SFG Proxy Statement
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 (Amendment
No. )
Filed
by
the Registrant þ
Filed
by
a Party other than the Registrant o
Check
the
appropriate box: o
|
|
r
|
Preliminary
Proxy Statement
|
r
|
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|
þ
|
Definitive
Proxy Statement
|
r
|
Definitive
Additional Materials
|
r
|
Soliciting
Material Pursuant to Section 240.14a-11c or Section
240.14a-12
|
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.
|
|
o
|
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
|
1)
|
Title
of each class of securities to which transaction applies:
|
|
2)
|
Aggregate
number of securities to which transaction applies:
|
|
|
|
3)
|
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):
|
|
|
|
4)
|
Proposed
maximum aggregate value of transaction:
|
|
|
|
5)
|
Total
fee paid:
|
|
|
|
|
o
|
Fee
paid previously with preliminary materials.
|
|
|
|
|
o
|
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.
|
|
1)
|
Amount
Previously Paid:
|
|
2) |
Form,
Schedule or Registration Statement No.:
|
|
|
|
|
|
|
|
|
3) |
Filing
Party:
|
|
|
|
|
|
|
|
|
4) |
Date
Filed:
|
|
|
P.
O.
Box
179
300
N.
Main
Street
Moorefield,
West
Virginia
26836
April
10,
2007
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 17, 2007, 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 six (6) directors to serve until 2010, and to
ratify the selection of Arnett & Foster, PLLC as the Company’s independent
registered public accounting firm for the year ending December 31,
2007.
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
.............................................................
|
|
1:00
p.m., EDT, on May 17, 2007
|
PLACE
..........................................................
|
|
Summit
Financial Group, Inc.
Corporate
Office
300
N.
Main Street
Moorefield,
West Virginia 26836
|
ITEMS
OF BUSINESS .................................
|
|
(1) To
elect six (6) directors to serve until 2010;
(2) To
ratify the selection of Arnett & Foster, PLLC as the Company’s
independent registered public accounting firm for the year ending
December 31, 2007; 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.
|
|
RECORD
DATE ..........................................
|
|
Only
those shareholders of record at the close of business on March 30,
2007
shall be entitled to notice and to vote at the Meeting.
|
ANNUAL
REPORT......................................
|
|
Our
2006 Annual Report, which is not a part of the proxy materials, is
enclosed.
|
PROXY
VOTING ........................................
|
|
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.
|
April
10, 2007
|
|
Oscar
M. Bean
Chairman
of the Board
|
|
|
TABLE
OF CONTENTS Page
PROXY
STATEMENT
|
|
1
|
|
Principal
Executive Office of the Company
|
1
|
|
Shareholders
Entitled to Vote
|
1
|
|
Multiple
Shareholders Sharing the Same Address
|
1
|
|
Proxies
|
1
|
|
Vote
By Mail
|
2
|
|
Voting
at the Annual Meeting
|
2
|
|
Voting
on Other Matters
|
2
|
|
Required
Vote
|
2
|
|
Cost
of Proxy Solicitation
|
3
|
|
Shareholder
Account Maintenance
|
3
|
|
Section
16(a) Beneficial Ownership Reporting Compliance
|
3
|
GOVERNANCE
OF THE COMPANY
|
|
4
|
|
Board
and Committee Membership
|
4
|
|
Executive
Committee
|
4
|
|
Audit
and Compliance Committee
|
4
|
|
Compensation
and Nominating Committee
|
5
|
|
Policies
and
Procedures Relating to Nomination of Directors
|
6
|
|
Processes and Procedures Relating to Executive
Compensation
|
6
|
|
Independence
of Directors and Nominees |
7
|
|
Review
and Approval of and Description of Transactions with Related
Persons |
9 |
|
Policies
and
Procedures |
9 |
|
Transactions
with Related Persons |
9 |
|
Shareholder
Communication with Directors
|
10 |
|
Board
Member Attendance at Annual Meeting
|
10
|
|
Corporate
Policies
|
10
|
ITEM
1 -- ELECTION OF DIRECTORS
|
|
11
|
|
Security
Ownership of Directors and Officers
|
11
|
|
Family
Relationships |
12 |
|
|
|
NOMINEES
FOR DIRECTOR WHOSE TERMS EXPIRE IN 2010
|
|
13
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2009
|
|
14
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2008
|
|
15
|
ITEM
2 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
|
16
|
AUDIT
AND COMPLIANCE COMMITTEE REPORT
|
|
17
|
|
Fees
to Arnett & Foster, PLLC
|
17
|
|
Audit
and Compliance Committee
|
18
|
COMPENSATION
DISCUSSION AND ANALYSIS
|
|
|
|
19
|
|
Duties
of the Compensation and Nominating Committee
|
|
|
19
|
|
Overview
of Compensation Philosophy
|
|
|
19
|
|
|
Salaries
|
|
19
|
|
|
Annual
Incentive Compensation
|
|
20
|
|
|
Long-Term
Incentive Compensation
|
|
20
|
|
Setting
Executive Compensation
|
|
|
20
|
|
|
Salaries
|
|
20
|
|
|
Annual
Incentive Compensation
|
|
21
|
|
|
Long-Term
Incentive Compensation
|
|
21
|
|
|
|
Officer
Stock Option Plan
|
21
|
|
|
|
Supplemental
Executive Retirement Plan
|
21
|
|
|
Perquisites
|
|
22 |
|
Plans
Covering All Employees
|
|
|
22 |
|
Employee Stock Ownership Plan
|
|
|
22
|
|
401(k) Profit Sharing Plan
|
|
|
22 |
|
Potential
Payments Upon Termination or Change of Control |
|
|
23 |
|
Compensation
Agreement - Mr. Maddy |
|
|
23 |
|
Compensation
Agreeements - Messrs. Miller and Robertson
|
|
|
26 |
|
Compensation
Agreements - Messrs. Frye and Tissue
|
|
|
27 |
|
Evaluation
of Executive Performance
|
|
|
29
|
|
Compensation
of Named Executive Officers
|
|
|
29
|
|
Compensation
of President and CEO
|
|
|
30
|
|
Conclusion
|
|
|
30 |
|
|
|
|
|
EXECUTIVE
COMPENSATION
|
|
|
|
31
|
|
Summary
Compensation Table
|
|
|
31
|
|
Grants
of Plan-Based Awards
|
|
|
33
|
|
Outstanding
Equity Awards at December 31, 2006 |
|
|
35 |
|
Options
Exercises and Stock Vested During 2006 |
|
|
38 |
|
Pension
Benefits |
|
|
39 |
|
Estimated
Payments Upon Termination |
|
|
40 |
|
Director
Compensation 2006 |
|
|
42 |
|
|
|
|
|
COMPENSATION
AND NOMINATING COMMITTEE REPORT
|
|
|
|
44
|
|
Compensation
and Nominating Committee
|
|
|
44
|
|
|
|
|
|
EXECUTIVE
OFFICERS
|
|
|
|
45
|
|
|
|
|
|
PRINCIPAL
SHAREHOLDER |
|
|
|
46 |
|
|
|
|
|
REQUIREMENTS,
INCLUDING DEADLINE FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION
OF
DIRECTORS AND OTHER BUSINESS OF SHAREHOLDERS
|
|
|
|
47
|
|
|
Stock
Transfers
|
|
47
|
ANNUAL
REPORT
|
|
|
|
48
|
FORM
10-K
|
|
|
|
48
|
APPENDIX
A - COMPENSATION AND NOMINATING COMMITTEE CHARTER
|
|
|
|
|
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 2007 Annual
Meeting of Shareholders and at any adjournment or postponement.
You
are
invited to attend our Annual Meeting of Shareholders on May 17, 2007, 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 10, 2007.
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 March 30, 2007,
are
entitled to receive this notice and to vote their shares at the Annual Meeting.
As of that date, there were 7,084,980 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 7,084,980 shares of common stock outstanding which
are
held by approximately 1,331 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 2007
Annual Meeting, the total number of directors to be elected is six (6) in the
class expiring in 2010. Each shareholder has the right to cast six (6) 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, 2007, 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 2006, 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 Douglas T.
Mitchell had one late report relating to one transaction and James M. Cookman
had one late report relating to two transactions.
GOVERNANCE
OF THE COMPANY
Board
and Committee Membership
During
2006,
the Board of Directors met five (5) 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 2006, with the exception of Frank A.
Baer, III.
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., James P. Geary, and Gary L. Hinkle. C. David Robertson is a
non-voting member of the Executive Committee. The Executive Committee met nine
(9) times in 2006. Phoebe F. Heishman and Thomas J. Hawse, III both 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.
Current
members of this committee are Thomas J. Hawse, III, Chairman, John W. Crites,
Gary L. Hinkle, Gerald W. Huffman, and Charles S. Piccirillo. The Audit and
Compliance Committee charter requires that the committee be comprised of five
(5) directors. The Audit and Compliance Committee met four (4) times in
2006.
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 no member of the Audit and Compliance Committee
possesses all of the above five attributes so as to be deemed an “audit
committee financial expert” under the SEC rules.
However,
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 2006 and for
information about the Company’s independent auditors generally, see the Audit
and Compliance Committee Report on page 17 of these Annual Meeting
materials.
Compensation
and Nominating Committee
The
Compensation and Nominating Committee consists of a minimum of 4 directors.
The
members of the Compensation and Nominating Committee during 2006 were Oscar
M.
Bean, John W. Crites, James P. Geary, Gary L. Hinkle, Thomas J. Hawse, III,
Charles S. Piccirillo, Phoebe F. Heishman and Dewey Bensenhaver. Oscar M. Bean
did not serve on the Compensation and Nominating Committee during January
through March of 2007 because Mr. Bean was not independent under the NASDAQ
Marketplace Rules during this time and the exception under the NASDAQ
Marketplace Rules that allowed Mr. Bean to serve on the Committee expired in
January, 2007. When Mr. Bean becomes independent under the NASDAQ Marketplace
Rules in April, 2007, Mr. Bean will be re-appointed to serve on the Compensation
and Nominating Committee.
The
Compensation and Nominating Committee has adopted a written charter, a copy
of
which is attached to this Proxy Statement as Appendix A.
The
Compensation and Nominating Committee met three (3) times in 2006.
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 47 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 attached to this Proxy
Statement as Appendix A.
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
19
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
Executive Committee of the Board of Directors met on March 21, 2007 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
Executive Committee 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 Executive Committee 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, 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
Executive Committee also considered the following relationships in evaluating
the independence of the Company’s independent directors and nominees 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. and Shenandoah Valley National Bank, subsidiaries 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 2006 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, James P. Geary, II, and Charles S. Piccirillo are partners
of law firms that received a retainer or payments for legal services provided
to
the Company or its subsidiaries during 2006;
• 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 one of its subsidiaries 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
stockholders, 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 Executive Committee reviewed all transactions with related parties since
January 1, 2006, to determine if such transactions were required to be reported
in this Proxy Statement. The Executive Committee 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 and Shenandoah Valley National 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, 2006, 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.
Twelve (12) of sixteen (16) members of the Board of Directors attended the
2006
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. Six (6) Directors will be elected
at
our 2007 Annual Meeting to serve for a three-year term expiring at our Annual
Meeting in the year 2010. 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 2010, at the Annual Meeting: Oscar M. Bean, Dewey F.
Bensenhaver, John W. Crites, James P. Geary, II, Phoebe F. Heishman, and Charles
S. Piccirillo. 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 except Mr. James P. Geary, II, are directors standing for
re-election. Mr. James P. Geary, II, was recommended by the Compensation
and Nominating Committee and approved by the Board of Directors of the Company.
Mr. James P. Geary II was recommended to the Compensation and Nominating
Committee by a non-management director.
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, 2007, 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 2,029,445 shares or 27.53%
of
the Company’s common stock as of March 10, 2007. 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. Geary, 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.
Pursuant
to
this policy, Mr. James P. Geary is retiring from the Board of Directors when
his
current term expires at this Annual Meeting. The Company has benefited from
the
service provided by Mr. Geary and is grateful for the wisdom and guidance
provided by Mr. Geary.
Family
Relationships
Mr.
James P.
Geary, II, a nominee for the Board of Directors, is the son of current director,
James P. Geary. Dewey S. Bensenhaver is married to G. R. Ours, Jr.’s
niece.
Name
and Age as of the
May
17, 2007
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2007
|
NOMINEES
FOR DIRECTORS WHOSE TERMS EXPIRE IN 2010
|
|
|
Shares
|
%
|
Oscar
M. Bean …………....56
|
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.
|
70,480(1)
|
*
|
Dewey
F. Bensenhaver …...60
|
Director
of Summit Financial Group since 2000. Physician in private practice;
Owner
of farming operation.
|
49,040(2)
|
*
|
John
W. Crites ……...…….66
|
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(3)
|
7.49%
|
James
P. Geary, II…………50
|
Partner
of the law firm of Geary & Geary; New nominee for
director.
|
11,928(4)
|
*
|
Phoebe
F. Heishman ……...66
|
Director
of Summit Financial Group since 1987, Secretary since 1995. Publisher
and
Editor of The
Moorefield Examiner.
|
93,520(5)
|
1.28%
|
Charles
S. Piccirillo ………52
|
Director
of Summit Financial Group since 1998. Member in the law firm of
Shaffer
& Shaffer, PLLC; Partner, Lawoff Associates; President, Auggus
Enterprises, Inc.
|
21,189(6)
|
*
|
(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
191,240 shares owned by Allegheny Wood Products,
Inc.
|
(4)
|
Includes
136 shares owned as custodian for minor
child.
|
(5)
|
Includes
1,760 shares owned by spouse and 17,735 shares owned by children
for whom
she has a power of attorney; 20,000 shares are pledged as
collateral.
|
(6)
|
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
17, 2007
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2007
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2009
|
|
|
Shares
|
%
|
James
M. Cookman ………53
|
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.
|
24,664(1)
|
*
|
Thomas
J. Hawse, III ……..62
|
Director
of Summit Financial Group since 1988. President of Hawse Food Market,
Inc.; Member of the Hardy County Rural Development Authority board.
Also
serves on the West Virginia Forest Management Review
Commission.
|
40,150(2)
|
*
|
Gary
L. Hinkle ……………57
|
Director
of Summit Financial Group since 1993. President of Hinkle Trucking,
Inc.,
Dettinburn Transport, Inc., Mt. Storm Fuel Corporation and H. T.
Services,
Inc.
|
278,035(3)
|
3.80%
|
Gerald
W. Huffman……….62
|
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 …….44
|
Director
of Summit Financial Group since 1993. President and CEO of Summit
Financial Group since 1994. Director of the Federal Home Loan Bank
of
Pittsburgh (“FHLB”) since 2002, Chairman of the FHLB Audit Committee.
Chairman of Board of Directors of Summit Community Bank, a subsidiary
of
the Company, since 2002.
|
95,648(4)
|
1.31%
|
(1)
|
Includes
15,200 shares owned by Cookman Insurance Center, Inc. Retirement
Plan and
3,792 shares owned by minor
children.
|
(2)
|
Includes
1,500 shares owned by spouse, 4,000 shares owned by self-directed
IRA FBO
spouse, and 500 shares owned by
children.
|
(3)
|
Includes
53,280 shares owned by Hinkle Trucking, Inc., 4,800 shares owned
by
spouse, and 220 shares owned as Custodian for
grandchild.
|
(4)
|
Includes
1,672 shares owned by spouse, 18,144 fully vested shares held in
Company’s
ESOP and exercisable stock options for 69,800 shares; 2,768 shares
are
pledged as collateral.
|
*
Indicates
director owns less than 1% of the Company’s Common Stock.
Name
and Age as of the
May
17, 2007
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of March 10, 2007
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2008
|
|
|
Shares
|
%
|
Frank
A. Baer, III ………. 46
|
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.
|
24,019
(1)
|
*
|
Patrick
N. Frye ……….......48
|
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, a subsidiary of the
Company,
from 1998 to 2004.
|
35,999(2)
|
*
|
Duke
A. McDaniel ………..68
|
Director
of Summit Financial Group since 2000. Attorney at Law.
|
39,524(3)
|
*
|
Ronald
F. Miller ……..…...63
|
Director
of Summit Financial Group since 1998. President and CEO of Shenandoah
Valley National Bank, a subsidiary of the Company, since 1998.
|
44,768(4)
|
*
|
G.
R.
Ours, Jr ……………..75
|
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)
|
3.16%
|
(1) Includes
592
shares owned by minor children.
(2) Includes
3,687 fully vested shares held in Company’s ESOP and exercisable stock options
for 28,320 shares; 3,992 shares
are
pledged as collateral.
(3) Includes
30,176 shares that are pledged as collateral.
(4)
|
Includes
5,178 fully vested shares held in Company’s ESOP and exercisable stock
options for 31,120 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.
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 2007 subject to the ratification of our
shareholders. For information concerning the audit fees paid by the Company
in
2005 and 2006 and for information about the Company’s auditors generally, see
the Audit and Compliance Committee Report on page 17 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
2007.
AUDIT
AND COMPLIANCE COMMITTEE REPORT
The
Audit
and Compliance Committee of the Board of Directors of the Company is composed
of
five independent directors. The members of the Audit and Compliance Committee
are Thomas J. Hawse, III, Chairman, John W. Crites, 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.
The
Audit
and Compliance Committee has reviewed the audited financial statements of the
Company for the fiscal year ended December 31, 2006, 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, 2006, be included in the
Company’s Annual Report on Form 10-K for 2006.
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, 2006 and 2005, and fees for other services
rendered by Arnett & Foster, PLLC during those periods:
|
|
2006
|
|
2005
|
|
Audit
Fees(1)
|
|
$174,000
|
|
$204,000
|
|
Audit-Related
Fees(2)
|
|
36,000
|
|
15,000
|
|
Tax
Fees(3)
|
|
14,715
|
|
10,000
|
|
All
Other Fees(4)
|
|
|
13,000
|
|
|
-
|
|
Total
Fees
|
|
$
|
237,715
|
|
$
|
229,000
|
|
(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
Gary
L.
Hinkle
Gerald
W.
Huffman
Charles
S.
Piccirillo
COMPENSATION
DISCUSSION AND ANALYSIS
Duties
of the Compensation and Nominating Committee
Summit’s
Compensation and Nominating Committee (the “Committee”) administers the
Company’s executive compensation program. The role of the Committee is to
annually review, approve, and report to the Board of Directors all compensation
arrangements for the President and CEO of the Company and for all executive
officers who are subject to the reporting requirements of Section 16 of the
Exchange Act. With respect to the President and CEO’s compensation, the
Committee reviews and approves corporate goals and objectives of the Company
relevant to the President and CEO’s compensation, evaluates the CEO’s
performance in light of these goals and objectives and reviews and approves
all
compensation arrangements. The Committee also approves and reports to the Board
of Directors all grants of stock options under the Officer Stock Option Plan.
The Company’s Chief Executive Officer prepares compensation information for use
by the Committee in its deliberations. Mr. Maddy also makes recommendations
as
to the compensation packages for all other executive officers. The Committee’s
charter, attached hereto as Appendix A, reflects these various responsibilities.
The Committee annually reviews the charter and recommends any proposed changes
to the Board of Directors of the Company for approval. The Committee is composed
entirely of non-employee, independent directors. 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.
Overview
of Compensation Philosophy
The
Company’s 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.
The
Company’s 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 balanced mix of cash and equity-based
compensation that the Company believes promotes 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.
• Annual
Incentive Compensation.
Executive
Annual 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 insure 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. 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 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.
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 2007. In
setting the base salary for the President and CEO and in reviewing and approving
the salaries for the other 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 President and CEO’s evaluation of each officer’s individual job
performance, and the Board’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.
Once
the
base salary is set, it does not depend on the Company’s performance.
Annual
Incentive Compensation
The
second
element of the executive compensation program is primarily the Incentive
Compensation Plans. The purpose of the Company’s Incentive Compensation Plans is
to motivate and reward eligible employees for their contributions to the
Company’s and its bank subsidiaries’ performance by making a large portion of
their cash compensation variable and dependent upon the Company’s and its bank
subsidiaries’ performance. The Company annually adopts an Incentive Compensation
Plan for the Company and its bank subsidiaries. For 2006, all bonuses awarded
under the Incentive Compensation Plans were based on a formula which primarily
considers the return on average equity of the Company and its bank subsidiaries.
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 subsidiaries to achieve the lower target levels and very
difficult for the executive and the Company or its bank subsidiaries to achieve
the higher target levels. In 2006, neither the executive nor the Company met
the
higher targets and the Incentive Compensation paid to the named executives
as a
group was 35% less than it was in 2005.
With
respect
to Messrs. Miller and Robertson, the Company has established an annual incentive
compensation plan which includes specific performance goals and business
criteria based on their achievement of the net income budgets for their
respective subsidiary banks (the “Alternative Incentive Plan”). However, if the
payments due to Messrs. Miller and Robertson under the Incentive Compensation
Plan exceed those payments due under these plans, then Messrs. Miller and
Robertson are entitled to receive only the payments under the Incentive
Compensation Plan. Under the Alternative Incentive Plan, targets are established
that are difficult to achieve, although not as difficult as the higher target
levels of the Incentive Compensation Plan. In 2006, the target levels were
based
on record earnings. In 2006, Mr. Miller and Mr. Robertson each participated
in
the Alternative Compensation Plan.
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 2006, the Company did not approve any annual stock option
grants for the executive officers primarily because the Company did not meet
its
performance targets.
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 Financial Group, Inc. and its affiliates 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 subsidiaries.
The
Plan is
called the Supplemental Executive Retirement Plan and 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
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 recent 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 40 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.
Compensation
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
Change in Control Agreement supersedes Mr. Maddy’s Change in Control Agreement
dated as of January 26, 1996.
Employment
Agreement
The
term of
the Employee Agreement is three years, commencing on March 4, 2005, and ending
on March 4, 2008. 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, 2006, the
Compensation and Nominating Committee extended Mr. Maddy’s Employment Agreement
for an additional year until March 4, 2010. 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
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 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 40 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.
Compensation
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 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
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;
• payment
of
cash incentive award, if any, under the Company’s Annual 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
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 Agreements and will entitle the executive
to
the benefits under the Agreements, absent clear and convincing evidence to
the
contrary.
The
table on
page 40 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.
Compensation
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 40 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.
Evaluation
of Executive Performance
The
Company
does not usually rely solely on predetermined formulas or a limited set of
criteria when it evaluates the performance of the President and CEO and the
Company’s other Named Executive Officers. Instead, the Company
considers:
• management’s
overall accomplishments;
• the
accomplishments of the individual executives;
• the
Company’s financial performance; and
• other
criteria discussed below with respect to the President and CEO.
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. The only notable
exception during this period has been the performance of the mortgage company
in
2006.
• 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. For example, incentive compensation for
Messrs. Maddy, Frye and Tissue was significantly reduced in 2006 due to the
substandard performance of the mortgage company. Messrs. Robertson and Miller’s
incentive compensation was not affected because their incentive compensation
is
directly tied to the performance of the operating banks for which they are
responsible.
The
Company
strongly believes in “pay for performance” and will continue to monitor its
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.
Compensation
of Named Executive Officers
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.
The
Company
made the following decisions with respect to its named executive officers,
other
than the CEO, Mr. Maddy:
• A
performance based increase of 7.1% in the salary of Mr. Tissue and 3.75% in
the
salary of Mr. Frye for their increasingly significant contribution to the
overall management of the Company. The Company also increased the opportunity
in
2007 for Messrs. Tissue and Frye to earn incentive compensation based on the
performance targets established by the Company under the Incentive Compensation
Plan. The Company did not award stock options to Mr. Tissue or Mr. Frye due
to
the disappointing performance of the Company’s stock in 2006 and the
underperformance of the Company’s mortgage company in 2006.
• An
increase
in salary of 3.9% for Messrs. Robertson and Miller to account for inflation
as
required by their employment contracts. The Company did not award stock options
to Messrs. Robertson and Miller due to the disappointing performance of the
Company’s stock in 2006. Messrs. Robertson and Miller will continue to
participate in the Alternative Incentive Compensation plan or the Incentive
Compensation plan under the conditions described in the section above entitled
Annual Incentive Compensation.
Compensation
of the President and CEO
Applying
our
compensation philosophy and principles, the Company made the following decisions
with respect to Mr. Maddy’s compensation for 2006:
• A
cost of
living salary increase of 3.3% for Mr. Maddy with a continuation of the
Incentive Compensation Plan during 2007. The Company did not award any stock
options to Mr. Maddy due to the disappointing performance of the Company’s stock
in 2006 and the underperformance of the Company’s mortgage company in 2006. The
Company believes Mr. Maddy is a strong and marketable leader and the Company
desires to retain Mr. Maddy on a long- term basis. Accordingly, the Company
renewed Mr. Maddy’s contract and continued all other elements of
compensation set forth in the compensation tables.
Conclusion
The
Company
has reviewed all components of the compensation of the named executive officers
including salary, bonus, equity and long-term incentive compensation,
accumulated, realized and unrealized stock option gains, the dollar value of
all
perquisites and other personal benefits and projected payout obligations under
various termination scenarios. Based on this review, the Company finds that
the
total compensation in the aggregate for each of the named executive officers
is
reasonable and not excessive.
Attracting
and retaining talented and motivated management and employees is essential
to
create long-term shareholder value. Offering a competitive performance based
compensation program helps to achieve this objective by aligning the interests
of the CEO and the other Named Executive Officers with those of shareholders.
We
believe the Company’s 2006 compensation met those objectives.
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, 2006.
Name
and Principal Position
|
Year
|
Salary
|
Bonus(1)
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan Compen-sation(2)
|
Non-qualified
Deferred Compen-sation Earnings(3)
|
All
Other Compen-sation(4)
|
Total
|
H.
Charles Maddy, III President and Chief Executive Officer - Summit
Financial Group
|
2006
|
$375,000
|
-
|
-
|
-
|
$58,786
|
$15,646
|
$42,500
|
$491,932
|
Robert
S. Tissue
Senior
Vice President and Chief Financial Officer - Summit Financial
Group
|
2006
|
$155,000
|
-
|
-
|
-
|
$34,836
|
$4,840
|
$17,050
|
$211,726
|
Patrick
N. Frye
Senior
Vice President and Chief Credit Officer - Summit Financial
Group
|
2006
|
$160,000
|
-
|
-
|
-
|
$34,836
|
$7,444
|
$28,850
|
$231,130
|
C.
David Robertson President and Chief Executive Officer -Summit
Community
Bank
|
2006
|
$177,000
|
-
|
-
|
-
|
$75,000
|
$41,878
|
$37,401
|
$331,279
|
Ronald
F. Miller
President
and Chief Executive Officer - Shenandoah Valley National Bank
|
2006
|
$177,000
|
-
|
-
|
-
|
$134,147
|
$41,187
|
$30,720
|
$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 33 of this proxy statement entitled Grants of
Plan-Based Awards.
|
(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
as of
December 31, 2005 and 2006 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 ($25,125), Mr. Tissue ($17,050),
Mr. Frye ($17,600), Mr. Robertson ($19,470), and Mr. Miller
($19,470). The amount also includes fees paid to Mr. Maddy ($17,375),
Mr. Frye ($11,250), Mr. Robertson ($6,250), and Mr. Miller ($11,250)
as members of the Company’s and its subsidiary banks’ Boards of Directors.
This amount also includes perquisites and personal benefits 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
$10,000.
|
Total
cash
compensation, as measured by salary and non-equity incentive plan compensation,
is based on the Company’s performance as well as employee performance and
certain other factors as described in the section entitled “Compensation
Discussion and Analysis.” For the named executive officers, total cash
compensation as a percentage of total compensation is as follows: Mr. Maddy
-
88.18%; Mr. Tissue - 89.66%, Mr. Frye - 84.30%, Mr. Robertson 76.07%; and Mr.
Miller - 81.23%. The percentage of total cash compensation to total compensation
for the named executive officers reflects the emphasis that is placed on cash
compensation.
A
description of the employment agreements with the named Executive Officers
is
set forth in the Section entitled “Compensation Discussion and
Analysis.”
Grants
of Plan-Based Awards
Name
|
Grant
Date(1)
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards (2)
|
Estimated
Future Payouts Under Equity Incentive Plan Awards
|
All
Other Option Awards: Number of Shares of Stock or Units
(#)
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards (S/Sh)
|
Grant
Date Fair Value of Stock and Option Awards
|
Threshold
($)(3)
|
Target
($)(4)
|
Maxi-
mum
($)(5)
|
Thres-hold
($)
|
Target
($)
|
Maxi-mum
($)
|
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(7)
|
12/14/06
|
$34,000
|
$34,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Ronald
F. Miller(7)
|
12/14/06
|
$12,000
|
0
(6)
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1) The
Company
annually adopts an Incentive Compensation Plan for the Company and each
subsidiary bank. 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 annual incentive compensation for 2007.
(2) For
2007,
all bonuses under the Incentive Compensation Plans will be based on a formula
which primarily considers the return on average equity of the Company and its
bank subsidiaries. In estimating the future payouts under the Incentive
Compensation Plans 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 and subsidiaries) for 2007 equals equity
at December 31, 2006. With respect to the targets established under the
Incentive Compensation Plans applicable to each named executive officer except
Mr. Miller, 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. All
of
the target levels established under the Incentive Compensation Plan applicable
to Mr. Miller are very difficult for Mr. Miller and Shenandoah Valley National
Bank to achieve.
(3) The
amounts
in the column labeled “threshold” are calculated using the minimum return on
equity for the Company or each subsidiary that must be reached in order for
each
named executive officer to receive compensation under the applicable
plan.
(4) The
amounts
in the column labeled “target” are calculated using the budgeted return on
equity for the Company or each subsidiary bank, 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) The
formula
for determining annual incentive compensation applicable to Mr. Miller takes
into account the return on equity of Shenandoah Valley National Bank. The
Company does not anticipate that Mr. Miller will earn the target level of annual
incentive compensation because the budgeted return on equity for Shenandoah
Valley National Bank (which is the amount on which the target is based) is
less
than the percentage of return on equity that is needed to reach the threshold.
(7) With
respect
to Messrs. Miller and Robertson, the Company has established an annual incentive
compensation plan which includes specific performance goals and business
criteria based on their achievement of the net income budgets for their
respective subsidiary banks (the “Alternative Incentive Plan”). However, if the
payments due to Messrs. Miller and Robertson under the Incentive Compensation
Plan exceed those payments due under these plans, then Messrs. Miller and
Robertson are entitled to receive only the payments under the Incentive
Compensation Plan. Under the Alternative Incentive Plan, targets are established
that are difficult to achieve, although not as difficult as the higher target
levels of the Incentive Compensation Plan. The estimated future payouts to
Messrs. Miller and Robertson under the Alternative Incentive Plan are as
follows:
Name
|
|
Estimated Future Payouts Under Alternative Incentive Plan
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
C.
David Robertson
|
12/14/06
|
$75,000
|
$75,000
|
$250,000
|
Ronald
F. Miller
|
12/14/06
|
$75,000
|
$75,000
|
$250,000
|
Outstanding
Equity Awards at December 31, 2006
The
following table shows outstanding stock option awards classified as exercisable
and unexercisable held as of December 31, 2006, 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
|
H.
Charles Maddy, III
|
1,600
4,800
4,800
4,800
1,600
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
-
2,400
2,400
2,400
-
-
2,400
2,400
2,400
2,400
2,400
15,000
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,400(1)
-
-
-
2,400(2)
2,400(3)
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
$
5.21
$
5.21
$
5.21
$
5.21
$
4.63
$
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
|
02/26/2010
02/26/2011
02/26/2012
02/26/2013
02/26/2010
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
|
3,600
4,800
4,800
4,800
800
800
800
800
800
800
800
800
800
800
880
880
880
880
-
1,400
1,400
1,400
-
-
1,600
1,600
1,600
1,600
1,600
10,000
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
880(1)
-
-
-
1,400(2)
1,400(3)
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
$
5.21
$
5.21
$
5.21
$
5.21
$
4.63
$
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
|
02/26/2010
02/26/2011
02/26/2012
02/26/2013
02/26/2010
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
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
Patrick
N. Frye
|
800
800
800
800
880
880
880
880
-
1,200
1,200
1,200
-
-
1,600
1,600
1,600
1,600
1,600
10,000
|
-
-
-
-
-
-
-
-
880(1)
-
-
-
1,200(2)
1,200(3)
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
$
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
|
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
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
C.
David Robertson
|
-
1,200
1,200
1,200
-
-
1,200
1,200
1,200
1,200
1,200
6,000
|
880(1)
-
-
-
1,200(2)
1,200(3)
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
|
$
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
|
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
|
Ronald
F. Miller
|
1,600
1,600
1,600
1,600
1,600
800
800
800
800
800
880
880
880
880
-
1,200
1,200
1,200
-
-
1,200
1,200
1,200
1,200
1,200
6,000
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
880(1)
-
-
-
1,200(2)
1,200(3)
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
$
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
$24.44
|
02/26/2009
02/26/2010
02/26/2011
02/26/2012
02/26/2013
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
|
The
vesting
dates of the unexercisable options in the above table are as follows:
|
Expiration
Date
|
Vesting
Date
|
(1)
|
12/06/2017
|
12/06/2007
|
(2)
|
12/12/2017
|
12/12/2007
|
(3)
|
12/12/2018
|
12/12/2008
|
Options
Exercises and Stock Vested During 2006
The
following table summarizes information with respect to stock option awards
exercised during 2006 for each of the named executive officers.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise
($)(1)
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
H.
Charles Maddy, III
|
-
|
-
|
-
|
-
|
Robert
S. Tissue
|
-
|
-
|
-
|
-
|
Patrick
N. Frye
|
-
|
-
|
-
|
-
|
C.
David Robertson
|
3,360
|
$
36,610
|
-
|
-
|
Ronald
F. Miller
|
8,000
|
$
122,960
|
-
|
-
|
(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
(#)(1)
|
Present
Value
of Accumulated Benefit
($)(2)
|
Payments
During
Last
Fiscal Year
($)
|
H.
Charles Maddy, III
|
SERP
|
7
|
$139,000
|
-
|
Robert
S. Tissue
|
SERP
|
4
|
$58,000
|
-
|
Patrick
N. Frye
|
SERP
|
4
|
$101,000
|
-
|
C.
David Robertson
|
SERP
|
6
|
$197,000
|
-
|
Ronald
F. Miller
|
SERP
|
6
|
$202,000
|
-
|
(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 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, 2006, 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
|
$
136,000
|
$
-
|
$
886,000
|
$
2,345,000
|
$
1,261,000
|
$
1,845,000
|
Robert
S. Tissue
|
$
46,000
|
$
-
|
$
394,000
|
$
1,055,000
|
$
46,000
|
$
845,000
|
Patrick
N. Frye
|
$
63,000
|
$
-
|
$
430,000
|
$
1,201,000
|
$
63,000
|
$
974,000
|
C.
David Robertson
|
$
212,000
|
$
-
|
$
655,000
|
$
586,000
|
$
212,000
|
$
544,000
|
Ronald
F. Miller
|
$
212,000
|
$
-
|
$
655,000
|
$
636,000
|
$
212,000
|
$
779,000
|
(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 ($375,000).
|
(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
19.
|
(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, Compensation 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)
|
$
1,125,000
|
$
37,000
|
$
253,000
|
$
27,000
|
$
-
|
$
403,000
|
$
1,845,000
|
Robert
S. Tissue (d)
|
$
418,000
|
$
23,000
|
$
184,000
|
$
13,000
|
$
38,000
|
$
169,000
|
$
845,000
|
Patrick
N. Frye (d)
|
$
433,000
|
$
22,000
|
$
250,000
|
$
18,000
|
$
47,000
|
$
204,000
|
$ 974,000
|
C.
David Robertson (e)
|
$
381,000
|
$
22,000
|
$
141,000
|
$
-
|
$
-
|
$
-
|
$
544,000
|
Ronald
F. Miller (e)
|
$
442,000
|
$
22,000
|
$
141,000
|
$
9,000
|
$
-
|
$
165,000
|
$
779,000
|
|
(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
$281,000.
• 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 19) 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 $162,000 for Mr. Frye.
|
(e)
|
If
Messrs. Robertson and Miller employment are involuntarily terminated
or
they voluntarily terminate their employment for the reasons described
in
the Compensation Discussion and Analysis, which begins on page 19,
then
they are entitled to severance equal to their monthly base salary
in
effect on either (i) the date of termination; or (ii) the date immediately
preceding the change of control, whichever is higher, multiplied
by the
number of full months between the date of termination and the date
that is
eighteen (18) months after the date of consummation of the change
of
control.
|
Director
Compensation 2006
Name(1)
|
Fees
Earned or
Paid
in
Cash
($)(2)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings(3)
|
All
Other
Compensation
($)(4)
|
Total
($)
|
Frank
A. Baer, III
|
$
10,275
|
-
|
-
|
-
|
-
|
-
|
$
10,275
|
Oscar
M. Bean
|
$
32,825
|
-
|
-
|
-
|
-
|
-
|
$
32,825
|
Dewey
F. Bensenhaver
|
$
13,625
|
-
|
-
|
-
|
-
|
-
|
$
13,625
|
James
M. Cookman
|
$
11,450
|
-
|
-
|
-
|
-
|
-
|
$
11,450
|
John
W. Crites
|
$
17,020
|
-
|
-
|
-
|
-
|
-
|
$
17,020
|
James
P. Geary
|
$
7,450
|
-
|
-
|
-
|
-
|
-
|
$
7,450
|
Thomas
J. Hawse, III
|
$
17,375
|
-
|
-
|
-
|
-
|
-
|
$
17,375
|
Phoebe
F. Heishman
|
$
14,600
|
-
|
-
|
-
|
-
|
-
|
$
14,600
|
Gary
L. Hinkle
|
$
17,875
|
-
|
-
|
-
|
-
|
-
|
$
17,875
|
Gerald
W. Huffman
|
$
12,950
|
-
|
-
|
-
|
-
|
-
|
$
12,950
|
Duke
A. McDaniel
|
$
11,875
|
-
|
-
|
-
|
-
|
-
|
$
11,875
|
G.
R.
Ours, Jr.
|
$
12,600
|
-
|
-
|
-
|
-
|
-
|
$
12,600
|
Charles
S. Piccirillo
|
$
16,800
|
-
|
-
|
-
|
-
|
-
|
$
16,800
|
(1) (1)Harold
K. Michael was a director of the Company’s Board of Directors until February 10,
2006. Mr. Michael did not receive any fees as a director during 2006 because
Mr.
Michael did not attend any meetings in 2006.
(2) (2)Directors
of the Company received $1,000 per board meeting attended in 2006. 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. Included in Mr. Bean’s fees is the
fee for serving as Chairman of the Board of Directors.
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, which
are
included in the above table. 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. Messrs. Robertson, Frye and Miller are also members of
a
subsidiary bank of the Company and receive fees for service. The fees received
by Messrs. Maddy, Robertson, Frye and Miller 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.
(3) (3)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. The Company has not provided above-market or preferential
earnings on any non-qualified deferred compensation and, accordingly, no such
amounts are reflected in the above table.
(4) (4)Certain
members of the Company’s Board of Directors receive health insurance coverage
under the Company’s health insurance plan. This benefit is only available for
directors originally elected to the Board prior to 1994. For those still
receiving health insurance coverage, such coverage will be eliminated upon
their
retirement. The amount of the coverage provided did not exceed $10,000 for
any
one director.
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
James
P.
Geary
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, 2007,
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
17, 2007
Meeting
Date
|
Position,
Principal Occupation and
Business
Experience
|
Amount
of Beneficial
Ownership
of Shares of
Common
Stock as of
March
10, 2007
|
|
|
Shares
|
%
|
H.
Charles Maddy, III ...……44
|
Director
of Summit Financial Group since 1993. President and CEO of Summit
Financial Group since 1994. Director of the Federal Home Loan Bank
of
Pittsburgh (“FHLB”) since 2002, Chairman of the FHLB Audit Committee.
Chairman of Summit Community Bank Board of Directors since 2002.
|
95,648(1)
|
1.31%
|
Robert
S. Tissue…………….43
|
Senior
Vice President and Chief Financial Officer of Summit Financial
Group since
1998.
|
67,381(2)
|
*
|
Patrick
N. Frye...……………48
|
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.
|
35,999(3)
|
*
|
C.
David Robertson…….......63
|
President
and Chief Executive Officer of Summit Community Bank since
1999.
|
41,537(4)
|
*
|
Ronald
F. Miller ……………63
|
Director
of Summit Financial Group since 1998. President and CEO of Shenandoah
Valley National Bank since 1998.
|
44,768(5)
|
*
|
Scott
C. Jennings……………45
|
Senior
Vice President and Chief Operating Officer of Summit Financial
Group since
2000. Vice President and Director of Technology and Loan Administration
of
Summit Financial Group, 1999 - 2000.
|
38,825(6)
|
*
|
Douglas
T. Mitchell…...……43
|
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
1,672 shares owned by spouse, 18,144 fully vested shares held in Company’s ESOP
and exercisable stock options for 69,800 shares; 2,768 shares are pledged as
collateral.
(2) Includes
3,593 fully vested shares held in Company’s ESOP and exercisable stock options
for 51,720 shares.
(3) Includes
3,687 fully vested shares held in Company’s ESOP and exercisable stock options
for 28,320 shares; 3,992 shares are pledged as collateral.
(4) Includes
1,670 shares owned by spouse, 4,267 fully vested shares held in Company’s ESOP
and exercisable stock options for 15,600 shares.
(5) Includes
5,178 fully vested shares held in Company’s ESOP and exercisable stock options
for 31,120 shares.
(6) Includes
8,905 fully vested shares held in Company’s ESOP and exercisable stock options
for 29,720 shares.
(7)
Includes
exercisable stock options for 10,000 shares.
PRINCIPAL
SHAREHOLDER
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, 2007.
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(1)
|
7.49%
|
(1) Includes
191,240 shares owned by Allegheny Wood Products, Inc. of which Mr. Crites is
Chairman.
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 2008 Annual Meeting of Shareholders must be received by us, Attention:
Secretary, at our principal executive offices by December 10, 2007, for
inclusion in the proxy statement and form of proxy relating to that
meeting.
Stock
Transfers
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, 2006, 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 2006. 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
10,
2007
Appendix
A
COMPENSATION
AND NOMINATING COMMITTEE CHARTER
I. Membership
Requirements
The
Compensation and Nominating Committee of the Board of Directors of Summit
Financial Group, Inc. (the “Company”) shall consist of a minimum of four
directors. These should include the chair of the Audit and Executive Committees.
Members of the committee shall be appointed and may be removed by the Board
of
Directors. All members of the committee shall be independent directors as
determined by the Company’s Board of Directors in accordance with the applicable
rules of The NASDAQ Stock Market, Inc. (“NASDAQ”) and the Securities and
Exchange Commission (“SEC”). If the committee is comprised of at least three (3)
members, one director who is not independent and who is not a current officer
or
employee or a Family Member (as such term is defined by NASDAQ in its
Marketplace Rules), may be a member of the committee if the Company’s Board of
Directors determines that such individual’s membership on the committee is
required by the best interests of the Company and its shareholders and the
Board
of Directors discloses, in the proxy statement for the next annual meeting
subsequent to such determination, the nature and relationship and the reasons
for the determination. A member appointed under this exception may not serve
longer than two (2) years.
II. Purpose
and
Duties and Responsibilities Relating to Nomination of Directors
One
purpose
of the committee shall be to assist the Board in identifying qualified
individuals to become Board members, in determining the composition of the
Board
of Directors and its committees, in monitoring a process to assess Board
effectiveness and in developing and implementing the Company’s corporate
governance guidelines.
In
furtherance of this purpose, the committee shall have the following duties
and
responsibilities:
1. To
lead the
search for individuals qualified to become members of the Board of Directors
and
to select director nominees to be presented for share owner approval at the
annual meeting. The committee shall select individuals as director nominees
who
shall have the highest personal and professional integrity, who shall have
demonstrated exceptional ability and judgment and who shall be most effective,
in conjunction with the other nominees to the board, in collectively serving
the
long-term interests of the share owners. In identifying first-time nominees
for
director, or evaluating individuals recommended by stockholders, the
Compensation and Nominating Committee shall determine in its sole discretion
whether an individual meets the minimum qualifications approved by the Board
and
may consider the current composition of the Board 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.
2. To
review
the Board of Directors’ committee structure and to recommend to the Board for
its approval directors to serve as members of each committee. The committee
shall review and recommend committee slates annually and shall recommend
additional committee members to fill vacancies as needed.
3. To
develop
and recommend to the Board of Directors for its approval an annual
self-evaluation process of the Board and its committees. The committee shall
oversee the annual self-evaluations.
III. Purpose
and
Duties and Responsibilities Relating to Compensation
Another
purpose of the 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 reporting 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.
In
furtherance of this purpose, the committee shall have the following duties
and
responsibilities:
1. Annually
review and approve corporate goals and objectives relevant to CEO compensation
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. In determining base salary
and annual incentive compensation for the CEO, the committee will consider
base
salary information at comparable companies, cash equivalent compensation data
at
comparable companies, the perquisites provided to the CEO, the complexity of
job
duties of the CEO as compared to the perceived complexity of the duties of
similar executives at other comparable companies, the Company’s financial
performance and the CEO’s individual job performance In determining long-term
incentive compensation of the CEO, the committee will consider the Company’s
financial performance, relative stockholder return, the option adjusted total
compensation awarded to CEO’s at comparable companies and the awards given to
the CEO in the past years. The CEO may not be present during deliberations
or
voting concerning the CEO’s compensation.
2. Annually
review, approve and report to the Board of Directors all compensation
arrangements, including base salary, incentive compensation and long-term
compensation, for all Executive Officers.
3. Review,
approve and report to the Board of Directors compensation packages for new
Executive Officers and termination packages for Executive Officers.
4. 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.
5. 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.
6. 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.
IV. Authority
The
committee shall have the authority to delegate any of its responsibilities
to
subcommittees as the committee may deem appropriate in its sole
discretion.
The
committee shall have the authority to retain any search firm engaged to assist
in identifying director candidates, and to retain outside counsel and any other
advisors as the committee may deem appropriate in its sole discretion. The
committee shall have sole authority to approve related fees and retention
terms.
The
committee shall report its actions and recommendations to the Board after each
committee meeting. The committee shall review at least annually the adequacy
of
this charter and recommend any proposed changes to the Board for approval.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF
SUMMIT FINANCIAL GROUP, INC.
on
May 17, 2007
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 17, 2007, and
at
any adjournments thereof, as follows:
1.
Election of Directors to serve a three year term until the 2010 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.)
Oscar
M.
Bean
Dewey
F.
Bensenhaver
John
W.
Crites
James
P.
Geary, II
Phoebe F. Heishman Charles
S. Piccirillo
2. To
ratify the selection of Arnett & Foster, PLLC as Summit Financial Group
Inc.’s independent registered
public accounting firm for the year ended December 31,
2007.
[
]
FOR [
]
AGAINST
[ ]
ABSTAIN
3. In
their discretion, upon any other business which may properly come before
the
meeting or any adjournment
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 _______________________ ,
2007
_________________________
_________________________
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.