earnings multiples ranging from 8.0x to 13.0x and multiples of 2026 tangible book value ranging from 125% to 200%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Summit common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of Summit common stock of $24.74 to $44.63 when applying multiples of earnings and $28.64 to $51.26 when applying multiples of tangible book value.

 

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Earnings Per Share Multiples

 

Discount Rate		8.0x		9.0x		10.0x		11.0x		12.0x		13.0x
10.0%		$28.60		$31.81		$35.01		$38.22		$41.43		$44.63
11.0%		$27.57		$30.65		$33.74		$36.82		$39.91		$42.99
12.0%		$26.58		$29.55		$32.52		$35.49		$38.46		$41.43
13.0%		$25.64		$28.50		$31.36		$34.22		$37.08		$39.94
14.0%		$24.74		$27.49		$30.25		$33.00		$35.76		$38.51

Tangible Book Value Per Share Multiples

 

Discount Rate		125%				140%				155%				170%				185%				200%
10.0%		$	33.15			$	36.77			$	40.39			$	44.02			$	47.64			$	51.26
11.0%		$	31.94			$	35.43			$	38.91			$	42.40			$	45.89			$	49.37
12.0%		$	30.79			$	34.15			$	37.50			$	40.86			$	44.21			$	47.57
13.0%		$	29.69			$	32.92			$	36.15			$	39.39			$	42.62			$	45.85
14.0%		$	28.64			$	31.75			$	34.87			$	37.98			$	41.09			$	44.20

Piper Sandler also considered and discussed with the PSB board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Piper Sandler performed a similar analysis assuming Summit’s earnings varied from 20.0% above estimates to 20.0% below estimates. This analysis resulted in the following range of per share values for Summit common stock, applying the price to 2026 earnings multiples range of 8.0x to 13.0x referred to above and a discount rate of 12.04%.

Earnings Per Share Multiples

 

Annual Estimate Variance		8.0x				9.0x				10.0x				11.0x				12.0x				13.0x
(20.0%)		$	21.79			$	24.17			$	26.54			$	28.91			$	31.28			$	33.66
(10.0%)		$	24.17			$	26.84			$	29.51			$	32.17			$	34.84			$	37.51
0.0%		$	26.54			$	29.51			$	32.47			$	35.44			$	38.40			$	41.37
10.0%		$	28.91			$	32.17			$	35.44			$	38.70			$	41.96			$	45.22
20.0%		$	31.28			$	34.84			$	38.40			$	41.96			$	45.52			$	49.08

Piper Sandler noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Transaction Analysis

Piper Sandler analyzed certain potential pro forma effects of the merger on Summit assuming the transaction closes on June 30, 2023. Piper Sandler utilized certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, certain adjustments for CECL, accounting standards and estimated net income for PSB for the years ending December 31, 2022 through December 31, 2026, as provided by the senior management of Summit. The analysis indicated that the transaction could be accretive to Summit’s estimated earnings per share (excluding one-time transaction costs and expenses) in the years ending December 31, 2023 through December 31, 2026 and dilutive to Summit’s estimated tangible book value per share in the years ending December 31, 2023 through December 31, 2025 and accretive to Summit’s estimated tangible book value per share in the year ending December 31, 2026.

 

44

In connection with this analysis, Piper Sandler considered and discussed with the PSB board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Piper Sandler’s Relationship.

Piper Sandler is acting as PSB’s financial advisor in connection with the transaction and will receive a fee for such services in an amount equal to 1.35% of the aggregate purchase price, subject to a minimum advisory fee of $600,000, which fee is contingent upon the closing of the merger. At the time of announcement of the merger Piper Sandler’s fee was approximately $728,000. Piper Sandler also received a $150,000 fee from PSB upon rendering its opinion, which opinion fee will be credited in full towards the advisory fee that will become payable to Piper Sandler upon closing of the merger. PSB has also agreed to indemnify Piper Sandler against certain claims and liabilities arising out of Piper Sandler’s engagement and to reimburse Piper Sandler for certain of its out-of-pocket expenses incurred in connection with Piper Sandler’s engagement.

Piper Sandler did not provide any other investment banking services to PSB in the two years preceding the date of its opinion. Piper Sandler informed the PSB board of directors that Piper Sandler acted as placement agent in connection with Summit’s offer and sale of subordinated debt, which transaction occurred in November 2021 and for which Piper Sandler received compensation of approximately $1,500,000. Except for the foregoing, Piper Sandler did not provide any investment banking services to Summit in the two years preceding the date of Piper Sandler’s opinion. In the ordinary course of Piper Sandler’s business as a broker-dealer, Piper Sandler may purchase securities from and sell securities to PSB and Summit and their respective affiliates. Piper Sandler may also actively trade the equity and debt securities of PSB and Summit for Piper Sandler’s own account and for the accounts of Piper Sandler’s customers.

Certain PSB Unaudited Prospective Financial Information

PSB does not as a matter of course make public projections as to future performance, revenues, earnings or other financial results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, PSB is including in this prospectus and proxy statement certain unaudited internal financial forecasts that were made available to Piper Sandler, as PSB’s financial advisor, for purposes of net present value analysis of PSB performed by Piper Sandler in connection with its opinion to the PSB board of directors. The inclusion of these financial forecasts should not be regarded as an indication that any of PSB, Summit or Piper Sandler, their respective representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results or that it should be construed as financial guidance, and it should not be relied on as such.

The unaudited internal financial forecasts included below were prepared solely for the internal use of PSB and were provided to Piper Sandler for purposes of its net present value analysis of PSB are subjective in many respects. The unaudited internal financial forecasts reflect numerous estimates and assumptions made with respect to business, economic, market, competition, regulatory and financial conditions and matters specific to PSB’s business, all of which are difficult to predict and many of which are beyond PSB’s control. The unaudited internal financial forecasts reflect both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. PSB can give no assurance that the unaudited internal financial forecasts and the underlying estimates and assumptions will be realized. In addition, since the unaudited internal financial forecasts cover multiple years, such forecasts by their nature becomes subject to greater uncertainty with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited internal financial forecasts to be inaccurate include, but are not limited to, risks and uncertainties relating to PSB’s business, industry performance, general business and economic conditions, customer requirements, competition and adverse

 

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changes in applicable laws, regulations or rules. For other factors that could cause actual results to differ, please see the sections entitled “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●] and page [●], respectively, of this prospectus and proxy statement.

The unaudited internal financial forecasts were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited internal financial forecasts require significant estimates and assumptions that make them inherently less comparable to the similarly titled GAAP measures in PSB’s historical GAAP financial statements. Neither PSB’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited internal financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

Furthermore, the unaudited internal financial forecasts do not take into account any circumstances or events occurring after the date they were prepared. PSB can give no assurance that, had the unaudited internal financial forecasts been prepared either as of the date of the merger agreement or as of the date of this prospectus and proxy statement, similar estimates and assumptions would be used. PSB does not intend to, and disclaims any obligation to, make publicly available any update or other revision to the unaudited internal financial forecasts to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. The unaudited internal financial forecasts do not take into account the possible financial and other effects on either PSB or Summit, as applicable, of the merger and do not attempt to predict or suggest future results of the combined company. The unaudited internal financial forecasts do not give effect to the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with consummating the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect on either PSB or Summit, as applicable, of any business or strategic decisions or actions that would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the unaudited internal financial forecasts do not take into account the effect on either Summit or PSB, as applicable, of any possible failure of the merger to occur. None of PSB, Summit or Piper Sandler or their affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any shareholder of PSB, shareholder of Summit or other person regarding PSB’s ultimate performance compared to the information contained in the unaudited internal financial forecasts or that the projected results will be achieved.

The inclusion of the unaudited internal financial forecasts herein should not be deemed an admission or representation by Summit or PSB that such forecasts are viewed as material information of PSB, particularly in light of the inherent risks and uncertainties associated with such forecasts. The unaudited internal financial forecasts included below are not being included to influence your decision whether to vote for the merger and the transactions contemplated in connection with the merger, but are being provided solely because they were made available to PSB’s financial advisor, Piper Sandler, and Summit in connection with the merger.

In light of the foregoing, and considering that the PSB special meeting will be held several months after unaudited internal financial forecasts were prepared, as well as the uncertainties inherent in any forecasted information, PSB shareholders are cautioned not to place unwarranted reliance on such information.

The following unaudited internal financial forecasts were prepared by PSB’s management and were reviewed and used by Piper Sandler for purposes of the net present value analysis of PSB performed in connection with its opinion to the PSB board of directors:

 

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Net income for PSB in the year ending December 31, 2022 of $4,560,000

 

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Net income for PSB in the year ending December 31, 2023 of $5,010,000

 

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Balance sheet growth rate of 5.0% for the years ending December 31, 2024 through December 31, 2026

 

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Estimated dividends per share of PSB common stock for the years ending December 31, 2022 through December 31, 2026 of $0.20.

Certain Summit Unaudited Prospective Financial Information

Summit does not as a matter of course make public projections as to future performance, revenues, earnings or other financial results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, solely in connection with the merger, Summit is including in this prospectus and proxy statement certain unaudited internal financial information that was made available to PSB and also to Piper Sandler, as PSB’s financial advisor, for purposes of performing the net present value analysis of Summit and the pro forma financial information reflecting the effect of the merger on Summit in connection with Piper Sandler’s opinion to the PSB board of directors. This financial information is included to provide PSB shareholders access to certain non-public information provided to PSB board of directors and Piper Sandler in connection with the merger. The inclusion of this financial information should not be regarded as an indication that any of Summit, PSB or Piper Sandler, their respective representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results or that it should be construed as financial guidance, and it should not be relied on as such by the PSB shareholders or any other person.

The financial information included below was prepared solely for the internal use of Summit and is subjective in many respects. The unaudited internal financial information reflects numerous estimates and assumptions made with respect to business, economic, market, competition, regulatory and financial conditions and matters specific to Summit’s business, PSB’s business and the effect of the merger, all of which are difficult to predict and many of which are beyond Summit’s control. The unaudited internal financial information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the financial information constitutes forward-looking information. Summit can give no assurance that the unaudited internal financial information and the underlying estimates and assumptions will be realized. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited internal financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to Summit’s business, industry performance, general business and economic conditions, customer requirements, competition, litigation, and adverse changes in applicable laws, regulations or rules. For other factors that could cause actual results to differ, please see the sections entitled “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●] and page [●], respectively, of this prospectus and proxy statement and in Summit’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and other reports filed by Summit with the SEC.

The unaudited internal financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Summit’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited internal financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

Furthermore, the unaudited internal financial information does not take into account any circumstances or events occurring after the date they were prepared. Summit can give no assurance that, had the unaudited internal financial information been prepared either as of the date of the merger agreement or as of the date of this prospectus and proxy statement, similar estimates and assumptions would be used. Summit does not intend to,

 

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and disclaims any obligation to, make publicly available any update or other revision to the unaudited internal financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. The unaudited internal financial information may not take into account all possible financial and other effects on either Summit or PSB, as applicable, of the merger and does not attempt to predict or suggest future results of the combined company. Further, the unaudited internal financial information does not take into account the effect on either Summit or PSB, as applicable, of any possible failure of the merger to occur. None of PSB, Summit or Piper Sandler or their affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any shareholder of PSB, shareholder of Summit or other person regarding Summit’s ultimate performance compared to the information contained in the unaudited internal financial information or that the projected results will be achieved.

The inclusion of the unaudited internal financial information herein should not be deemed an admission or representation by Summit or PSB that such forecasts are viewed as material information of Summit, particularly in light of the inherent risks and uncertainties associated with such forecasts. The unaudited internal financial information included below is not being included to influence your decision whether to vote for the merger and the transactions contemplated in connection with the merger, but are being provided because they were made available to PSB and Piper Sandler in connection with the merger.

In light of the foregoing, and considering that the PSB special meeting will be held several months after the unaudited internal financial information was prepared, as well as the uncertainties inherent in any forecasted information, PSB shareholders are cautioned not to place unwarranted reliance on such information, and Summit urges all PSB shareholders to review Summit’s most recent SEC filings for a description of Summit’s reported financial results. See “Where You Can Find More Information” on page [●] of this prospectus and proxy statement.

The following unaudited internal financial forecasts were prepared by Summit’s management and were reviewed and used by Piper Sandler for purposes of the net present value analysis of Summit performed in connection with its opinion to the PSB board of directors:

 

Year Ending December 31 (in thousands)		2023				2024				2025				2026				2027
Estimated Summit income available for common shareholders		$	53,463			$	53,417			$	57,549			$	61,642			$	65,702
Estimated Summit dividends		$	10,649			$	11,241			$	11,752			$	12,263			$	12,774

The following unaudited pro forma financial information reflecting the effect of the merger was provided by Summit senior management and used by Piper Sandler in its pro forma transaction analysis:

 

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Estimated net income of PSB reflecting the effect of the merger for the years ending December 31, 2023 through December 31, 2027:

 

Year Ending December 31 (in thousands)		2023				2024				2025				2026				2027
Estimated net income of PSB reflecting effect of the merger		$	8,711			$	13,721			$	14,106			$	14,518			$	14,952

 

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Cost savings equal to 25% of PSB’s projected non-interest expense (50% realized in 2023; 100% thereafter);

 

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Total pre-tax transaction expenses of $3.9 million;

 

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Loan portfolio credit mark of -1.25% outstanding loan balances;

 

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Loan portfolio interest rate mark of -3.00% of outstanding loan balances; and

 

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Total resulting intangibles of $29 million (core deposit intangible of $13.2 million amortized over a 10-year period based on a straight-line methodology; goodwill of $15.8 million).

 

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Public Trading Markets

Summit common stock trades on NASDAQ under the symbol “SMMF.” PSB common stock trades on the OTCQX under the symbol “PSBP.” Before the effective time of the merger, Summit has agreed to use its reasonable best efforts to cause the shares of Summit common stock to be issued in the merger to be approved for listing on NASDAQ. The listing of the shares of Summit common stock is also a condition to the consummation of the merger.

Dissenters’ or Appraisal Rights

If the merger is consummated, holders of record of PSB common stock who follow the procedures specified by Sections 3-201 through 3-213 of the Maryland General Corporation Law, which is referred to as the MGCL, will be entitled to determination and payment in cash of the “fair value” of their stock (as determined immediately before the effective time of the merger), plus accrued interest from the effective time of the merger until the date of payment. PSB shareholders who elect to follow these procedures are referred to as dissenting shareholders.

The following summary of the provisions of Sections 3-201 through 3-213 of the MGCL is not intended to be a complete statement of such provisions, the full text of which is attached as Appendix C to this prospectus and proxy statement, and is qualified in its entirety by reference thereto.

A holder of PSB common stock who desires to exercise its dissenters’ rights (i) must file with PSB, at or before the PSB shareholder meeting to vote on the PSB merger proposal, a written objection to the merger which shall be delivered to Melissa A. Quirk at 312 Main Street, Preston, Maryland 21655, (ii) must not vote in favor of the PSB merger proposal, and (iii) within 20 days after acceptance of the articles of merger by the Maryland State Department of Assessments and Taxation, must make a written demand on Summit for payment of the stock that states the number and class of shares for which payment is demanded. All written demands for payment of the fair value of PSB common stock should be delivered or addressed to Summit.

Summit will promptly notify each objecting shareholder in writing of the date the articles of merger are accepted for record by the Maryland State Department of Assessments and Taxation. Summit may also send a written offer to pay the objecting shareholder what it considers to be the fair value of the shareholders stock, and each offer shall be accompanied by the following information relating to PSB: (i) a balance sheet as of a date not more than six months before the date of the offer; (ii) a profit and loss statement for the 12 months ending on the date of the balance sheet; and (iii) any other information Summit considers pertinent. Summit will deliver the notice and offer to each objecting shareholder personally or mail them to the shareholder by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, at the address the shareholder gives Summit in writing, or, if none, at his address as it appears on the records of PSB.

Within 50 days after the Maryland State Department of Assessments and Taxation accepts the articles of merger for record, Summit or the objecting shareholder who has not received payment for the shareholder’s stock, and who has complied with the statutory requirements above, may petition a court of equity in Baltimore County, Maryland, for an appraisal to determine the fair value of the stock. Summit is not obligated to, and has no present intention to, file a petition with respect to an appraisal of the fair value of PSB common stock. Accordingly, it is the obligation of objecting holders of PSB common stock to initiate all necessary action to perfect their dissenters’ rights within the time period prescribed by Section 3-208 of the MGCL.

If a petition for an appraisal is timely filed, after a hearing on the petition, the court will determine the holders of PSB common stock that are entitled to dissenters’ rights and will appoint three disinterested appraisers to determine the fair value of the PSB common stock on terms and conditions the court considers proper. Within 60 days after appointment (or such longer period as the court may direct), the appraisers will file with the court and mail to each party to the proceeding their report stating their conclusion as to the fair value of the stock.

 

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Within 15 days after the filing of this report, any party may object to such report and request a hearing. The court shall, upon motion of any party, enter an order confirming, modifying or rejecting such report and, if confirmed or modified, enter judgment directing the time within which payment for the fair value shall be made by Summit. If the appraisers’ report is rejected, the court may determine the fair value of the stock of the objecting shareholder or may remit the proceeding to the same or other appraisers. Any judgment entered pursuant to a court proceeding shall include interest from the date of the PSB shareholders’ vote on the merger. The cost of the appraisal proceedings, including compensation and expenses of the appraisers, will be Summit’s responsibility, except that all or any part of the expenses may be assessed against any and all of the objecting shareholders to whom an offer to pay for common stock has been made, if the court finds the failure to accept the offer was arbitrary and vexatious or not in good faith. Costs of the proceedings will not include fees and expenses of counsel. Costs of the proceedings may include fees and expenses of experts only if Summit did not make an offer of payment for the objecting shareholder’s common stock or if the value of the common stock as determined in the appraisal proceeding materially exceeds the amount offered by Summit. The court’s judgment is final and conclusive on all parties and has the same force and effect as other decrees in equity.

The fair value of the objecting shareholder’s PSB common stock as determined under Sections 3-201 through 3-213 of the MGCL could be more than, the same as or less than the value of the Summit stock the objecting shareholder would receive in the merger if the objecting shareholder did not seek appraisal of the PSB common stock. If the objecting shareholder has duly demanded the payment of the fair value of its PSB common stock in compliance with Section 3-203 of the MGCL, the objecting shareholder will not, after making such demand, be entitled to vote the PSB common stock subject to the demand for any purpose or be entitled to, with respect to such shares of stock, the payment of dividends or other distributions payable to holders of record on a record date occurring after the close of business on the date the shareholders approved the merger agreement and the merger. Fair value may not include any appreciation or depreciation that directly or indirectly results from the transaction objected to or from its proposal.

If an objecting shareholder fails to comply strictly with these procedures the objecting shareholder will lose its dissenters’ rights. Consequently, if an objecting shareholder wishes to exercise its dissenters’ rights, it is strongly urged that an objecting shareholder consult a legal advisor before attempting to exercise its dissenters’ rights.

If you are a holder of shares and you wish to seek appraisal rights, you are urged to review the applicable Maryland statutes attached to this prospectus and proxy statement as Appendix C.

Interests of Certain Directors and Executive Officers in the Merger

In considering the recommendations of the PSB board of directors that PSB shareholders vote in favor of the PSB merger proposal, PSB shareholders should be aware that PSB directors and executive officers may have interests in the merger that differ from, or are in addition to, their interests as shareholders of PSB. The PSB board of directors was aware of these interests and took them into account in its decision to approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger.

PSB Director to Join Summit and Summit Community Bank Boards of Directors

The merger agreement provides that the Summit Board and Summit Community Bank board shall appoint one director to the Summit and Summit Community Bank boards of directors, which director shall be mutually agreed upon by the parties. Upon the effective time, David H. Wilson, Sr., a current director of the PSB board will join the Summit and Summit Community Bank boards of directors until the next annual meeting of shareholders of Summit and Summit Community Bank. Subject to compliance by the boards of directors of their fiduciary duties, Summit and Summit Community Bank have agreed to nominate such director for reelection to the boards of directors at the first annual meeting of shareholders following the effective time.

 

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Members of the Summit board and the Summit Community Bank board are expected to receive compensation consistent with the compensation paid to current non-employee directors of Summit and Summit Community Bank, as described in the definitive proxy statement for Summit’s 2022 annual meeting of shareholders, which is incorporated by reference to this proxy statement/prospectus. For 2022, directors of Summit received $500 per board meeting attended. Non-employee directors of Summit who served on Summit’s Audit and Compliance Committee and Compensation and Nominating Committee received $750 for each meeting attended. Non-employee directors of Summit who served on Summit’s Executive Committee received $500 for each meeting attended. Non-employee directors who served on other committees received $300 per committee meeting attended.

Members of the board of directors of Summit Community Bank are paid an annual retainer fee based on the asset size of the subsidiary bank as of December 31st of the prior year and receive $500 for each meeting attended. For 2022, the annual retainer paid to the members of the board of directors of Summit Community Bank was $15,000. Non-employee directors of Summit Community Bank who served on Summit Community Bank’s Executive Committee received $500 for each meeting attended. Non-employee directors who served on other committees received $300 for each committee meeting attended.

Employment Agreements for PSB Executive Officers

Melissa A. Quirk

Provident State Bank has a written employment agreement with its president and chief executive officer, Melissa A. Quirk. Under the employment agreement, Ms. Quirk also serves as president and chief executive officer of PSB. Ms. Quirk’s current salary is $200,000, and she is eligible to receive an annual bonus of up to 3% of Provident State Bank’s adjusted net income as determined by audit, and a discretionary bonus each year up to $55,000 for 2022, with such maximum increasing in $5,000 increments each year. Ms. Quirk also participates in customary benefit plans made available to other employees of Provident State Bank, as well as payment by Provident State Bank of monthly charges for a cell phone and iPad, and annual dues in community-service type organizations. Ms. Quirk’s employment agreement provides that, in the event of involuntary termination of Ms. Quirk, or good reason resignation by Ms. Quirk, within one year after a change-in-control transaction for PSB or Provident State Bank and subject to her execution and delivery of an irrevocable release prior to the date payments are scheduled to begin, Ms. Quirk is entitled to receive aggregate payments equal to the excess of (i) 2.99 times her average annual compensation, calculated with respect to the previous five years in the manner set forth in her employment agreement, over (ii) all other amounts treated under Section 280G of the Code, and the Treasury Regulations thereunder, which is referred to as Section 280G, as payments in the nature of compensation which are contingent on the change of control, which aggregate amount is to be paid in 36 equal monthly installments, subject to applicable tax withholdings, beginning on the first day of the month following the effective date of such post change in control termination of employment. In addition, Ms. Quirk is entitled to a lump sum payment of $250,000, payable within 5 days after such termination of employment after a change in control, as consideration for non-solicitation, non-compete and non-piracy covenants, for three years after such termination. If Ms. Quirk is treated as receiving a “parachute payment” within the meaning of Section 280G, then such installment payments are subject to reduction by the smallest amount necessary so that Ms. Quirk does not receive a parachute payment, provided that such reduction increases the after-tax amount received by Ms. Quirk.

Additionally, Ms. Quirk has a participant account in Provident State Bank’s non-qualified deferred compensation plan that is 100% vested and which will pay out in a lump sum on the last business day of the month during which a change in control takes place.

Ms. Quirk also has been awarded non-qualified stock options that vest upon a change in control unless such options are replaced by the acquiring corporation. As contemplated by the merger agreement, Ms. Quirk shall be entitled to receive cash for these stock options in an amount equal to the product obtained by multiplying (1) the difference between (a) $35.00 and (b) the exercise price (rounded to the nearest cent) for each outstanding option by (2) the number of shares of PSB common stock subject to such option.

 

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John A. Scaldara

Provident State Bank has a written employment agreement with its chief financial officer, John A. Scaldara. Under the employment agreement, Mr. Scaldara also serves as chief financial officer of PSB. Mr. Scaldara’s current salary is $[208,884], and he is eligible to receive an annual bonus of up to 1% of Provident State Bank’s adjusted net income as determined by audit. Mr. Scaldara also participates in customary benefit plans made available to other employees of Provident State Bank, as well as payment by Provident State Bank of monthly charges for a cell phone and iPad, annual dues in professional and community-service type organizations, and registration fees associated with educational courses required to maintain certification from licensing and professional associations for Mr. Scaldara. Mr. Scaldara’s employment agreement provides that, in the event of involuntary termination of Mr. Scaldara, or good reason resignation by Mr. Scaldara, concurrent with or within twelve months after a change-in-control transaction for PSB or Provident State Bank and subject to his execution and delivery of an irrevocable release prior to the date payments are scheduled to begin, an aggregate amount equal to two times the sum of (i) his base salary at his annual base rate then in effect plus (ii) his average annual bonus for the three (or fewer) most recent years during which he has been employed, paid in regular bi-weekly installments for a period of 24 months from the date of termination, plus a lump sum amount which, after reduction for anticipated federal and state income taxes, is equal to 24 times the monthly contribution by Provident State Bank for medical, dental, and vision insurance for Mr. Scaldara. If Mr. Scaldara is treated as receiving a “parachute payment” within the meaning of Section 280G, then such installment payments are subject to reduction by the smallest amount necessary so that Mr. Scaldara does not receive a parachute payment, provided that such reduction increases the after-tax amount received by Mr. Scaldara. In addition, Mr. Scaldara is subject to non-piracy and non-solicitation covenants for a period of one-year after termination of his employment. In the event of Mr. Scaldara’s involuntary termination, with or without cause, or his resignation for good reason, within 12 months of a change in control, Mr. Scaldara is also subject to a non-compete covenant for a period of one year.

Additionally, Mr. Scaldara has a participant account in Provident State Bank’s non-qualified deferred compensation plan that is 100% vested and which will pay out in a lump sum on the last business day of the month during which a change in control takes place.

Mr. Scaldara also has been awarded non-qualified stock options that vest upon a change in control unless such options are replaced by the acquiring corporation. As contemplated by the merger agreement, Mr. Scaldara shall be entitled to receive cash for these stock options in an amount equal to the product obtained by multiplying (1) the difference between (a) $35.00 and (b) the exercise price (rounded to the nearest cent) for each outstanding option by (2) the number of shares of PSB common stock subject to such option.

Billie Jo Newman

Provident State Bank has a written change in control agreement with an executive officer, Billie Jo Newman. Ms. Newman’s change in control agreement provides that, in the event of a change of control of PSB or Provident State Bank followed within 6 months by the termination by Provident State Bank of Ms. Newman’s employment for any reason other than for cause, provided she signs and delivers an irrevocable release, Ms. Newman is entitled to receive a lump sum cash payment equal to 1 times the sum of (i) her then base salary and (ii) the highest annual bonus paid to Ms. Newman during the 5 years prior to termination, subject to applicable withholding taxes, payable within 10 calendar days following such termination of employment. In addition, Provident State Bank will continue to provide Ms. Newman and her dependents with life insurance, and non-taxable medical and dental coverage substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by Provident State Bank for Ms. Newman prior to such termination of employment. Such coverage shall cease upon the expiration of 12 full calendar months after such termination. Such payments are subject to a reduction, if it is determined that any payment in the nature of compensation by Provident State Bank to or for the benefit of Ms. Newman is a “parachute payment” subject to the limitations of Section 280G, to an amount, the present value of which maximizes the aggregate present value of parachute

 

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payments without causing such parachute payments to exceed the Section 280G limit. In addition, under the change in control agreement, Ms. Newman is subject to non-solicitation and non-piracy covenants for a period of twelve months after such termination after a change in control.

Ms. Newman also has been awarded non-qualified stock options that vest upon a change in control unless such options are replaced by the acquiring corporation. As contemplated by the merger agreement, Ms. Newman shall be entitled to receive cash for these stock options in an amount equal to the product obtained by multiplying (1) the difference between (a) $35.00 and (b) the exercise price (rounded to the nearest cent) for each outstanding option by (2) the number of shares of PSB common stock subject to such option.

Summit and/or Summit Community Bank plan to offer an employment arrangement to Ms. Newman, contingent upon the merger taking place, pursuant to which Ms. Newman’s current change in control agreement would terminate at the effective time, and Ms. Newman would have an opportunity, if her employment continued, to vest in a retention bonus or bonuses after a period or periods of service with Summit and/or Summit Community Bank. Such employment and retention arrangement will include reasonable and customary non-compete, non-piracy and non-solicitation covenants.

Lauren Kimlel

Provident State Bank has a written change in control agreement with an executive officer, Lauren Kimlel. Ms. Kimlel’s change in control agreement provides that, in the event of a change of control of PSB or Provident State Bank followed within 6 months by the termination by Provident State Bank of Ms. Kimlel’s employment for any reason other than for cause, provided she signs and delivers an irrevocable release, Ms. Kimlel is entitled to receive a lump sum cash payment equal to one (1) times the sum of (i) her then base salary and (ii) the highest annual bonus paid to Ms. Kimlel during the 5 years prior to termination, subject to applicable withholding taxes, payable within 10 calendar days following such termination of employment. In addition, Provident State Bank will continue to provide Ms. Kimlel and her dependents with life insurance, and non-taxable medical and dental coverage substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by Provident State Bank for Ms. Kimlel prior to such termination of employment. Such coverage shall cease upon the expiration of 12 full calendar months after such termination. Such payments are subject to a reduction, if it is determined that any payment in the nature of compensation by Provident State Bank to or for the benefit of Ms. Kimlel is a “parachute payment” subject to the limitations of Section 280G, to an amount, the present value of which maximizes the aggregate present value of parachute payments without causing such parachute payments to exceed the Section 280G limit. In addition, under the change in control agreement, Ms. Kimlel is subject to non-solicitation and non-piracy covenants for a period of twelve months after such termination after a change in control.

Ms. Kimlel also has been awarded non-qualified stock options that vest upon a change in control unless such options are replaced by the acquiring corporation. As contemplated by the merger agreement, Ms. Kimlel shall be entitled to receive cash for these stock options in an amount equal to the product obtained by multiplying (1) the difference between (a) $35.00 and (b) the exercise price (rounded to the nearest cent) for each outstanding option by (2) the number of shares of PSB common stock subject to such option.

Indemnification and Insurance

Following the effective time of the merger and for a period of six years thereafter, (so long as Summit can obtain directors and officers liability coverage for PSB officers and directors for such period) Summit must indemnify, defend and hold harmless the present directors, officers and employees of PSB and its subsidiaries against all costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of actions or omissions occurring at or prior to the effective time of the merger (including, without limitation, the transactions contemplated by the merger agreement) to the fullest extent that PSB is currently permitted or required to indemnify (and advance expenses to) its directors, officers

 

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and employees under the laws of the State of Maryland, PSB and its subsidiaries respective articles, bylaws, similar constituent documents and any agreement as in effect on the date hereof; provided that any determination required to be made with respect to whether an officer’s, director’s or employee’s conduct complies with the standards set forth under Maryland law, PSB and its subsidiaries respective articles, bylaws, similar constituent documents and any agreement shall be made by independent counsel (which shall not be counsel that provides material services to Summit) selected by Summit and reasonably acceptable to such officer or director.

For a period of six years from the effective time of the merger, Summit shall maintain director’s and officer’s liability insurance (determined as of the effective time of the merger) with respect to claims against present and former directors and officers of PSB and its subsidiaries arising from facts or events that occurred before the effective time of the merger, which insurance shall contain at least the same coverage and amounts, and contain terms and conditions no less advantageous, as that coverage currently provided by PSB and its subsidiaries; provided, that in no event shall Summit be required to expend, on an annual basis, more than 150% of the current amount expended by PSB or its subsidiaries, which is referred to as the insurance amount, to maintain or procure such directors and officers insurance coverage; and provided, further, that if the amount of the annual premiums necessary to maintain or procure such insurance coverage exceeds the insurance amount, Summit must use its reasonable best efforts to obtain the most advantageous coverage available for an annual premium equal to the insurance amount; and provided, further, that officers and directors of PSB or its subsidiaries may be required to make application and provide customary representations and warranties to Summit’s insurance carrier for the purpose of obtaining such insurance. Summit shall provide proof of such coverage to PSB no later than 10 days prior to the effective time.

Summit has agreed that it will not consolidate with or merge with any other corporation or entity where it is not the continuing or surviving corporation, or transfer all or substantially all of its property or assets, unless proper provision is made so that the successors and assigns of Summit and its subsidiaries assume the obligations of indemnification (for a period of four years from the effective time of the merger) under the merger agreement.

These provisions shall survive the effective time of the merger and are intended to be for the benefit of, and shall be enforceable by, each indemnified party and his or her heirs and representatives.

Accounting Treatment of the Merger

The merger will be accounted for using acquisition accounting in accordance with U.S. generally accepted accounting principles, for accounting and financial reporting purposes. Under acquisition accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of PSB as of the effective time of the merger will be recorded at their respective fair values and added to those of Summit. Any excess of purchase price over the fair values is recorded as goodwill. Consolidated financial statements of Summit issued after the merger would reflect these fair values and would not be restated retroactively to reflect the historical consolidated financial position or results of operations of PSB.

 

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the merger agreement. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is included as Appendix A to this prospectus and proxy statement and is incorporated herein by reference. This summary may not contain all of the information about the merger agreement that may be important to you. You should read the merger agreement carefully, and in its entirety, as it is the legal document governing the merger.

Terms of the Merger

Each of the Summit board of directors and the PSB board of directors has approved the merger agreement, which provides for the merger of PSB with and into Summit, with Summit as the surviving entity in the merger. Immediately following the merger, PSB’s wholly owned banking subsidiary, Provident State Bank, will be merged with and into Summit Community Bank, which is referred to as the bank merger, with Summit Community Bank surviving as the surviving bank in the bank merger.

The Summit Community Bank articles of incorporation and the Summit Community Bank bylaws as in effect immediately prior to the completion of the merger will be the articles of incorporation and bylaws of the surviving corporation.

Merger Consideration

Under the terms of the merger agreement, each share of PSB common stock outstanding immediately prior to the effective time of the merger (excluding dissenting shares) will be converted into the right to receive 1.2347 shares of Summit common stock, which is referred to as the merger consideration.

Based upon the closing sale price of the Summit common stock on NASDAQ of $[•] on [•], 2023 the most current date available prior to the printing of this prospectus and proxy statement, each common share of PSB will be entitled to be exchanged for the merger consideration with a value equal to $[•] per share.

No fractional shares of Summit common stock will be issued in connection with the merger. Instead, each holder of shares of common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Summit common stock shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Summit common stock multiplied by (ii) the average volume weighted price per share of the Summit common stock over the 20 consecutive trading days ending on the trading day immediately prior to the determination date which is the fifth calendar day immediately prior to the effective time, or if such calendar day is not a trading day, then the trading day immediately preceding such calendar day. A PSB shareholder whose direct shareholdings are represented by multiple PSB stock certificates will have all shares associated with those stock certificates aggregated for purposes of calculating whole shares and cash in lieu of fractional shares to be received upon completion of the merger.

A PSB shareholder also has the right to obtain the fair value of his, her or its shares of PSB common stock in lieu of receiving the merger consideration by strictly following the appraisal procedures under the MGCL. Shares of PSB common stock outstanding immediately prior to the effective time of the merger and which are held by a shareholder who votes against the merger proposal and who properly demands the fair value of such shares pursuant to, and who complies with, the appraisal procedures under the MGCL are referred to as “dissenting shares.” See “The Merger—Dissenters’ or Appraisal Rights” on page [●].

If Summit changes the number of shares of Summit common stock outstanding prior to the effective time of the merger as a result of a stock split, stock combination, stock dividend or similar recapitalization with respect to the Summit common stock and the record date for such corporate action is prior to the effective time of the merger, then the per share stock consideration shall be proportionately adjusted as necessary to preserve the relative economic benefit to Summit and PSB.

 

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The value of the shares of Summit common stock to be issued to PSB shareholders in the merger will fluctuate between now and the closing date of the merger. We make no assurances as to whether or when the merger will be completed, and you are advised to obtain current sale prices for the Summit common stock. See “Risk Factors—Because the sale price of the Summit common stock may fluctuate, you cannot be sure of the value of the merger consideration that you will receive in the merger.”

Surrender of PSB Stock Certificates and Book Entry Shares

Customary transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to the certificate(s) representing shares of PSB common stock, shall pass, only upon proper delivery of such certificates to Summit or the exchange agent or transfer of book entry shares to Summit or the exchange agent) shall be mailed at least 10 days prior to the anticipated closing date to each holder of record of PSB common stock.

Upon surrender to the exchange agent of the certificate(s) representing his, her or its shares of PSB common stock or any book entry shares of PSB common stock, a PSB shareholder will be entitled to receive after the effective time of the merger the merger consideration (including any cash in lieu of fractional shares). Until surrendered, each such certificate or book entry shares will represent after the effective time of the merger, for all purposes, only the right to receive the merger consideration (including any cash in lieu of fractional shares without interest) and any dividends or distributions to which such holder is entitled pursuant to the merger agreement.

No dividends or other distributions with respect to Summit common stock after completion of the merger will be paid to the holder of any unsurrendered PSB stock certificates or book entry shares with respect to the shares of Summit common stock represented by those certificates or book entry shares until those certificates or book entry shares have been properly surrendered. Subject to applicable abandoned property, escheat or similar laws, following the proper surrender of any such previously unsurrendered PSB stock certificate, the holder of the certificate will be entitled to receive, without interest: (i) any cash payable with respect to a fractional share of Summit common stock to which such holder is entitled to pursuant to the merger agreement, if applicable, and the amount of unpaid dividends or other distributions with a record date after the effective time of the merger payable with respect to the whole shares of Summit common stock represented by that certificate; and (ii) at the appropriate payment date, the amount of dividends or other distributions payable with respect to shares of Summit common stock represented by that certificate with a record date after the effective time of the merger (but before the date on which the certificate is surrendered) and with a payment date subsequent to the issuance of the shares of Summit common stock issuable in exchange for that certificate.

Shares of Summit common stock and cash in lieu of any fractional shares may be issued or paid in a name other than the name in which the surrendered PSB stock certificate is registered if: (i) the certificate surrendered is properly endorsed or otherwise in a proper form for transfer; and (ii) the person requesting the payment or issuance pays any transfer or other similar taxes due or establishes to the satisfaction of the exchange agent that such taxes have been paid or are not applicable.

None of Summit, the exchange agent or any other person will be liable to any former PSB shareholder for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

In the event any PSB stock certificate is lost, stolen or destroyed, in order to receive the merger consideration (including cash in lieu of any fractional shares), the holder of that certificate must provide an affidavit of that fact and, if reasonably required by the exchange agent, post a bond in such amount as the exchange agent determines is reasonably necessary to indemnify it against any claim that may be made against it with respect to that certificate.

 

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Conditions to Completion of the Merger

Mutual Closing Conditions. The obligations of Summit and PSB to complete the merger are subject to the satisfaction of the following conditions:

 

•

the approval of the merger agreement by PSB shareholders;

 

•

the authorization for listing on NASDAQ of the shares of Summit common stock to be issued in the merger;

 

•

(a) all authorizations, consents, orders or approvals of, or declarations, notices, filings or registrations with, and all expirations and terminations of waiting periods required from, any governmental entity that are necessary to obtain the requisite regulatory approvals shall have been obtained, been made, occurred or been filed, and all such authorizations, consents, orders, approvals, declarations, filings or registrations shall be in full force and effect, and (b) any other consents or approvals from any governmental entity or other third party relating to the merger, the bank merger or any of the other transactions provided for in the merger agreement, except in the case of clause (b) for those the failure of which to be obtained would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Summit Community Bank shall have been obtained, and all such consents or approvals shall be in full force and effect;

 

•

the effectiveness of the Registration Statement on Form S-4, of which this prospectus and proxy statement is a part, under the Securities Act, and the absence of a stop order suspending the effectiveness of the Registration Statement on Form S-4 or any proceeding initiated or threatened by the SEC for that purpose;

 

•

the absence of any order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the consummation of the merger, the bank merger or the other transactions contemplated by the merger agreement;

 

•

no requisite regulatory approval shall have been granted subject to any condition or conditions that, and there shall not have been any action taken, or any statute, rule, regulation, order or decree enacted, entered, enforced or deemed applicable to the merger or bank merger by any governmental entity of competent jurisdiction that, in connection with the grant of a requisite regulatory approval or otherwise,

 

(a)

requires any of the parties to pay any amounts that would be material to any of the parties or to divest any banking office, line of business or operations or to increase its regulatory capital, or

 

(b)

imposes any condition, requirement or restriction upon Summit or its subsidiaries, that, in the case of either (i) or (ii), would, individually or in the aggregate, reasonably be expected to create a burdensome condition on Summit or its subsidiaries;

 

•

the accuracy of such party’s representations and warranties, as of the date of the merger agreement and as of the effective time of the merger (or such other date specified in the merger agreement), other than, in most cases, inaccuracies that would not reasonably be expected to have a material adverse effect on such parties;

 

•

the performance in all material respects by the other party of its respective obligations under the merger agreement;

 

•

the receipt by each party of an officer’s certificate executed by the chief executive officer and chief financial officer of the other party certifying that the previous two conditions listed above have been satisfied; and

 

•

the receipt by each party of its counsel’s opinion that the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code.

 

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Additional Closing Conditions for the Benefit of Summit. In addition to the mutual closing conditions, Summit’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

•

as of the effective time, the number of issued and outstanding shares of PSB common stock shall not exceed 1,599,104 and all representations by PSB regarding its capital structure shall be true and correct in all respects as of the date of the merger agreement and as of the effective time as though made on and as of the effective time;

 

•

the Dissenting Shares must constitute less than 7.5% of the outstanding shares of PSB common stock;

 

•

simultaneously with the execution of the merger agreement, Summit received from each of the individuals set forth on the disclosure schedules, the voting agreement, a form of which is included as an exhibit to Appendix A attached to this prospectus and proxy statement; and

 

•

simultaneously with the execution of the merger agreement, Summit received from each of the directors of PSB, a director support agreement, a form of which is included as an exhibit to Appendix A attached to this prospectus and proxy statement.

Representations and Warranties

The merger agreement contains customary representations and warranties of Summit and PSB relating to their respective businesses, which were made solely for the purposes of the merger agreement. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this document and in the documents incorporated by reference into this document. In addition, these representations and warranties:

 

•

may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those qualifications set forth in confidential disclosure schedules in connection with signing the merger agreement;

 

•

will not survive consummation of the merger, except for those representations and warranties that by their terms apply or are to be performed in whole or in part after the effective time of the merger;

 

•

may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to the merger agreement if those statements turn out to be inaccurate;

 

•

are in some cases subject to a materiality standard described in the merger agreement which may differ from what may be viewed as material by you; and

 

•

were made only as of the date of the merger agreement or such other date as is specified in the merger.

Summit will provide additional disclosures in its public reports to the extent it is aware of the existence of any material facts that are required to be disclosed under federal securities laws and that might otherwise contradict the terms and information contained in the merger agreement and will update such disclosures as required by federal securities laws.

The representations and warranties made by Summit and PSB to each other primarily relate to:

 

•

corporate organization, existence and power;

 

•

capitalization;

 

•

ownership of subsidiaries;

 

•

corporate authorization to enter into the merger agreement and to consummate the merger;

 

•

absence of any breach of organizational documents, violation of law or breach of agreements as a result of the merger;

 

•

regulatory approvals required in connection with the merger;

 

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•

reports filed with governmental entities, including, in the case of Summit, the SEC;

 

•

absence of material adverse effect on each party since December 31, 2021 through the date of the merger agreement;

 

•

compliance with laws and the absence of regulatory agreements;

 

•

accounting methods and internal controls;

 

•

litigation;

 

•

agreements with regulators;

 

•

derivative instruments and transactions;

 

•

accuracy of the information supplied by each party for inclusion or incorporation by reference in this prospectus and proxy statement;

 

•

fees paid to financial advisors;

 

•

employee benefit plans; and

 

•

IT systems.

PSB has also made representations and warranties to Summit with respect to:

 

•

financial statements;

 

•

undisclosed liabilities;

 

•

tax matters;

 

•

material contracts;

 

•

labor matters;

 

•

the inapplicability to the merger of state takeover laws;

 

•

the vote required by PSB shareholders to approve the merger;

 

•

ownership and other property rights;

 

•

condition of assets;

 

•

intellectual property;

 

•

loan matters;

 

•

deposits;

 

•

investment securities and commodities;

 

•

maintenance of insurance policies;

 

•

absence of actions or omissions by present or former directors, advisory directors, officers, employees or agents that would give rise to a material claim for indemnification;

 

•

transactions with affiliates;

 

•

absence of certain gifting practices;

 

•

environmental matters;

 

•

accuracy of books and records;

 

•

employee relationships;

 

•

forms of lending and security instruments;

 

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•

administration of fiduciary accounts;

 

•

the opinion of PSB’s financial advisor; and

 

•

no other representations or warranties, express or implied having been made.

Summit also has represented to PSB that no vote of its shareholders is required to consummate the merger and it has, and at the closing of the merger will have, access to sufficient funds available to make all cash payments required to consummate the transactions contemplated by the merger agreement. Summit further represented that no other representations or warranties, express or implied have been made.

Waiver and Amendment

Summit and PSB may jointly amend the merger agreement and each may waive its right to require the other party to adhere to the terms and conditions of the merger agreement. However, Summit and PSB may not do so after PSB shareholders approve the merger agreement if the amendment or waiver would violate the MGCL, require further approval from PSB’s shareholders or such amendment changes the form or amount of merger consideration in a manner that is adverse in any respect to PSB’s shareholders.

Indemnification; Directors and Officers Insurance

Following the effective time of the merger and for a period of six years thereafter (so long as Summit can obtain directors and officers liability coverage for PSB officers and directors for such period), Summit must indemnify, defend and hold harmless the present directors, officers and employees of PSB and its subsidiaries against all costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of actions or omissions occurring at or prior to the effective time of the merger (including, without limitation, the transactions contemplated by the merger agreement) to the fullest extent that PSB is currently permitted or required to indemnify (and advance expenses to) its directors, officers and employees under the laws of the State of Maryland, PSB and its subsidiaries respective articles, bylaws, similar constituent documents and any agreement as in effect on the date hereof; provided that any determination required to be made with respect to whether an officer’s, director’s or employee’s conduct complies with the standards set forth under Maryland law, PSB and its subsidiaries respective articles, bylaws, similar constituent documents and any agreement shall be made by independent counsel (which shall not be counsel that provides material services to Summit) selected by Summit and reasonably acceptable to such officer or director.

For a period of six years from the effective time of the merger, Summit shall maintain director’s and officer’s liability insurance (determined as of the effective time of the merger) with respect to claims against present and former directors and officers of PSB and its subsidiaries arising from facts or events that occurred before the effective time of the merger, which insurance shall contain at least the same coverage and amounts, and contain terms and conditions no less advantageous, as that coverage currently provided by PSB and its subsidiaries; provided, that in no event shall Summit be required to expend, on an annual basis, more than 150% of the current amount expended by PSB or its subsidiaries, which is referred to as the insurance amount, to maintain or procure such directors and officers insurance coverage; and provided, further, that if the amount of the annual premiums necessary to maintain or procure such insurance coverage exceeds the insurance amount, Summit must use its reasonable best efforts to obtain the most advantageous coverage available for an annual premium equal to the insurance amount; and provided, further, that officers and directors of PSB or its subsidiaries may be required to make application and provide customary representations and warranties to Summit’s insurance carrier for the purpose of obtaining such insurance. Summit shall provide proof of such coverage to PSB no later than 10 days prior to the effective time.

Summit has agreed that it will not consolidate with or merge with any other corporation or entity where it is not the continuing or surviving corporation, or transfer all or substantially all of its property or assets, unless proper provision is made so that the successors and assigns of Summit and its subsidiaries assume the obligations of indemnification (for a period of four years from the effective time of the merger) under the merger agreement.

 

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These provisions shall survive the effective time of the merger and are intended to be for the benefit of, and shall be enforceable by, each indemnified party and his or her heirs and representatives.

Acquisition Proposals

PSB has agreed that, from the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement, it will not, and will cause its subsidiaries and their officers, directors, agents, advisors and affiliates not to: solicit or encourage inquiries or proposals with respect to, or engage in any negotiations concerning, or provide any confidential information to, or have any discussions with any person relating to, any acquisition proposal (as defined below); disclose to any third party any information concerning the business, properties, books or records of PSB or any PSB subsidiary or otherwise relating to an acquisition proposal, other than as provided in the merger agreement or as compelled by law; release any person from a confidentiality agreement or standstill agreement; or cooperate with any third party to make any acquisition proposal, other than the sale by Provident State Bank of assets in the ordinary course of business. However, none of the foregoing prohibits PSB or its subsidiaries’ officers, directors, agents, advisors, and affiliates from informing any person of the terms of this provision or from contacting any person (or such person’s representatives) who has made, after the date of the merger agreement, an acquisition proposal solely to request clarification of the terms and conditions thereof so as to determine whether the acquisition proposal constitutes or is reasonably likely to result in a superior proposal (as defined below). PSB must immediately cease and cause to be terminated any activities, discussions or negotiations conducted prior to the date of the merger agreement with any persons other than Summit with respect to any of the foregoing and shall use its reasonable best efforts to enforce any confidentiality or similar agreement relating to an acquisition proposal. Within 2 days of receipt of any unsolicited offer, PSB will communicate to Summit the terms of any proposal or request for information and the identity of the parties involved.

Notwithstanding this agreement, at any time prior to the approval of the merger agreement by the PSB shareholders, if PSB receives an unsolicited acquisition proposal that the PSB board of directors determines in good faith is reasonably likely to constitute or result in a superior proposal, then PSB may: (i) negotiate and enter into a confidentiality agreement with the third party making the acquisition proposal with terms and conditions no less favorable to PSB than the confidentiality agreement entered into by PSB and Summit prior to the execution of the merger agreement; (ii) furnish PSB confidential information to the third party making the acquisition proposal pursuant to such confidentiality agreement; and (iii) negotiate with the third party making the acquisition proposal regarding such proposal, if the PSB board of directors determines in good faith (following consultation with counsel) that failure to take such actions would, or would be reasonably likely to result in, a violation of its fiduciary duties under applicable law. Provident State Bank will promptly, and in any event within 2 days of receipt of any unsolicited, bona fide written acquisition proposal, (x) notify Summit in writing of the receipt of such acquisition proposal or any request for nonpublic information relating to Provident State Bank or for access to the properties, assets, books or records of Provident State Bank by any person that has made, or to the knowledge of Provident State Bank may be considering making, an acquisition proposal and (y) communicate the name of such person and the material terms of such acquisition proposal to Summit, including as they may change upon any modification or amendment to the terms thereof. Provident State Bank will keep Summit fully apprised of the status of and other matters relating in any material respect to any such Acquisition Proposal on a reasonably timely basis.

An “acquisition proposal” means any tender or exchange offer, proposal for a merger, consolidation or other business combination involving PSB or any of its subsidiaries or any proposal or offer to acquire equity interests representing 15.0% or more of the voting power of, or at least 10.0% of the assets or deposits of, PSB or any of its subsidiaries, other than the transactions contemplated by the merger agreement.

A “superior proposal” means a written acquisition proposal that the PSB board (or any committee thereof) concludes in good faith to be more favorable from a financial point of view to its shareholders than the merger (a) after consulting with its financial advisors (who shall be a nationally recognized investment banking firm), (b)

 

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after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (c) after taking into account all legal (following consultation with outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal and any other relevant factors permitted under applicable law; however, for purposes of the definition of “superior proposal,” the references to “15.0% or more” and “at least 10.0%” in the definition of acquisition proposal shall be deemed to be references to “a majority”.

The merger agreement generally prohibits the PSB board of directors making a change in recommendation (i.e., from withdrawing or modifying in a manner adverse to Summit the recommendation of the PSB board of directors’ set forth in this prospectus and proxy statement that the PSB shareholders vote to approve the merger agreement, or from making or causing to be made any third party or public communication proposing or announcing an intention to withdraw or modify in a manner adverse to Summit such recommendation). At any time prior to the approval of the merger agreement by the PSB shareholders, however, the PSB board of directors may effect a change in recommendation or terminate the merger agreement to enter into an agreement in response to a bona fide written unsolicited acquisition proposal that the PSB board of directors determines in good faith constitutes a superior proposal if the PSB board of directors determines (after consultation with counsel) that the failure to do so could be inconsistent with its fiduciary obligations to PSB shareholders under applicable law. The PSB board of directors may not make a change in recommendation, or terminate the merger agreement to pursue a superior proposal, unless:

 

(i)

PSB has not breached any of the provisions of the merger agreement relating to acquisition proposals; and

 

(ii)

the PSB board of directors determines in good faith (after consultation with counsel) that such superior proposal continues to be a superior proposal (after taking into account all adjustments to the terms of the merger agreement offered by Summit), PSB has given Summit at least four business days’ prior written notice of its intention to take such action and before making such change in recommendation, PSB has negotiated in good faith with Summit during the notice period (to the extent Summit wishes to negotiate) to enable Summit to adjust the terms of the merger agreement so that such superior proposal no longer constitutes a superior proposal.

If the PSB board of directors makes a change in recommendation, or if PSB pursues a superior proposal, PSB could be required to pay Summit a termination fee of $2,200,000 in cash. See “Termination Fee” beginning on page [●].

Closing Date; Effective Time

The merger will be consummated and become effective upon the issuance of a certificate of merger by the West Virginia Secretary of State and the Maryland State Department of Assessments and Taxation (or on such other date as may be specified in the articles of merger to be filed with the West Virginia Secretary of State and the Maryland State Department of Assessments and Taxation). Unless otherwise agreed to by Summit or PSB, the closing of the merger will take place on the first day of the following month after the last of the conditions to the merger have been satisfied or waived.

Regulatory Approvals

The merger and the other transactions contemplated by the merger agreement require the approval of the Federal Deposit Insurance Corporation, which is referred to as the FDIC, the West Virginia Board of Banking and Financial Institutions, which is referred to as the WVBBFI, the Maryland Commissioner of Financial Regulation, which is referred to as the MCFR, and a waiver from the Board of Governors of the Federal Reserve System, which is referred to as the Federal Reserve.

As bank holding companies, Summit and PSB are subject to regulation under the Bank Holding Company Act of 1956, as amended, which is referred to as the BHCA. Summit Community Bank is West Virginia banking

 

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corporation and is regulated by the WVBBFI and the West Virginia Division of Financial Institutions, which is referred to as the WVDFI. Provident State Bank is a Maryland banking corporation is regulated by the MCFR.

On December 29, 2022, Summit requested a waiver of a Section 3 application under the Bank Holding Company Act from the Federal Reserve, and Summit Community Bank filed an application to obtain approval from the FDIC to acquire Provident State Bank under the Bank Merger Act and filed applications for the approval with the WVDFI and MCFR.

In granting its approval under the Bank Merger Act, the FDIC must consider, among other factors, the competitive effect of the merger, the managerial and financial resources and future prospects of the merging banks, the effect of the merger on the convenience and needs of the communities to be served, including the records of performance of the merging banks in meeting the credit needs of the communities under the Community Reinvestment Act, the effectiveness of the merging banks in combating money laundering activities, and the risk that would be posed by the merger to the stability of the United States banking or financial system. Applicable regulations require publication of notice of the application and an opportunity for the public to comment on the application in writing. The WVDFI and MCFR review the merger under similar standards. The merger cannot be consummated prior to receipt of all required approvals. The bank merger may not be consummated until 30 days after the approval of the FDIC (or such shorter period as the FDIC may prescribe with the concurrence of the United States Department of Justice, but not less than 15 days), during which time the Department of Justice may challenge the merger on antitrust grounds.

The merger requires the approval of the Federal Reserve Board pursuant to the BHCA, unless the Federal Reserve Board is willing to grant a waiver pursuant to its regulations allowing for such waivers. If a waiver is not received, the Federal Reserve Board will also consider factors such as financial and managerial resources, future prospects, the convenience and needs of the community and competitive factors. In such case, the merger may not be consummated until 30 days after the approval of the Federal Reserve Board (or such shorter period as the Federal Reserve Board may prescribe with the concurrence of the United States Department of Justice, but not less than 15 days), during which time the Department of Justice may challenge the merger on antitrust grounds. On January 20, 2023, Summit received a no objection letter from the Federal Reserve Board in connection with its request for a waiver of a Section 3 application from the BHCA.

The commencement of an antitrust action by the Department of Justice would stay the effectiveness of the Federal Reserve Board or FDIC approval, as the case may be, unless a court specifically orders otherwise. In reviewing the merger and the bank merger, the Department of Justice could analyze the merger’s effect on competition differently than the Federal Reserve Board and the FDIC, and it is possible that the Department of Justice could reach a different conclusion than the applicable banking regulator regarding the merger’s (or the bank merger’s) competitive effects.

Summit and PSB are not aware of any other governmental approvals or actions be required for consummation of the merger other than as described above. Should any other approval or action be required, it is presently contemplated that such approval or action would be sought. There can be no assurance that such further necessary regulatory approvals or actions will be timely received or taken, that no action will be brought challenging such approval or action or, if such a challenge is brought, as to the result thereof that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the merger.

The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include review of the merger from the standpoint of the adequacy of the exchange ratio for converting PSB common stock to Summit common stock. Furthermore, regulatory approvals do not constitute an endorsement or recommendation of the merger.

 

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Conduct of Business Pending the Merger

Pursuant to the merger agreement, PSB and Summit have agreed to certain restrictions on their activities until the effective time of the merger. PSB has agreed that it will, and will cause each of its subsidiaries to, do the following:

 

•

cooperate with Summit and its subsidiaries to cause PSB to merge with and into Summit;

 

•

if requested by Summit, no later than 30 days before the effective time, take, and cause Provident State Bank to take, such action as may be necessary to terminate its 401(k) plan and trust not later than immediately prior to the effective time, including accruing the estimated expense associated with terminating its 401(k) plan and trust;

 

•

make all payments with respect to contracts to which PSB or any of its subsidiaries is a party that would give rise to any liability, fee, cost or expense (including any change-in-control fee) arising from the consummation of the merger, except if pursuant to the employment agreements described in the merger agreement such change-in-control provisions are waived; and

 

•

use its best efforts, including notifying appropriate parties and negotiating in good faith a reasonable settlement, to ensure that its current data processing contracts and contracts related to the provision of any other electronic banking services will, if the merger occurs, be terminated after the consummation of the merger on a date to be mutually agreed upon by PSB and Summit.

PSB has further agreed that it will not, and will not permit any of its subsidiaries, to do any of the following, except as expressly permitted by the merger agreement or the prior written consent of Summit:

 

•

enter into any new line of business;

 

•

change its or its subsidiaries’ lending, investment, underwriting, risk and asset-liability management or other material banking or operating policies in any material respect, except as required by applicable legal requirements or by policies imposed by a governmental entity;

 

•

incur or commit to any capital expenditures or any obligations or liabilities in connection therewith other than capital expenditures and obligations or liabilities incurred or committed to in the ordinary course of business consistent with past practice;

 

•

enter into or terminate any material lease, contract or agreement (except with respect to such terminations as may be set forth in the merger agreement) or make any change to any existing material leases, contracts or agreements, except as required by applicable legal requirements or by policies imposed by a governmental entity;

 

•

take any action or fail to take any action, which action or failure causes a material breach of any material lease, contract or agreement;

 

•

declare or pay any dividends on or make other distributions in respect of any of its capital stock, except for dividends by a wholly owned subsidiary of PSB, or as specifically contemplated in the merger agreement and its regular annual dividend of $0.20 per share consistent with past practice;

 

•

split, combine, exchange, adjust or reclassify any of its capital stock or issue or authorize or propose the issuance or authorization of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock;

 

•

purchase, redeem or otherwise acquire, or permit any subsidiary to purchase, redeem or otherwise acquire, any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock (other than the acquisition of shares of debts previously contracted, or DPC shares, in the ordinary course of business consistent with past practice);

 

•

issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock of any class, any voting debt, any stock appreciation rights or any securities convertible into or

 

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exercisable or exchangeable for, or any rights, warrants or options to acquire, any such shares or voting debt, or enter into any agreement with respect to any of the foregoing, other than issuances by a wholly owned subsidiary of its capital stock to its parent;

 

•

amend or propose to amend its charter, certificate of formation, bylaws or similar organizational documents, as applicable, or, except to the extent permitted by the merger agreement, enter into, or permit any subsidiary to enter into, a plan of consolidation, merger or reorganization with any person other than a wholly owned subsidiary of PSB;

 

•

acquire or agree to acquire, by merging or consolidating with, by purchasing equity interest in or the assets of, by forming a partnership or joint venture with, or in any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets not in the ordinary course of business; however, the foregoing shall not prohibit foreclosures, repossessions or acquisitions of other DPC shares in the ordinary course of business;

 

•

sell, lease, assign, encumber or otherwise dispose of, or agree to sell, lease, assign, encumber or otherwise dispose of, any of its assets (including capital stock of its subsidiaries and indebtedness of others held by PSB and its subsidiaries) exceeding $150,000, in the aggregate, in any calendar month, except for sales of OREO, mortgages originated or held by Provident State Bank in the ordinary course of business consistent with past practice, investment securities in the ordinary course of business consistent with past practice, and sales of assets as required by applicable legal requirements or by policies imposed by a governmental entity;

 

•

incur, create or assume any long-term indebtedness for borrowed money (or modify any of the material terms of any such outstanding long-term indebtedness), guarantee any such long-term indebtedness or issue or sell any long-term debt securities or warrants or rights to acquire any long term debt securities of PSB or any of its subsidiaries or guarantee any long-term debt securities of others, other than indebtedness of any subsidiary of PSB to PSB or to another subsidiary of PSB;

 

•

prepay or voluntarily repay any subordinated indebtedness;

 

•

make, commit to make, renew, extend the maturity of, or alter any of the material terms of any loan or group of loans to any borrower and its affiliates that, individually or collectively, would be in excess of $3,500,000, except as contemplated by the merger agreement;

 

•

maintain the allowance for loan and lease losses account for Provident State Bank in an amount adequate in all material respects and consistent with past practices and in compliance with applicable regulatory requirements, including GAAP and all applicable rules and regulations;

 

•

intentionally take any action that would, or reasonably might be expected to, result in any of its representations and warranties set forth in the merger agreement being or becoming untrue in any material respect, or in any of the conditions to the merger not being satisfied or in a violation of any provision of the merger agreement, or (unless such action is required by applicable legal requirements) which would adversely affect the ability of the parties to obtain any of the requisite regulatory approvals without imposition of a condition or restriction of the type referred to in the merger agreement;

 

•

make any material change in its methods of accounting in effect at December 31, 2021, except as required by changes in generally accepted accounting principles or regulatory accounting principles as concurred in by PSB’s independent auditors or required by a governmental entity;

 

•

make or rescind any material tax election, make any material amendments to tax returns previously filed, or settle or compromise any material tax liability or refund;

 

•

enter into, adopt, amend or terminate (except for such amendments as may be required by applicable legal requirements or as provided under the merger agreement) any PSB benefit plan, or any

 

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agreement, arrangement, plan or policy between PSB or a subsidiary of PSB and one or more of its directors or officers;

 

•

except for normal pay increases to rank and file employees and PSB’s standard annual employee bonus, in the ordinary course of business consistent with past practice, or as required by any plan or arrangement as in effect as of the date hereof, materially increase in any manner the compensation or benefits of any director, officer or employee or pay any benefit not required by any plan or arrangement as in effect as of the date hereof or enter into any contract, agreement, commitment or arrangement to do any of the foregoing;

 

•

enter into any contract, agreement, commitment or arrangement providing for the payment to any director, officer or employee of compensation or benefits;

 

•

enter into any new contract or agreement providing that, with respect to the right to any bonus or incentive compensation, the vesting of any such bonus or incentive compensation, shall accelerate or otherwise be affected by the occurrence of any of the transactions contemplated by the merger agreement, either alone or in combination with some other event;

 

•

grant or award any bonus or incentive compensation, or any stock option, restricted stock, restricted stock unit or other equity-related award except PSB’s standard annual employee bonus, or as required as an existing obligation of PSB under the terms of any existing agreement;

 

•

materially restructure or materially change (on a consolidated basis) its investment securities portfolio, its hedging strategy or its interest rate risk position, through purchases, sales or otherwise, or the manner in which its investment securities portfolio is classified or reported or materially increase the credit or other risk concentrations associated with its investment securities portfolio;

 

•

adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, restructuring, recapitalization or reorganization;

 

•

agree to, or make any commitment to, take, or authorize, any of the actions prohibited by the foregoing, except with respect to actions taken as trustee, custodian or other fiduciary.

Summit has agreed that it will not, and will not permit any of its subsidiaries, to do the following, except as expressly permitted by the merger agreement or the prior written consent of PSB:

 

•

amend the articles or bylaws of Summit in a manner that would adversely affect PSB or any of its subsidiaries;

 

•

take any action that would reasonably be expected to result in the merger or the bank merger failing to qualify as a “reorganization” under Section 368(a) of the Code;

 

•

take any action that is likely to materially impair Summit’s ability to perform any of its obligations under the merger agreement or Summit Community Bank’s ability to perform any of its obligations under the bank agreement and plan of merger; or

 

•

agree or commit to do any of the foregoing.

In general, each party has also agreed that, except as otherwise permitted by the merger agreement, or as required by applicable law or a governmental entity, or with the prior written consent of the other party, it will:

 

•

use commercially reasonable best efforts to maintain and preserve intact its business organization and advantageous business relationships;

 

•

consult with the other on all strategic, integration and operational matters to the extent such consultation is deemed necessary or appropriate by Summit and is not in violation of applicable legal requirements;

 

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•

file all reports, schedules, applications, registrations, and other information required to be filed by each of them with all other relevant governmental entities and to obtain all of the requisite regulatory approvals between the date of the merger agreement and the effective time of the merger;

 

•

use their commercially reasonable efforts to maintain and keep in full force and effect all of their respective policies of insurance presently in effect, or replacements for such policies, including insurance of customer deposit accounts with the FDIC, and take all requisite action (including the making of claims and the giving of notices) pursuant to their respective policies of insurance in order to preserve all rights thereunder with respect to all matters that could reasonably give rise to a claim prior to the effective time of the merger;

 

•

prior to the effective time of the merger, (a) each of PSB and Summit shall exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over its and its subsidiaries’ respective operations, (b) PSB shall not be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust laws and (c) PSB shall not be required to agree to any material obligation that is not contingent upon the consummation of the merger; and

 

•

use commercially reasonable efforts to cause to be delivered at the closing all documents required as conditions precedent to the consummation of the merger, as applicable.

Regulatory Matters

This prospectus and proxy statement forms part of a Registration Statement on Form S-4, which Summit has filed with the SEC. Each of Summit and PSB has agreed to use its commercially reasonable best efforts to maintain the effectiveness of the Registration Statement for as long as necessary to complete the merger and the other transactions contemplated by the merger agreement.

Summit has agreed to use its commercially reasonable best efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the merger agreement, and PSB has agreed to furnish all information concerning PSB and the holders of PSB common stock as may be reasonably requested in connection with any such action.

Summit and PSB have agreed to cooperate with each other and use their respective reasonable best efforts to take, or cause to be taken, all actions necessary or advisable to consummate the merger and the bank merger and to make effective the other transactions contemplated by the merger agreement as promptly as reasonably practicable after the date of the merger agreement. However, neither Summit nor PSB shall be obligated to take any action if the taking of such action or the obtaining of a consent, authorization, order, approval or exemption shall result in a condition or restriction upon such party or on the surviving entity that would have any of the following effects upon such party, (i) require a party to pay an amount that would be material to such party or to divest any banking office, line of business or operations or to increase regulatory capital or (ii) impose any condition, requirement or restriction upon Summit or its subsidiaries, that, in the case of (i) or (ii) above, would individually or in the aggregate, reasonably be expected to create a burdensome condition on Summit or its subsidiaries.

PSB and Summit have the right to review in advance and, to the extent practicable, each will consult the other on, in each case subject to applicable laws, all the information relating to PSB or Summit, as the case may be, and any of their respective subsidiaries, that appear in any filing made with, or written materials submitted to, any third party or any governmental entity in connection with the transactions contemplated by the merger agreement. In addition, Summit and PSB will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and governmental entities necessary or advisable to consummate the transactions contemplated by the merger agreement, and each party will keep the other apprised of the status of matters relating to the completion of the merger. Summit and PSB shall promptly deliver to each other copies of all filings, orders and material correspondence to and from all governmental entities in connection with the transactions contemplated by the merger agreement.

 

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Additionally, each of Summit and PSB has agreed to furnish to the other, upon request, all information concerning itself, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with this prospectus and proxy statement, the Registration Statement on Form S-4 or any other statement, filing, notice or application made by or on behalf of Summit, PSB or any of their respective subsidiaries to any regulatory or governmental entity in connection with the merger, the bank merger of any or the other transactions contemplated by the merger agreement.

NASDAQ Listing

Summit has agreed to use its commercially reasonable best efforts to cause the shares of Summit common stock to be issued to the holders of PSB common stock in the merger to be authorized for listing on NASDAQ, subject to official notice of issuance, prior to the effective time of the merger.

Employee Matters

Following the effective time of the merger, Summit will provide employees of PSB with employee benefits that are substantially comparable in the aggregate to the employee benefits provided to similarly situated employees of Summit. Summit will cause any and all pre-existing condition limitations (to the extent such limitations did not apply to a pre-existing condition under the PSB benefit plans) and eligibility waiting periods under group health plans to be waived with respect to such participants and their eligible dependents. To the extent permitted by Summit’s benefit plans, Summit will give the covered employees full credit for their prior service with PSB and its subsidiaries for purposes of eligibility and vesting but not for purposes of benefit accrual under Summit’s benefit plans, except that no prior service credit will be granted for any purpose under the Summit Financial Group, Inc. Employee Stock Ownership Plan.

Except for employees of PSB or Provident State Bank with individual agreements that provide for payment of severance under certain circumstances (who will be paid severance only in accordance with such agreements), Summit will pay each employee of PSB or Provident State Bank who is involuntarily terminated by Summit or any of its subsidiaries (other than for cause) concurrently with the effective time or within twelve months of the effective time, two weeks of severance per full year of service with PSB or Provident State Bank, as the case may be, with a minimum of four weeks of severance pay and a maximum of 26 weeks of severance pay.

All persons who are employees of PSB or its subsidiaries immediately prior to the effective time and whose employment is not terminated, if any, at or prior to the effective time shall be employed at will, and no contractual right with respect to employment shall inure to such employees because of the merger agreement, except as otherwise contemplated by the merger agreement. Summit shall honor all PSB employment, supplemental retirement and change of control agreements existing as of the date of the merger agreement that have been disclosed to Summit, unless otherwise agreed by the parties thereto.

Expenses

Whether or not the merger is consummated, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, except for any applicable termination fees, and except that (a) if the merger and the bank merger are consummated, the surviving entity shall pay, or cause to be paid, any and all property or transfer taxes imposed on either party in connection with the merger, other than state transfer taxes where the obligation to pay is solely that of a PSB shareholder, and (b) the printing and mailing expenses incurred in connection with printing and mailing this prospectus and proxy statement shall be shared equally by Summit and PSB.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the approval of the merger agreement by PSB shareholders, as follows:

 

•

by mutual written consent of Summit and PSB;

 

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•

by either Summit or PSB, if (i) a regulatory or other governmental authority that must grant a requisite regulatory approval has denied approval of the merger or the bank merger and such denial has become final and non-appealable (provided that the denial is not attributable to the failure of the party seeking to terminate the merger agreement to perform any covenant in the merger agreement required to be performed prior to the effective time of the merger) or (ii) a regulatory or other governmental authority has issued a final, non-appealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the completion of the merger or the bank merger;

 

•

by either Summit or PSB, if the merger has not been completed by December 1, 2023;

 

•

by Summit, upon written notice to PSB, if any application for requisite regulatory approval shall have been denied or withdrawn at the request or recommendation of the governmental entity from which a requisite regulatory approval is required or if any such application is approved with commitments, conditions or understandings, whether contained in an approval letter or otherwise, which, imposes a burdensome condition on Summit or its subsidiaries, as applicable;

 

•

by either Summit or PSB, if there is a breach by the other party of any representation, warranty, covenant or other agreement set forth in the merger agreement, that would, individually or in the aggregate, result in the failure to satisfy the closing conditions of the party seeking termination and such breach is not cured within 30 days following written notice to the breaching party or by its nature or timing cannot be cured within that time period;

 

•

by Summit, upon written notice to PSB, if, since the date of the merger agreement, there shall have occurred a material adverse effect with respect to PSB;

 

•

by PSB, upon written notice to Summit, if, since the date of the merger agreement, there shall have occurred a material adverse effect with respect to Summit;

 

•

by Summit, if the PSB board of directors fails to recommend that the PSB shareholders approve the merger agreement or makes a change in recommendation, or if PSB materially breaches any of the provisions of the merger agreement relating to acquisition proposals, as described under “Acquisition Proposals”;

 

•

by PSB, prior to obtaining the approval of the merger agreement by the PSB shareholders, in order to enter into an agreement relating to a superior proposal in accordance with the provisions of the merger agreement relating to third-party proposals, as described under “Acquisition Proposals” on page [•] (provided that PSB has not materially breached any such provisions and pays Summit the termination fee described under “Termination Fee” on page [●]);

 

•

by either Summit or PSB, if the PSB shareholders fail to approve the merger agreement at a duly held meeting of PSB shareholders or any adjournment or postponement thereof (provided that the PSB board of directors has recommended that the PSB shareholders approve the merger agreement and has not made a change in recommendation); and

 

•

by PSB, if the average closing price of Summit common stock declines by more than 15% from $28.35 and underperforms an index of banking companies by more than 15% over a designated measurement period, unless Summit agrees to increase the number of shares of Summit common stock to be issued or makes an additional cash payment to holders of PSB common stock.

Termination Fee

PSB must pay Summit a termination fee of $2,200,000:

 

•

if the merger agreement is terminated by Summit because the PSB board of directors did not recommend that the PSB shareholders approve the merger agreement or made a change in recommendation, or because PSB materially breached any of the provisions of the merger agreement relating to acquisition proposals, as described under “Acquisition Proposals” on page [●]; or

 

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•

if the merger agreement is terminated by PSB, prior to obtaining approval of the merger agreement by the PSB shareholders, in order to enter into an agreement relating to a superior proposal in accordance with the provisions of the merger agreement relating to acquisition proposals, as described under “Acquisition Proposals” on page [●].

Effect of Termination

If the merger agreement is validly terminated, the merger agreement will become void and have no effect, and none of PSB, Summit, any of their respective subsidiaries or any of the officers or directors of any of them will have any liability under the merger agreement, or in connection with the transactions contemplated by the merger agreement, except that:

 

•

the provisions of the merger agreement relating to confidentiality obligations of the parties, the payment of expenses, the termination fees, publicity and certain other technical provisions will continue in effect notwithstanding termination of the merger agreement; and

 

•

termination will not relieve a breaching party from liability for any willful and material breach of any provision of the merger agreement.

Other than in a case of willful and material breach of the merger agreement, the payment of the termination fee fully discharges PSB from, and is the sole and exclusive remedy of Summit with respect to, any and all losses that may be suffered by Summit based upon, resulting from or arising out of the circumstances giving rise to such termination of the merger agreement.

Surrender of Stock Certificates

Computershare will act as exchange agent in the merger and in that role will process the exchange of PSB stock certificates for Summit common stock. The exchange agent, or Summit and PSB if the exchange agent declines to do so, will also be making any computations required by the merger agreement, and all such computations will be conclusive and binding on the holders of PSB common stock in the absence of manifest error. In any event, do not forward your PSB stock certificates with your proxy card.

After the effective time of the merger, each certificate formerly representing PSB common stock, until so surrendered and exchanged, will evidence only the right to receive the number of whole shares of Summit common stock that the holder is entitled to receive in the merger, any cash payment in lieu of a fractional share of Summit common stock and any dividend or other distribution with respect to Summit common stock with a record date occurring after the effective time of the merger. The holder of such unexchanged certificates will not be entitled to receive any dividends or distributions payable by Summit until the certificate has been exchanged. Subject to applicable laws, following surrender of such certificates, such dividends and distributions, together with any cash payment in lieu of a fractional share of Summit common stock, will be paid without interest.

After the completion of the merger, there will be no further transfers of PSB common stock. PSB stock certificates presented for transfer after the completion of the merger will be canceled and exchanged for the merger consideration.

If your PSB stock certificates have been either lost, stolen or destroyed, you will have to prove your ownership of these certificates and that they were lost, stolen or destroyed before you receive any consideration for your shares. Upon request, our exchange agent, Computershare, will send you instructions on how to provide evidence of ownership.

No Fractional Shares

Each holder of shares of common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Summit common stock shall receive, in lieu thereof, cash (without

 

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interest) in an amount equal to the product of (i) such fractional part of a share of Summit common stock multiplied by (ii) the average volume weighted price per share of the Summit common stock over the 20 consecutive trading days ending on the trading day immediately prior to the determination date, which is the fifth calendar day immediately prior to the effective time, or if such calendar day is not a trading day, then the trading day immediately preceding such calendar day. A PSB shareholder whose direct shareholdings are represented by multiple PSB stock certificates will have all shares associated with those stock certificates aggregated for purposes of calculating whole shares and cash in lieu of fractional shares to be received upon completion of the merger.

Accounting Treatment

The merger will be accounted for using acquisition accounting in accordance with U.S. generally accepted accounting principles. As such, the assets and liabilities of PSB, as of the completion of the merger, will be recorded at their fair values as well as any identifiable intangible assets. Any remaining excess purchase price will be allocated to goodwill, will not be amortized and will be evaluated for impairment at least annually. Consolidated financial statements of Summit issued after the consummation of the merger will reflect such values. In addition, costs incurred in connection with the business combination will be expensed as incurred unless related to the equity issuance. The operating results of PSB will be included in Summit’s consolidated financial statements from the date the merger is consummated and afterwards.

Management and Operations after the Merger

The merger agreement provides that the Summit Board and Summit Community Bank board shall appoint one director to the Summit and Summit Community Bank boards of directors, which director shall be mutually agreed upon by the parties. Upon the effective time, David H. Wilson, Sr., a current director of the PSB board will join the Summit and Summit Community Bank boards of directors until the next annual meeting of shareholders of Summit and Summit Community Bank. Subject to compliance by the boards of directors of their fiduciary duties, Summit and Summit Community Bank have agreed to nominate such director for reelection to the boards of directors at the first annual meeting of shareholders following the effective time. The remaining current directors and senior officers of Summit and Summit Community Bank are expected to continue in their current positions. Information about the current Summit directors and executive officers can be found in the documents listed under “Where You Can Find More Information” beginning on page [●].

Resales of Summit Common Stock

The shares of Summit common stock to be issued to shareholders of PSB under the merger agreement have been registered under the Securities Act and may be freely traded without restriction by holders, including holders who were affiliates of PSB on the date of the special meeting (except for such holders who become affiliates of Summit as of the effective time of the merger via their appointment to the board of directors of Summit or otherwise). All directors and executive officers of PSB are considered affiliates of PSB for this purpose.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

Subject to the limitations, assumptions and qualifications described herein, the following discussion and legal conclusions contained herein constitute and represent the opinion of Bowles Rice LLP, counsel to Summit, and the opinion of Holland & Knight LLP, counsel to PSB, as to the material U.S. federal income tax consequences of the merger to “U.S. holders” (as defined below) of PSB common stock that exchange their shares of PSB common stock for the merger consideration in the merger. The following discussion is based upon the Code, the U.S. Treasury regulations promulgated thereunder and judicial and administrative authorities, rulings, and decisions, all as in effect on the date of this prospectus and proxy statement. These authorities may change, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any withholding considerations under the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury Regulations issued thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith) nor the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax.

The following discussion applies only to U.S. holders of shares of PSB common stock who hold such shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders in light of their particular circumstances and does not apply to U.S. holders subject to special treatment under the U.S. federal income tax laws (such as, without limitation, dealers or brokers in securities, commodities or foreign currencies; traders in securities that elect to apply a mark-to-market method of accounting; banks and certain other financial institutions; insurance companies; mutual funds; tax-exempt organizations; holders subject to the alternative minimum tax provisions of the Code; partnerships, S corporations or other pass-through entities or investors in partnerships, regulated investment companies, real estate investment trusts, controlled foreign corporations, or passive foreign investment companies; former citizens or residents of the United States; holders whose functional currency is not the U.S. dollar, holders who hold shares of PSB common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment; holders who exercise appraisal rights; holders who actually or constructively own more than 5% of PSB common stock; or holders who acquired their shares of PSB common stock through the exercise of employee stock options or similar derivative securities or otherwise as compensation).

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of PSB common stock that is for U.S. federal income tax purposes (1) an individual citizen or resident of the United States, (2) a corporation (or entity or an arrangement treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons (as defined in Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust, or (b) such trust was in existence on August 20, 1996 and has made a valid election to continue to be treated as a U.S. person for U.S. federal income tax purposes, or (4) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

If an entity or an arrangement treated as a partnership for U.S. federal income tax purposes holds PSB common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds PSB common stock, and any partners in such partnership, should consult their own tax advisors.

Determining the actual tax consequences of the merger to you may be complex and will depend on your specific situation and on factors that are not within our control. You should consult with your own tax advisor as to the specific tax consequences of the merger in your particular circumstances, including

 

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the applicability and effect of the alternative minimum tax and any state, local, foreign and other tax laws and the effect of possible changes in those laws after the date of this proxy statement.

Tax Consequences of the Merger Generally

The merger will qualify as a “reorganization” under Section 368(a) of the Code for U.S. federal income tax purposes. It is a condition to the obligations of Summit that it receive an opinion from Bowles Rice LLP and of PSB that it receive an opinion from Holland & Knight LLP, each in form reasonably satisfactory to such recipient, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Neither Summit nor PSB currently intends to waive this opinion condition to its obligation to consummate the merger. If either Summit or PSB waives this opinion condition after this registration statement is declared effective by the SEC, and if the tax consequences of the merger to PSB shareholders have materially changed, Summit and PSB will recirculate appropriate soliciting materials to resolicit the votes of PSB shareholders. The opinion will be based on representation letters provided by Summit and PSB and on customary factual assumptions, including, but not limited to, the assumption that the merger will be consummated in accordance with the terms of the merger agreement. The opinions described herein will not be binding on the Internal Revenue Service, which is referred to as the IRS, or any court. The following is based on the receipt and accuracy of the above-described opinions.

Summit and PSB have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations, assumptions, covenants or undertakings upon which the opinions are based are incorrect, incomplete, inaccurate or violated, the validity of the opinions may be affected and the U.S. federal income tax consequences of the merger could be adversely affected.

The remainder of this discussion is based on the mergers qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

Subject to the qualifications and limitations referenced and summarized above, the U.S. federal income tax consequences of the merger are that each PSB shareholder who receives merger consideration, upon exchanging his, her or its PSB common stock for Summit common stock, will generally not recognize gain or loss, except with respect to cash received instead of fractional shares of Summit common stock (as discussed below).

The aggregate tax basis of the Summit common stock that each PSB shareholder receives in the merger, including any fractional shares deemed received and redeemed for cash as described below, will equal the PSB shareholder’s aggregate adjusted tax basis in the shares of PSB common stock that are surrendered in the merger (less any tax basis attributable to cash received instead of a fractional share in Summit common stock). Each PSB shareholder’s holding period for the shares of Summit common stock that the PSB shareholder receives in the merger (including any fractional share deemed received and redeemed for cash as described below) will include the PSB shareholder’s holding period for the shares of PSB common stock that are surrendered in the merger.

If a PSB shareholder PSB shareholder acquired different blocks of PSB common stock at different times or at different prices, the basis and holding period of each block of Summit common stock received will be determined on a block-for-block basis depending on the basis and holding period of the blocks of PSB common stock exchanged for such block of Summit common stock.

Cash Instead of Fractional Shares

If you receive cash instead of a fractional share of Summit common stock, you will be treated as having received such fractional share of Summit common stock pursuant to the merger and then as having received cash

 

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in redemption for such fractional share of Summit common stock. As a result, you generally will recognize gain or loss equal to the difference between the amount of cash received instead of a fractional share and the tax basis in your shares of PSB common stock allocable to that fractional share of Summit common stock. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if, as of the effective time of the merger, the holding period for such fractional share (including the holding period of shares of PSB common stock surrendered therefor) exceeds one year. Long-term capital gains of certain non-corporate holders of Summit common stock, including individuals, are generally taxed at preferential rates. The deductibility of capital losses is subject to limitations.

Cash Received on Exercise of Dissenters’ Appraisal Rights

A U. S. holder of PSB common stock who receives cash in exchange for such holder’s PSB common stock upon exercise of dissenters’ appraisal rights will generally recognize gain or loss equal to the difference between the amount of cash received and the holder’s adjusted tax basis in the PSB common stock exchanged therefor. Each holder of PSB common stock is urged to consult such holder’s tax advisor regarding the manner in which gain or loss should be calculated among different blocks of PSB common stock exchanged in the merger. Such gain or loss will generally be long-term or short-term capital gain or loss, depending on the holder’s holding period in the PSB common stock exchanged. The tax consequences of cash received may vary depending upon a holder’s individual circumstances. Each holder of PSB common stock who contemplates exercising statutory dissenters’ appraisal rights should consult its tax adviser as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.

Net Investment Income Tax

A Medicare contribution tax is imposed on the “net investment income” of certain individuals, estates and trusts with income exceeding certain threshold amounts. A holder that is an individual is subject to a 3.8% tax on the lesser of: (1) his or her net investment income for the relevant taxable year, or (2) the excess of his or her modified adjusted gross income for the taxable year over a certain threshold ($125,000, $200,000 or $250,000 depending on the individual’s U.S. federal income tax filing status). Estates and trusts are subject to similar rules applied to undistributed net investment income. Net investment income generally would include any capital gain recognized in connection with the merger (including any gain treated as a dividend) by holders of PSB common stock, as well as, among other items, other interest, dividends, capital gains and rental or royalty income received by such individual. Holders of PSB common stock should consult their tax advisors as to the application of this additional tax to their circumstances.

Information Reporting and Backup Withholding

PSB shareholders are required to retain permanent records and make such records available to any authorized IRS officers and employees. The records should include the number of shares of PSB common stock exchanged, the number of shares of Summit common stock received, the fair market value of the PSB common stock exchanged, and the holder’s adjusted basis in the Summit common stock received.

If you are a non-corporate holder of PSB common stock, you may be subject, under certain circumstances, to backup withholding (currently at a rate of 24%) on any cash payments you receive pursuant to the merger. You generally will not be subject to backup withholding, however, if you:

 

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furnish a correct taxpayer identification number, certify that you are not subject to backup withholding on IRS Form W-9 (or substantially similar form) and otherwise comply with all the applicable requirements of the backup withholding rules;

 

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provide a certification of foreign status on an appropriate IRS Form W-8 or successor form; or

 

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provide proof that you are otherwise exempt from backup withholding.

 

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