SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SUMMIT FINANCIAL GROUP, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
[ ] Fee paid previously with preliminary materials.
[ ] 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, for the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME.......................... 1:00 p.m., EDT, on May 13, 2004
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 2007;
(2) To approve an Amendment to the Articles
of Incorporation increasing the
Company's authorized shares;
(3) To ratify the selection of Arnett &
Foster, PLLC as the Company's
independent auditors for the fiscal
year ending December 31, 2004; and
(4) 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 31, 2004 shall
be entitled to notice and to vote at the
Meeting.
ANNUAL REPORT................. Our 2003 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 9, 2004
Oscar M. Bean
Chairman of the Board
TABLE OF CONTENTS
Page
PROXY STATEMENT
Principal Executive Office of the Company...........................1
Shareholders Entitled to Vote.......................................1
Proxies ............................................................1
Vote By Mail........................................................1
Voting at the Annual Meeting........................................1
Voting of Other Matters.............................................1
Required Vote.......................................................2
Cost of Proxy Solicitation..........................................2
Shareholder Account Maintenance.....................................2
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
Related Transactions................................................6
Indemnification.....................................................6
Fees and Benefit Plans for Directors................................6
Fees...........................................................6
Health Insurance...............................................7
Directors Deferral Plan........................................7
Shareholder Communications with Directors...........................7
Board Member Attendance at Annual Meeting...........................7
ITEM 1 -- ELECTION OF DIRECTORS..............................................8
Security Ownership of Directors and Officers........................8
NOMINEES FOR DIRECTOR WHOSE TERMS EXPIRE IN 2007.............................9
DIRECTORS WHOSE TERMS EXPIRE IN 2006........................................10
DIRECTORS WHOSE TERMS EXPIRE IN 2005........................................11
PRINCIPAL SHAREHOLDER.......................................................12
ITEM 2 -- AMENDMENT TO ARTICLES OF INCORPORATION............................13
ITEM 3 -- APPROVAL OF AUDITORS..............................................14
AUDIT AND COMPLIANCE COMMITTEE REPORT.......................................15
Fees Paid to Arnett & Foster, PLLC.................................15
Audit and Compliance Committee.....................................16
EXECUTIVE OFFICERS..........................................................17
EXECUTIVE COMPENSATION......................................................18
Cash Compensation..................................................18
Summary Compensation Table ........................................18
i
EXECUTIVE COMPENSATION COMMITTEE REPORT.....................................19
Overview of Compensation Philosophy................................19
Salaries......................................................19
Annual Incentive Compensation.................................19
Long-term Incentive Compensation..............................19
Evaluation of Executive Performance................................19
Total Compensation.................................................20
Salaries ..........................................................20
President and CEO.............................................20
Other Named Executive Officers................................20
Annual Incentive Compensation......................................20
Long-Term Incentive Compensation - Stock Option Plan...............20
President and CEO.............................................21
Other Named Executive Officer.................................21
Compensation Committee Interlocks and Insider Participation........21
Glossary...........................................................21
Stock Options.................................................21
Named Executive Officers......................................21
Peer Group....................................................21
COMPENSATION AND NOMINATING COMMITTEE.......................................21
Employment Agreements and Change of Control Agreement..............21
Summit Financial Group, Inc. Plans.................................23
401(k) Profit Sharing Plan....................................23
ESOP..........................................................23
Executive Supplemental Retirement Plan........................23
Incentive Compensation Plan...................................24
Officer Stock Option Plan.....................................24
STOCK OPTION GRANTS IN 2003.................................................25
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE.............................26
SHAREHOLDER RETURN PERFORMANCE GRAPH........................................27
REQUIREMENTS, INCLUDING DEADLINE, FOR SUBMISSION
OF PROXY PROPOSALS, NOMINATION OF DIRECTORS AND
OTHER BUSINESS OF SHAREHOLDERS.....................................28
Stock Transfers...............................................28
ANNUAL REPORT.............................................................. 29
FORM 10-K...................................................................29
APPENDIX A - Audit and Compliance Committee Charter
APPENDIX B - Compensation and Nominating Committee Charter
ii
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PROXY STATEMENT
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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 2004 Annual Meeting of Shareholders and at any adjournment or
postponement.
You are invited to attend our Annual Meeting of Shareholders on May 13,
2004, 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, 2004.
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 31, 2004, are entitled to receive this notice and to vote their shares at
the Annual Meeting. As of that date, there were 3,510,120 common shares
outstanding. Each common share is entitled to one vote on each matter properly
brought before the Annual Meeting.
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 to us 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. At the date this proxy statement
went to press, we do 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.
A plurality of the votes cast is required for the election of
Directors. Abstentions and broker "non-votes" are not counted for purposes of
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 2004 Annual Meeting, the total number of directors to be elected
is six (6) in the class expiring in 2007. 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.
On the record date, there were 3,510,120 shares of common stock
outstanding which are held by approximately 1,280 shareholders of record. A
majority of the outstanding shares of Summit Financial Group, Inc. will
constitute a quorum at the meeting.
The affirmative vote of a majority of the votes cast is required to
approve the appointment of Arnett & Foster, PLLC. Abstentions and broker
"non-votes" are not counted for purposes of approving this matter.
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, facsimile transmission or by telegram.
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
We act as our own Transfer Agent. All communications concerning
accounts of shareholders of record, including address changes, names changes,
inquiries as to requirements to transfer common shares and similar issues can be
handled by contacting Teresa Sherman by telephone at (304) 530-0526, or by
e-mail at TSHERMAN@SUMMITFGI.COM.
2
Section 16(a) Beneficial Ownership
Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
Directors and executive officers to file reports of holdings and transactions in
Summit shares with the SEC. Based on our records and other information, in 2003
all Directors and executive officers met all applicable SEC filing requirements
under Section 16(a), except for G. R. Ours, Jr., James P. Geary, Frank A. Baer
and C. David Robertson. Mr. Ours had one late report relating to two
transactions. Messrs. Geary and Baer each had one late report relating to one
transaction. Mr. Robertson had three late reports relating to three transactions
of his spouse.
3
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GOVERNANCE OF THE COMPANY
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Board and Committee Membership
During 2003, the Board of Directors met four (4) times. All of our
Directors attended 75% or more of the meetings of the Board and the meetings
held by committees of the Board on which the directors served in 2003 with the
exception of Duke A. McDaniel, who attended 67% of the meetings.
The Company has a standing Executive Committee, Audit and Compliance
Committee, and a Compensation and Nominating Committee.
The directors that meet the independence requirement of the NASDAQ
listing standards are: Frank A. Baer, III, Dewey F. Bensenhaver, James M.
Cookman, John W. Crites, James P. Geary, Thomas J. Hawse, III, Phoebe F.
Heishman, Gary L. Hinkle, Gerald W. Huffman, Duke A. McDaniel, Harold K.
Michael, G. R. Ours and Charles S. Piccirillo.
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, James P. Geary and G. R. Ours, Jr. Gerald Huffman and Phoebe Heishman
served as alternate members of the Executive Committee. The Executive Committee
met 4 times in 2003.
Under the NASDAQ listing standards, the following members of the
Executive Committee are independent: John W. Crites, Charles S. Piccirillo, Duke
A. McDaniel, James P. Geary and G. R. Ours.
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:
o Serving as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
o Providing direction to and oversight of the Company's internal audit
function.
o Reviewing and appraising the efforts of the Company's independent auditors.
o Maintaining a free and open means of communication between directors,
internal audit staff, independent auditors, and management.
The Audit and Compliance Committee has adopted a written charter. A
copy of the charter is attached to this Proxy Statement as Appendix A.
Current members of this committee are G. R. Ours, Chairman, John W.
Crites, Thomas J. Hawse, Gerald W. Huffman and Charles S. Piccirillo. The Audit
Committee met 5 times in 2003.
Under the NASDAQ listing standards' definition of independence, all
members of the Audit and Compliance Committee are independent.
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.
4
Under the SEC rules, an "audit committee financial expert" has the
following attributes:
o An understanding of generally accepted accounting principles and financial
statements.
o An ability to assess the general application of generally accepted
accounting principles in connection with the accounting for estimates,
accruals and reserves.
o 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.
o An understanding of internal controls and procedures for financial
reporting; and
o An understanding of audit committee functions.
A person must possess all of the above attributes to qualify as an
audit committee financial expert.
No current member of the Company's Audit and Compliance Committee has
all five of the above attributes which would qualify them as an "audit committee
financial expert."
However, two members of the Audit and Compliance Committee, Thomas J.
Hawse, III and John W. Crites qualify as a "financial expert" under the NASDAQ
listing standards, which standards are different from the SEC rules. Under the
NASDAQ listing standards, 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. Both Mr. Hawse and Mr. Crites have the necessary
experience to qualify them as "financial experts" under the NASDAQ listing
standards. The Board of Directors believes that the presence of Messrs. Hawse
and Crites on the Audit and Compliance Committee and their qualification as
"financial experts" under the NASDAQ listing standards is adequate to assist the
Audit and Compliance Committee in fulfilling its duties as set forth in its
charter. Management and the Board will continue to monitor the availability and
need of an "audit committee financial expert" under the SEC rules.
For information concerning the audit fees paid by the Company in 2003
and for information about the Company's independent auditors generally, see
Audit and Compliance Committee Report on page 13 of these Annual Meeting
materials.
Compensation and Nominating Committee
The Compensation and Nominating Committee consists of a minimum of 4
directors. The current members of the Compensation and Nominating Committee are
John W. Crites, James P. Geary, Gary L. Hinkle, G. R. Ours and Charles S.
Piccirillo. All members of the Compensation and Nominating Committee are
independent, as independence is defined under the NASDAQ listing standards. The
Compensation and Nominating Committee met once in 2003.
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.
5
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 28 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 B.
Another purpose of the Compensation and Nominating Committee is to
establish the salary and the other compensation of the President and CEO of the
Company. The Committee also reviews and approves the salary recommendation of
the Company's CEO concerning the other Executive Officers. For more information
regarding the Committee's philosophy and evaluation of executive performance,
see Executive Compensation Committee Report on page 19 of these Annual Meeting
materials.
Related Transactions
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, Capital State Bank, Inc., 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.
Indemnification
We indemnify our Directors and officers to the fullest extent permitted
by law so that they will serve free from undue concern that they will not be
indemnified. This is required under our By-laws.
Fees and Benefit Plans for Directors
Fees. Directors of the Company received $750 per board meeting attended
in 2003. Non-employee Directors of the Company who serve on the Company's Audit
and Compliance Committee received $500 for each meeting attended. Non-employee
Directors serving on other Company Committees received $150 per committee
meeting attended.
6
In addition to his meeting fees, the Chairman of the Board of Directors
received a Chairman's fee of $833 per month in 2003. For several years, $100 of
this fee has been classified as compensation solely to permit Mr. Bean to be
insured under the Company's workers' compensation insurance. Such workers'
compensation insurance was deemed necessary to cover the Chairman while
traveling on behalf of the Company.
Under the NASDAQ independence standard, this compensation and the
accompanying insurance coverage could cause Mr. Bean to be deemed an "employee"
of the Company even though Mr. Bean was acting in his capacity as Chairman of
the Board. The Company has assumed that Mr. Bean would be treated as an employee
under the NASDAQ independence standard and would therefore not be considered
independent. Accordingly, effective April 1, 2004, Mr. Bean no longer receives
this compensation and insurance coverage.
Health Insurance. Certain members of the Company's Board of Directors
receive payments for health insurance premiums from the Company's subsidiary
bank, Summit Community Bank. This benefit is not available for directors elected
in 1994. For those still receiving payments, such payments will be eliminated
upon their retirement. The following members of the Board continued to receive
these payments in the amounts indicated for 2003. Oscar M. Bean - $7,653, Dewey
F. Bensenhaver - $7,653, John W. Crites - $5,430, James Paul Geary - $4,707,
Thomas J. Hawse - $734, Phoebe F. Heishman - $7,869, Gary L. Hinkle - $5,430,
Gerald W. Huffman - $5,430, Duke R. McDaniel - $5,512, and G. R. Ours, Jr. -
$3,643, totaling $54,061.
Directors Deferral Plan. 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 separate variable life insurance contracts.
Benefits payable to participant directors at retirement under the Plan will
equate to the then current value of the individual variable life insurance
contracts.
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 the individual Directors c/o Secretary, Summit Financial
Group, Inc., 300 N. Main Street, Moorefield, West Virginia 26836. All
communications will be compiled by the Secretary of the Company and submitted to
the Board of Directors or to the individual Directors on a periodic basis.
Board Member Attendance at Annual Meeting
The Company does not have a policy with regard to directors' attendance
at annual meetings. Thirteen (13) of seventeen (17) Directors on the Board of
Directors in 2003 attended the 2003 Annual Meeting of Shareholders.
7
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ITEM 1 - ELECTION OF DIRECTORS
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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 2004 Annual Meeting to serve for a three-year term
expiring at our Annual Meeting in the year 2007. If the proposed nominees are
elected, the Company will have a Board of Directors consisting of two classes of
six (6) directors each and one class of five (5) directors.
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 2007, at the Annual Meeting: Oscar
M. Bean, Dewey F. Bensenhaver, John W. Crites, James P. Geary, Phoebe F.
Heishman and Charles S. Piccirillo.
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. 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 9, 2004, 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 948,738 shares or
27% of the Company's common stock as of March 9, 2004. Each director of the
Company is required to own a minimum of 1,000 shares of the Company's common
stock. Ownership is defined as shares held in the individual's own name, jointly
with spouse, or by a company where the individual has controlling interest.
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 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.
8
Name and Age as of the Amount of Beneficial
May 13, 2004 Position, Principal Occupation Ownership of Shares of
Meeting Date Business Experience and Directorships Common Stock
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NOMINEES FOR DIRECTOR WHOSE TERMS EXPIRE IN 2007
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Shares %
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Oscar M. Bean................53 Director of Summit Financial Group since 1987. 34,968(1) *
Chairman of the Board since 1995. Chairman of
Summit Financial Group's Executive Committee.
Managing partner of Bean & Bean, Attorneys at
Law.
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Dewey F. Bensenhaver.........57 Director of Summit Financial Group since 2000. 18,020(2) *
Physician in private practice. Owner of farming
operation.
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John W. Crites...............63 Director of Summit Financial Group since 1989. 292,832(3) 8.23%
President of Allegheny Wood Products, Inc. and a
partner in Allegheny Dimension, LLC. Principal
stockholder of KJV Aviation, Inc.
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James P. Geary...............77 Director of Summit Financial Group since 2000. 108,000 3.04%
Managing Partner of the law firm of Geary &
Geary. Sole stockholder of Landimer, Inc., a
farming and real estate corporation.
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Phoebe F. Heishman...........63 Director of Summit Financial Group since 1987, 46,760(4) 1.31%
Secretary since 1995. Publisher and Editor of
The Moorefield Examiner.
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Charles S. Piccirillo........49 Director of Summit Financial Group since 1998. 9,152(5) *
Partner in the law firm of Shaffer & Shaffer.
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(1) Includes 2,420 shares owned by spouse, 1,972 shares owned by minor children.
(2) Includes 2,249 shares owned by spouse and 7,523 shares owned by minor
children.
(3) Includes 95,620 shares owned by Allegheny Wood Products, Inc.
(4) Includes 880 shares owned by spouse and 5,980 shares owned by children for
whom she has a power of attorney.
(5) Includes 7,640 shares owned by self-directed 401(k) and 200 shares owned by
spouse.
* Indicates director owns less than 1% of the Company's Common Stock.
9
Name and Age as of the Amount of Beneficial
May 13, 2004 Position, Principal Occupation Ownership of Shares of
Meeting Date Business Experience and Directorships Common Stock
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DIRECTORS WHOSE TERMS EXPIRE IN 2006
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Shares %
- ----------------------------------- -------------------------------------------------- ---------------- --------------
James M. Cookman............50 Director of Summit Financial Group since 1994. 14,208(1) *
President of Cookman Insurance Group, Inc.
President of Cookman Realty Group, Inc.
Secretary/ Treasurer of Apex Developers, Inc.
Member of BeaconNet, L.L.C. 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
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Thomas J. Hawse, III........59 Director of Summit Financial Group since 1988. 15,750(2) *
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.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Gary L. Hinkle..............54 Director of Summit Financial Group since 1993. 129,080(3) 3.63%
President of Hinkle Trucking, Inc., Dettinburn
Transport, Inc., Mt. Storm Fuel Corporation and
H. T. Services, Inc.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Gerald W. Huffman...........59 Director of Summit Financial Group since 2000. 29,624 *
President of Potomac Trucking & Excavation,
Inc., Huffman Logging, Inc. and G&T Repair, Inc.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
H. Charles Maddy, III.......41 Director of Summit Financial Group since 1993. 28,730(4) *
President and CEO of Summit Financial Group
since 1994. Director of the Federal Home Loan
Bank of Pittsburgh since 2002. Chairman of
Summit Community Bank Board of Directors since
2002.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Harold K. Michael...........60 Director of Summit Financial Group since 1994. 4,756 *
Owner/Agent of H. K. Michael Insurance Agency.
Member of the West Virginia House of Delegates.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
(1) Includes 9,476 shares owned by Cookman Insurance Center, Inc. Retirement
Plan and 1,896 shares owned by minor children.
(2) Includes 500 shares owned by spouse and 150 shares owned by minor children.
(3) Includes 24,280 shares owned by Hinkle Trucking, Inc., 3,880 shares owned by
self-directed IRA and 2,280 shares owned by spouse.
(4) Includes 586 shares owned by spouse, 8,228 fully vested shares held in
Company's ESOP and exercisable stock options for 16,900 shares.
* Indicates director owns less than 1% of the Company's Common Stock.
10
Name and Age as of the Amount of Beneficial
May 13, 2004 Position, Principal Occupation Ownership of Shares of
Meeting Date Business Experience and Directorships Common Stock
- ----------------------------------------------------------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2005
- ----------------------------------------------------------------------------------------------------------------------
Shares %
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Frank A. Baer, III...........43 Director of Summit Financial Group since 1998. 11,392(1) *
CEO of Commercial Insurance Services, an
insurance brokerage firm. Vice President of M &
B Properties, a real estate holding company.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Patrick N. Frye..............45 Director of Summit Financial Group since 2000. 3,354(2) *
President and CEO of Summit Community Bank
since December, 1998.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Duke A. McDaniel.............65 Director of Summit Financial Group since 2000. 21,252 *
Attorney at Law.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
Ronald F. Miller.............60 Director of Summit Financial Group since 1998. 21,492(3) *
President and CEO of Shenandoah Valley National
Bank since 1998.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
G. R. Ours, Jr...............72 Director of Summit Financial Group and Vice 115,000(4) 3.23%
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.
- ----------------------------------- -------------------------------------------------- ---------------- --------------
(1) Includes 296 shares owned by minor children.
(2) Includes 1,358 fully vested shares held in Company's ESOP.
(3) Includes 10,000 shares owned by self-directed IRA, 2,052 fully vested
shares held in Company's ESOP and exercisable stock options for 9,240
shares.
(4) Includes 10,000 shares owned by spouse and 40,000 shares owned by
children for whom director has continuous voting proxy until rescinded.
* Indicates director owns less than 1% of the Company's Common Stock.
11
- --------------------------------------------------------------------------------
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 9, 2004.
Amount and
Name and Address of Nature of Beneficial
Title of Class Beneficial Owner Ownership % of Class
Common Stock John W. Crites 292,832(1) 8.23%
P. O. Box 867
Petersburg, WV 26847
(1) Includes 95,620 shares owned by Allegheny Wood Products, Inc.
12
- --------------------------------------------------------------------------------
ITEM 2 - AMENDMENT TO ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
Description of Proposed Amendment
The Company's Board of Directors, by written consent and agreement
dated March 12, 2004, unanimously adopted resolutions approving and recommending
to the Stockholders for their adoption an Amendment to the Articles of
Incorporation ("Articles") of the Company. This Amendment provides that Article
IV of the Company be amended in order to increase the number of authorized
shares of the Company from 5,000,000 shares of common stock at a par value of
$2.50 each to 20,000,000 shares of authorized common stock with a par value of
$2.50 each. Specifically, Article IV of the Articles, which now reads as
follows:
"IV. The amount of total authorized capital stock of said Corporation shall
be Twelve Million Five Hundred Thousand Dollars ($12,500,000) which shall
be divided into Five Million (5,000,000) shares of common stock with the
par value of $2.50."
would be amended to read as follows:
"IV. The amount of total authorized capital stock of said Corporation shall
be Fifty Million Dollars ($50,000,000) which shall be divided into Twenty
Million (20,000,000) shares of common stock with the par value of $2.50."
The proposed increase in the authorized common stock has been
recommended by the Board of Directors to assure that an adequate supply of
authorized, unissued shares is available for general corporate needs, such as
future stock dividends or stock splits, acquisitions, conversion of preferred
stock to common stock, if any, and for other general corporate purposes, without
the expense and delay incidental to obtaining shareholder approval of an
amendment to the Articles increasing the number of authorized shares at the time
of such action.
If the proposed amendment is approved by the shareholders, the
additional shares of common stock so authorized could be issued, in the
discretion of the Board, for any proper corporate purpose, without further
action by the shareholders other than as may be required by applicable law.
Existing shareholders do not have preemptive rights with respect to future
issuances of common stock by the Company and their interest in the Company could
be diluted by such issuance with respect to any of the following: earnings per
share, voting, liquidation right and book and market value. Accordingly, the
Board of Directors will, in the exercise of their fiduciary duties to the
shareholders, weigh all the factors carefully, together with the needs and
prospects of the Company, before committing to the issuance of further shares
not requiring shareholder approval.
The increase of the authorized shares, if approved will take effect on
the date the Amended Articles of Incorporation are filed with the Secretary of
State of West Virginia.
Vote Required For Adoption of The Proposed Amendment
Under West Virginia law, any amendment to the Articles of Incorporation
requires the approval of a majority of the holders of the outstanding stock of
the Corporation entitled to vote at the Annual Meeting.
The Company's Board of Directors unanimously recommends that the
stockholders vote FOR adoption of the amendment to the Articles discussed above.
13
- --------------------------------------------------------------------------------
ITEM 3 - APPROVAL OF AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors has appointed Arnett & Foster, PLLC to serve as
our independent auditors for 2004, subject to the approval of our shareholders.
For information concerning the audit fees paid by the Company in 2003 and for
information about the Company's auditors generally, See the Audit and Compliance
Committee Report on page 15 of the Annual Meeting Materials.
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 approval of this proposal.
The Board of Directors recommends a vote FOR the approval of Arnett &
Foster, PLLC as our independent auditors for the year 2004.
14
- --------------------------------------------------------------------------------
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 G. R. Ours, Jr., Chairman, John W. Crites, Thomas J.
Hawse, 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 written charter is attached to
this Proxy Statement as Appendix A.
The Audit and Compliance Committee has reviewed the audited financial
statements of the Company for the fiscal year ended December 31, 2003, 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 fiscal year ended December 31, 2003, be
included in the Company's Annual Report on Form 10-K for 2003.
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, 2003 2002, and fees for other
services rendered by Arnett & Foster, PLLC during those periods:
2003 2002
---- ----
Audit Fees(1) $171,000 $166,000
Audit-Related Fees(2) 17,000 14,000
Tax Fees(3) 12,000 16,000
All Other Fees(4) - 5,000
------- -------
Total Fees 200,000 201,000
======= =======
(1) Audit Fees - These are fees for professional services performed by
Arnett & Foster, PLLC for the audit of the Company's annual financial statements
and review of the quarterly financial statements.
(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.
15
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:
o 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.
o 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 is the audit of the
Company's consolidated financial statements.
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 p. 4 of these annual meeting materials.
AUDIT AND COMPLIANCE COMMITTEE
G. R. Ours, Jr., Chairman
John W. Crites
Thomas J. Hawse
Gerald W. Huffman
Charles S. Piccirillo
16
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The Executive Officers of Summit Financial Group, Inc., as of March 31, 2004,
are as follows:
Name Age Position and Background
H. Charles Maddy, III (1) 41 President and Chief Executive Officer
of Summit Financial Group since 1994;
President and Chief Executive Officer
of South Branch Valley National Bank
from 1993 to 2002.
Ronald F. Miller (1) 60 President and Chief Executive Officer
of Shenandoah Valley National Bank
since 1998.
C. David Robertson (1) 60 President and Chief Executive Officer
of Capital State Bank, Inc. since 1999.
Patrick N. Frye (1) 45 President and Chief Executive Officer
of Summit Community Bank since 1998.
Robert S. Tissue (1) 40 Senior Vice President and Chief
Financial Officer of Summit Financial
Group since 1998.
Scott C. Jennings(1) 42 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.
- --------------------------
(1) The beneficial ownership of shares of Summit Financial Group's common
stock of each Named Executive Officer as of March 9, 2004 is as follows:
Mr. Maddy - 28,730 shares; Mr. Miller - 21,492 shares; Mr. Robertson -
13,512 shares; Mr. Frye - 3,354 shares; Mr. Tissue - 22,092 shares; and
Mr. Jennings - 8,764 shares. Each of the Named Executive Officers owns
less than one percent of the Company's issued and outstanding shares.
17
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Cash Compensation
The table below sets forth the cash compensation of the Company's CEO
and the five most highly compensated Executive Officers other than CEO who
earned $100,000 or more in salary and bonus for the years ended December 31,
2003, 2002, and 2001.
- -----------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
- --------------------------------- --------------------------------------------------- ---------------
Securities
Name and Other Underlying All
Principal Position Year Salary Bonus Compensation(1) Options Other(2)
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
H. Charles Maddy, III 2003 $270,000 $97,337 - 6,000 $47,620
President and Chief
Executive Officer - 2002 $230,000 $80,805 - 3,500 $43,442
Summit Financial Group
2001 $190,000 $70,623 - 3,000 $48,307
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
Scott C. Jennings 2003 $110,100 $60,659 - 3,500 $18,312
Senior Vice President and
Chief Operating Officer - 2002 $100,100 $51,860 - 2,200 $14,109
Summit Financial Group
2001 $80,000 $40,032 - 2,000 $17,124
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
Robert S. Tissue 2003 $110,000 $60,659 - 3,500 $13,205
Senior Vice President and Chief
Financial Officer - 2002 $100,000 $51,860 - 2,200 $11,428
Summit Financial Group
2001 $80,000 $6,453 - 2,000 $8,400
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
Patrick N. Frye 2003 $130,000 $60,103 - 3,000 $25,518
President and Chief
Executive Officer - 2002 $120,000 $56,925 - 2,200 $21,595
Summit Community Bank
2001 $110,000 $43,694 - 2,000 $20,900
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
C. David Robertson 2003 $137,200 $29,731 - 3,000 $20,040
President and Chief
Executive Officer - 2002 $133,200 $64,600 - 2,200 $19,365
Capital State Bank, Inc.
2001 $129,300 $16,156 - 2,000 $22,528
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
Ronald F. Miller 2003 $137,200 $10,200 - 3,000 $24,044
President and Chief
Executive Officer - 2002 $133,200 $58,452 - 2,200 $22,174
Shenandoah Valley
National Bank 2001 $129,300 $57,600 - 2,000 $25,517
- --------------------------------- ------- ------------ ------------ ----------------- --------------- -----------
(1) None of the Named Executive Officers received perquisites or other
personal benefits, securities or property during 2003 which, in the
aggregate cost the Company an amount that equaled or exceeded the lesser
of $50,000 or 10% of the Named Executive Officer's salary and bonus
earned during the year.
(2) Amount for 2003 includes payments made to the Company's 401(k) Profit
Sharing Plan and ESOP on behalf of Mr. Maddy ($22,409), Mr. Jennings
($12,111), Mr. Tissue ($12,100), Mr. Frye ($14,300), Mr. Miller
($15,092), and Mr. Robertson ($14,921). The 2003 amount also includes
fees paid to Mr. Maddy ($18,125), Mr. Frye ($8,375), Mr. Miller ($8,250)
and Mr. Robertson ($4,500) as members of the Company's and its subsidiary
banks' Boards of Directors. Finally, the amount shown includes the 2003
amount accrued for the benefit of Mr. Maddy ($6,574), Mr. Jennings
($5,890), Mr. Tissue ($601) and Mr. Frye ($2,212) in connection with the
Company's Executive Supplemental Retirement Plan and the value of Mr.
Maddy's ($512), Mr. Jennings' ($311), Mr. Tissue's ($504), Mr Frye's
($631), Mr. Miller's ($702) and Mr. Robertson's ($619) split dollar life
insurance benefit included in the Plan.
18
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION COMMITTEE REPORT
- --------------------------------------------------------------------------------
Please see the glossary at the end of this report for definitions of
the capitalized terms used in this report which have not already been defined in
this Proxy Statement.
Overview of Compensation Philosophy
Summit's Compensation and Nominating Committee evaluates executive
compensation annually. The Committee establishes the salary and other
compensation of the President and CEO of the Company. The Committee also reviews
and approves the salary recommendation of the Company's CEO concerning the other
Named Executive Officers. Employee members of the Compensation and Nominating
Committee of the Company do not participate in discussions concerning their
individual compensation or the compensation of the CEO.
The Company's executive compensation program is designed to:
o retain executive officers by paying them competitively, motivate them to
contribute to the Company's success, and reward them for their performance;
o link a substantial part of each executive officer's compensation to the
performance of both the Company and the individual executive officer; and
o encourage ownership of Company common stock by executive officers.
As discussed below, the program consists of, and is intended to
balance, three elements:
o Salaries. Salaries are based on the Committee'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.
o Annual Incentive Compensation. Executive Annual Incentive Compensation is
based on an evaluation of both individual and Company performance against
qualitative and quantitative measures.
o 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.
Evaluation of Executive Performance
The Committee does not usually rely solely on predetermined formulae 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 Committee
considers:
o management's overall accomplishments;
o the accomplishments of the individual executives;
o the Company's financial performance; and
o other criteria discussed below.
In 2003, management continued to effectively implement its long-term
strategies, which included:
o growth and expansion of its existing markets;
o expansion into new markets and new financial service products; and
o enhanced shareholder value.
19
The Committee believes that the success of these strategies is
evidenced by:
o the Company's financial performance in 2003;
o growth of the Company's loan portfolio; and
o growth of the Company's deposits.
Total Compensation
Target total compensation levels of Company executives are established
with consideration given to an analysis of competitive market total
compensation. The total compensation package for each executive is then broken
down into the basic components indicated above and discussed in more detail
below. In recent years, the Board and the Committee have been directing a shift
in the mix of the Company's executive compensation towards incentive
compensation, with 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 2004. Based on
available public data, the total compensation of Mr. Maddy and the other Named
Executive Officers generally fell in the median of total compensation paid by
the Peer Group to their executives holding equivalent positions. The Board and
the Committee believe that position was consistent with the performance of the
Company compared to the Peer Group.
Salaries
In setting salaries, the first element of executive compensation, the
Board did not use a predetermined formula. Instead, the 2003 salaries of the
President and CEO and the other executive officers were based on:
o the Board's evaluation of each officer's individual job performance;
o an assessment of the Company's performance; and
o a consideration of salaries paid by the Peer Group to executive officers
holding equivalent positions.
President and CEO. The 2003 salary of Mr. Maddy is shown in the salary
column of the Summary Compensation Table.
Other Named Executive Officers. The 2003 salaries of Messrs. Robertson,
Frye, Miller, Tissue and Jennings, the other Executive Officers, are shown in
the "Salary" column of the Summary Compensation Table.
Annual Incentive Compensation
The second element of the executive compensation program is the
Incentive Compensation Plan.
The Compensation and Nominating Committee adopts an Incentive
Compensation Plan annually. Under the terms of this plan, the Committee awards a
bonus based on a formula which primarily considers the return on average equity
of the Company and its bank subsidiaries.
For 2003, annual incentive compensation of $97,337 was paid to Mr. H.
Charles Maddy, III. The annual incentive compensation for 2003 paid to each of
the Named Executive Officers are shown in the "Bonus" column of the Summary
Compensation Table.
Long-Term Incentive Compensation -
Stock Option Plan
In 1998, Mr. Maddy and the other executive officers became eligible to
participate in the Company's long-term incentive compensation program, the third
element of executive compensation. As discussed under "Officer Stock Option
Plan" on page 24, the program consists of stock option grants made under the
Company's Officer Stock Option Plan.
20
President and CEO. Based upon this data, Mr. Maddy was awarded options
for 6,000 shares.
Other Named Executive Officers. The other Named Executive Officers were
awarded options as follows in 2003: Mr. Robertson - 3,000 shares; Mr. Frye -
3,000 shares; Mr. Miller - 3,000 shares; Mr. Jennings - 3,500 shares, and Mr.
Tissue - 3,500 shares. The stock options of the Named Executive Officers and all
other executive officers will vest over a five (5) year period with twenty (20)
percent of the options vesting each year.
Compensation Committee Interlocks and Insider Participation
Mr. Maddy served as a member of the Compensation and Nominating
Committee in 2003. Mr. Maddy is also the President and CEO of the Company. As
discussed above, the Company's Chairman, Mr. Bean, received nominal compensation
that could result in his being deemed an employee of the Company. Mr. Bean also
served on the Compensation and Nominating Committee in 2003. See the discussion
relating to the compensation paid to Mr. Bean on pages 6-7 of this Proxy
Statement under the title "Fees and Benefit Plans for Directors".
Glossary
Stock Options. Stock options granted under the Company's Officer Stock
Option Plan to certain management employees who are considered to have a
substantial impact on the Company's operations.
Named Executive Officers. This refers to the CEO and the five (5) most
highly compensated Executive Officers other than the CEO who earn salaries and
bonuses in excess of $100,000.
Peer Group. This group consists of all public banks and thrifts in the
United States with assets of $500 million - $1 billion.
COMPENSATION AND NOMINATING COMMITTEE
Oscar M. Bean
John W. Crites
James Paul Geary
Gary L. Hinkle
G. R. Ours, Jr.
Charles S. Piccirillo
Employment Agreements and Change of Control Agreement
The Company has entered into employment agreements with Messrs.
Miller, Robertson and Frye (the "Employment Agreements").
Mr. Miller's Employment Agreement provides for a three (3) year term
commencing on July 1, 2000; Mr. Robertson's Employment Agreement provides for a
five (5) year term commencing on February 5, 1999; and Mr. Frye's Employment
Agreement provides for a one (1) year term commencing on December 1, 2001. The
Employment Agreements require the Company's Board of Directors to review the
Employment Agreements annually after expiration of their respective terms. With
the consent of Messrs. Frye, Robertson and Miller, as applicable, the Employment
Agreements may be renewed annually for additional one-year terms, in which case
the term shall end one year from the date on which it is last renewed.
The Employment Agreements provide that these individuals will receive
base salaries equal to their current annual salaries. Mr. Frye is also eligible
for annual merit raises. Under their Employment Agreements, these individuals
participate in specified incentive compensation plans. Each individual is
entitled to receive employee pension and welfare benefits, including the
Executive Supplemental Retirement Plan benefits described on page 18 of these
proxy materials. Each also is entitled to receive group employee benefits, such
as sick leave, vacation, group disability and life and accident insurance.
Non-cash compensation includes the payment of club memberships and the lease of
a vehicle.
21
Mr. Maddy does not have an employment agreement with the Company.
However, effective January 26, 1996, the Company entered into a Change in
Control Agreement with H. Charles Maddy, III, its President and Chief Executive
Officer. In addition, Ronald F. Miller, C. David Robertson and Patrick N. Frye
have change in control provisions included in their Employment Agreements. The
change in control provisions in the Employment Agreements and Mr. Maddy's Change
in Control Agreement are referred to as the "Agreements". 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 Agreements provide severance compensation to Mr. Maddy
and Messrs. Miller, Robertson and Frye, 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 any of these persons voluntarily terminates employment
because of:
o 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;
o a material reduction in the importance of the executive's job
responsibilities without his consent;
o 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; o failure by the Company to obtain assumption of the contract by
its successor;
o failure of the Company to give notice of termination as required in the
Agreement; or
o 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 in 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
o 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
o 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 (?) of
the directors at the beginning of the period, or
o the consummation of a "Business Combination" as defined in the Company's
Articles of Incorporation.
22
In the case of Mr. Maddy, severance benefits include:
o cash payment equal to Mr. Maddy's 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 twenty-four
(24) months after the date of consummation of the change of control;
o payment of cash incentive award, if any, under the Company's bonus plan;
continuing participation in employee benefit plans and programs such as
retirement, disability and medical insurance for a period of twenty-four
(24) months following the date of termination.
Under their Agreements, both Mr. Maddy and Mr. Frye have the right to
terminate their employment without reason by giving written notice of
termination within six (6) months of consummation of any change of control. In
such event, Mr. Maddy and Mr. Frye will be entitled to receive a lump sum equal
to 75% of his salary, as defined in the Agreement.
In the case of Messrs. Miller, Frye and Robertson severance benefits
include:
o 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;
o payment of cash incentive award, if any, under the Company's bonus plan;
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 Mr.
Maddy or Messrs. Miller, Frye 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.
Summit Financial Group, Inc. Plans
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 and second year of credited service, and 20% per year
thereafter. Under the provisions of the plan, the Company matches 25% 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.
ESOP. The Company has an Employee Stock Ownership Plan (ESOP) covering
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 and second year
of credited service and 20% for each year thereafter. Under the provisions of
the plan, employee participants in the ESOP are not permitted to contribute to
the plan, rather the cost of the ESOP is borne by the Company through annual
contributions in amounts determined by the Company's Board of Directors.
Executive Supplemental 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.
23
The Plan is called the Executive Supplemental Retirement Plan and was
designed to provide an annual retirement benefit that will grow on a
tax-deferred basis. These benefits, when added to the retirement benefits that
will be provided by the Company's defined contribution plan and social security,
will provide each executive with benefit levels comparable to otherCompany
employees when measured as a percentage of salary at the time of retirement.
The Executive Supplemental Retirement Plan is also designed to provide
these benefits with the least risk to the Company's safety and soundness and at
the least possible cost. A portion of the benefits is determined by an indexed
formula. The index used in this plan to calculate the amount of the retirement
benefit is the earnings on a specific life insurance policy. The Company retains
the opportunity costs on the premiums paid. Any earnings in excess of the
opportunity costs are accrued to a liability reserve account for the benefit of
the executive. At retirement, this liability reserve account is paid out over a
specified period of years. In addition, the annual earnings in excess of the
opportunity costs are paid out annually after retirement. These payments will
continue for the life of the executive.
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 Bank owns the policy and its
entire surrender value.
For each of the Named Executive Officers, the average estimated annual
lifetime benefits payable upon retirement at normal retirement age are as
follows: H. Charles Maddy, III - $150,000; Ronald F. Miller - $55,000; C. David
Robertson - $50,000; Patrick N. Frye - $115,000; Scott C. Jennings - $120,000
and Robert S. Tissue - $120,000.
Incentive Compensation Plan. Summit annually adopts an incentive
compensation plan for the key employees of the Company and its bank
subsidiaries. Bonuses are awarded to key employees based on a prescribed formula
using the Company's and/or its subsidiary bank's return on equity as a base.
Officer Stock Option Plan. At our 1998 Annual Meeting, our shareholders
approved an Officer Stock Option Plan. Under the plan, the Company may award
options for up to 480,000 shares of the Company's stock to qualified officers of
the Company and its subsidiaries. Each option granted under the Plan shall have
an exercise price of no less than the fair market value of Company's common
stock as of the date of grant. Options granted under the plan vest according to
a schedule designated at the grant date.
24
- --------------------------------------------------------------------------------
STOCK OPTION GRANTS IN 2003
- --------------------------------------------------------------------------------
This table shows all options to purchase our common stock granted to
each applicable Named Executive Officer in 2003.
- ---------------------------------------------------------------------------------------------------------------------
Stock Option Grants in 2003
- ---------------------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value
Name Granted (1) 2003 ($/Shr.)(2) Date (3)
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
H. Charles Maddy, III 6,000 23.1% $35.57 12/12/2018 $63,660
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
Scott C. Jennings 3,500 13.5% $35.57 12/12/2018 $37,135
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
Robert S. Tissue 3,500 13.5% $35.57 12/12/2018 $37,135
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
Patrick N. Frye 3,000 11.5% $35.57 12/12/2018 $31,830
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
C. David Robertson 3,000 11.5% $35.57 12/12/2018 $31,830
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
Ronald F. Miller 3,000 11.5% $35.57 12/12/2018 $31,830
- ---------------------------- ---------------- ------------------ ----------------- ----------------- ----------------
(1) Option grants for 2003 consisted of options which vest at a rate of 20% per
year on each anniversary date beginning December 12, 2004. The options are
exercisable over ten (10) year periods, beginning with each respective
option's date of vesting.
(2) The exercise price for all stock option grants shown in this column is the
average of the closing prices reported on the last five (5) business days
prior to the grant date on which Summit's common stock traded.
(3) The Black-Sholes option pricing model was used to estimate grant date
present values. The values indicated were calculated using the following
assumptions: (i) an expected volatility of 22%, (ii) an expected dividend
yield of 1.2%, (iii) a risk-free interest rate at the date of grant based
upon a term equal to the expected life of the option of 3.75%, (iv) an
expected option life of 8 years, equal to the anticipated period of time
from date of grant to exercise, and (v) no discounts for
non-transferability or risk of forfeiture. These estimated values have been
included solely for purposes of disclosure in accordance with the rules of
the Securities and Exchange Commission and represent theoretical values.
The actual value, if any, the executive may realize will depend upon the
increase in the market value of our common stock through the date of
exercise.
25
- --------------------------------------------------------------------------------
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding individual
exercises of stock options during 2003 by each applicable Named Executive
Officer.
- ----------------------------------------------------------------------------------------------------------------------
Aggregate Stock Option Exercises in 2003 and 12/31/2003 Stock Option Values
- ----------------------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Stock Options at In-the-Money Stock Options
Shares Value 12/31/2003 at 12/31/2003 ($)(1)
Acquired on Realized ---------------------------- ---------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
H. Charles Maddy, III - - 17,100/11,400 $416,214/$103,626
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
Scott C. Jennings 500 $9,500 4,340/6,860 $103,032/$64,210
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
Robert S. Tissue - - 14,840/6,860 $361,651/$64,210
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
Patrick N. Frye 400 $5,340 840/5,960 $16,288/$54,176
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
C. David Robertson 4,000 $104,880 440/6,760 $7,049/$74,833
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
Ronald F. Miller - - 8,440/6,760 $206,274/$74,833
- ---------------------------- ---------------- --------------- ---------------------------- ---------------------------
(1) The "Value of Unexercised in-the-Money Options at 12/31/2003" is equal to
the difference between the Option Exercise Price and Summit's Common Stock
Closing Price on December 31, 2003 of $35.00.
26
- --------------------------------------------------------------------------------
SHAREHOLDER RETURN PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
Set forth below is a line graph comparing the cumulative total return
of Summit's Common Stock, based on an initial investment of $100 on January 5,
1999 (the initial date Summit's Common Stock was reported on the OTC Bulletin
Board) and assuming reinvestment of dividends, with that of the Standard &
Poor's 500 Index ("S&P 500") and the The NASDAQ Stock Market Index ("NASDAQ").
In future years, the Company intends to replace the S&P 500, which it has
historically used in this presentation as a comparative broad market index, with
the NASDAQ. The NASDAQ includes companies more representative of Summit's market
capitalization than does the S&P 500.
The graph below also compares the cumulative total return of Summit's
Common Stock with that of two Company peer groups. "Old Peer Group" consists of
West Virginia and Virginia publicly held bank holding companies with total
assets less than $500 million dollars. "New Peer Group" consists of West
Virginia and Virginia publicly held bank holding companies having total assets
between $500 million and $1 billion. Summit intends to replace the Old Peer
Group with the New Peer Group in future presentations as the Company's assets
exceed $500million.
[PERFORMANCE GRAPH APPEARS HERE -SEE PLOT POINTS BELOW]
Period Ending
-----------------------------------------------------------------
Index 01/05/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
- ----------------------------- ---------- ---------- ---------- ---------- ----------- ---------
Summit Financial Group, Inc. 100.00 94.87 92.90 160.88 220.75 391.56
S&P 500 Index 100.00 119.65 109.01 96.15 74.84 96.33
NASDAQ Market Index 100.00 180.83 110.07 87.18 59.97 90.35
Old Peer Group 100.00 87.55 77.14 111.92 143.54 240.76
New Peer Group 100.00 93.19 80.87 119.94 151.56 257.99
27
- --------------------------------------------------------------------------------
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 Director nominees at an annual
meeting of shareholders must be submitted in writing to the President of the
Company at 300 North Main Street, Moorefield, West Virginia 26836. The
nomination must be received no later than:
o thirty (30) days in advance of an annual meeting if at least thirty (30)
days prior notice is provided; of
o five (5) days following the day on which the notice of meeting is mailed if
less than thirty (30) days notice is given.
For any other annual or special meeting, the nomination or item of
business must be received by the tenth day following the date of public
disclosure of the date of meeting.
The nomination must contain the following information about the nominee
and notifying shareholder:
o name of the nominee;
o age of the nominee;
o address of the nominee;
o principal occupation or employment of the nominee;
o the number of shares of common stock held by the notifying shareholder; and
o the address of the notifying shareholder.
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.
The chairman of the meeting may refuse to allow the transaction of any
business not presented before hand, or to acknowledge the nomination of any
person not made, in compliance with the foregoing procedures.
Under the rules of the SEC, shareholder proposals intended to be
presented at the Company's 2005 Annual Meeting of Shareholders must be received
by us, Attention: Secretary, at our principal executive offices by December 10,
2004 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 OTC Bulletin Board under the symbol "SMMF".
28
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
The annual report of the Company for the year ended December 31, 2003
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 2003. Requests for copies of such report should
be directed to Julie R. Cook, Vice President, Director of Accounting, Summit
Financial Group, Inc., P. O. Box 179, Moorefield, West Virginia 26836, or e-mail
jcook@summitfgi.com.
- --------------------------------------------------------------------------------
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 9, 2004
29
Appendix A
AUDIT AND COMPLIANCE COMMITTEE CHARTER
The Board of Directors of Summit Financial Group, Inc. ("Summit" or "Company")
hereby establishes the Audit and Compliance Committee with the authority,
responsibility and specific duties as described below.
PURPOSE
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:
o Serving as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
o Providing direction to and oversight of the Company's internal audit
function.
o Reviewing and appraising the efforts of the Company's independent
auditors.
o Maintaining a free and open means of communication between directors,
internal audit staff, independent auditors, and management.
ORGANIZATION / COMPOSITION
The Audit and Compliance Committee shall be comprised of five (5) or more Summit
Directors, each of whom is not a member of Summit's management, and is free of
any financial, family or other material personal relationship that, in the
opinion of the Board of Directors or members of the Audit and Compliance
Committee, would interfere with the exercise of his or her independence from
management and the Company. All members of the Committee will have a familiarity
with basic finance and accounting practices.
Members shall be appointed by the Company's Board of Directors, and will serve
for a one year term. One of the members shall be appointed to serve as Committee
Chairman by the Chairman of the Board of Directors.
MEETINGS
The Audit and Compliance Committee is to meet at least four (4) times annually
and as many additional times as necessary as determined by the Committee
Chairman and the Director of Internal Audit & Loan Review.
As necessary or desirable, the Chairman may request that the Director of Audit &
Loan Review, members of management, and/or representatives of the Company's
independent auditors be present at meetings of the Committee. Each Director is
to receive compensation for each Audit Committee and Compliance meeting
attended.
Prior to each meeting, the Committee Chairman shall meet with the Director of
Audit & Loan Review to set the meeting's agenda and overview issues to be
discussed. Advance agenda material is to be provided by the Director of Audit &
Loan Review and distributed to all members of the Audit and Compliance
Committee. The Director of Audit & Loan Review will provide to the Committee
copies of audit reports and corresponding replies from management for all audits
completed since the previous Audit and Compliance Committee meeting. Reports of
special projects completed by the Company's audit & loan review staff since the
previous Audit and Compliance Committee meeting will also be provided to the
Committee.
Summit's Assistant Secretary shall serve as secretary of the Committee and
maintain minutes and agenda material for permanent filing.
RESPONSIBILITIES AND DUTIES
The Audit and Compliance Committee is to:
General
o Apprise the Board of Directors, through minutes and special
presentations, of any significant developments in the course of
performing its duties.
o Provide an opportunity, when desired, for the Company's internal audit
staff or independent auditors to meet with the Audit and Compliance
Committee without members of management present.
Financial Statements / Internal Controls
o Review Summit's year end audited financial statements with the
independent auditors and Company management prior to their release to
determine that the independent auditors and management are satisfied
with the disclosure and content of the financial statements, including
the nature and appropriateness of any significant changes in
accounting principles. Based upon this review, recommend to the Board
of Directors that the audited financial statements be included in the
Company's annual report to shareholders and Form 10-K filed with the
Securities and Exchange Commission.
o Review the Company's interim financial statements contained in the
quarterly Form 10-Q's with members of managements prior to their
filing with the Securities and Exchange Commission.
o Inquire of management and the independent auditors concerning the
adequacy of the Company's system of internal controls.
o Advise financial management and the independent auditors to discuss
with the Audit and Compliance Committee their qualitative judgments
about the appropriateness, not just the acceptability, of accounting
principles and financial disclosure practices used or proposed to be
adopted by the Company.
o Advise financial management and the independent auditors that they are
expected to provide a timely analysis of significant current financial
reporting issues and practices.
Internal Audit
o Review the adequacy and effectiveness of Summit's internal audit
function, including its independence, authority of its reporting
relationships, and the qualifications and number of internal audit
staff.
o Review and approve the annual Internal Audit Plan and any significant
subsequent changes to the Plan.
o Review reports of completed internal audits including summaries of
findings, recommendations for improvements, and any difficulties
encountered in the course of performing the audits.
o Review progress reports on executing the Internal Audit Plan.
o Review and concur in the appointment or dismissal of the Director of
Audit & Loan Review.
Independent Auditors
o Recommend to the Board of Directors the selection of the independent
auditors, considering independence and effectiveness. Annually, the
Committee will ensure a formal statement delineating all relationships
between the auditors and Summit is received from the outside
accounting firm. The Committee will discuss with the independent
auditors all significant relationships the auditors have with the
Company to determine the auditors' independence.
o Meet with the independent auditors and financial management to review
the scope of the proposed external audit for the current year. The
external audit scope shall include a requirement that the independent
auditors inform the Audit and Compliance Committee of any significant
changes in the in the independent auditor's original audit plan and
that the outside auditors conduct a Interim Financial Statement Review
in accordance with Statement on Audit Standards No. 100 prior to the
Company's filing of each Form 10-Q with the Securities and Exchange
Commission.
o Review the coordination of internal and external audit procedures to
promote an effective use of resources and ensure a complete but
non-redundant audit.
Appendix B
NOMINATING AND COMPENSATION COMMITTEE CHARTER
The Nominating Committee of the board of directors of Summit
Financial Group, Inc. 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, and shall satisfy the
proposed NASDAQ standard for independence for members of the audit committee.
The 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 authority 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 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.
4. To review on an annual basis director compensation and
benefits.
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 FOR ANNUAL MEETING OF SHAREHOLDERS
OF SUMMIT FINANCIAL GROUP, INC.
on May 13, 2004
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 13, 2004 and at any
adjournments thereof, as follows:
1. Election of Directors to serve a three year term until the 2007 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 Phoebe F. Heishman Charles S. Piccirillo
2. To approve an Amendment to the Articles of Incorporation increasing the
Company's authorized shares from 5,000,000 shares of common stock with a
par value of $2.50 to 20,000,000 shares of common stock with a par value of
$2.50.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of the selection of Arnett & Foster, PLLC as the Company's
independent auditors for the fiscal year ending December 31, 2004
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon any other business which may properly come before
the meeting or any adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
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, 3 AND 4.
This proxy confers on the proxy holder the power of cumulative voting 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 recommendations of the board of directors. This proxy may be
revoked at any time prior to its exercise in accordance with the procedure set
forth in the proxy materials.
Dated__________________, 2004
_____________________________
_____________________________
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.