proxy.htm
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE
14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by
the Registrant þ
Filed by
a Party other than the Registrant o
Check the
appropriate box: o
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Section 240.14a-11c or Section
240.14a-12
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Summit Financial Group,
Inc.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement)
Payment
of Filing Fee (Check the appropriate box):
þ No fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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Title
of each class of securities to which transaction applies:
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Aggregate
number of securities to which transaction applies:
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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maximum aggregate value of transaction:
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fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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Amount
Previously Paid:
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Form,
Schedule or Registration Statement No.:
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![](sfglogo.jpg)
P. O. Box
179
300 N.
Main Street
Moorefield,
West Virginia 26836
April 11,
2008
Dear
Shareholder:
You are
cordially invited to attend the Annual Meeting of Shareholders of Summit
Financial Group, Inc. (the “Company”), a West Virginia corporation, which will
be held on Thursday, May 15 2008, at 1:00 p.m., EDT, at the Company’s Corporate
Office, 300 N. Main Street, Moorefield, West Virginia.
It is
important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, you are requested to complete, date, sign
and return the enclosed proxy in the enclosed envelope for which postage has
been paid. If you have any questions regarding the information in the
attached proxy materials, please do not hesitate to call Teresa Sherman,
Director of Shareholder Relations, (304) 530-1000.
You will
be asked at the Meeting to elect five (5) directors to serve until 2011, and to
ratify the selection of Arnett & Foster, PLLC as the Company’s independent
registered public accounting firm for the year ending December 31,
2008.
You are
urged to read the accompanying Proxy Statement carefully, as it contains
detailed information regarding the nominees for directors of the Company and the
independent registered public accounting firm of the Company.
Very
truly yours,
Oscar M.
Bean
Chairman
of the Board
___________________________________________________
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
___________________________________________________
TIME
.............................................................
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1:00
p.m., EDT, on May 15, 2008
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PLACE
..........................................................
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Summit
Financial Group, Inc.
Corporate
Office
300
N. Main Street
Moorefield,
West Virginia 26836
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ITEMS
OF BUSINESS .................................
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(1)
To elect five (5) directors to serve until 2011;
(2)
To ratify the selection of Arnett & Foster, PLLC as the Company’s
independent
registered public accounting firm for the year ending December 31,
2008; and
(3)
To transact such other business as may properly come before the Meeting.
The
Board of Directors at present knows of no other business to come before
the
Annual Meeting.
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RECORD
DATE ..........................................
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Only
those shareholders of record at the close of business on April 4, 2008
shall be entitled to notice and to vote at the Meeting.
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ANNUAL
REPORT ……………………….
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Our
2007 Annual Report, which is not a part of the proxy materials, is
enclosed.
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PROXY
VOTING ........................................
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It
is important that your shares be represented and voted at the
Meeting. Please MARK, SIGN, DATE and PROMPTLY RETURN the
enclosed proxy card in the postage-paid envelope. Any proxy may
be revoked prior to its exercise at the Meeting.
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April
11, 2008
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Oscar
M. Bean
Chairman
of the Board
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TABLE
OF CONTENTS
Page
PROXY
STATEMENT
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1
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Principal
Executive Office of the Company
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1
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Shareholders
Entitled to Vote
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1
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Multiple
Shareholders Sharing the Same Address
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1
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Proxies
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1
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Vote
By Mail
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2
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Voting
at the Annual Meeting
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2
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Voting
on Other Matters
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2
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Required
Vote
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2
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Cost
of Proxy Solicitation
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3
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Shareholder
Account Maintenance
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3
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Section
16(a) Beneficial Ownership Reporting Compliance
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3
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GOVERNANCE
OF THE COMPANY
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4
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Board
and Committee Membership
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4
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Executive
Committee
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4
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Audit
and Compliance Committee
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4
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Compensation
and Nominating Committee
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5
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Policies and
Procedures Relating to Nomination of Directors
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6
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Processes and Procedures Relating to Executive
Compensation
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6
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Independence
of Directors and Nominees |
8
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Review
and Approval of and Description of Transactions with Related Persons |
9 |
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Policies and
Procedures |
9 |
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Transactions
with Related Persons |
9 |
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Shareholder
Communication with Directors
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10 |
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Board
Member Attendance at Annual Meeting
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10
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Corporate
Policies
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10
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ITEM
1 -- ELECTION OF DIRECTORS
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11
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Security
Ownership of Directors and Officers
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11
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Family
Relationships |
11 |
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NOMINEES
FOR DIRECTOR WHOSE TERMS EXPIRE IN 2011
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12
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DIRECTORS
WHOSE TERMS EXPIRE IN 2010
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13
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DIRECTORS
WHOSE TERMS EXPIRE IN 2009
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14
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ITEM
2 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
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15
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AUDIT
AND COMPLIANCE COMMITTEE REPORT
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16
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Fees
to Arnett & Foster, PLLC
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16
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Audit
and Compliance Committee
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17
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COMPENSATION
DISCUSSION AND ANALYSIS
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18
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Introduction
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18
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Overview
of Compensation Philosophy
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18
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Salaries
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18
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Incentive
Compensation
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19
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Long-Term
Incentive Compensation
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19
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Setting
Executive Compensation
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19
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Salaries
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19
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Incentive
Compensation
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20
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Long-Term
Incentive Compensation
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21
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Officer
Stock Option Plan
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21
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Supplemental
Executive Retirement Plan
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21
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Perquisites
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22 |
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Plans
Covering All Employees
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Employee Stock Ownership Plan
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22
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401(k) Profit Sharing Plan
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Potential
Payments Upon Termination or Change of Control |
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23 |
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Employment
Agreement - Mr. Maddy |
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23 |
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Employment Agreeements
- Messrs. Miller and Robertson
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Employment Agreements
- Messrs. Frye and Tissue
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Compensation
of Named Executive Officers
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29
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EXECUTIVE
COMPENSATION
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30
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Summary
Compensation Table
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30
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Grants
of Plan-Based Awards
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32
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Outstanding
Equity Awards at December 31, 2007 |
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34 |
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Options
Exercises and Stock Vested During 2007 |
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37 |
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Pension
Benefits |
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38 |
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Estimated
Payments Upon Termination |
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39 |
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Director
Compensation 2007 |
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41 |
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COMPENSATION
AND NOMINATING COMMITTEE REPORT
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43
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Compensation
and Nominating Committee
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43
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EXECUTIVE
OFFICERS
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44
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PRINCIPAL
SHAREHOLDER |
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45 |
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REQUIREMENTS,
INCLUDING DEADLINE FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF
DIRECTORS AND OTHER BUSINESS OF SHAREHOLDERS
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46
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Stock
Transfers
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46
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ANNUAL
REPORT
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47
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FORM
10-K
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47
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____________________________________________________________________________________
PROXY
STATEMENT
____________________________________________________________________________________
These
proxy materials are delivered in connection with the solicitation by the Board
of Directors of Summit Financial Group, Inc. (“Summit,” the “Company,” “we,” or
“us”), a West Virginia corporation, of proxies to be voted at our 2008 Annual
Meeting of Shareholders and at any adjournment or postponement.
You are
invited to attend our Annual Meeting of Shareholders on May 15, 2008, beginning
at 1:00 p.m. The meeting will be held at Summit’s Corporate
Office, 300 N. Main Street, Moorefield, West Virginia.
This
Proxy Statement, form of proxy and voting instructions are being mailed starting
on or about April 11, 2008.
Principal
Executive Office of the Company
The
principal executive office of the Company is 300 North Main Street, Moorefield,
West Virginia 26836.
Shareholders
Entitled to Vote
Holders
of record of Summit common shares at the close of business on April 4, 2008, are
entitled to receive this notice and to vote their shares at the Annual
Meeting. As of that date, there were 7,408,941 common shares
outstanding. Each common share is entitled to one vote on each matter
properly brought before the Annual Meeting.
Multiple
Shareholders Sharing the Same Address
Owners of
common stock in street name may receive a notice from their broker or bank
stating that only one proxy statement will be delivered to multiple security
holders sharing an address. This practice, known as “householding,”
is designed to reduce printing and postage costs. However, if any
shareholder residing at such an address wishes to receive a separate proxy
statement, he or she may contact Teresa Sherman, Director of Shareholder
Relations, Summit Financial Group, Inc., P. O. Box 179, Moorefield,
West Virginia 26836, or by telephone at (304) 530-1000, or
by e-mail at [email protected].
Proxies
Your vote
is important. Shareholders of record may vote their proxies by
mail. If you choose to vote by mail, a postage-paid envelope is
provided.
Proxies
may be revoked at any time before they are exercised by (1) written notice to
the Secretary of the Company, (2) timely delivery of a valid, later-dated proxy
or (3) voting at the Annual Meeting.
You may save us the expense of a
second mailing by voting promptly. Choose one of the following
voting methods to cast your vote.
Vote
By Mail
If you
choose to vote by mail, simply mark your proxy, date and sign it, and return
it in the postage-paid envelope provided.
Voting
at the Annual Meeting
The
method by which you vote now will in no way limit your right to vote at the
Annual Meeting if you later decide to attend in person. If your
shares are held in the name of a bank, broker or other holder of record, you
must obtain a proxy, executed in your favor, from the holder of record to be
able to vote at the Meeting.
All
shares that have been properly voted and not revoked will be voted at the Annual
Meeting in accordance with your instructions. If you sign your proxy
card but do not give voting instructions, the shares represented by that proxy
will be voted as recommended by the Board of Directors.
Voting
on Other Matters
If any
other matters are properly presented at the Annual Meeting for consideration,
the persons named in the enclosed form of proxy will have the discretion to vote
on those matters for you. As of the date this proxy statement went to
press, we did not know of any other matter to be raised at the Annual
Meeting.
Required
Vote
The
presence, in person or by proxy, of the holders of a majority of the votes
entitled to be cast by the shareholders entitled to vote at the Annual Meeting
is necessary to constitute a quorum. Abstentions and broker
“non-votes” are counted as present and entitled to vote for purposes of
determining a quorum. A broker “non-vote” occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received instructions from the beneficial owner.
On the
record date, there were 7,408,941 shares of common stock outstanding which are
held by approximately 1,302 shareholders of record. A majority of the
outstanding shares of Summit Financial Group, Inc. will constitute a quorum at
the meeting.
A
plurality of the votes cast is required for the election of
directors. Abstentions and broker “non-votes” will be disregarded and
will have no effect on the outcome of the vote for the election of
directors.
In the
election of directors, shareholders cast one (1) vote for each nominee for each
share held. However, every shareholder has the right of cumulative
voting, in person or by proxy, in the election of
directors. Cumulative voting gives each shareholder the right to
aggregate all votes which he or she is entitled to cast in the election of
directors and to cast all such votes for one candidate or distribute them among
as many candidates and in such a manner as the shareholder desires.
At our
2008 Annual Meeting, the total number of directors to be elected is five (5) in
the class expiring in 2011. Each shareholder has the right to cast
five (5) votes for each share of stock held on the record date.
If you
wish to exercise, by proxy, your right to cumulative voting in the election of
directors, you must provide a proxy showing how your votes are to be distributed
among one or more candidates. Unless
contrary
instructions are given by a shareholder who signs and returns a proxy, all votes
for the election of directors represented by such proxy will be divided equally
among the nominees for each class. If cumulative voting is
invoked by any shareholder, the vote represented by the proxies delivered
pursuant to this solicitation, which do not contain contrary instructions, may
be cumulated at the discretion of the Board of Directors of Summit Financial
Group, Inc. in order to elect to the Board of Directors the maximum nominees
named in this proxy statement.
For
purposes of approving Arnett & Foster, PLLC as the Company’s independent
registered public accounting firm for the year ending December 31, 2008,
abstentions and broker “non-votes” will be disregarded and will have no effect
on the outcome of the vote for the approval of Arnett & Foster,
PLLC.
Cost
of Proxy Solicitation
We will
pay the expenses of soliciting proxies. Proxies may be solicited on
our behalf by Directors, officers or employees in person or by telephone,
electronic transmission, or by facsimile transmission. Brokers,
fiduciaries, custodians and other nominees have been requested to forward
solicitation materials to the beneficial owners of the Company’s common
stock. Upon request we will reimburse these entities for their
reasonable expenses.
Shareholder
Account Maintenance
Registrar
and Transfer Company is our transfer agent. All communications
concerning accounts of shareholders of record, including address changes, name
changes, inquiries as to requirements to transfer common shares and similar
issues can be handled by contacting:
Registrar
and Transfer Company
10
Commerce Drive
Cranford,
New Jersey 07016-3572
www.rtco.com
(800)
368-5948
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our
Directors, officers, and shareholders owning 10% or more of the
common stock of the Company to file reports of holdings and transactions in
Summit shares with the SEC. Based on our records and other
information, in 2007, all directors, officers, and shareholders owning 10% or
more of the common stock of the Company met all applicable SEC filing
requirements under Section 16(a), except James M. Cookman had 4 late report(s)
relating to 5 transactions.
____________________________________________________________________________________
GOVERNANCE
OF THE COMPANY
____________________________________________________________________________________
Board
and Committee Membership
During
2007, the Board of Directors met four (4) times. All of our Directors
attended 75% or more of the meetings of the Board and the meetings held by
committees of the Board on which the directors served in 2007.
The
Company has a standing Executive Committee, Audit and Compliance Committee, and
a Compensation and Nominating Committee.
Executive
Committee
The
Executive Committee, on an as needed basis, approves loans above specified
limits and performs such duties and exercises such powers as delegated to it by
the Company’s Board of Directors. The members of the Company’s
Executive Committee are Oscar M. Bean, Chairman, H. Charles Maddy, III, John W.
Crites, Charles S. Piccirillo, Ronald F. Miller, Duke A. McDaniel, Patrick N.
Frye, G. R. Ours, Jr., and Gary L. Hinkle. C. David Robertson is a
non-voting member of the Executive Committee. The Executive Committee
met ten (10) times in 2007. Phoebe F. Heishman, Thomas J. Hawse,
III, and Gerald W. Huffman served as alternates.
Audit
and Compliance Committee
The Audit
and Compliance Committee’s primary function is to assist the Board of Directors
in fulfilling its oversight responsibilities to ensure the quality and integrity
of Summit’s financial reports. This entails:
• Serving
as an independent and objective party to monitor the Company’s financial
reporting process and internal control system.
• Providing
direction to and oversight of the Company’s internal audit
function.
• Reviewing
and appraising the efforts of the Company’s independent auditors.
• Maintaining
a free and open means of communication between directors, internal audit staff,
independent auditors, and management.
The Audit
and Compliance Committee has adopted a written charter, a copy of which is
available on the Company’s web site @www.summitfgi.com.
Current
members of this committee are Thomas J. Hawse, III, Chairman, John W. Crites,
Gary L. Hinkle, Gerald W. Huffman, Charles S. Piccirillo, and James P. Geary,
II. The Audit and Compliance Committee charter requires that the
committee be comprised of five (5) or more directors. The Audit and
Compliance Committee met six (6) times in 2007.
Pursuant
to the provisions of the Sarbanes-Oxley Act, which was enacted in 2002, the SEC
adopted rules requiring companies to disclose whether or not at least one member
of the Audit and Compliance Committee is an “audit committee financial expert”
as defined in such rules.
Under the
SEC rules, an “audit committee financial expert” has the following
attributes:
• An
understanding of generally accepted accounting principles and financial
statements.
• An
ability to assess the general application of accounting principles generally
accepted in the United States of America in connection with the accounting for
estimates, accruals and reserves.
• Experience
preparing, auditing, analyzing, or evaluating financial statements that present
a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can be expected to be
raised by the Company’s financial statements, or experience actively supervising
one or more persons engaged in such activities.
• An
understanding of internal controls and procedures for financial reporting;
and
• An
understanding of audit committee functions.
A person
must possess all of the above attributes to qualify as an audit committee
financial expert.
The Board
of Directors has determined that John W. Crites and Thomas J. Hawse, III of the
Audit and Compliance Committee possess all of the above five attributes so as to
be deemed “audit committee financial experts” under the SEC rules.
Also,
John W. Crites and Thomas J. Hawse, III each qualify as a “financial expert”
under the NASDAQ Marketplace Rules, which standards are different from the SEC
rules. Under the NASDAQ Marketplace Rules, a “financial expert” must
have past employment experience in finance or accounting, requisite professional
certification in accounting or other comparable experience or background which
results in the individual’s financial sophistication, including being a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities. Mr. Crites and Mr. Hawse
have the necessary experience to qualify them as “financial experts” under the
NASDAQ Marketplace Rules.
For
information concerning the audit fees paid by the Company in 2007 and for
information about the Company’s independent auditors generally, see the Audit
and Compliance Committee Report on page 16 of these Annual Meeting
materials.
Compensation
and Nominating Committee
The
Compensation and Nominating Committee consists of a minimum of 4 independent,
outside directors. The members of the Compensation and Nominating Committee
during 2007 were Oscar M. Bean, Chairman, Dewey Bensenhaver, John W. Crites,
Thomas J. Hawse, III, Phoebe F. Heishman, Gary L. Hinkle, and Charles S.
Piccirillo.
The
Compensation and Nominating Committee has adopted a written charter, a copy of
which is available on the Company’s website at www.summitfgi.com.
The
Committee meets at scheduled times during the year as required, generally one to
two times. The Committee reports on Committee actions at Board
meetings. The Committee has the authority to
retain
outside counsel and any other advisors as the Company may deem appropriate in
its sole discretion. The Compensation and Nominating Committee met
one (1) time in 2007.
Policies and Procedures Relating to
the Nomination of Directors
One
purpose of the Committee is to assist the Board in (i) identifying qualified
individuals to become board members, (ii) determining the composition of
the board of directors and its committees, (iii) monitoring a process to assess
board effectiveness, and (iv) developing and implementing the Company's
corporate governance guidelines.
In
determining nominees for the Board of Directors, the Compensation and Nominating
Committee selects individuals who have the highest personal and professional
integrity and who have demonstrated exceptional ability and
judgment. The Committee also selects individuals who are most
effective, in conjunction with the other nominees to the Board, in collectively
serving the long-term interests of the shareholders. In identifying
first-time nominees for director, or evaluating individuals recommended by
shareholders, the Compensation and Nominating Committee determines, in its sole
discretion, whether an individual meets the minimum qualifications approved by
the Board of Directors and may consider the current composition of the Board of
Directors in light of the diverse communities served by the Company and the
interplay of the candidate’s experience with the experience of other Board
members.
The
Compensation and Nominating Committee does not have a specific policy with
regard to the consideration of persons nominated for Directors by
shareholders. The Articles of Incorporation of the Company describe
the procedures that a shareholder must follow to nominate persons for election
as Directors. For more information regarding these procedures, see
Requirements, Including Deadline for Submission of Proxy Proposals, Nomination
of Directors and Other Business of Shareholders on page 46 of these Annual
Meeting materials. The Compensation and Nominating Committee will
consider nominees for Director recommended by shareholders provided the
procedures set forth in the Articles of Incorporation of the Company are
followed by shareholders in submitting recommendations. The Committee
does not intend to alter the manner in which it evaluates nominees, including
the minimum criteria set forth above, based on whether the candidate was
recommended by a shareholder or not.
With
regard to the Compensation and Nominating Committee’s specific nominating
responsibilities, see a copy of its current charter on the Company’s website at
www.summitfgi.com.
Processes
and Procedures Relating to Executive Compensation
Another
purpose of the Compensation and Nominating Committee is to review, approve and
report to the Board of Directors the compensation of all executive officers of
the Company who are subject to the requirements of Section 16 of the Securities
Exchange Act of 1934 (the “Executive Officers”), including salaries and bonuses,
and to approve and report to the Board of Directors all grants of stock
options. The Compensation and Nominating Committee also reviews and
approves the Board Attendance and Compensation Policy which includes the
compensation paid to the Board of Directors. The Committee’s primary
processes and procedures for carrying out these purposes include:
• Scope of
Authority. The Committee has the following duties and
responsibilities:
• Annually
review and approve corporate goals and objectives relevant to compensation of
the Chief Executive Officer (the “CEO”) established by the Board of Directors,
evaluate the CEO’s performance in light of these goals and objectives, and
review, approve and report to the Board of
Directors all
compensation arrangements, including base salary, incentive compensation and
long-term compensation for the CEO.
• Annually
review, approve and report to the Board of Directors all compensation
arrangements, including base salary, incentive compensation and long-term
compensation, for all other Executive Officers.
• Review,
approve and report to the Board of Directors compensation packages for new
Executive Officers and termination packages for Executive Officers.
• Review
and make recommendations to the Board of Directors for ratification decisions
relating to long-term incentive compensation plans, including the use of
equity-based plans. Except as otherwise delegated by the Board of
Directors, the committee will act on behalf of the Board of Directors as the
“committee” established to administer equity-based and employee benefit plans,
and as such, will discharge any responsibilities imposed on the committee under
those plans, including making and authorizing grants in accordance with the
terms of those plans. All such grants must be ratified by the Board
of Directors.
• Make
recommendations to the Board of Directors with respect to matters relating to
incentive compensation and equity-based plans which are appropriate for action
by the Board of Directors under applicable NASDAQ and SEC rules.
• Produce
an annual report of the committee on executive compensation for the Company’s
annual proxy statement in compliance with applicable NASDAQ and SEC
rules.
• Delegation of
Authority. The Committee has the authority to delegate any of
its responsibilities to subcommittees as the committee may deem
appropriate.
• Role of Executive
Officers. The Chief Executive Officer provides the Committee
with a verbal performance assessment and compensation recommendation for each of
the other Executive Officers. In addition to the following items,
these performance assessments and recommendations are considered by the
Committee in reviewing, approving and reporting to the Board the compensation
arrangements of each Executive Officer other than the CEO: (i) an assessment of
the Company’s performance, (ii) the perquisites provided to the Executive
Officers; (iii) the salaries paid by a peer group to executive officers holding
equivalent positions, (iv) tally sheets showing the aggregate amount of all
components of compensation paid to the Executive Officers, and (v) the
complexity of the job duties of each Executive Officer.
• Role of Independent
Consultant. The Committee has the authority to retain any
advisors as the Committee deems appropriate in carrying out its
duties. The Committee has not retained the services of an independent
consultant in reviewing and approving the form and amount of executive and
director compensation.
For more
information regarding the Committee’s philosophy and evaluation of executive
performance, see the Compensation Discussion and Analysis beginning on page 18
of these Annual Meeting materials.
Independence
of Directors and Nominees
The Board
of Directors annually reviews the relationships of each member of the Board with
the Company to determine whether each director is independent. This
determination is based on both subjective and objective criteria developed by
the NASDAQ listing standards and the SEC rules.
The Board
of Directors met on February 14, 2008, to determine the independence of the
current members of the Board of Directors and the nominees for election as a
director of the Company. At the meeting, the Board of Directors
reviewed the directors’ responses to a questionnaire asking about their
relationships with the Company (and those of their immediate family members) and
other potential conflicts of interest, as well as information provided by
management related to transactions, relationships, or arrangements between the
Company and the directors or parties related to the directors.
Based on
the subjective and objective criteria developed by the NASDAQ listing standards
and the SEC rules, the Board of Directors determined that the following nominees
and current members of the Board of Directors are independent: Frank A. Baer,
III , Oscar M. Bean, Dewey F. Bensenhaver, James M. Cookman, John W. Crites,
James P. Geary, II, Thomas J. Hawse, III, Phoebe F. Heishman, Gary L. Hinkle,
Gerald W. Huffman, Duke A. McDaniel, G. R. Ours, Jr. and Charles S.
Piccirillo.
H.
Charles Maddy, III, Patrick N. Frye and Ronald F. Miller are not independent
because these individuals are executive officers of the Company.
The
NASDAQ listing standards contain additional requirements for members of the
Compensation and Nominating Committee and the Audit and Compliance
Committee. All of the directors serving on each of these committees
is independent under the additional requirements applicable to such
committees.
The Board
also considered the following relationships in evaluating the independence of
the Company’s independent directors and determined that none of the
relationships constitute a material relationship with the Company and each of
the relationships satisfied the standards for independence:
• Summit
Community Bank, Inc., a subsidiary of the Company, provided lending and/or other
financial services to each member of the Company’s Board of Directors, their
immediate family members, and/or their affiliated organizations during 2007 in
the ordinary course of business and on substantially the same terms as those
available to unrelated parties;
• Frank
A. Baer, III is affiliated with an entity that received commissions on the
placement of property and casualty insurance by the Company;
• Oscar
M. Bean, James P. Geary, II, and Charles S. Piccirillo are partners of law firms
that received payments for legal services provided to the Company or its
subsidiaries during 2007;
• Oscar
M. Bean is a member of the Board of Directors of an organization that conducts
business with a subsidiary of the Company and is the campaign chair of a
non-profit entity that received a donation from the Company;
• A
subsidiary of the Company purchases grocery items from a supermarket owned by
Thomas J. Hawse, III; and
• The
Company and its subsidiary advertise in a weekly newspaper owned by Phoebe F.
Heishman.
Review
and Approval of and Description of Transactions with Related
Persons
Policies
and Procedures
The
Company has a written policy and procedure for review, approval and monitoring
of transactions involving the Company and “related persons” (directors, nominees
for director, and executive officers or their immediate families, or
shareholders owning five percent or greater of the Company’s outstanding
stock). The policy covers any related person transaction that meets
the minimum threshold for disclosure in the proxy statement under the relevant
SEC rules (generally, transactions involving amounts exceeding $120,000 in which
a related person has a direct or indirect material interest).
Related
party transactions must be approved by the Board of Directors. At
each calendar year’s first regularly scheduled meeting of the Board of
Directors, management recommends Related Person Transactions to be entered into
by the Company for that calendar year, including the proposed aggregate value of
such transactions if applicable. After review, the Board of Directors
approves or disapproves such transactions. The Board of Directors
will review any new transactions at each subsequently scheduled
meeting. Management will update the Board of Directors as to any
material change to proposed transactions.
The Board
of Directors will consider all of the relevant facts and circumstances
available, including (if applicable) but not limited to: the benefits to the
Company; the impact on a director’s independence in the event the Related Person
is a director, an immediate family member of a director or an entity in which a
director is a partner, shareholder or executive officer; the availability of
other sources for comparable products or services; the terms of the transaction;
and the terms available to unrelated third parties or to employees generally.
No
member of the Board of Directors will participate in any review, consideration
or approval of any Related Person Transaction with respect to which such member
or any of his or her immediate family members is the Related
Person. The Board of Directors will approve only those Related Person
Transactions that are in, or are not inconsistent with, the best interests of
the Company and its shareholders, as the Board of Directors determines in good
faith.
In the
event management recommends any further Related Person Transactions subsequent
to the first calendar year meeting, such transactions may be presented to the
Board of Directors for approval or preliminarily entered into by management
subject to ratification by the Board of Directors, provided that if ratification
shall not be forthcoming, management will make all reasonable efforts to cancel
or annul such transaction.
The
policy was adopted by the Executive Committee of the Board of Directors in
March, 2007. The Board of Directors met on February 14, 2008 and
reviewed all transactions with related parties since January 1, 2007, to
determine if such transactions were required to be reported in this Proxy
Statement. The Board of Directors determined that no transaction met
the minimum threshold for disclosure in this Proxy Statement under the relevant
SEC rules and no transaction was required to be approved by the Board of
Directors.
Transactions
with Related Persons
Directors
and executive officers of the Company and its subsidiaries, members of their
immediate families, and business organizations and individuals associated with
them have been customers of, and have had normal banking transactions with
Summit Community Bank. All such transactions were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable
features. Loans made to
directors
and executive officers are in compliance with federal banking regulations and
are thereby exempt from insider loan prohibitions included in the Sarbanes-Oxley
Act of 2002.
Except
for the transactions described in the above paragraph, the Company has not
entered into any transactions with related persons since January 1, 2007, nor
has the Company entered into a current transaction, in which the amount of the
transaction exceeds $120,000 and in which a related person had or will have a
direct or indirect material interest.
Shareholder
Communication with Directors
The Board
of Directors of the Company provides a process for shareholders to send
communications to the Board of Directors or to any of the individual
Directors. Shareholders may send written communications to the Board
of Directors or to any of the individual Directors c/o Secretary, Summit
Financial Group, Inc., P. O. Box 179, 300 N. Main Street, Moorefield, West
Virginia 26836. All communications will be compiled by the Secretary
of the Company and submitted to the Board of Directors or to the individual
Directors on a periodic basis.
Board
Member Attendance at Annual Meeting
The
Company does not have a policy with regard to directors’ attendance at annual
meetings. Thirteen (13) of sixteen (16) members of the Board of
Directors in 2007 attended the 2007 Annual Meeting of Shareholders.
Corporate
Policies
The
Company operates within a comprehensive plan of corporate governance for the
purpose of defining responsibilities, setting high standards of professional and
personal conduct and assuring compliance with such responsibilities and
standards. The Sarbanes-Oxley Act of 2002, among other things,
establishes a number of new corporate governance standards and disclosure
requirements. In addition, the Company is subject to the corporate
governance and Marketplace Rules promulgated by NASDAQ. In light of
the requirements of the Sarbanes-Oxley Act of 2002 and the NASDAQ corporate
governance and Marketplace Rules, Summit has a Compensation and Nominating
Committee Charter and a Code of Ethics that applies to all directors, executive
officers and employees of Summit Financial Group, Inc. and its
subsidiaries. The Code of Ethics also contains supplemental
provisions that apply to the Company’s Chief Executive Officer, the Chief
Financial Officer, and the Chief Accounting Officer (the “Senior Financial
Officers”). In addition, the Code of Ethics contains procedures for
reporting violations of the Code of Ethics involving the Company’s financial
statements and disclosures, accounting practices, internal control over
financial reporting, disclosure controls and auditing matters. A copy
of the Code of Ethics is available on the Company’s website at
www.summitfgi.com.
____________________________________________________________________________________
ITEM
1 – ELECTION OF DIRECTORS
____________________________________________________________________________________
The Board
of Directors is divided into three classes. The terms of the
Directors in each class expire at successive annual meetings. Five
(5) Directors will be elected at our 2008 Annual Meeting to serve for a
three-year term expiring at our Annual Meeting in the year 2011. If
the proposed nominees are elected, the Company will have a Board of Directors
consisting of one class of six (6) directors and two classes of five (5)
directors each.
The
persons named in the enclosed proxy intend to vote the proxy for the election of
each of the six nominees, unless you indicate on the proxy card that your vote
should be withheld from any or all of such nominees. Each nominee
elected as a Director will continue in office until his or her successor has
been elected, or until his or her death, resignation or retirement.
The Board
of Directors has proposed the following nominees for election as Directors, with
terms expiring in 2011, at the Annual Meeting: Frank A. Baer, III,
Patrick N. Frye, Duke A. McDaniel, Ronald F. Miller, and G. R. Ours,
Jr. All of the nominees were recommended by the Compensation and
Nominating Committee and approved by the Board of Directors of the
Company. All of the nominees are directors standing for
re-election.
The
Board of Directors recommends a vote FOR the election of these nominees for
election as Directors.
We expect
each nominee for election as a Director to be able to serve if
elected. To the extent permitted by applicable law, if any nominee is
not able to serve, proxies will be voted in favor of the remainder of those
nominated and may be voted for substitute nominees, unless the Board chooses to
reduce the number of Directors serving on the Board. The principal
occupation and certain other information about the nominees and other Directors
whose terms of office continue after the Annual Meeting are set forth on the
following pages.
Security
Ownership of Directors and Officers
As of
March 10, 2008, the nominees and other Directors of the Company owned
beneficially, directly or indirectly, the number of shares of common stock
indicated on the following pages. The number of shares shown as
beneficially owned by each director and executive officer is determined under
the rules of the Securities and Exchange Commission and the information is not
necessarily indicative of beneficial ownership for any other
purposes.
All
Directors and executive officers as a group owned 1,855,381 shares or 24.07% of
the Company’s common stock as of March 10, 2008. Each director of the
Company is required to own a minimum of 2,000 shares of the Company’s common
stock. Ownership is defined as shares held solely in the director’s
name, shares held through the Company’s employee stock ownership plan, a
profit-sharing plan, individual retirement account, retirement plan or similar
arrangement, and shares owned by a company where the director owns a controlling
interest. Shares held jointly by a director and the director’s spouse
are counted when determining whether a director owns 2,000 shares of the
Company’s common stock as long as the director owns stock in his or her own name
with a minimum value of at least $500, which is the minimum imposed by West
Virginia law. Directors who are also employees of the Company or its
subsidiaries are exempt from this requirement.
The
Company requires that all directors retire at the end of the term during which
the director attains the age of 70. However, pursuant to the Merger
Agreement with Potomac Valley Bank, the Company agreed that Messrs. McDaniel and
Ours, Jr. would be exempt from the Company’s mandatory retirement
requirement. These individuals must retire at the end of the term
during which they attain the age of 80.
Family
Relationships
Dewey S.
Bensenhaver is married to G. R. Ours, Jr.’s niece.
Name and Age as of the
May 15, 2008
Meeting Date
|
Position, Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2008
|
NOMINEES
FOR DIRECTORS WHOSE TERMS EXPIRE IN 2011
|
|
|
Shares
|
%
|
Frank
A. Baer, III ………. 47
|
Director
of Summit Financial Group since 1998. CEO of Commercial
Insurance Services, an insurance brokerage firm. Vice President
of M & B Properties, a real estate holding company.
|
25,519(1)
|
*
|
Patrick
N. Frye ……….......49
|
Director
of Summit Financial Group since 2000. Senior Vice President and
Chief Credit Officer of Summit Financial Group, since December,
2003. President and CEO of Summit Community Bank, a subsidiary
of the Company, from 1998 to 2004.
|
39,327(2)
|
*
|
Duke
A. McDaniel ……….69
|
Director
of Summit Financial Group since 2000. Attorney at
Law.
|
39,524(3)
|
*
|
Ronald
F. Miller ……..…...64
|
Director
of Summit Financial Group since 1998. President and CEO of
Summit Community Bank, a subsidiary of the Company, since
1998.
|
47,362(4)
|
*
|
G.
R. Ours, Jr.……………..76
|
Director
of Summit Financial Group and Vice Chairman of the Board since
2000. Retired President of Petersburg Oil
Co. Director of Summit Community Bank since 1974 and Chairman
of the Board from 1995 to 2002.
|
231,000(5)
|
3.02%
|
(1) Includes
592 shares owned by minor children.
(2) Includes
4,135 fully vested shares held in Company’s ESOP and exercisable stock options
for 27,200 shares.
(3) Includes
28,404 shares that are pledged as collateral.
(4)
|
Includes
5,692 fully vested shares held in Company’s ESOP and exercisable stock
options for 33,200 shares.
|
(5)
|
Includes
21,000 shares owned by spouse and 80,000 shares owned by children for whom
director has continuous voting authority until
rescinded.
|
* Indicates
director owns less than 1% of the Company’s Common Stock.
Name and Age as of the
May 15, 2008
Meeting Date
|
Position, Principal Occupation
Business Experience and Directorships
|
|
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2008
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2010
|
|
|
|
|
Shares %
|
|
|
Oscar
M. Bean …………....57
|
Director
of Summit Financial Group since 1987, Chairman of the Board since
1995. Managing partner of Bean & Bean, Attorneys at
Law; Foundation Board Member of Eastern West Virginia Community
& Technical College since September, 2004.
|
|
|
71,030
|
(1)
|
|
|
*
|
|
Dewey
F. Bensenhaver …..61
|
Director
of Summit Financial Group since 2000. Physician in private
practice;
Owner
of farming operation.
|
|
|
49,040
|
(2)
|
|
|
*
|
|
John
W. Crites ……...…….67
|
Director
of Summit Financial Group since 1989. Chairman of Allegheny
Wood Products, Inc.; partner in Allegheny Dimension, LLC; and principal
stockholder of KJV Aviation, Inc.
|
|
|
548,316
|
|
|
|
7.17
|
%
|
James
P. Geary, II…………52
|
Partner
of the law firm of Geary & Geary.
|
|
|
12,428 |
(3) |
|
|
* |
|
Phoebe
F. Heishman ……...67
|
Director
of Summit Financial Group since 1987, Secretary since
1995. Publisher and Editor of The Moorefield Examiner.
|
|
|
93,520
|
(4)
|
|
|
1.22
|
%
|
Charles
S. Piccirillo ………53
|
Director
of Summit Financial Group since 1998. Member in the law firm of
Shaffer & Shaffer, PLLC; Partner, Lawoff Associates; President, Auggus
Enterprises, Inc.
|
|
|
21,909
|
(5)
|
|
|
*
|
|
(1)
|
Includes
4,840 shares owned by spouse, 2,288 shares owned by
children.
|
(2)
|
Includes
4,769 shares owned by spouse, 13,544 shares owned by minor children, and
1,876 shares owned as a custodian for minor children; 3,804 shares are
pledged as collateral.
|
(3)
|
Includes
136 shares owned as custodian for minor
child.
|
(4)
|
Includes
1,760 shares owned by spouse and 20,135 shares owned by children for whom
she has a power of attorney; 13,920 shares are pledged as
collateral.
|
(5)
|
Includes
400 shares owned by spouse.
|
* Indicates
director owns less than 1% of the Company’s Common Stock.
Name
and Age as of the
May 15, 2008
Meeting Date
|
Position, Principal Occupation
Business Experience and Directorships
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2008
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2009
|
|
|
|
|
Shares
|
|
|
%
|
|
James
M. Cookman ………54
|
Director
of Summit Financial Group since 1994. President of Cookman
Insurance Group, Inc.; President of Cookman Realty Group, Inc.;
Secretary/ Treasurer of Apex Developers, Inc.; Member of BeaconNet, LLC;
Member of Orchard View Estates, LLC; Director of Mutual Protective
Association of West Virginia; Member of Grant County Development
Authority; Member of Highland Estates, LLC; Vice President of Project
Development of U.S. WindForce, LLC; Manager of West Virginia Land Sales,
LLC; Member of Eastern WV Community & Technical College Foundation
Board.
|
|
|
20,784
|
(1)
|
|
|
*
|
|
Thomas
J. Hawse, III ……..63
|
Director
of Summit Financial Group since 1988. President of Hawse Food
Market, Inc. Also serves on the West Virginia Forest Management
Review Commission.
|
|
|
40,259
|
(2)
|
|
|
*
|
|
Gary
L. Hinkle ……………58
|
Director
of Summit Financial Group since 1993. President of Hinkle
Trucking, Inc., Dettinburn Transport, Inc., Mt. Storm Fuel Corporation and
H. T. Services, Inc.
|
|
|
283,930
|
(3)
|
|
|
3.71
|
%
|
Gerald
W. Huffman……….63
|
Director
of Summit Financial Group since 2000. President of Potomac
Trucking & Excavation, Inc., Huffman Logging, Inc. and G&T Repair,
Inc.
|
|
|
60,000
|
|
|
|
*
|
|
H.
Charles Maddy, III …….45
|
Director
of Summit Financial Group since 1993. President and CEO of
Summit Financial Group since 1994. Co-Chairman of Board of
Directors of Summit Community Bank, a subsidiary of the Company, since
June, 2007. Chairman of Board of Directors of Summit Community
Bank from 2002 to 2007. Director of the Federal Home Loan Bank
of Pittsburgh (“FHLB”) since 2002. Vice Chairman of the FHLB
Board.
|
|
|
101,668
|
(4)
|
|
|
1.33
|
%
|
(1)
|
Includes
17,784 shares owned by the 401(k) Retirement
Plan.
|
(2)
|
Includes
1,500 shares owned by spouse, 4,109 shares owned by self-directed IRA FBO
spouse, and 500 shares owned by
children.
|
(3)
|
Includes
54,745 shares owned by Hinkle Trucking, Inc., 4,800 shares owned by
spouse, and 500 shares owned as Custodian for
grandchild.
|
(4)
|
Includes
6,272 shares owned by spouse, 18,964 fully vested shares held in Company’s
ESOP and exercisable stock options for 70,400 shares; 2,768 shares are
pledged as collateral.
|
|
* Indicates
director owns less than 1% of the Company’s Common
Stock.
|
ITEM
2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
____________________________________________________________________________________
The Board
of Directors has appointed Arnett & Foster, PLLC to serve as our independent
registered public accounting firm for 2008 subject to the ratification of our
shareholders. For information concerning the audit fees paid by the
Company in 2006 and 2007 and for information about the Company’s auditors
generally, see the Audit and Compliance Committee Report on page 16 of this
Proxy Statement.
Representatives
of Arnett & Foster, PLLC will be present at the Annual Meeting to answer
questions. They will also have the opportunity to make a statement if
they desire to do so.
The
affirmative vote of a majority of votes cast on this proposal is required for
the ratification of this proposal. In determining whether the proposal has
received the requisite number of affirmative votes, abstentions and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote.
Shareholder
ratification of the selection of Arnett & Foster, PLLC as our independent
registered public accounting firm is not required by our Bylaws or
otherwise. However, the Board of Directors is submitting the
selection of Arnett & Foster, PLLC to the shareholders for ratification as a
matter of good corporate practice. If the shareholders fail to ratify
the selection, the Audit and Compliance Committee and the Board of Directors
will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Audit and Compliance Committee and the Board of
Directors in their discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such a
change would be in the best interests of us and our shareholders.
The
Board of Directors recommends a vote FOR the ratification of Arnett &
Foster, PLLC as our independent registered public accounting firm for the year
2008.
____________________________________________________________________________________
AUDIT
AND COMPLIANCE COMMITTEE REPORT
____________________________________________________________________________________
The Audit
and Compliance Committee of the Board of Directors of the Company is composed of
six independent directors. The members of the Audit and Compliance
Committee are Thomas J. Hawse, III, Chairman, John W. Crites, James P. Geary,
II, Gary L. Hinkle, Gerald W. Huffman and Charles S. Piccirillo.
The Audit
and Compliance Committee operates under a written charter adopted by the
Company’s Board of Directors. A copy of the Audit and Compliance
Committee Charter is available on the Company’s website at
www.summitfgi.com.
The Audit
and Compliance Committee has reviewed the audited financial statements of the
Company for the fiscal year ended December 31, 2007, and discussed them
with Management and the Company’s independent auditors, Arnett & Foster,
PLLC. The Audit and Compliance Committee also has discussed with the
independent auditors the matters required to be discussed by the Auditing
Standards Board Statement of Auditing Standards No. 61, as amended.
The Audit
and Compliance Committee has received from the independent auditors the written
disclosures and letter required by the Independence Standards Board Standard
No. 1, and the Audit and Compliance Committee has discussed with the
auditors their independence from the Company and Management.
Based on
the review and discussions described above, the Audit and Compliance Committee
recommended to the Board of Directors that the Company’s audited financial
statements for the year ended December 31, 2007, be included in the
Company’s Annual Report on Form 10-K for 2007.
Fees
To Arnett & Foster, PLLC
The
following table presents fees for professional services rendered by Arnett &
Foster, PLLC to perform an audit of the Company’s annual financial statements
for the years ended December 31, 2007, and 2006, and fees for other services
rendered by Arnett & Foster, PLLC during those periods:
|
|
2007
|
|
|
2006
|
|
Audit
Fees(1)
|
|
$ |
173,670 |
|
|
$ |
174,000 |
|
Audit-Related
Fees(2)
|
|
|
36,000 |
|
|
|
36,000 |
|
Tax
Fees(3)
|
|
|
15,445 |
|
|
|
14,715 |
|
All
Other Fees(4)
|
|
|
4,650 |
|
|
|
13,000 |
|
Total Fees
|
|
$ |
229,765 |
|
|
$ |
237,715 |
|
(1) Audit
Fees – These are fees for professional services performed by Arnett &
Foster, PLLC associated with the annual audit of the Company’s consolidated
financial statements, the audit of the effectiveness of the Company’s internal
control over financial reporting, and the reviews of the Company’s quarterly
reports on Form 10-Q filed with the Securities and Exchange
Commission.
(2) Audit-Related
Fees – These are for assurance and related services performed by Arnett &
Foster, PLLC that are reasonably related to the performance of the audit or
review of the Company’s financial statements. This includes: employee
benefit and compensation plan audits and consulting on financial
accounting/reporting standards.
(3) Tax Fees – These are fees for
professional services performed by Arnett & Foster, PLLC with respect to tax
compliance, tax advice and tax planning. This includes review of
original and amended tax returns for the Company and its consolidated
subsidiaries; refund claims; payment planning; tax audit assistance; and tax
work stemming from “Audit-Related” items.
(4) All
Other Fees – These are fees for other permissible work performed by Arnett &
Foster, PLLC that does not meet the above category descriptions.
All
services rendered by Arnett & Foster, PLLC are permissible under applicable
laws and regulations, and pre-approved by the Audit and Compliance
Committee.
The Audit
and Compliance Committee’s pre-approval policies for audit and non-audit
services provided to the Company by Arnett & Foster, PLLC are as
follows:
|
•
|
Any
proposed services that would result in fees exceeding 5% of the total
audit fees require specific pre-approval by the Audit and Compliance
Committee.
|
|
•
|
Any
proposed services that would result in fees of less than 5% of the total
audit fees may be commenced prior to obtaining pre-approval of the Audit
and Compliance Committee. However, before any substantial work
is completed, Arnett & Foster, PLLC must obtain the approval of such
services from the Chairman of the Audit and Compliance
Committee.
|
The
spending level and work content of these services are actively monitored by the
Audit and Compliance Committee to maintain the appropriate objectivity and
independence in auditor’s core work, which are the audits of the Company’s
consolidated financial statements and the effectiveness of the Company’s
internal control over financial reporting.
The Audit
and Compliance Committee has considered and determined that the provision of
these additional services is compatible with maintaining Arnett & Foster
PLLC’s independence. For more information concerning the Company’s
Audit and Compliance Committee, see page 4 of these annual meeting
materials.
AUDIT
AND COMPLIANCE COMMITTEE
Thomas J.
Hawse, III, Chairman
John W.
Crites
James P.
Geary, II
Gary L.
Hinkle
Gerald W.
Huffman
Charles
S. Piccirillo
____________________________________________________________________________________
COMPENSATION
DISCUSSION AND ANALYSIS
____________________________________________________________________________________
Introduction
This section explains
Summit’s executive compensation program as it relates to the following “named
executive officers”:
H.
Charles Maddy,
III President
and Chief Executive Officer
Robert S.
Tissue
Senior Vice President and Chief Financial Officer
Patrick
N.
Frye
Senior Vice President and Chief Credit Officer
C. David
Robertson
Co-Chairman of the Board of Summit Community Bank
Ronald F.
Miller
President of Summit Community Bank
Overview
of Compensation Philosophy
We have a
straightforward compensation program that focuses on a team
approach. Each of our named executive officers must demonstrate
exceptional personal performance to remain part of our executive
team. As a member of that team, each officer must contribute to the
overall success of Summit rather than simply attain goals within that officer’s
specific area of responsibility.
Our
executive compensation program is designed to:
• retain
executive officers by paying them competitively, motivate them to contribute to
the Company’s success, and reward them for their performance;
• link
a substantial part of each executive officer’s compensation to the performance
of the Company and its subsidiaries, and the individual executive officer;
and
• encourage
ownership of Company common stock by executive officers.
Our
fundamental philosophy is to link closely executive compensation with the
achievement of annual financial and non-financial performance
goals. It is the Company’s practice to provide a mix of cash and
equity-based compensation that the Company believes balances the best interests
of the Company’s executives and the Company’s shareholders. The
Company believes compensation should be structured to ensure that a significant
portion of the compensation opportunity will be directly related to shareholder
value.
As
discussed below, the program consists of, and is intended to balance, three
elements:
• Salaries. Salaries
are based on the Company’s evaluation of individual job performance and an
assessment of the salaries and total compensation mix paid by the Company’s Peer
Group to executive officers holding equivalent positions. The
Company’s Peer Group is a group consisting of all public banks and thrifts in
the United States with assets of $1 billion - $5 billion. The Company
does not “benchmark” to the Peer Group, but rather uses the Peer Group as a
general reference for purposes of
comparing
our executive officer salaries to other companies in the industry to determine
whether the salaries are reasonable and competitive.
• Incentive
Compensation. Executive Incentive Compensation is based on an
evaluation of both individual and Company performance against quantitative
measures.
• Long-term Incentive
Compensation. Long-term incentive awards, which consist of
stock options, are designed to ensure that incentive compensation is linked to
the long-term performance of the Company and its common stock and shareholder
return.
Setting
Executive Compensation
In
setting the annual base salary and the performance goals that must be satisfied
for executives to receive incentive compensation, the Company reviews executive
compensation information from the Peer Group gathered from SEC filings and the
SNL Executive Compensation Review, a compensation survey. The Company
does not use a specific formula to set pay in relation to this market
data. This market data is used as a tool to assess whether the
Company’s executive compensation is reasonable and competitive within the
industry. The Company does not, however, attempt to set compensation
to meet specific benchmarks, such as salaries “above the median” or equity
compensation “at the 75th
percentile”. The Company strongly believes in retaining the best talent for all
critical Company functions and this may or may not result in compensation
packages that align at the median of the Peer Group. The Company also
believes that excessive reliance on benchmarking is detrimental to shareholder
interest because it can result in compensation that is unrelated to the value
delivered by the named executive officers.
Salaries
The first
element of the executive compensation program is salaries. The Board
and the Company have directed a mix of the Company’s executive compensation that
provides an opportunity for significant variation in total compensation based on
performance with a proportionately lesser emphasis on salaries. This
strategy is intended to increase the performance orientation of the Company’s
executive compensation, and the Board intends to continue this emphasis in
2008.
In
setting the base salary for the President and CEO and in reviewing and approving
the salaries for the other named executive officers, the Company first reviews
the history of and the proposals for the compensation for each individual,
including cash and equity-based components. In setting salaries, the
Company and the Committee do not use a predetermined
formula. Instead, the salaries of the President and CEO and the other
executive officers are based on:
• the
Board’s review of the CEO’s evaluation of each officer’s individual job
performance, and the Committee’s evaluation of the CEO’s job
performance;
• an
assessment of the Company’s performance;
• the
perquisites provided to the CEO and other named executive officers;
• a
consideration of salaries paid by the Peer Group to executive officers holding
equivalent positions;
• a
consideration of aggregate amount of all components of compensation paid to the
President and CEO and other executive officers; and
• the
complexity of the job duties of the indicated executive as compared to the
perceived complexity of the duties of similar executives in other
companies.
We do not
have a pre-defined framework that determines which of these factors may be more
or less important and the emphasis placed on specific factors may vary among the
named executive officers. Ultimately it is the Committee’s judgment
of these factors along with the competitive data that form the basis for
determining the named executive officer’s compensation. Once the base
salary is set, it does not depend on the Company’s performance.
In 2007,
the Company made the following decisions with respect to the base salaries of
its named executive officers:
§ A
performance based increase of 7.1% (10.7% in 2006) in the salary of
Mr. Tissue and a 3.75% (6.67% in 2006) increase in the salary of Mr.
Frye. These increases reflect their increasingly significant
contribution to the overall management of the Company.
§ An
increase in salary of 3.9% (4.12% in 2006) for Messrs. Robertson and Miller to
account for inflation as required by their employment contracts.
§ An
increase of 3.3% (8.4% in 2006) for Mr. Maddy to account for
inflation.
Incentive
Compensation
The
second element of the executive compensation program is the Incentive
Compensation Plan. The purpose of the Company’s Incentive
Compensation Plan is to motivate and reward eligible employees for their
contributions to the Company and its bank subsidiary by making a large portion
of their cash compensation variable and dependent upon the Company’s and its
bank subsidiary’s performance.
The
Company annually adopts an Incentive Compensation Plan for the Company and its
bank subsidiary. For 2007, all incentive compensation awarded under
the Incentive Compensation Plan was based on a formula which primarily
considered the return on average equity of the Company and its bank
subsidiary. The Company has selected this performance standard
because it believes it is an important indicator of increased shareholder value.
Any items that qualify as “extraordinary” under generally accepted accounting
principles are not considered when calculating incentive compensation payments
regardless of whether these items have a positive or negative
effect.
The
Company sets a range of goals for return on average equity and also sets the
percentage to which each executive officer is entitled if the specific goals are
met. The percentage to which each named executive officer is entitled
is based on the individual’s contribution to the Company as determined by the
Committee in its judgment based on the recommendation of the Chief Executive
Officer. Among other things, the Committee considers the Company’s
compensation philosophy which focuses on a team based approach and the
individual’s relative contribution to the team.
Summit
does not disclose publicly annual return on average equity goals or individual
performance goals as its business plan is highly
confidential. Disclosing specific objectives would provide
competitors and other third parties with insights into the Company’s strategic
planning process and would therefore cause competitive harm.
With
respect to the targets established under the Incentive Compensation Plans, the
Company believes that it is moderately difficult for the executive and the
Company or its bank subsidiary to achieve the lower target levels and very
difficult for the executive and the Company or its bank subsidiary
to
achieve
the higher target levels. In 2006 and 2007, neither the executive nor
the Company met the higher targets.
Incentive
compensation is paid on a quarterly basis. The Company believes this
structure provides a stronger performance incentive than an annual payment
because the named executive officers are given a “clean slate” each
quarter. We believe this encourages consistent and strong performance
throughout the year.
With
respect to Messrs. Miller and Robertson for 2007, the Company also established
incentive compensation plans which included specific performance goals and
business criteria based on their achievement of the net income budget for
Summit’s subsidiary banks (the “Alternative Incentive
Plan”). However, if the payments due to Messrs. Miller and Robertson
under the Incentive Compensation Plan exceeded those payments due under these
plans, then Messrs. Miller and Robertson were entitled to receive only the
payments under the Incentive Compensation Plan. Under the Alternative
Incentive Plans, targets were established that are difficult to achieve,
although not as difficult as the higher target levels of the Incentive
Compensation Plan. In 2007, the target levels were based on record
earnings. In 2007, Mr. Miller and Mr. Robertson each
participated in the Alternative Incentive Compensation Plans.
Long-Term
Incentive Compensation
The third
element of the executive compensation program is long-term incentive
compensation.
Officer Stock Option
Plan. The main component of the long-term incentive
compensation program is the Officer Stock Option Plan. At our 1998
Annual Meeting of Shareholders, the shareholders approved the Officer Stock
Option Plan. The purpose of the Officer Stock Option Plan is to
reward and retain officers in a manner that best aligns officers’ interests with
stockholders’ interests. Under this plan, the Company may award
options for up to 960,000 shares of the Company’s common stock to qualified
officers of the Company and its subsidiaries. Each option granted
under the Plan must have an exercise price of no less than the fair market value
of Company’s common stock as of the date of grant. Options granted
under the plan vest according to a schedule designated at the grant date. The
Company does not have a program, policy or practice of timing the grant of
options in coordination with the release of material nonpublic
information.
Annual
stock option grants for executive officers are a key element of
market-competitive total compensation. In 2007, the Company did not
approve any annual stock option grants for the executive officers due to the
disappointing performance of the Company’s stock and the failure of the Company
to meet its performance targets. The Officer Stock Option Plan will
expire on May 5, 2008.
Supplemental Executive Retirement
Plan. In an effort to attract, reward, motivate and retain the
most qualified people available, and to provide those people with a complete and
reasonable compensation package, Summit and its affiliate have implemented an
executive retirement plan with an endorsement split dollar life insurance plan
for the benefit of certain executives of the Company. In this
section, Company includes Summit’s bank subsidiary.
The
Supplemental Executive Retirement Plan (SERP) was designed to provide an annual
defined retirement benefit payable for the life of the
executive. These benefits, when added to the retirement benefits that
will be provided by the Company’s 401(k) Profit Sharing Plan, Employee Stock
Ownership Plan, and social security, will provide each executive with benefit
levels comparable to other Company employees when measured as a percentage of
salary at the time of retirement.
The SERP
is designed to be a retention tool but they do take into account the age of the
Named Executive Officers. With respect to the Company’s executive
officers who are not close to retirement age, Messrs. Maddy, Tissue, and Frye,
the SERP vests at a rate of fifty percent in the first ten years, zero percent
in years eleven through nineteen, and in year twenty, the remaining fifty
percent. With respect to Messrs. Miller and Robertson, who are closer
to retirement age, the SERP vests at a rate of zero the first four years, fifty
percent in year five, and ten percent a year for the remaining five
years.
The
Company’s obligations under the retirement benefit portion of this plan are
unfunded; however, the Company has purchased life insurance policies on each
insurable executive that are actuarially designed to offset the annual expenses
associated with the plan and will, given reasonable actuarial assumptions,
offset all of the plan’s costs during the life of the executive and provide a
complete recovery of all plan costs at the executive’s death. The
Company is the sole owner of all policies.
The life
insurance benefit for each insurable officer is being provided by an Endorsement
Split Dollar Plan whereby the Company endorses a specified percentage of the
net-at-risk life insurance portion of a policy (total death benefit less cash
value of policy) on the life of each officer for payment to the designated
beneficiary of that officer. The Company owns the policy and its
entire surrender value.
For each
of the Named Executive Officers (defined as the CEO, the CFO and the three most
highly compensated Executive Officers other than the CEO and CFO), the annual
lifetime benefits payable upon retirement at normal retirement age are as
follows: H. Charles Maddy, III - $175,000; Robert S. Tissue -
$125,000; Ronald F. Miller - $50,000; C. David Robertson - $50,000; and Patrick
N. Frye - $125,000.
Perquisites
Generally,
the Company provides modest perquisites or personal benefits, and only with
respect to benefits or services that are designed to assist a named executive
officer in being productive and focused on his or her duties, and which
management and the Committee believe are reasonable and consistent with the
Company’s overall compensation program. Management and the Committee
periodically review the levels of perquisites or personal benefits provided to
named executive officers.
Plans
Covering All Employees
Employee Stock Ownership
Plan. The Company also maintains an Employee Stock Ownership
Plan (ESOP) which covers substantially all employees. Any employee
who is at least 21 years of age and is credited with at least 1,000 hours of
service during the plan year is eligible to participate. Vesting
occurs at the rate of 0% for the first year of credited service and 20% for each
year thereafter. Under the provisions of the ESOP, employee
participants in the ESOP are not permitted to contribute to the ESOP, rather the
cost of the ESOP is borne by the Company through annual contributions in amounts
determined by the Company’s Board of Directors.
401(k) Profit Sharing
Plan. The Company has a defined contribution profit-sharing
plan with 401(k) provisions covering substantially all employees. Any
employee who is at least 21 years of age, completed one year of service, and is
employed in a position requiring at least 1,000 hours of service per year is
eligible to participate. Vesting of discretionary contributions
occurs at the rate of 0% for the first year of credited service, and 20% per
year thereafter. Under the provisions of the plan, the Company
matches 100% of the participant’s salary reduction contributions, up to 4% of
such participant’s compensation. These matching contributions shall
be fully vested at all times. The Company may also make optional
contributions at the discretion of the Company’s Board of
Directors.
Potential
Payments Upon Termination or Change of Control
The
Company has entered into Employment Agreements with the named Executive Officers
in order to ensure continuity of management of the Company and to retain the
pool of talent the Company has developed in a competitive
marketplace. The Board of Directors determined that such arrangements
were appropriate, especially in view of the entry of large regional bank holding
companies into West Virginia. The Agreements were not undertaken in
the belief that a change of control of the Company was imminent.
Generally,
the Company chose particular events for triggering payments based on the
standard practice in the industry at the time the particular agreement was
negotiated, the overall reasonableness of the expense to the Company associated
with a particular triggering event, and whether the specific provision would
have a material impact on the marketability of the Company should the Board of
Directors believe a sale of the Company were in the best interest of its
shareholders. The following summaries and the tables on page 39 set
forth potential payments to our officers upon termination of employment or
change of control of the Company under their current employment agreements and
our other compensation programs.
Employment
Agreement – Mr. Maddy
On March
4, 2005, the Company entered into an Employment Agreement (the “Employment
Agreement”) and a new Change in Control Agreement (the “Change in Control
Agreement”) with H. Charles Maddy, III, Chief Executive Officer of
Summit. The term of the Employment Agreement is three
years. Under the terms of the Employment Agreement, Summit will
review the Employment Agreement annually and may, with the approval of Mr.
Maddy, extend the term of the Employment Agreement annually for additional one
year periods (so that the actual term of the Employment Agreement will always be
between two and three years). At its meeting on December 14, 2007,
the Compensation and Nominating Committee extended Mr. Maddy’s Employment
Agreement for an additional year until March 4, 2011. Mr. Maddy
approved this extension.
The
Employment Agreement may be terminated based on one of the
following:
• By
mutual agreement of the parties
• Upon
the death of Mr. Maddy
• Upon
the disability of Mr. Maddy
• By
Summit, for cause (as defined in the Employment Agreement)
• Upon
a Change of Control (as provided in the Change in Control
Agreement)
• By
Mr. Maddy, upon material breach by Summit
• By
Mr. Maddy, based on insolvency not attributable to Mr. Maddy
Under the
Employment Agreement, Mr. Maddy is entitled to certain termination
payments. If Mr. Maddy is terminated by mutual agreement, then
he is entitled to receive a termination payment equal to an amount agreed to by
the parties. If Mr. Maddy is terminated for cause based generally on
his gross negligence, then Mr. Maddy will not receive a termination payment. In
this case, Mr. Maddy is entitled to
his Base
Salary in effect for the year in which termination occurs, only for such period
of his active full-time employment to the date of the termination.
If Mr.
Maddy is terminated for cause based on his negligence, malfeasance, or
misfeasance, then Mr. Maddy is entitled to receive his Base Salary without
offset for compensation already paid prior to the effective date of
termination. If Mr. Maddy is terminated for death or disability, Mr.
Maddy is entitled to three times his Base Salary. If Mr. Maddy
terminates his employment based on a material breach by Summit, then Mr. Maddy
is entitled to an amount equal to two times his Base Salary in effect for the
year in which termination occurs without offset for compensation already paid
prior to the effective date of termination. If Mr. Maddy voluntarily
terminates, and there is no material breach by Summit, then Mr. Maddy does
not receive a termination payment. In this case, Mr. Maddy is
entitled to his Base Salary in effect for the year in which termination occurs,
only for such period of his active full-time employment to the date of the
termination.
If Mr.
Maddy’s employment is terminated pursuant to the provisions of the Change in
Control Agreement, then Mr. Maddy would be entitled to the compensation set
forth in the Change in Control Agreement as described below.
Change
In Control Agreement – Mr. Maddy
Under the
Change in Control Agreement, after a Change of Control (as defined below),
Mr. Maddy is required to work for the acquiring company for a period of one
year in order to facilitate management continuity and to promote an orderly
transition of ownership (the “Transition Period”). Upon expiration of
this Transition Period, Mr. Maddy is entitled to receive a payment equal to
three times the greater of (a) his Salary (as defined in the Employment
Agreement) in effect immediately prior to the date of consummation of the Change
of Control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control Agreement. Under the Change in
Control Agreement, Mr. Maddy has the option to terminate within six months
of a Change of Control. In this case, Mr. Maddy would be
entitled to a lump sum payment equal to seventy-five percent (75%) of the
greater of (a) his Salary in effect immediately prior to the date of
consummation of the Change of Control or (b) his Salary in effect on the
date of termination of his employment under the Change in Control
Agreement.
If Mr.
Maddy terminates his employment after the first six months following the Change
of Control, but before completion of the Transition Period, Mr. Maddy is not
entitled to a severance payment under the Change in Control
Agreement.
If Mr.
Maddy terminates for Good Reason (as defined below) or is terminated under
circumstances constituting Wrongful Termination (as defined in the Change in
Control Agreement) during the Transition Period, then Mr. Maddy would be
entitled to a payment equal to three times the greater of (a) his Salary in
effect immediately prior to the date of consummation of a Change of Control or
(b) his Salary in effect on the date of termination of his Employment Agreement
under the Change in Control Agreement. Mr. Maddy is also
entitled to receive payment of cash incentive award, if any, under the Company’s
Annual Incentive Plan and continuing participation in employee benefit plans and
programs such as retirement, disability and medical insurance for a period of
thirty-six (36) months following the date of termination.
If Mr.
Maddy is terminated as a result of disability or death during the Transition
Period, Mr. Maddy would receive a payment equal to three times the greater
of (a) his Salary (as defined in the Agreement) in effect immediately prior to
the date of consummation of the Change of Control or (b) his Salary in effect on
the date of termination of his employment under the Change in Control
Agreement.
Under the
Change in Control Agreement, Mr. Maddy agrees not to engage, directly or
indirectly, in the business of banking in the Restricted Area (as defined in the
Change in Control Agreement) for a period of three years after expiration of the
Transition Period. If Mr. Maddy’s employment with Summit is
terminated for any reason other than Mr. Maddy’s disability, retirement,
Good Reason, or termination at Mr. Maddy’s option, Mr. Maddy agrees that for a
period of one year, he will not, directly or indirectly, engage in the business
of banking in the Restricted Area.
Under the
Change in Control Agreement, a “Change of Control” is deemed to occur in the
event of:
• a
change of ownership of the Company which must be reported to the Securities and
Exchange Commission as a change of control, including but not limited to the
acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities and Exchange Act of 1934 (the “Exchange Act”)) of direct or
indirect “beneficial ownership” (as defined by Rule 13d-3 under the Exchange
Act) of twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities, or
• the
failure, during any period of three (3) consecutive years, of individuals who at
the beginning of such period constitute the Board, for any reason to constitute
at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (⅔) of the directors at the beginning
of the period, or
• the
consummation of a “Business Combination” as defined in the Company’s Articles of
Incorporation.
Under the
Change in Control Agreement, Mr. Maddy may voluntarily terminate his employment
for Good Reason which arises if one of the following occurs:
• a
decrease in the total amount of the executive’s base salary below the level in
effect on the date of consummation of the change of control, without the
executive’s consent;
• a
material reduction in the importance of the executive’s job responsibilities
without his consent;
• geographical
relocation of the executive without his consent, to an office more than twenty
(20) miles from his location at the time of a change of control;
• failure
by the Company to obtain assumption of the contract by its
successor;
• failure
of the Company to give notice of termination as required in the Agreement;
or
• any
removal of the executive from, or failure to reelect the executive to, any
position with the Company or Bank that he held immediately prior to the change
of control without his prior written consent (except for good cause, death,
disability or retirement).
The table
on page 39 summarizes the estimated payments to be made to Mr. Maddy under the
Employment Agreement and the Change in Control Agreement following or in
connection with any termination of employment or a “Change of Control” of the
Company.
Employment
Agreements - Messrs. Miller and Robertson
On August
1, 1998, the Company entered into an Employment Agreement with Ronald
Miller. The Employment Agreement was subsequently amended on July 1,
2000. On July 6, 2004, the Company entered into an Amended and
Restated Employment Agreement with C. David Robertson. The Amended
and Restated Employment Agreement supersedes the Employment Agreement with Mr.
Robertson dated February 5, 1999, as amended on December 12,
2000. The Employment Agreement with Mr. Miller and the Amended and
Restated Employment Agreement with Mr. Robertson are each referred to as the
“Employment Agreement”.
Messrs.
Miller and Robertson are entitled to certain termination payments under the
Employment Agreements. If Messrs. Miller or Robertson are terminated
not for Cause (as defined by the Employment Agreement), then the terminated
executive officer is entitled to a payment from the Company equal to the base
salary compensation set forth in the Employment Agreement for the remaining term
of the Employment Agreement or severance pay equal to six (6) months of the
executive’s then current annual base salary, whichever is greater.
Messrs.
Miller and Robertson have change of control provisions included in their
Employment Agreements. Generally, the Employment Agreements provide
severance compensation to Messrs. Miller and Robertson, if their employment
should end under certain specified conditions after a change of
control. Compensation is paid upon an involuntary termination
following a change of control unless the executive is terminated for
cause. In addition, compensation will be paid after a change of
control if either of these persons voluntarily terminates employment because
of:
• a
decrease in the total amount of the executive’s base salary below the level in
effect on the date of consummation of the change of control, without the
executive’s consent;
• a
material reduction in the importance of the executive’s job responsibilities
without his consent;
• geographical
relocation of the executive without his consent, to an office more than twenty
(20) miles from his location at the time of a change of control;
• failure
by the Company to obtain assumption of the contract by its
successor;
• failure
of the Company to give notice of termination as required in the Agreement;
or
• any
removal of the executive from, or failure to reelect the executive to, any
position with the Company or Bank that he held immediately prior to the change
of control without his prior written consent (except for good cause, death,
disability or retirement).
Under the
Employment Agreements, a “Change of Control” is deemed to occur in the event
of:
• a
change of ownership of the Company which must be reported to the Securities and
Exchange Commission as a change of control, including but not limited to the
acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities and Exchange Act of 1934 (the “Exchange Act”)) of direct or
indirect “beneficial ownership” (as defined by Rule 13d-3 under the Exchange
Act) of twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities, or
• the
failure, during any period of three (3) consecutive years, of individuals who at
the beginning of such period constitute the Board, for any reason to constitute
at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (⅔) of the directors at the beginning
of the period, or
• the
consummation of a “Business Combination” as defined in the Company’s Articles of
Incorporation.
Messrs.
Miller and Robertson severance benefits include:
• cash
payment equal to their monthly base salary in effect on either (i) the date of
termination; or (ii) the date immediately preceding the change of
control, whichever is higher, multiplied by the number of full months between
the date of termination and the date that is eighteen (18) months after the date
of consummation of the change of control; and
• payment
of cash incentive award, if any, under the Company’s Incentive
Plans; continuing participation in employee benefit plans and
programs such as retirement, disability and medical insurance for a period of
eighteen (18) months following the date of termination.
The
Employment Agreements do not effect the right of the Company to terminate
Messrs. Miller or Robertson or change their salary or benefits with or without
good cause, prior to any change of control. However, any termination
or change which takes place after discussions have commenced which result in a
change of control will be presumed to be a violation of the Employment
Agreements and will entitle the executive to the benefits under the Employment
Agreements, absent clear and convincing evidence to the contrary.
The table
on page 39 summarizes the estimated payments to be made to Messrs. Miller and
Robertson under their Employment Agreements following or in connection with any
termination of employment or a “Change of Control” of the Company.
Employment
Agreements - Messrs. Frye and Tissue
On
January 3, 2006, the Company entered into Employment Agreements with Patrick N.
Frye and Robert S. Tissue. Mr. Frye is the Chief Credit Officer of
the Company and Mr. Tissue is the Chief Financial Officer of the
Company. Mr. Frye’s Employment Agreement supersedes his Employment
Agreement dated as of April 1, 1999, as amended. The Employment
Agreements are substantially identical in all material respects.
The
Employment Agreements may be terminated based on one of the
following:
• Termination
for Good Cause (as defined by the Employment Agreement)
• Termination
Not for Good Cause (as defined by the Employment Agreement)
• Termination
upon a Change of Control (as defined by the Employment Agreement).
Under the
Employment Agreements, a “Change of Control” is deemed to occur in the event
of:
• a
change of ownership of the Company that would have to be reported to the
Securities and Exchange Commission as a change of control, including but not
limited to the acquisition by any
“person”
and/or entity as defined by securities regulations and law (other than the
Company or any Company employee benefit plan), of direct or indirect “beneficial
ownership,” as defined by securities regulations and law, of twenty-five percent
(25%) or more of the combined voting power of the Company’s then outstanding
securities;
• the
failure, during any period of three (3) consecutive years, of individuals who at
the beginning of such period constitute the Board of Directors of the Company,
for any reason to constitute at least a majority thereof, unless the election of
each director who was not a director at the beginning of such period has been
approved by at least two-thirds (2/3) of the directors at the beginning of the
period; or
• the
consummation of a “Business Combination” as defined in the Company’s Articles of
Incorporation.
Corporate
restructuring of the Company and/or its affiliates will not be construed as a
“Change of Control” absent one or more of the conditions set forth
above.
Messrs.
Frye and Tissue are required to perform all of the duties and responsibilities
that may be assigned to each of them from time to time by the Chief Executive
Officer and/or the Board of Directors of the Company. Any material changes to
Messrs. Frye’s, and Tissue’s duties or obligations must have been determined by
the Board of Directors and/or the Chief Executive Officer, in their reasonable
discretion, to be commensurate with duties and obligations that might be
assigned to other similarly-situated executive officers of the
Company. No later than five (5) days after the Company materially
changes Messrs. Frye’s and Tissue’s duties or obligations, Messrs. Frye and
Tissue must give the Company written notice if he believes a breach of this
provision has occurred, and the Company has a reasonable opportunity to cure the
cause of the possible breach. Failure by Messrs. Frye and Tissue to
give the required notice constitutes a waiver of his rights to claim a breach of
this provision arising from the specific duties or obligations then at issue. If
it is determined through arbitration that the Company breached this provision,
then any damages received by Messrs. Frye and Tissue are limited to the amount
Messrs. Frye and Tissue would be entitled to had he been terminated not for Good
Cause (as defined in the Employment Agreement).
Messrs.
Frye and Tissue are entitled to certain termination payments under the
Employment Agreements. If Messrs. Frye or Tissue are terminated not
for Good Cause (as defined by the Employment Agreement), then the terminated
executive officer is entitled to a payment from the Company equal to the base
salary compensation set forth in the Employment Agreement for the remaining term
of the Employment Agreement or severance pay equal to 100% of his then current
annual base salary, whichever is greater.
If
Messrs. Frye’s or Tissue’s employment is terminated upon a Change of Control,
then the terminated executive officer would be entitled to compensation under
certain circumstances. If Messrs. Frye or Tissue terminates for
Good Reason (as defined in the Employment Agreement) or are terminated under
circumstances constituting Wrongful Termination (as defined in the Employment
Agreement), then the terminated executive officer would be entitled to a payment
equal to his Salary (as defined in the Employment Agreement) multiplied by the
number of months between the effective date of termination and the date that is
twenty four (24) months after the date of consummation of Change of Control,
provided in no event shall the executive officer receive a lump sum payment that
is less than 100% of his Salary.
Under the
Change of Control provisions, Messrs. Frye and Tissue have the option to
terminate within six months of a Change of Control in the Employment
Agreement. In this case, the executive officer would be entitled to a
lump sum payment equal to seventy-five percent (75%) of his Salary in
effect
immediately
prior to the date of consummation of the Change of Control (as defined in the
Employment Agreement).
The table
on page 39 summarizes the estimated payments to be made to Messrs. Frye and
Tissue under their Employment Agreements following or in connection with any
termination of employment or a “Change of Control” of the Company.
Compensation
of Named Executive Officers
In
applying our compensation principles and philosophy, the Company analyzed the
compensation arrangements of its named executives, and believes that the total
compensation paid to its executive officers is appropriate and
reasonable.
We
believe our compensation decisions are in the best interests of our Company and
our shareholders for many reasons including:
• We
have a strong management team with a proven record of
performance. The Company has shown strong earnings and asset growth
in recent years.
• We
have a reasonably young, yet experienced group of executives who we believe will
provide the strong management necessary to maximize shareholder
return.
• We
believe that our incentive compensation plans effectively promote the Company’s
philosophy of pay for performance.
We will
continue to monitor our compensation arrangements to ensure that executive pay
directly correlates with the performance of the Company. The Company
is committed to the retention of strong management and will continue to focus
heavily on its compensation philosophy and principles as it evaluates the total
compensation of its executive officers.
____________________________________________________________________________________
EXECUTIVE
COMPENSATION
____________________________________________________________________________________
Summary
Compensation Table
The table
below sets forth the compensation of the Company’s Chief Executive Officer and
Chief Financial Officer and the three most highly compensated executive officers
other than the Chief Executive Officer and Chief Financial Officer who earned
$100,000 or more in salary and bonus for the year ended December 31,
2007.
Name
and Principal Position
|
Year
|
Salary
|
Bonus(1)
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan Compensation(2)
|
Non-qualified
Deferred Compen-sation Earnings(3)
|
All
Other Compensation(4)
|
Total
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
H.
Charles Maddy, III, President and Chief Executive Officer – Summit
Financial Group
|
2007
2006
|
$387,500
$375,000
|
-
|
-
|
-
|
$
91,822
$
58,786
|
$
19,962
$
15,646
|
$
44,292
$
42,500
|
$543,576
$491,932
|
Robert
S. Tissue
Senior
Vice President and Chief Financial Officer – Summit Financial
Group
|
2007
2006
|
$166,000
$155,000
|
-
|
-
|
-
|
$
62,439
$34,836
|
$
6,563
$
4,840
|
$
17,983
$
17,050
|
$252,985
$211,726
|
Patrick
N. Frye
Senior
Vice President and Chief Credit Officer – Summit Financial
Group
|
2007
2006
|
$166,000
$160,000
|
-
|
-
|
-
|
$
62,439
$
34,836
|
$
9,660
$
7,444
|
$
28,135
$
28,850
|
$266,234
$231,130
|
C.
David Robertson Co-Chairman of the Board of Directors –Summit Community
Bank
|
2007
2006
|
$183,900
$177,000
|
-
|
-
|
-
|
$105,847
$
75,000
|
$
54,663
$
41,878
|
$
37,005
$
37,401
|
$381,415
$331,279
|
Ronald
F. Miller
President
and Chief Executive Officer – Summit Community Bank
|
2007
2006
|
$183,900
$177,000
|
-
|
-
|
-
|
$105,847
$134,147
|
$
53,449
$
41,187
|
$
30,479
$
30,720
|
$373,675
$383,054
|
(1)
|
Bonuses
for prior years were previously reported in this column. Under
current reporting rules, however, only purely discretionary or guaranteed
bonuses are disclosed in this column. We award bonuses solely
based on our achievement of certain performance
targets. Accordingly, bonus amounts are reported in the
Non-Equity Incentive Plan Compensation
column.
|
(2)
|
The
amounts in this column relate to awards granted under the Company’s
Incentive Compensation Plans. The plans and awards are
discussed in the Compensation Discussion and Analysis section and in the
footnotes to the table on page 32 of this proxy statement entitled
Grants of Plan-Based Awards. The amounts awarded for 2007
reflect that incentive compensation was only paid for the first three
quarters of 2007 and no awards were made for the last quarter of
2007.
|
(3)
|
The
amounts in this column represent the increase in the actuarial net present
value of all future retirement benefits under the Supplemental Executive
Retirement Plan. The net present value of the retirement
benefits used to calculate the net change in benefits were determined
using the same assumptions used to determine our retirement obligations
and expense for financial statement purposes. Additional
information about our Supplemental Executive Retirement Plan is included
under the heading “Pension Benefits.” We have not provided
above-market or preferential earnings on any nonqualified deferred
compensation and, accordingly, no such amounts are reflected
above.
|
(4)
|
This
amount includes payments made to the Company’s 401(k) Profit Sharing Plan
and ESOP on behalf of Mr. Maddy ($28,667), Mr. Tissue ($17,983),
Mr. Frye ($18,260), Mr. Robertson ($20,251), and Mr. Miller
($20,229). The amount also includes fees paid to Mr. Maddy
($15,625), Mr. Frye ($9,875), Mr. Robertson ($6,000), and Mr. Miller
($10,250) as members of the Company’s and its subsidiary banks’ Boards of
Directors. This amount also includes perquisites and personal
benefits of $10,754 for Mr. Robertson, which includes the fair lease value
of personal use of company provided automobile, country club membership
dues, premium value of SERP split dollar life insurance, and personal
executive and spousal expenses while accompanying executive on business
travel. No other executives received perquisites in excess of
$10,000.
|
Total
cash compensation, as measured by salary and non-equity incentive plan
compensation, is based on the Company’s performance as well as employee
performance and certain other factors as described in the section entitled
“Compensation Discussion and Analysis.” For the named executive
officers, total cash compensation as a percentage of total compensation is as
follows: Mr. Maddy – 88.18%; Mr. Tissue – 90.30%, Mr. Frye – 85.80%,
Mr. Robertson - 75.97%; and Mr. Miller – 77.54%. The percentage of
total cash compensation to total compensation for the named executive officers
reflects the emphasis that is placed on cash compensation.
A
description of the employment agreements with the named Executive Officers is
set forth in the Section entitled “Compensation Discussion and
Analysis.”
Grants
of Plan-Based Awards
Name
|
Grant
Date(1)
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards (2)
|
Estimated
Future Payouts Under Equity Incentive Plan Awards
|
All
Other Option Awards: Number of Shares of Stock or Units
(#)
|
All
Other Option Awards: Number of Securities Under-lying Options
(#)
|
Exercise
or Base Price of Option Awards (S/Sh)
|
Grant
Date
Fair
Value
of
Stock and Option Awards
|
Threshold
($)(3)
|
Target
($)(4)
|
Maximum
($)(5)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
(k)
|
(l)
|
H.
Charles Maddy, III
|
12/14/06
|
$97,000
|
$143,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Robert
S. Tissue
|
12/14/06
|
$66,000
|
$98,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Patrick
N. Frye
|
12/14/06
|
$66,000
|
$98,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
C.
David Robertson(6)
|
12/14/06
|
$34,000
|
$34,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Ronald
F. Miller(6)
|
12/14/06
|
$12,000
|
0(6)
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1) The
Company annually adopts an Incentive Compensation Plan for the Company and the
subsidiary banks (at the time of the adoption of the plans in 2006, the Company
owned two subsidiary banks, Summit Community Bank and Shenandoah Valley National
Bank) and Alternative Incentive Plans for the subsidiary banks. On
December 14, 2006, the Company adopted the plans for 2007 and set the goals
that will need to be achieved in order for the Company's named executive
officers to be eligible for incentive compensation for 2007.
(2) For
2007, all bonuses under the Incentive Compensation Plans were based on a formula
which primarily considered the return on average equity of the Company for each
quarter. In estimating the future payouts under the Incentive
Compensation Plan for purposes of the disclosures in the above table, the
Company assumed that the average equity (used in the calculation for determining
return on average equity of the Company ) for 2007 equals equity at December 31,
2006. With respect to the targets established under the Incentive
Compensation Plan applicable to each named executive officer except Mr. Miller
and Mr. Robertson, the Company believes that it is moderately difficult for the
executive and the Company to achieve the lower target levels and very difficult
for the executive and the Company to achieve the higher target
levels.
(3) The
amounts in the column labeled “threshold” are calculated using the minimum
return on equity for the Company that must be reached in order for each named
executive officer to receive compensation under the applicable
plan. The amounts in the column assume that the minimum return on
average equity is satisfied for each of the four quarters in the
year. Because the incentive compensation is paid on a quarterly basis
based on the return on average equity of the Company for each quarter, if the
Company does not meet the minimum return on average equity for any quarter, then
the threshold amount of incentive compensation will be less than the amount
disclosed in the column.
(4) The
amounts in the column labeled “target” are calculated using the budgeted return
on equity for the Company, as applicable to each named executive
officer.
(5) The
Incentive Compensation Plans have no proscribed maximum. After the
Company reaches a minimum return on equity, the annual incentive payment to each
named executive officer is based on a percentage of earnings over a certain
amount.
(6) With
respect to Messrs. Miller and Robertson, the Company has also established
incentive compensation plans which include specific performance goals and
business criteria based on their achievement of the net
income
budgets for the subsidiary banks (the “Alternative Incentive
Plans”). Under the Alternative Incentive Plans, targets are
established that are difficult to achieve. The estimated future
payouts to Messrs. Miller and Robertson under the Alternative Incentive Plans
are as follows:
Name
(a)
|
Grant
Date
(b)
|
Estimated Future Payouts Under Alternative Incentive Plans
|
Threshold
($)
(c)
|
Target
($)
(d)
|
Maximum
($)
(e)
|
C.
David Robertson
|
12/14/06
|
$75,000
|
$75,000
|
$250,000
|
Ronald
F. Miller
|
12/14/06
|
$75,000
|
$75,000
|
$250,000
|
In the Proxy
Statement for the 2007 Annual Meeting, the Company disclosed the estimated
future payouts under the Incentive Compensation Plans if the Company’s or the
subsidiary banks’ goals under the Incentive Compensation Plans were attained in
2007 in the Grants of Plan-Based Awards table. Under the new proxy
statement disclosure rules, the Company should have disclosed the goals and
estimated future payouts in 2006 in the Grants of Plan-Based Awards table
instead of the estimated future payouts for 2007. This has been
corrected in this Proxy Statement. This Proxy Statement contains the
possible amounts that the named executive officers could have received under the
Incentive Compensation Plans in 2007. Please refer to the column
labeled “Non-Equity Incentive Plan Compensation” in the Summary Compensation
table to see the actual amount that each named executive officer received under
the Incentive Compensation Plans.
Outstanding
Equity Awards at December 31, 2007
The
following table shows outstanding stock option awards classified as exercisable
and unexercisable held as of December 31, 2007, by the Company’s named executive
officers.
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price
|
Option
Expiration Date
|
Number
of Shares Or Units of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned
Shares, Units or Other Rights That Have Not Vested
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(I)
|
(j)
|
H.
Charles Maddy, III
|
4,800
4,800
4,800
1,600
1,600
1,600
1,600
1,200
1,200
1,200
1,200
1,200
1,400
1,400
1,400
1,400
1,400
2,400
2,400
2,400
2,400
-
2,400
2,400
2,400
2,400
2,400
15,000
|
2,400
|
|
$ 5.21
$ 5.21
$ 5.21
$ 4.63
$ 4.63
$ 4.63
$ 4.63
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2011
02/26/2012
02/26/2013
02/26/2011
02/26/2012
02/26/2013
02/26/2014
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
Robert
S. Tissue
|
4,800
4,800
4,800
800
800
800
800
800
800
800
800
800
880
880
880
880
880
1,400
1,400
1,400
1,400
-
1,600
1,600
1,600
1,600
1,600
10,000
|
1,400
|
|
$ 5.21
$ 5.21
$ 5.21
$ 4.63
$ 4.63
$ 4.63
$ 4.63
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2011
02/26/2012
02/26/2013
02/26/2011
02/26/2012
02/26/2013
02/26/2014
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price
|
Option
Expiration Date
|
Number
of Shares Or Units of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned
Shares, Units or Other Rights That Have Not Vested
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(I)
|
(j)
|
Patrick
N. Frye
|
880
880
880
880
880
1,200
1,200
1,200
1,200
-
1,600
1,600
1,600
1,600
1,600
10,000
|
1,200
|
|
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
C.
David Robertson
|
880
1,200
1,200
1,200
1,200
-
1,200
1,200
1,200
1,200
1,200
6,000
|
1,200
|
|
$ 9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price
|
Option
Expiration Date
|
Number
of Shares Or Units of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned
Shares, Units or Other Rights That Have Not Vested
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(I)
|
(j)
|
Ronald
F. Miller
|
1,600
1,600
1,600
1,600
1,600
800
800
800
800
800
880
880
880
880
880
1,200
1,200
1,200
1,200
-
1,200
1,200
1,200
1,200
1,200
6,000
|
1,200
|
|
$ 5.21
$ 5.21
$ 5.21
$ 5.21
$ 5.21
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 5.95
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$ 9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2009
02/26/2010
02/26/2011
02/26/2012
02/26/2013
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
The vesting date of each option is
listed in the table below by expiration date:
Expiration
Date
|
Vesting
Date
|
12/12/2018
|
12/12/2008
|
Options
Exercises and Stock Vested During 2007
The
following table summarizes information with respect to stock option awards
exercised during 2007 for each of the named executive officers.
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
|
|
Value
Realized
on
Exercise
($)(1)
|
|
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
|
|
Value
Realized
on
Vesting
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
H.
Charles Maddy, III
|
|
|
3,200 |
|
|
$ |
32,928 |
|
|
|
- |
|
|
|
- |
|
Robert
S. Tissue
|
|
|
4,400 |
|
|
$ |
41,340 |
|
|
|
- |
|
|
|
- |
|
Patrick
N. Frye
|
|
|
3,200 |
|
|
$ |
26,964 |
|
|
|
- |
|
|
|
- |
|
C.
David Robertson
|
|
|
-
|
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
Ronald
F. Miller
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
(1)
|
Value
determined by subtracting the exercise price per share from the market
value per share of our common stock on the date of
exercise.
|
Pension
Benefits
The
following table discloses the years of credited service of, present single-sum
value of the accrued benefits for, and payments during the last fiscal year to
the named executive officers under the Company’s Supplemental Executive
Retirement Plan (the “SERP”).
Name
|
Plan
Name
|
|
Number
of Years
Credited
Service
(#)
|
|
|
Present
Value
of Accumulated Benefit
($)
|
|
|
Payments
During
Last
Fiscal Year
($)
|
|
(a)
|
(b)
|
|
(c)(1)
|
|
|
(d)(2)
|
|
|
(e)
|
|
H.
Charles Maddy, III
|
SERP
|
|
|
8 |
|
|
$ |
172,000 |
|
|
|
- |
|
Robert
S. Tissue
|
SERP
|
|
|
5 |
|
|
$ |
73,000 |
|
|
|
- |
|
Patrick
N. Frye
|
SERP
|
|
|
5 |
|
|
$ |
119,000 |
|
|
|
- |
|
C.
David Robertson
|
SERP
|
|
|
7 |
|
|
$ |
247,000 |
|
|
|
- |
|
Ronald
F. Miller
|
SERP
|
|
|
7 |
|
|
$ |
249,000 |
|
|
|
- |
|
(1) The
years of credited service under the Company’s Supplemental Executive Retirement
Plan begin on the effective date of the individual agreement with each named
executive officer. Each individual agreement was executed after the
date of each named executive officer’s initial employment.
(2) The
material assumptions applied in quantifying the present value of the current
accrued benefits include the use of a 7% discount rate and an age of death of 85
using the 2000 U.S. Life Mortality Table.
The
Company and its affiliates have implemented the Supplemental Executive
Retirement Plan with an endorsement split dollar life insurance plan for the
benefit of certain executives of the Company and its affiliates. The
Supplemental Executive Retirement Plan (the “SERP”) is designed to provide an
annual defined retirement benefit payable for the life of the
executive. These benefits, when added to the retirement benefits that
will be provided by the Company’s 401(k) Profit Sharing Plan, Employee Stock
Ownership Plan, and social security, will provide each executive with benefit
levels comparable to other Company employees when measured as a percentage of
salary at the time of retirement.
The
Company’s obligations under the retirement benefit portion of this plan are
unfunded; however, the Company has purchased life insurance policies on each
insurable executive that are actuarially designed to offset the annual expenses
associated with the plan and will, given reasonable actuarial assumptions,
offset all of the plan’s costs during the life of the executive and provide a
complete recovery of all plan costs at the executive’s death. The
Company is the sole owner of all policies.
The life
insurance benefit for each insurable officer is being provided by an Endorsement
Split Dollar Plan whereby the Company endorses a specified percentage of the
net-at-risk life insurance portion of a policy (total death benefit less cash
value of policy) on the life of each officer for payment to the designated
beneficiary of that officer. The Company owns the policy and its
entire surrender value.
For each
of the named executive officers, the annual lifetime benefits payable upon
retirement at normal retirement age are as follows: H. Charles Maddy,
III - $175,000; Robert S. Tissue - $125,000 Patrick N. Frye - $125,000; C. David
Robertson - $50,000; and. Ronald F. Miller - $50,000.
Estimated
Payments Upon Termination
The following tables summarize
potential estimated payments to our Named Executive Officers under existing
Summit contracts, agreements, plans or arrangements for various scenarios
involving termination of employment due to: voluntary resignation,
termination for good cause, termination without good cause, death, disability,
or change in control of the Company. The below information is as of
December 31, 2007, and does not include benefits other Company employees would
typically receive in the event of similar circumstances.
|
|
Estimated
Payments upon Termination Due to:
|
|
Name
|
|
Voluntary
Resignation (1)
|
|
|
Termination
for Good Cause (2)
|
|
|
Termination
Not For Good Cause (3)
|
|
|
Death
(4)
|
|
|
Disability
(5)
|
|
|
Change
in Company Control (6)
|
|
H.
Charles Maddy, III
|
|
$ |
168,000 |
|
|
$ |
- |
|
|
$ |
943,000 |
|
|
$ |
2,405,000 |
|
|
$ |
1,331,000 |
|
|
$ |
1,858,000 |
|
Robert
S. Tissue
|
|
$ |
62,000 |
|
|
$ |
- |
|
|
$ |
262,000 |
|
|
$ |
1,067,000 |
|
|
$ |
62,000 |
|
|
$ |
821,000 |
|
Patrick
N. Frye
|
|
$ |
85,000 |
|
|
$ |
- |
|
|
$ |
287,000 |
|
|
$ |
1,210,000 |
|
|
$ |
85,000 |
|
|
$ |
930,000 |
|
C.
David Robertson
|
|
$ |
267,000 |
|
|
$ |
- |
|
|
$ |
543,000 |
|
|
$ |
632,000 |
|
|
$ |
267,000 |
|
|
$ |
528,000 |
|
Ronald
F. Miller
|
|
$ |
267,000 |
|
|
$ |
- |
|
|
$ |
543,000 |
|
|
$ |
684,000 |
|
|
$ |
267,000 |
|
|
$ |
726,000 |
|
TABLE
(1)
|
Amounts
payable upon voluntary resignation consist of lump sum payment equal to
the current present value of the vested SERP benefit for each applicable
NEO.
|
(2)
|
With
respect to Mr. Maddy, above illustration of termination for good cause
assumes an act of “gross negligence”. In the event of an act of
“simple negligence”, Mr. Maddy would receive 1 times his
current annual base salary
($387,500).
|
(3)
|
In
the event of termination not for good cause, each NEO receives a lump sum
payment equal to the current present value of their respective vested SERP
benefit. In addition, Mr. Maddy would receive a payment equal
to 2 times his current base salary. Mr. Tissue and Mr. Frye
would receive a payment equal to the greater of one year’s base salary or
the total base salary for the remainder of their respective employment
agreements. Mr. Robertson and Mr. Miller would receive a
payment equal to the greater of 6 month’s of their base salary or the
total base salary for the remainder of their respective employment
agreements. Mr. Tissue and Mr. Frye also receive their Company
automobile. Conditions and obligations to the receipt of
payments not for good cause are described in the Compensation Discussion
and Analysis, which begins on page
18.
|
(4)
|
Upon
death, each NEO’s designated beneficiary would receive the NEO’s
respective SERP split dollar life insurance death benefit and a lump sum
payment equal to the current present value of their vested SERP
benefit. In addition, Mr. Maddy’s designated beneficiary
would receive 3 times his current annual base salary and his family would
receive continuation of their health insurance coverage benefits on the
same terms as they previously received for 1
year.
|
(5)
|
With
respect to termination payments made in the event of disability, Mr. Maddy
would receive 3 times his current annual base salary plus a lump sum
payment equal to the current present value of his vested SERP
benefit. Conditions and obligations to the receipt of this
payment are described in the Compensation Discussion and Analysis,
Employment Agreement – Mr. Maddy on page 23. The other NEO’s
would receive a lump sum payment equal to the current present value of
their respective vested SERP
benefit.
|
(6)
|
Illustration
of payments in the event of termination due to a change in Company control
assumes a scenario whereby the maximum estimated potential payments with
respect to each NEO are payable. Such payments would consist
of:
|
|
|
Estimated
Payments upon Termination in Event of a Change in Company
Control
|
|
Name
|
|
Severance
|
|
|
Value
of Accelerated Vesting of Stock Options
|
|
|
Present
Value of Accelerated SERP Benefits
|
|
|
Continuation
of Health Insurance Benefits (a)
|
|
|
Value
of Company Automobile
|
|
|
Estimated
Tax Gross Up (b)
|
|
|
Total
|
|
H.
Charles Maddy, III (c)
|
|
$ |
1,163,000 |
|
|
$ |
11,000 |
|
|
$ |
253,000 |
|
|
$ |
29,000 |
|
|
$ |
- |
|
|
$ |
403,000 |
|
|
$ |
1,859,000 |
|
Robert
S. Tissue (d)
|
|
$ |
418,000 |
|
|
$ |
7,000 |
|
|
$ |
187,000 |
|
|
$ |
14,000 |
|
|
$ |
34,000 |
|
|
$ |
162,000 |
|
|
$ |
822,000 |
|
Patrick
N. Frye (d)
|
|
$ |
423,000 |
|
|
$ |
7,000 |
|
|
$ |
253,000 |
|
|
$ |
14,000 |
|
|
$ |
36,000 |
|
|
$ |
197,000 |
|
|
$ |
930,000 |
|
C.
David Robertson (e)
|
|
$ |
406,000 |
|
|
$ |
7,000 |
|
|
$ |
114,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
527,000 |
|
Ronald
F. Miller (e)
|
|
$ |
451,000 |
|
|
$ |
7,000 |
|
|
$ |
114,000 |
|
|
$ |
10,000 |
|
|
$ |
- |
|
|
$ |
145,000 |
|
|
$ |
727,000 |
|
|
(a)
|
In
the event of termination in the event of a change in Company control, each
NEO would receive continuation of their health insurance coverage benefits
on the same terms as they previously received for the following
terms: Mr. Maddy – 3 years; Mr. Tissue and Mr. Frye
-- 2 years; and, Mr. Robertson and Mr. Miller – 18
months.
|
(b)
|
The
estimated tax gross up is based on the 20% excise tax, grossed up for
taxes, on the amount of severance and other benefits above each NEO’s
average five-year W-2 earnings multiplied by
2.99.
|
|
(c)
|
There
are five (5) scenarios under which Mr. Maddy may be terminated and paid
severance under his Change of Control Agreement. The amount
disclosed in the severance column in the above table represents the amount
of severance under scenarios one, four and five described
below. The five scenarios are as
follows:
|
• Under
the first scenario, if Mr. Maddy works for the acquiring company for a
period of one year (the “Transition Period”), then upon expiration of the
Transition Period, he is entitled to receive a payment equal to three times the
greater of (a) his Salary (as defined in the Agreement) in effect immediately
prior to the date of consummation of the change of control or (b) his Salary in
effect on the date of termination of his employment under the Change in Control
Agreement.
• Under
the second scenario, if Mr. Maddy terminates his employment within six months of
a change of control, then he is entitled to a lump sum payment equal to
seventy-five percent (75%) of the greater of (a) his Salary in effect
immediately prior to the date of consummation of the change of control or (b)
his Salary in effect on the date of termination of his employment under the
Change in Control Agreement. The amount of severance under this
scenario is $291,000.
• Under
the third scenario, if Mr. Maddy terminates his employment after the first six
months following the change of control, but before completion of the Transition
Period, then he is not entitled to a severance payment under the Change in
Control Agreement.
• Under
the fourth scenario, if Mr. Maddy terminates for Good Reason (as defined in the
Compensation Discussion and Analysis, which begins on page 18) or is terminated
under circumstances constituting wrongful termination, then he is entitled to a
payment equal to three times the greater of (a) his Salary in effect immediately
prior to the date of consummation of a change of control or (b) his Salary in
effect on the date of termination of his employment under the Change in Control
Agreement.
• Under
the fifth scenario, if Mr. Maddy is terminated as a result of disability or
death, Mr. Maddy is entitled to a payment equal to three times the greater of
(a) his Salary in effect immediately prior to the date of consummation of a
change of control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control Agreement.
(d)
|
There
are two (2) scenarios under which Messrs. Tissue and Frye may be
terminated and paid severance under the change of control provisions in
each of their Employment Agreements. The two scenarios are as
follows:
|
• If
Messrs. Frye or Tissue are terminated for Good Reason (as defined in the
Employment Agreement) or are terminated under circumstances constituting
Wrongful Termination (as defined in the Employment Agreement), then the
terminated executive officer is entitled to a payment equal to his Salary (as
defined in the Employment Agreement) multiplied by the number of months between
the effective date of termination and the date that is twenty four (24) months
after the date of consummation of change of control, provided in no event shall
the executive officer receive a lump sum payment that is less than 100% of his
Salary. The amount in the severance column in the above table
represents the severance amount under this scenario.
• If
Messrs. Frye and Tissue terminate within six months of a change of control, the
terminated executive officer is entitled to a lump sum payment equal to
seventy-five percent (75%) of his Salary in effect immediately prior to the date
of consummation of the Change of Control (as defined in the Employment
Agreement). The amount of severance under this scenario is
$157,000 for Mr. Tissue and $159,000 for Mr. Frye.
|
(e)
|
If
Messrs. Robertson and Miller employment are involuntarily terminated or
they voluntarily terminate their employment for the reasons described in
the Compensation Discussion and Analysis, which begins on page 18, then
they are entitled to severance equal to their monthly base salary in
effect on either (i) the date of termination; or (ii) the date
immediately preceding the change of control, whichever is higher,
multiplied by the number of full months between the date of termination
and the date that is eighteen (18) months after the date of consummation
of the change of control.
|
Director
Compensation 2007
Name
|
|
Fees
Earned or
Paid
in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)(3)
|
|
|
(g)(4)
|
|
|
(h)
|
|
Frank
A. Baer, III
|
|
$ |
10,275 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
10,275 |
|
Oscar
M. Bean
|
|
$ |
31,910 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
31,910 |
|
Dewey
F. Bensenhaver
|
|
$ |
10,750 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
10,750 |
|
James
M. Cookman
|
|
$ |
9,125 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
9,125 |
|
John
W. Crites
|
|
$ |
16,670 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
16,670 |
|
James
P. Geary(2)
|
|
$ |
2,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
2,600 |
|
James
P. Geary, II
|
|
$ |
6,200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
6,200 |
|
Thomas
J. Hawse, III
|
|
$ |
15,800 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
15,800 |
|
Phoebe
F. Heishman
|
|
$ |
11,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
11,600 |
|
Gary
L. Hinkle
|
|
$ |
17,400 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
17,400 |
|
Gerald
W. Huffman
|
|
$ |
14,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
14,625 |
|
Duke
A. McDaniel
|
|
$ |
11,350 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
11,350 |
|
G.
R. Ours, Jr.
|
|
$ |
11,975 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
11,975 |
|
Charles
S. Piccirillo
|
|
$ |
15,150 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
15,150 |
|
(1)
|
Directors
of the Company received $1,000 per board meeting attended in
2007. Non-employee Directors of the Company who serve on the
Company’s Audit and Compliance Committee and Compensation and Nominating
Committee received $750 for each meeting attended. Non-employee
Directors serving on other Company Committees received $150 per committee
meeting attended.
|
|
Members
of the Board of Directors of the subsidiaries of the Company are paid an
annual retainer fee based on the asset size of each subsidiary bank as of
December 31st of the prior year and receive $125 for each meeting attended
and $100 for each committee meeting attended. All of the
members of the Board of Directors of the Company are also members of the
Board of Directors of a bank subsidiary of the Company except Mr.
Geary. Accordingly, all of the Directors of the Company except
Mr. Geary receive fees from a bank subsidiary of the
Company. In addition, Mr. Maddy is a member of the Board of
Directors of each subsidiary bank of the Company and as such receives fees
from each bank subsidiary. The fees received
by
|
Mr. Maddy
are included in the Summary Compensation Table under “All Other
Compensation”.
|
If
an individual is a member of the Board of Directors of the Company or any
of its subsidiaries and is also an employee of the Company or any of its
subsidiaries, then such director will be paid the retainer fees and the
fees for each board meeting attended as set forth above; however, such
director will not be paid the fees for each committee meeting
attended.
|
|
Pursuant
to the Summit Directors’ Deferral Plan, the Company’s Directors may elect
to defer their retainer, meeting and committee fees earned. The Company
invests amounts equating to the deferrals of each participating director
in phantom investments in various mutual funds and Company
stock. Benefits payable to participant directors at retirement
under the Plan will equate to the then current value of the individual
investments. The Company’s subsidiaries have similar deferral
plans for their directors.
|
|
On
December 30, 2005, the Company and its subsidiaries amended the Directors’
Deferral Plans (the “Plans”) to conform the Plans to administrative
guidance and the regulations issued by the Internal Revenue Service under
Section 409A of the Internal Revenue
Code.
|
(2)
|
Mr.
Geary was a member of the Company's Board of Directors until he retired in
May 2007.
|
_____________________________________________________________________________________
COMPENSATION
AND NOMINATING COMMITTEE REPORT
_____________________________________________________________________________________
The
Compensation and Nominating Committee has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management, and based on such review and discussions, the Compensation and
Nominating Committee recommends to the Board of Directors that the Compensation
Discussion and Analysis be included in this Proxy Statement.
COMPENSATION
AND NOMINATING COMMITTEE
Oscar M.
Bean
Dewey F.
Bensenhaver
John W.
Crites
Phoebe F.
Heishman
Gary L.
Hinkle
Thomas J.
Hawse, III
Charles
S. Piccirillo
_____________________________________________________________________________________
EXECUTIVE
OFFICERS
_____________________________________________________________________________________
The names
of the Executive Officers of Summit Financial Group, Inc. as of March 10, 2008,
the present position and business position of such officers and the number of
shares of Common Stock of the Company beneficially owned by such Executive
Officers are as follows:
|
Name
and Age as of the
May
15, 2008
Meeting
Date
|
Position,
Principal Occupation and
Business Experience
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of
March
10, 2008
|
|
|
|
Shares
|
|
|
%
|
|
H.
Charles Maddy, III ...……45
|
Director
of Summit Financial Group since 1993. President and CEO of
Summit Financial Group since 1994. Co-Chairman of Board of
Directors of Summit Community Bank, a subsidiary of the Company, since
June, 2007. Chairman of Board of Directors of Summit Community
Bank from 2002 to 2007. Director of the Federal Home Loan Bank
of Pittsburgh (“FHLB”) since 2002, Vice Chairman of the FHLB
Board.
|
|
|
101,668
|
(1)
|
|
|
1.33
|
%
|
Robert
S. Tissue…………….44
|
Senior
Vice President and Chief Financial Officer of Summit Financial Group since
1998.
|
|
|
70,037
|
(2)
|
|
|
*
|
|
Patrick
N. Frye...………….…49
|
Director
of Summit Financial Group since 2000. Senior Vice President and
Chief Credit Officer of Summit Financial Group, Inc., since December,
2003. President and CEO of Summit Community Bank from 1998 to
2004.
|
|
|
39,327
|
(3)
|
|
|
*
|
|
C.
David Robertson…….......64
|
Co-Chairman
of Summit Community Bank Board of Directors since June,
2007. President and CEO of Summit Community Bank, February,
1999 to June, 2007.
|
|
|
44,116
|
(4)
|
|
|
*
|
|
Ronald
F. Miller ……….……64
|
Director
of Summit Financial Group since 1998. President and CEO of
Summit Community Bank since 1998.
|
|
|
47,362
|
(5)
|
|
|
*
|
|
Scott
C. Jennings……………46
|
Senior
Vice President and Chief Operating Officer of Summit Financial Group since
2000.
|
|
|
41,612
|
(6)
|
|
|
*
|
|
Douglas
T. Mitchell…...……44
|
Senior
Vice President and Chief Banking Officer of Summit Financial Group since
September, 2005. Senior Vice President of SunTrust Bank
2002-2005. Area Vice President of Chevy Chase Bank
2000-2002.
|
|
|
14,000
|
(7)
|
|
|
*
|
|
|
(1)
|
Includes
6,272 shares owned by spouse, 18,964 fully vested shares held in Company’s
ESOP and exercisable stock options for 70,400 shares; 2,768 shares are
pledged as collateral.
|
|
(2)
|
Includes
4,019 fully vested shares held in Company’s ESOP and exercisable stock
options for 49,600 shares.
|
|
(3)
|
Includes
4,135 fully vested shares held in Company’s ESOP and exercisable stock
options for 27,200.
|
|
(4)
|
Includes
1,670 shares owned by spouse, 4,766 fully vested shares held in Company’s
ESOP and exercisable stock options for 17,680
shares.
|
|
(5)
|
Includes
5,692 fully vested shares held in Company’s ESOP and exercisable stock
options for 33,200 shares.
|
|
(6)
|
Includes
9,412 fully vested shares held in Company’s ESOP and exercisable stock
options for 32,000 shares.
|
(7)
|
Includes
exercisable stock options for 10,000
shares.
|
_____________________________________________________________________________________
_____________________________________________________________________________________
The
following table lists each shareholder of Summit who is the beneficial owner of
more than 5% of Summit’s common stock as of March 10, 2008.
Title of
Class
|
Name
and Address of
Beneficial
Owner
|
|
Amount
and
Nature of Beneficial Ownership
|
|
|
% of
Class
|
|
Common
Stock
|
John
W. Crites
P.
O. Box 867
Petersburg,
WV 26847
|
|
|
548,316
|
|
|
|
7.17%
|
|
_____________________________________________________________________________________
REQUIREMENTS,
INCLUDING DEADLINE FOR SUBMISSION
OF
PROXY PROPOSALS, NOMINATION OF DIRECTORS AND
OTHER
BUSINESS OF SHAREHOLDERS
_____________________________________________________________________________________
Under our
Articles of Incorporation, certain procedures are provided which a shareholder
must follow to nominate persons for election as Directors. These
procedures provide that nominations for Directors at an annual meeting of
shareholders must be submitted in writing to the President of the Company at
P. O. Box 179, 300 North Main Street, Moorefield, West Virginia
26836. The nomination must be received no later than:
• thirty
(30) days in advance of an annual meeting if at least thirty (30) days prior
notice is provided; or
• five
(5) days following the day on which the notice of meeting is mailed if less than
thirty (30) days notice is given.
The
nomination must contain the following information about the nominee and
notifying shareholder:
• name
of the nominee;
• address
of the nominee;
• principal
occupation of the nominee;
• the
number of shares of common stock held by the notifying shareholder;
and
• the
name and address of the notifying shareholder.
The
chairman of the meeting may refuse to acknowledge the nomination of any person,
if not in compliance with the foregoing procedures.
The Board
is not aware of any matters that are expected to come before the Annual Meeting
other than those referred to in this Proxy Statement. If any other
matter should come before the Annual Meeting, the persons named in the
accompanying proxy intend to vote the proxies in accordance with their best
judgment.
Under the
rules of the SEC, shareholder proposals intended to be presented at the
Company’s 2009 Annual Meeting of Shareholders must be received by us,
Attention: Secretary, at our principal executive offices by December
10, 2008, for inclusion in the proxy statement and form of proxy relating to
that meeting.
Current
market quotations for the common stock of Summit Financial Group, Inc. are
available on The NASDAQ SmallCap Market under the symbol “SMMF”.
_____________________________________________________________________________________
ANNUAL
REPORT
_____________________________________________________________________________________
The
annual report of the Company for the year ended December 31, 2007, is being
mailed concurrently with this Proxy Statement.
The
financial statements and other information to be delivered with this Proxy
Statement constitute the annual disclosure statement as required by
12 C.F.R. 18.
_____________________________________________________________________________________
FORM
10-K
_____________________________________________________________________________________
The
Company will furnish without charge to each person whose proxy is being
solicited, upon the request of any such person, a copy of the Company’s annual
report on Form 10-K for 2007. Requests for copies of such report
should be directed to Julie R. Cook, Vice President, Chief Accounting Officer,
Summit Financial Group, Inc., P. O. Box 179, Moorefield, West Virginia 26836, or
e-mail [email protected].
_____________________________________________________________________________________
Whether
or not you plan to attend the Meeting, please mark, sign, date and promptly
return the enclosed proxy in the enclosed envelope. No postage is
required for mailing in the United States.
By Order of the Board
of Directors,
April 11,
2008
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF
SUMMIT FINANCIAL GROUP, INC.
on
May 15, 2008
The
undersigned hereby appoints Russell F. Ratliff, Jr. and Teresa D. Sherman or
either of them with full power to act alone as attorneys and proxies to vote all
the shares of the common stock of Summit Financial Group, Inc. held or owned by
the undersigned at the Annual Meeting of Shareholders on May 15, 2008, and at
any adjournments thereof, as follows:
1.
|
Election
of Directors to serve a three year term until the 2011 Annual Meeting or
until their successors are elected and
qualified:
|
[ ] FOR ALL
NOMINEES LISTED
BELOW [ ] WITHHOLD
AUTHORITY
|
(except
as marked to the contrary below)
|
TO VOTE FOR
ALL
NOMINEES LISTED BELOW
|
(INSTRUCTION:
To withhold authority to vote for any individual nominee, strike a line through
the nominee's name in the list below.)
Frank A. Baer,
III Patrick
N.
Frye Duke
A. McDaniel
Ronald F.
Miller G.R.
Ours, Jr.
2. To
ratify the selection of Arnett & Foster, PLLC as Summit Financial Group
Inc.’s independentregistered public accounting firm for the year ended December
31, 2008.
[ ]
FOR [ ]
AGAINST
[ ] ABSTAIN
3. In
their discretion, upon any other business which may properly come before the
meeting or anyadjournment thereof.
[ ]
FOR [ ]
AGAINST
[ ] ABSTAIN
THE
SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS
SPECIFIED. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND
3.
This
proxy confers on the proxy holder the power of cumulative voting for the
election of Directors and the power to vote cumulatively for less than all of
the nominees listed in Item 1. If any other business is presented at
said meeting, this proxy shall be voted in accordance with the best judgment of
the individuals named in this proxy. This proxy may be revoked at any
time prior to its exercise in accordance with the procedure set forth in the
proxy materials.
Dated
, 2008
___________________________________
___________________________________
Shareholder(s) should sign exactly as
name(s) appears
on the label. Any person signing
in fiduciary capacity
should please enclose proof of
his appointment unless
such proof has already been
furnished. All joint owners must sign.