U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10 - QSB

              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                    For Quarterly Period Ended June 30, 1998
                                               -------------

                       Commission File Number 0-16587
                                             --------  

                      South Branch Valley Bancorp, Inc.
                   ---------------------------------------
                   (Exact name of small business issuer as
                          specified in its charter)

             West Virginia                         55-0672148
          ----------------------------------------------------------            
          (State or other jurisdiction of       (IRS Employer
           incorporation or organization         Identification No.)

                              310 North Main Street
                         Moorefield, West Virginia 26836
             ----------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                               (304) 538-2353
               -------------------------------------------------
               (Issuer's telephone number, including area code)

Check  whether the issuer:  (1) has filed all reports  required by Section 13 or
15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes  X    No 
                                                              ---      ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

         592,292 common shares were outstanding as of August 7, 1998

Transitional Small Business Disclosure Format (Check one):
                                  Yes      No   X
                                      ---     ----

This report contains 22 pages.

                                                                            Page

PART  I.    FINANCIAL INFORMATION

            Item 1.  Financial Statements

                  Consolidated balance sheets
                  June 30, 1998 (unaudited) and December 31, 1997           3

                  Consolidated statements of  income
                  for the three months and six months ended
                  June 30, 1998 and 1997 (unaudited)                        4

                  Consolidated statements of comprehensive
                  income for the three months and six months ended
                  June 30, 1998 and 1997 (unaudited)                        5

                  Consolidated statements of cash flows
                  for the six months ended
                  June 30, 1998 and 1997 (unaudited)                      6-7

                  Consolidated statements of shareholders' equity
                  for the six months ended
                  June 30, 1998 and 1997 (unaudited)                        8

                  Notes to consolidated financial
                  statements (unaudited)                                 9-15

            Item 2.  Management's Discussion and Analysis
                     of Financial Condition and Results
                     of Operations                                      16-20

PART  II.   OTHER INFORMATION

            Item 4. Submissions of Matters to a Vote of Security Holders   21

            Item 6.  Exhibits and Reports on Form 8-K                      21

                  - Exhibits required by Item 601 of Regulation S-B
                       3(i). Articles of Incorporation
                       10.   Officer Stock Option Plan
                       27.   Financial Data Schedule-electronic filing only

                  - Reports on Form 8-K

SIGNATURES                                                                 22

                                       2

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

                                                June 30,           December 31,
                                                  1998                 1997
                                              (unaudited)              (*)
                                          -------------------  -------------------
 ASSETS
                                                                        
 Cash and due from banks                          $3,660,346           $3,945,099
 Interest bearing deposits with other banks        1,166,000            1,256,000
 Federal funds sold                                1,142,915            5,806,717
 Securities available for sale                    38,404,373           27,547,094
 Investment in affiliate                                   -            5,273,481
 Loans, net                                      129,398,006           92,572,652
 Bank premises and equipment, net                  4,679,329            3,071,064
 Accrued interest receivable                       1,130,263              864,083
 Other assets                                      3,160,893              311,435
                                          -------------------  -------------------
                Total assets                   $ 182,742,125         $140,647,625
                                          ===================  ===================   

 LIABILITIES AND SHAREHOLDERS'EQUITY
 Liabilities
     Deposits
         Non interest bearing                  $  11,269,165           $9,693,915
         Interest bearing                        131,591,088           97,290,882
                                          -------------------  -------------------
               Total deposits                    142,860,253          106,984,797
                                          -------------------  -------------------
     Short-term borrowings                         5,927,892            7,145,010
     Long-term borrowings                          8,966,545           10,395,848
     Other liabilities                             1,626,585            1,061,418
                                          -------------------  -------------------
             Total liabilities                   159,381,275          125,587,073
                                          -------------------  -------------------
 Commitments and Contingencies
 Shareholders' Equity
     Common stock, $2.50 parvalue, authorized
         2,000,000 shares, issued 600,407
         shares in 1998; 382,625 shares
         in 1997                                   1,501,018            1,042,355
     Capital surplus                               9,611,774            2,089,709
     Retained earnings                            12,433,950           11,898,420
     Less cost of shares acquired for the 
         treasury 1998 8,115 shares; 
         1997 4,115 shares                          (384,724)            (166,970)
     Net unrealized gain (loss) on securities        198,832              197,038
                                          -------------------  -------------------
         Total shareholders' equity               23,360,850           15,060,552
                                          -------------------  -------------------
           Total liabilities and
           shareholders' equity                 $182,742,125         $140,647,625
                                          ===================  ===================

 (*) - December 31, 1997 financial information has been extracted from  audited
       consolidated financial statements
See Notes to Consolidated Financial Statements

                                       3

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                        Three Months Ended        Six Months Ended
                                     --------------------------------------------------
                                       June 30,    June 30,     June 30,     June 30,
                                         1998         1997        1998         1997
                                     ------------ ------------------------ ------------
 Interest income
                                                                       
     Interest and fees on loans        2,930,902    2,130,325   5,135,590    4,141,345
     Interest on securities
         Taxable                         533,554      424,128     927,034      836,084
         Tax-exempt                       81,502       81,874     159,599      156,409
     Interest on Federal funds sold       84,456       14,862     133,588       28,166
                                     ------------ ------------------------ ------------
         Total interest income         3,630,414    2,651,189   6,355,811    5,162,004
                                     ------------ ------------------------ ------------
 Interest expense
     Interest on deposits              1,629,654    1,133,228   2,791,855    2,233,631
     Interest on short-term
     borrowings                           57,303       90,578     122,138      132,746
     Interest on long-term
     borrowings                          169,544      131,547     336,665      234,794
                                     ------------ ------------------------ ------------
        Total interest expense         1,856,501    1,355,353   3,250,658    2,601,171
                                     ------------ ------------------------ ------------
          Net interest income          1,773,913    1,295,836   3,105,153    2,560,833
 Provision for loan losses                75,000       35,000     120,000       65,000
                                     ------------ ------------------------ ------------
       Net interest income after
       provision for loan losses        1,698,913    1,260,836   2,985,153    2,495,833
                                     ------------ ------------------------ ------------
 Other income
     Insurance commissions                 25,988       25,387      49,443       35,309
     Service fees                         111,595       66,237     200,373      123,241
     Securities gains (losses)              4,131            -       4,131            -
     Other                                 14,633        9,318      32,708       38,677
                                     ------------ ------------------------ ------------
          Total other income              156,347      100,942     286,655      197,227
                                     ------------ ------------------------ ------------
 Other expense
     Salaries and employee benefits       552,169      427,984   1,020,991      875,861
     Net occupancy expense                102,333       49,129     152,952       91,771
     Equipment rentals,
     depreciation and maintenance          99,769       74,931     180,801      142,834
     Federal deposit insurance premiums     5,365        3,220       8,625        6,000
     Other                                454,056      280,512     704,395      540,954
                                     ------------ ------------------------ ------------
          Total other expense           1,213,692      835,776   2,067,764    1,657,420
                                     ------------ ------------------------ ------------
      Income before income taxes          641,568      526,002   1,204,044    1,035,640
 Income tax expense                       229,462      155,555     406,147      326,612
                                     ------------ ------------------------ ------------
              Net income                 $412,106     $370,447    $797,897     $709,028
                                     ============ ======================== ============
 Basic earnings per common share         $   0.69         0.97        1.58         1.86
                                     ============ ======================== ============

See Notes to Consolidated Financial Statements

                                       4

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

                                                        Three Months Ended
                                            ----------------------------------------
                                                  June 30,            June 30,
                                                    1998                1997
                                            ------------------- --------------------

 Net income                                        412,106              370,447

 Other comprehensive income:
     Net unrealized gain (loss)on securities
         arising during period, before tax          13,985              221,087
     Income tax expense (benefit)related to
         other comprehensive income                  5,700               85,118
                                            ------------------- --------------------
     Other comprehensive income, net of tax          8,285              135,969
                                            ------------------- --------------------

 Comprehensive income                              420,391              506,416
                                            =================== ====================

                                                           Six Months Ended
                                            ----------------------------------------
                                                  June 30,            June 30,
                                                    1998                1997
                                            ------------------- --------------------

 Net income                                       797,897              709,028

 Other comprehensive income:
     Net unrealized gain (loss) on securities
         arising during period, before tax          3,430              (54,547)
     Income tax expense (benefit)related to
         other comprehensive income                 1,635              (21,001)
                                            ------------------- --------------------
     Other comprehensive income, net of tax         1,795              (33,546)
                                            ------------------- --------------------

 Comprehensive income                             799,692              675,482
                                            =================== ====================

 See Notes to Consolidated Financial Statements

                                       5

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                           Six Months Ended
                                                --------------------------------------
                                                     June 30,            June 30,
                                                       1998                1997
                                                ------------------ -------------------
 Cash Flows from Operating Activities
                                                                         
     Net income                                        797,897             709,028
     Adjustments to reconcile net earnings to
         net cash provided by operating
         activities:
         Depreciation                                  153,542             114,466
         Provision for loan losses                     120,000              65,000
         Deferred income tax (benefit) expense          (5,953)             45,881
         Security gains (losses)                        (4,131)                  -
         (Gain) on disposal of other assets             (9,175)            (12,459)
         Amortization of securities 
           premiums (accretion of discounts)
           net                                         (21,803)              5,631
         Amortization of goodwill and purchase
           accounting adjustments, net                  37,716              15,493
         (Increase) decrease in accrued 
           interest receivable                        (266,180)             (7,287)
         (Increase) decrease in other assets           188,608             513,499
         Increase (decrease) in other
           liabilities                                  79,044             (78,947)
                                                 ------------------ -------------------
                    Net cash provided by
                    operating activities             1,069,565           1,370,305
                                                 ------------------ -------------------
 Cash Flows from Investing Activities
     Proceeds from maturities of interest
        bearing deposits with other banks               99,100                   -
     Proceeds from maturities and calls of
        securities available for sale                3,825,000           1,283,700
     Proceeds from sales of securities
        available for sale                             409,050                   -
     Principal payments received on
        securities available for sale                1,483,951             872,895
     Purchases of securities available for
        sale                                        (6,077,235)         (3,004,774)
     Purchase of common stock of affiliate             (90,465)         (5,188,905)
     Net (increase) decrease in Federal
        funds sold                                  10,880,802             539,375
     Net loans made to customers                   (12,471,958)         (6,838,589)
     Purchases of Bank premises and equipment         (262,991)           (148,908)
     Proceeds from sales of other assets                 8,411              22,900
     Net cash and due from banks acquired
        in acquisition of The Capital
        State Bank, Inc.                               976,517                   -
                                                 ------------------ -------------------
                 Net cash (used in) investing
                 activities                         (1,219,818)        (12,462,306)
                                                 ------------------ -------------------
 Cash Flows from Financing Activities
     Net increase (decrease) in demand deposit,
       NOW and savings accounts                      2,605,788             319,037
     Net increase (decrease) in time deposits          386,254           3,373,127
     Net increase (decrease) in short-term
       borrowings                                   (1,217,118)          1,055,071
     Proceeds from long-term borrowings              2,000,000           5,500,000
     Repayment of long-term borrowings              (3,429,303)           (543,416)
     Purchase of treasury stock                       (217,754)                  -
     Dividends paid                                   (262,367)           (155,189)
     Net proceeds from issuance of common stock              -           1,489,968
                                                 ------------------ -------------------
        Net cash provided by financing activities     (134,500)         11,038,598
                                                 ------------------ -------------------
 Increase (decrease) in cash and due from banks       (284,753)            (53,403)
 Cash and due from banks:
         Beginning                                   3,945,099           3,162,552
                                                 ------------------ -------------------
         Ending                                      3,660,346           3,109,149
                                                 ================== ===================

 See Notes to Consolidated Financial Statements
                                       6

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)

                                                            Six Months Ended
                                               ----------------------------------------
                                                     June 30,            June 30,
                                                       1998                1997
                                               ------------------- --------------------

 Supplement Disclosures of Cash Flow
    Information
  Cash payments for:
                                                                          
     Interest                                        3,148,449            2,222,602
                                               ------------------- --------------------
     Income taxes                                      406,807              200,271
                                               ------------------- --------------------

 Supplemental Schedule of Noncash Investing
     and Financing Activities
     Other assets acquired in settlement
     of loans                                                -               22,200
                                               ------------------- --------------------

     Acquisition of The Capital State Bank, Inc.
        Acquisition of 40% of the outstanding
        common shares
          previously purchased for cash              5,363,946                    -
        Acquisition of 60% of the outstanding
          common shares in exchange for
          183,465 shares of Company common stock     7,980,728                    -
                                               ------------------- --------------------
                                                    13,344,674                    -
                                               ------------------- --------------------
         Fair value of assets acquired
             (principally loans and securities)     46,720,306                    -
         Deposits and other liabilities assumed    (33,375,632)                   -
                                               ------------------- --------------------
                                                    13,344,674                    -
                                               ------------------- --------------------

                                       7

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

                                                        Six Months Ended
                                            ----------------------------------------
                                                  June 30,            June 30,
                                                    1998                1997
                                            ------------------- --------------------

 Balance, beginning of period                       15,060,552           12,303,793

     Net income                                        797,897              709,028
 
    Cash dividends, $0.44 and $0.41
         per share, respectively                      (262,367)            (155,189)

    Issuance of 183,465 shares of common stock as
         consideration for the acquisition of
         The Capital State Bank, Inc.                7,980,728                    -

     Sale of 34,317 shares of common stock                   -            1,489,968

     Purchase of 4,000 shares of common stock
         for the treasury                             (217,754)                   -

     Change in net unrealized gain (loss)
          on securities                                  1,794              (33,546)
                                            ------------------- --------------------
 Balance, end of period                             23,360,850           14,314,054
                                            =================== ==================== 

 See Notes to Consolidated Financial Statements

                                       8

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.  Basis of Presentation

These consolidated financial statements of South Branch Valley Bancorp, Inc. and
Subsidiaries ("South Branch" or "Company") have been prepared in accordance with
generally accepted accounting  principles for interim financial  information and
with  instructions to Form 10-QSB and Item 310 of Regulation  S-B.  Accordingly,
they do not include all the  information  and  footnotes  required by  generally
accepted accounting principles for annual year end financial statements.  In the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation have been included and are of a normal recurring nature.

The presentation of financial  statements in conformity with generally  accepted
accounting principles requires management to make estimates and assumptions that
effect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ materially from these estimates.

The results of  operations  for the three month and six month periods ended June
30, 1998 are not  necessarily  indicative  of the results to be expected for the
full year. The  consolidated  financial  statements  and notes  included  herein
should  be read  in  conjunction  with  the  Company's  1997  audited  financial
statements and Annual Report on Form 10-KSB.

Effective   January  1,  1998,  South  Branch  adopted  Statement  of  Financial
Accounting  Standards  No.  130  (SFAS No.  130),  "Reporting  of  Comprehensive
Income".  Comprehensive  income  includes  any  change in equity of the  Company
during the period resulting from transactions and other events and circumstances
from nonowner sources. A Statement of Comprehensive  Income has been included in
these  consolidated  financial  statements  to comply with SFAS No.  130.  Prior
interim periods have been reclassified to provide comparative information.

Note 2.   Earnings Per Share

Basic  earnings per common share are  computed  based upon the weighted  average
shares  outstanding.  The weighted average shares  outstanding for the six month
periods ended June 30, 1998 and 1997 were 504,735 and 381,164, respectively. The
weighted  average shares  outstanding for the three month periods ended June 30,
1998 and 1997 were 595,633 and 383,790,  respectively.  During the periods ended
June 30, 1998 and 1997, the Company did not have any dilutive securities.

Note 3.  Acquisition of Capital State Bank, Inc.

On March 24, 1998 and March 25, 1998,  the  shareholders  of Capital State Bank,
Inc. and South Branch Valley Bancorp, Inc. respectively,  approved the merger of
Capital  State into Capital  Interim  Bank,  Inc., a wholly owned  subsidiary of
South Branch.  The merger was  consummated at the close of business on March 31,
1998.  This   acquisition  was  accounted  for  using  the  purchase  method  of
accounting.,  and  accordingly,  the  assets  and  liabilities  and  results  of
operations  of  Capital  State  are  reflected  in  the  Company's  consolidated
financial statements beginning April 1, 1998. The excess purchase price over the
fair value of the net assets acquired as of the consummation  date  approximated
$1,966,000,  which is included in other assets in the accompanying  consolidated
balance  sheet as of June 30,  1998.  This  goodwill is being  amortized  over a
period of 15 years using the straight line method.

                                       9

The  following  presents  certain  pro forma  condensed  consolidated  financial
information  of South Branch,  using the purchase  method of  accounting,  after
giving  effect to the merger as if it had been  consummated  at the beginning of
the periods presented.

                               (In thousands, except per share data)

                              Six Month Period         Six Month Period
                                    Ended                   Ended
                                June 30, 1998           June 30, 1997
                            ---------------------     ------------------------
                               As        Pro Forma        As        Pro Forma
                            Reported                   Reported
                            -----------------------   -------------------------
Total interest income         6,356        7,092         5,162        6,264
Total interest expense        3,251        3,640         2,601        3,107
Net interest income           3,105        3,452         2,561        3,157
Net income                      798          823           709          660
Basic earnings per 
   common share                1.58         1.38          1.86         1.17

This pro forma  information has been included for comparative  purposes only and
may not be indicative of the combined  results of operations that actually would
have  occurred had the  transaction  been  consummated  at the  beginning of the
periods presented, or which will be attained in the future.

Note 4.  Securities

The amortized  cost,  unrealized  gains,  unrealized  losses and estimated  fair
values of  securities  at June 30, 1998 and December 31, 1997 are  summarized as
follows:

                                                          June 30, 1998
                                        ---------------------------------------------------
                                         Amortized          Unrealized          Estimated
                                                      ---------------------
                                            Cost        Gains       Losses      Fair Value
                                        ---------------------------------------------------
 Available for Sale
     Taxable:
                                                                              
         U. S. Treasury securities       3,488,070    $46,904           -        3,534,974
         U. S. Government agencies
             and corporations           18,699,646     51,207       35,058      18,715,795
         Small Business Administration
             guaranteed loan
             participation 
             certificates                1,243,911     22,361           -        1,266,272

Mortgage-backed securities -
             U. S. Government agencies
             and corporations            7,636,272     55,759       11,873       7,680,158
         Corporate debt securities         249,424      2,159           -          251,583
         Federal Reserve Bank stock         44,300          -           -           44,300
         Federal Home Loan Bank stock      722,500          -           -          722,500
         Other equity securities             6,625          -           -            6,625
                                        ---------------------------------------------------
        Total taxable                   32,090,748     178,390      46,931      32,222,207
                                        ---------------------------------------------------
     Tax-exempt:
         State and political
         subdivisions                    5,985,709     192,404          47       6,178,066
         Federal Reserve Bank stock          4,100           -           -           4,100
                                        ---------------------------------------------------
       Total tax-exempt                  5,989,809     192,404          47       6,182,166
                                        ---------------------------------------------------
            Total                       38,080,557     370,794      46,978      38,404,373
                                        ===================================================

                                       10

                                                       December 31, 1997
                                       ---------------------------------------------------
                                        Amortized         Unrealized           Estimated
                                                     --------------------
                                          Cost        Gains       Losses       Fair
                                                                               Value
                                       ---------------------------------------------------
 Available for Sale
     Taxable:
                                                                       
         U. S. Treasury securities      2,988,064      46,546           -    3,034,610
         U. S. Government agencies
            and corporations            9,523,135      71,935       8,850    9,586,220
         Small Business Administration
            guaranteed loan participation
            certificates                1,470,915      16,522           -    1,487,437
         Mortgage-backed securities -
            U. S.Government agencies
            and corporations            6,650,070      21,182      20,328    6,650,924
         Corporate debt securities        249,082       3,296           -      252,378
         Federal Reserve Bank stock        44,300           -           -       44,300
         Federal Home Loan Bank stock     722,400           -           -      722,400
         Other equity securities            6,625           -           -        6,625
                                       ---------------------------------------------------
                  Total taxable        21,654,591     159,481      29,178   21,784,894
                                       ---------------------------------------------------
     Tax-exempt:
         State and political
             subdivisions               5,568,016     190,084           -    5,758,100
         Federal Reserve Bank stock         4,100           -           -        4,100
                                       ---------------------------------------------------
       Total tax-exempt                 5,572,116     190,084           -    5,762,200
                                       ---------------------------------------------------
            Total                      27,226,707     349,565      29,178   27,547,094
                                       =================================================== 

The  maturites,  amortized  cost and estimated fair values of securities at June
30, 1998 and December 31, 1997, are summarized as follows:

                                        Available for Sale
                                  -----------------------------
                                     Amortized     Estimated
                                        Cost          Fair
                                                     Value
                                  -----------------------------

 Due in one year or less               3,471,463     3,489,803
 Due from one to five years           23,260,456    23,411,466
 Due from five to ten years            8,181,969     8,251,439
 Due after ten years                   2,389,244     2,474,240
 Equity securities                       777,425       777,425
                                  -----------------------------
                                      38,080,557    38,404,373
                                  =============================

                                       11

Note 5.  Loans

Loans are summarized as follows:

                                      June 30,      December 31,
                                        1998          1997
                                  -----------------------------
 Commercial, financial and
   agricultural                       39,451,022    30,325,145
 Real estate - construction              307,519       144,207
 Real estate - mortgage               64,175,273    42,640,294
 Installment                          26,976,455    20,587,084
 Other                                   319,443       468,980
                                  -----------------------------
            Total loans              131,229,712    94,165,710
 Less unearned income                    583,087       697,777
                                  -----------------------------
        Total loans net of
         unearned income            130,646,625    93,467,933
 Less allowance for
        loan losses                   1,248,619       895,281
                                  -----------------------------
            Loans, net              129,398,006    92,572,652
                                  ============================= 

The following presents loan maturities at June 30, 1998:

                                       Within       After 1 but     After
                                        1 Year    within 5 years   5 Years
                                  -------------------------------------------
 Commercial, financial and
     agricultural                     17,771,749    10,701,245    10,977,996
 Real estate - construction              228,522             -        78,995
 Real estate - mortgage                2,220,755     7,681,802    54,272,702
 Installment                           3,352,442    20,176,080     3,447,932
 Other                                    38,613             -       280,879
                                  -------------------------------------------
               Total                  16,541,577    38,835,878    75,852,257
                                  ============================================

 Loans due after one year with:
          Variable rates                        $   32,936,351
          Fixed rates                               81,751,784
                                                ---------------
                                                $  114,688,135
                                                ===============  

The Company  grants  commercial,  residential  and  consumer  loans to customers
primarily  located in the Potomac  Highlands and South Central  counties of West
Virginia.  Although the Company  strives to maintain a diverse  loan  portfolio,
exposure  to credit  losses can be  adversely  impacted  by  downturns  in local
economic and employment conditions. Major employment within the Company's market
area is diverse,  but primarily includes the poultry,  government,  health care,
education,  coal  production  and various  professional,  financial  and related
service industries.

                                       13

Note 6.  Allowance for Loan Losses

An analysis of the  allowance  for loan losses for the six month  periods  ended
June 30, 1998 and 1997, is as follows:
                                                       
                                Six Months Ended       Year Ended
                                      June 30,         December 31,
                              --------------------------------------
                                   1998        1997        1997
                              --------------------------------------
 Balance, beginning of period     895,281     858,423     858,423
 Losses:
     Commercial,financial & 
     agricultural                     546           -           -
     Real estate - mortgage             -           -      25,536
     Installment                   68,881     124,753     166,059
     Other                          2,196       7,286       8,444
                              --------------------------------------
            Total                  71,623     132,039     200,039
                              --------------------------------------
 Recoveries:
     Commercial, financial &
     agricultural                   2,830       3,303      27,050
     Real estate - mortgage        15,123       4,179      13,675
     Installment                   15,037      22,456      39,936
     Other                            169       1,079       1,236
                              --------------------------------------
            Total                  33,159      31,017      81,897
                              --------------------------------------
 Net losses                        38,464     101,022     118,142
 Allowance of purchased
   subsidiary                     271,802           -           -
 Provision for loan losses        120,000      65,000     155,000
                              --------------------------------------
 Balance, end of period         1,248,619     822,401     895,281
                               =====================================

Note 7.  Bank Premises and Equipment

The major categories of Bank premises and equipment and accumulated depreciation
at June 30, 1998 and December 31, 1997 are summarized as follows:

                                      June 30,      December 31,
                                        1998          1997
                                    -----------------------------
 Land                                    429,973       429,973
 Buildings and improvements            4,162,439     2,681,707
 Furniture and equipment               2,184,226     1,675,258
                                    -----------------------------
                                       6,776,638     4,786,938
 Less accumulated depreciation         2,097,309     1,715,874
                                    -----------------------------
         Bank premises and
          equipment,net                4,679,329     3,071,064
                                     =============================

                                       13

Note 8.   Deposits

The following is a summary of interest  bearing  deposits by type as of June 30,
1998 and December 31, 1997:
                                      June 30,      December 31,
                                        1998          1997
                                  -----------------------------
 Demand deposits, interest bearing    26,301,134    17,468,844
 Savings deposits                     16,630,199    14,890,934
 Individual retirement accounts        8,594,785     8,028,653
 Certificates of deposit              80,064,970    56,902,451
                                  -----------------------------
               Total                 131,591,088    97,290,882
                                  =============================

The  following  is a summary of the maturity  distribution  of  certificates  of
deposit and Individual  Retirement Accounts in denominations of $100,000 or more
as of June 30, 1998:

                                       Amount       Percent
                                  -----------------------------
 Three months or less                  2,989,178      14.8%
 Three through six months              4,003,251      19.8%
 Six through twelve months             6,190,252      30.6%
 Over twelve months                    7,037,965      34.8%
                                  -----------------------------
               Total                  20,220,646     100.0%
                                  ============================== 

A summary of the scheduled  maturities for all time deposits as of June 30, 1998
is as follows:

               1998                      31,250,344
               1999                      39,216,163
               2000                       9,244,703
               2001                       4,473,198
               2002                       1,994,067
            Thereafter                    2,481,280
                                      ---------------
                                         88,659,755
                                      ================
 
Note 9.  Restrictions on Capital

South  Branch and its  subsidiaries  are subject to various  regulatory  capital
requirements  administered  by the banking  regulatory  agencies.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
South Branch and each of its subsidiaries must meet specific capital  guidelines
that  involve  quantitative  measures of South  Branch's  and its  subsidiaries'
assets,  liabilities  and certain  off-balance  sheet items as calculated  under
regulatory  accounting  practices.  South  Branch and each of its  subsidiaries'
capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require South Branch and each of its  subsidiaries  to maintain  minimum amounts
and  ratios of total and Tier I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management  believes,  as June 30, 1998, that South Branch
and each of its subsidiaries met all capital adequacy requirements to which they
were subject.

                                       14

The most recent  notifications from the banking regulatory agencies  categorized
South  Branch  and  each of its  subsidiaries  as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized,  South Branch and each of its  subsidiaries  must maintain  minimum
total risk-based,  Tier I risk-based, and Tier I leverage ratios as set forth in
the table below.

South  Branch's and its  subsidiaries',  South  Branch  Valley  National  Bank's
("SBVNB") and Capital State Bank,  Inc.'s  ("CSB"),  actual capital  amounts and
ratios are also presented in the following table (dollar amounts in thousands).

                                                                                           To be Well Capitalized
                                                                    Minimum   Required     under Prompt Corrective 
                                             Actual                 Regulatory Capital          Action Provisions
                                      -------------------------------------------------- -------------------------
                                      Amount        Ratio            Amount    Ratio          Amount      Ratio
                                      -------------------------------------------------- ------------------------- 
 As of June 30, 1998
 Total Capital (to risk weighted
     assets)
                                                                                          
     South Branch                     22,378        19.2%            11,668     8.0%          9,334       10.0%
     SBVNB                            13,043        14.1%             7,388     8.0%          9,236       10.0%
     CSB                               8,868        35.0%             2,023     8.0%          2,529       10.0%
 Tier I Capital (to risk weighted
     assets)
     South Branch                     21,130        18.1%             4,667     4.0%          7,001        6.0%
     SBVNB                            12,071        13.1%             3,694     4.0%          5,541        6.0%
     CSB                               8,592        34.0%             1,012     4.0%          1,517        6.0%
 Tier I Capital (to average assets)
     South Branch                     21,130        11.8%             5,380     3.0%          8,967        5.0%
     SBVNB                            12,071         8.9%             4,049     3.0%          6,748        5.0%
     CSB                               8,592        19.3%             1,334     3.0%          2,223        5.0%
 As of December 31, 1997
 Total Capital (to risk weighted
     assets)
     South Branch                     15,759        17.7%             7,126     8.0%          8,908       10.0%
     SBVNB                            12,779        14.4%             7,123     8.0%          8,904       10.0%
     CSB                                   *           *                  *        *              *          *
 Tier I Capital (to risk weighted
     assets)
     South Branch                     14,864        16.7%             3,563     4.0%          5,345        6.0%
     SBVNB                            11,884        13.4%             3,562     4.0%          5,342        6.0%
     CSB                                   *           *                  *       *               *          *
 Tier I Capital (to average assets)
     South Branch                     14,864        11.3%             3,941     3.0%          6,569        5.0%
     SBVNB                            11,884         9.2%             3,897     3.0%          6,494        5.0%
     CSB                                   *           *                  *        *              *          *

* - No data  presented  relative to CSB for the year ended December 31, 1997, as
this subsidiary was acquired by South Branch in March 1998.

                                       15

SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

INTRODUCTION

The following is a discussion and analysis focused on significant changes in the
financial  condition and results of  operations of South Branch Valley  Bancorp,
Inc.  ("Company"  or "South  Branch") and its wholly owned  subsidiaries,  South
Branch Valley  National Bank  ("SBVNB") and Capital State Bank,  Inc.  ("Capital
State"), for the periods indicated.  This discussion and analysis should be read
in conjunction with the Company's 1997 audited  financial  statements and Annual
Report  on  Form  10-KSB.  This  discussion  may  also  contain  forward-looking
statements  based on  management's  expectations,  and actual results may differ
materially.

ACQUISITION

At the close of  business  March 31,  1998,  South  Branch  acquired  60% of the
outstanding  common stock of Capital  State,  a Charleston,  West Virginia state
charter  bank  with  total  assets  approximating  $44  million  at the  time of
acquisition,  in exchange for 183,465  shares of South  Branch's  common  stock.
South Branch had previously  acquired 40% of Capital State's  outstanding common
stock during 1997. This  acquisition was accounted for using the purchase method
of  accounting,  and  accordingly,  the assets and  liabilities  and  results of
operations  of  Capital  State  are  reflected  in  the  Company's  consolidated
financial statements beginning April 1, 1998.

RESULTS OF OPERATIONS

Earnings Summary

The Company  reported net income of $412,000 for the three months ended June 30,
1998 compared to $370,000 for the second quarter of 1997,  representing an 11.4%
increase.  For the six month  period  ended June 30,  1998,  South  Branch's net
income of  $798,000,  increased  12.6% from the  $709,000  reported for the same
period of 1997.  The increase in earnings for both the  quarterly  and six month
periods  resulted  primarily from growth in interest earning assets and improved
service fee revenues.

Earnings  per  common  share  were $0.69 for the  quarter  ended June 30,  1998,
compared to the $0.97 reported for the second quarter of 1997. For the six month
period ended June 30, 1998, earnings per common share totaled $1.58, compared to
$1.86 for the same period of 1997.  The declines in quarterly  and  year-to-date
earnings per share are  attributable to the dilution arising from acquisition of
Capital State.  The dilutive effect of this acquisition is expected to be offset
in the future by improved  earnings  performance of Capital State resulting from
continued strong asset growth and planned cost control initiatives.

Net Interest Income

The  Company's  net  interest  income on a fully  tax-equivalent  basis  totaled
$3,188,000  for the six month period ended June 30, 1998  compared to $2,641,000
for the same period of 1997, representing an increase of $547,000 or 20.7%. This
increase  resulted from growth in the volume of earning  assets as result of the
acquisition of Capital State and as result of solid loan growth.  South Branch's
net yield on  interest  earning  assets  decreased  slightly to 4.3% for the six
month period ended June 30, 1998,  compared to 4.4% for the same period in 1997.
Growth in net  interest  income  is  expected  to  continue  due to  anticipated
continued  growth in earning  asset volume over the near term.  Conversely,  the
Company's  net yield on earning  assets is  anticipated  to continue to contract
over the

                                       16

balance of 1998, primarily due to Capital State having a lower yield on interest
earning  assets and a  slightly  higher  cost of  interest  bearing  liabilities
compared to that of SBVNB.

Further analysis of the Company's yields on interest earning assets and interest
bearing liabilities are presented in Table I below.

       Table I - Average Balance Sheet and Net Interest Income Analysis
 
                                                   June 30, 1998               June 30, 1997
                                       ---------------------------------------------------------
                                         Average  Earnings/Yield/     Average Earnings/ Yield/
                                         Balance  Expense   Rate      Balance  Expense   Rate
                                       ---------------------------------------------------------
 Interest Earning Assets
                                                                         
     Loans, net of unearned income       109,934    5,136    9.3%      86,693    4,141    9.6%
     Securities
         Taxable                          28,163      927    6.6%      26,063      836    6.4%
         Tax-exempt (1)                    6,083      242    8.0%       5,979      237    7.9%
     Federal funds sold                    4,648      134    5.8%         893       28    6.3%
                                       ---------------------------------------------------------
     Total interest earning assets       148,828    6,439    8.7%     119,628    5,242    8.8%
                                                 -----------------             -----------------

 Noninterest earning assets
     Cash & due from banks                 3,547                        2,709
     Bank premises and equipment           3,879                        3,121
     Other assets                          6,222                        4,056
     Allowance for loan losses            (1,079)                        (853)
                                       ----------                  -----------
      Total assets                       161,397                      128,661
                                       ==========                  ===========

 Interest bearing liabilities
     Interest bearing demand deposits     21,650      355    3.3%      19,188      297    3.1%
     Savings deposits                     15,147      242    3.2%      13,755      216    3.1%
     Time deposits                        76,490    2,194    5.7%      59,888    1,720    5.7%
     Short-term borrowings                 5,637      122    4.3%       4,008       84    4.2%
     Long-term borrowings                 10,397      338    6.5%       8,344      284    6.8%
                                       ---------------------------------------------------------
     Total interest bearing 
     liabilities                         129,321    3,251    5.0%     105,183    2,601    4.9%
                                                 -----------------             -----------------

 Noninterest bearing liabilities
     and shareholders' equity
     Demand deposits                      10,617                        9,131
     Other liabilities                     1,325                        1,772
     Shareholders' equity                 20,134                       12,575
                                       ----------                  -----------
    Total liabilities and
       shareholders' equity              161,397                      128,661
                                       ==========                  ===========

 Net interest earnings                              3,188                        2,641
                                                 ==========                    ========== 

 Net yield on interest earning
     assets                                                  4.3%                        4.4%
                                                          ==========                  =========

(1) - Interest  income on tax-exempt  securities  has been adjusted  assuming an
effective  tax  rate of 34%  for  both  periods  presented.  The tax  equivalent
adjustment resulted in an increase in interest income of $83,000 and $81,000 for
the periods ended June 30, 1998 and 1997, respectively.

                                       17

Credit Experience

The  provision  for loan  losses  represents  charges to earnings  necessary  to
maintain an adequate  allowance for potential  future loan losses.  Management's
determination  of the appropriate  level of the allowance is based on an ongoing
analysis of credit quality and loss potential in the loan  portfolio,  change in
the  composition  and  risk  characteristics  of the  loan  portfolio,  and  the
anticipated influence of national and local economic conditions. The adequacy of
the allowance for loan losses is reviewed  quarterly and adjustments are made as
considered necessary.

The  Company  recorded a $120,000  provision  for loan  losses for the first six
months of 1998,  compared to $65,000 for the same period in 1997.  This increase
reflects  the  acquisition  of Capital  State and  continued  growth of the loan
portfolio.  Net loan  charge-offs  for the first half of 1998 were  $38,000,  as
compared  to  $101,000  over the same  period  of 1997.  At June 30,  1998,  the
allowance for loan losses totaled  $1,249,000 or 1.0% of loans,  net of unearned
income,  compared  to  $895,000  or 1.0% of  loans,  net of  unearned  income at
December  31,  1997.  See Note 6 of the notes to the  accompanying  consolidated
financial  statements for an analysis of the activity in the Company's allowance
for loan losses for the six month  periods  ended June 30, 1998 and 1997 and for
the year ended December 31, 1997.

As illustrated in Table II below, the Company's  non-performing assets and loans
past due 90 days or more and still accruing  interest remained stable during the
past 12 months, despite continued growth in the Company's loan portfolio.

                                   Table II -
             Summary of Past Due Loans and Non-Performing Assets
                            (in thousands of dollars)

                                          June 30             December 31,
                                     -----------------        -----------
                                     1998        1997                1997
                                     ----        ----                ----

Loans contractually past due 90
    days or more still accruing
    interest                         $106        $157                $ 96
                                     ====        ====                ====

Non-performing assets:
      Non-accruing Loans             $139        $125                $142
      Other repossessed assets         11          31                  16
      Other real estate owned          19          40                  57
                                    -----       -----               -----

                                     $169        $196                $215
                                     ====        ====                ====

Noninterest Income and Expense

Total other income increased  approximately  $89,000 or 45.2% to $287,000 during
the first six months of 1998,  as compared to the first six months of 1997.  The
most  significant  item  contributing  to this  increase was service fee income,
which increased $77,000 from  approximately  $123,000 to $200,000 or 62.6%. This
resulted  primarily from a change in SBVNB's  deposit fee structure.  Management
expects the Company will achieve similar levels of service fee income throughout
the remainder of 1998.

                                       18

Total  noninterest  expense  increased   approximately   $411,000  or  24.8%  to
$2,686,000  during  the first six  months of 1998 as  compared  to the first six
months of 1997.  Substantially  all of this increase resulted due to noninterest
expenses  totaling  $314,000  incurred  by  Capital  State  from the date of its
acquisition on April 1, 1998 through June 30, 1998.

FINANCIAL CONDITION

Total assets were  $182,742,000  at June 30, 1998,  compared to  $140,648,000 at
December 31, 1997, representing a 23.0% increase,  which resulted primarily from
the Company's  acquisition of Capital State effective  April 1, 1998.  Table III
below serves to illustrate  the impact of the Capital State  acquisition  on the
Company's  securities,  loans and deposit  portfolios,  as well as shareholders'
equity.

               Table III - Impact of Capital State Acquisition on
                          Company's Financial Position
                                 (in thousands)
                                                 Increase (Decrease)
                                                --------------------
                                               Change due       Net
                                   Balance     to Capital   Changes due     Balance
                                December 31,     State         other       June 30,
                                    1997      Acquisition     Factors        1998
                               -----------------------------------------------------
                                                                   
 Securities                         27,547      10,467           390        38,404
 Loans, net                         92,573      24,488        12,337       129,398
 Noninterest bearing deposits        9,694       1,034           541        11,269
 Interest bearing deposits          97,291      31,861         2,439       131,591
 Shareholders' equity               15,061       7,981           319        23,361

Refer  to  Notes  4,  5 and 8 of the  notes  to  the  accompanying  consolidated
financial  statements for additional  information  with regard to changes in the
composition of the South Branch's  securities,  loans and deposits  between June
30, 1998 and December 31, 1997.

LIQUIDITY

Liquidity  reflects the Company's ability to ensure the availability of adequate
funds to meet loan commitments and deposit  withdrawals,  as well as provide for
other  transactional  requirements.  Liquidity  is provided  primarily  by funds
invested  in cash and due from  banks and  Federal  funds  sold,  which  totaled
$4,803,000  at June 30, 1998 versus  $9,752,000  at December 31,  1997.  Further
enhancing the  Company's  liquidity is the  availability  as of June 30, 1998 of
$3,490,000 in securities  maturing within one year,  plus additional  securities
totaling in excess of  $34,600,000  classified as available for sale in response
to an unforeseen need for liquidity.  Additionally, the Company has unused lines
of credit available under existing borrowing  arrangements with the Federal Home
Loan Bank of Pittsburgh.

                                       19

The  Company's  liquidity  position  is  monitored  continuously  to ensure that
day-to-day as well as anticipated funding needs are met. Management is not aware
of any trends, commitments, events or uncertainties that have resulted in or are
reasonably  likely to result in a  material  change to the  Company's  liquidity
position.

CAPITAL RESOURCES

Maintenance  of a  strong  capital  position  is a  continuing  goal of  Company
management.  Through management of its capital  resources,  the Company seeks to
provide an  attractive  financial  return to its  shareholders  while  retaining
sufficient  capital to support future growth.  Shareholders'  equity at June 30,
1998  totaled  $23,361,000   compared  to  $15,061,000  at  December  31,  1998,
representing  an increase of 55.2% which as  illustrated  in Table III  resulted
primarily due to the acquisition of Capital State.

See Note 9 of the notes to the accompanying  consolidated  financial  statements
for  information  regarding  regulatory  restrictions  on the  Company's and its
subsidiaries capital.

                                       20

                           PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

On May 5, 1998, at the annual meeting of South Branch Valley Bancorp,  Inc., the
matters  set forth  below  were  voted  upon.  The  number of votes  cast for or
against,  as well as the  number  of  abstentions  concerning  each  matter  are
indicated in the following tabulations.

1.   Election of Frank A. Baer,  III to the  Company's  Board of Directors for a
     one year term.

                            For      Against Abstentions    Withheld
                          278,756          0           0       5,268

2.   Election of Georgette Rashid George to the Company's Board of Directors for
     a two year term.

                            For      Against Abstentions    Withheld
                          276,121          0           0       7,903

3.   Election of the following  listed  individuals  to the  Company's  Board of
     Directors for three year terms.

                            For      Against Abstentions    Withheld
     Oscar M. Bean         285,715         0           0           0
     Phoebe F. Heishman    285,448         0           0           0
     H. Charles Maddy, III 278,760         0           0       5,264
     Charles S. Piccirillo 276,181         0           0       7,843

     The following  directors'  terms of office  continued after the 1998 annual
     shareholders' meeting:  Donald W. Biller, James M. Cookman, John W. Crites,
     Thomas J. Hawse,  III, Gary L. Hinkle,  Jeffrey E. Hott, Harold K. Michael,
     Harry C. Welton and Russell F. Ratliff, Jr.

4.   Adoption of the Officer Stock Option Plan.

                          For       Against  Abstentions    Withheld
                       271,511        8,955       3,558           0

     Ratify  Arnett  &  Foster,  CPA's to  serve  as the  Company's  independent
     auditors for 1998.

                          For       Against  Abstentions    Withheld
                       282,761            0       1,263           0

Item 6(b). Reports on Form 8-K.

     On June 1, 1998, South Branch Valley Bancorp,  Inc. filed audited financial
     statements,  unaudited interim financial statements and pro forma condensed
     financial  information of Capital State Bank, Inc. in conjunction  with its
     acquisition of Capital State.

     On August 10, 1998, South Branch Valley Bancorp,  Inc. filed notice that it
     intends to seek  regulatory  approval  to  establish a  subsidiary  de novo
     national bank to be located in Winchester, Virginia.

                                       21

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                          SOUTH  BRANCH   VALLEY   BANCORP, INC.
                                          (registrant)

                                          By: /s/ H. Charles Maddy, III
                                          -------------------------------------
                                          H. Charles Maddy, III,
                                          President and
                                          Chief Executive Officer

                                          By: /s/ Robert S. Tissue
                                          -------------------------------------
                                          Robert S. Tissue,
                                          Chief Financial Officer

Date August 14, 1998
- ---------------------

                                      22

                                                                   Exhibit 3 (i)
                            ARTICLES OF INCORPORATION
                                       OF
                        SOUTH BRANCH VALLEY BANCORP, INC.

      The undersigned, acting as incorporator of a corporation under Section 27,
Article  1,  Chapter  31 of the  Code of West  Virginia,  adopts  the  following
Articles of Incorporation for such corporation, FILED IN DUPLICATE:
      I.  The undersigned agrees to become a corporation by the name of SOUTH
BRANCH VALLEY BANCORP, INC.
      II. The address of the principal  office of said  corporation  will be 310
North Main Street, City of Moorefield, County of Hardy, State of West Virginia.
      III.  The purpose or purposes for which this corporation is organized
are as follows.
      To acquire  and own stock and  securities,  of whatever  kind,  nature and
description,  in a bank or banks,  and to take such actions as are  necessary or
incidental to the acquisition of a bank or banks;
      To  engage,  either  directly  itself,  indirectly  by  the  formation  of
subsidiary corporations or otherwise, in any activity permitted to be undertaken
by a bank holding  company under existing or future laws,  rules and regulations
relating thereto;
      Subject to the foregoing and unless otherwise  limited herein to own, buy,
acquire,  sell,  exchange,  assign, lease and deal in and with real property and
any interest or right therein;  to own, buy, acquire,  sell,  exchange,  assign,
lease and deal in and with personal  property and any interest or right therein;
to own, buy, acquire, sell, exchange, assign, pledge and deal with voting stock,
non-voting stock, notes, bonds,  evidence of indebtedness and rights and options
in and to other  corporate and  non-corporate  entities,  and to pay therefor in
whole  or in part in cash or by  exchanging  therefor  stocks,  bonds,  or other
evidences of  indebtedness or securities of this or any other  corporation,  and
while  the  owner  or  holder  of any such  stocks,  bonds,  debentures,  notes,
evidences or  indebtedness  or the securities,  contracts,  or  obligations,  to
receive, collect, and dispose of the interest, dividends and income arising from
such property,  and to possess and exercise in respect thereof,  all the rights,
powers and privileges of ownership, including all voting powers on any stocks so
owned; and to borrow money without limit as to amount; and

      Otherwise,  subject to the foregoing and unless otherwise  limited herein,
to engage in any lawful act or activity for which  corporations may be organized
under the laws of the State of West Virginia.
      IV. The amount of the total  authorized  capital stock of said corporation
shall be One Million Five Hundred Thousand Dollars  ($5,000,000.00)  which shall
be divided into six hundred  thousand  (2,000,000) shares of common stock having
a par value of Two and 50/100 Dollars ($2.50) per share.
      V. The name and  address  of the  incorporators  and the  number of shares
subscribed by each of them is as follows:

                                                      NUMBER
NAME                    ADDRESS                       OF SHARES
- ---------------         --------------------         -----------

Oscar M. Bean           Rt. 2, Box 116                34
                        Moorefield, WV 26836

Donald W. Biller        Rt. 1, Box 30                 35
                        Lost River, WV 26811

Thomas J. Hawse         216 Washington Street         35
                        Moorefield, WV 26836

Phoebe F. Heishman      136 S. Main Street            35
                        Moorefield, WV 26836

Ed A. Leatherman, Jr.   Rt. 1, Box 175                35
                        Purgitsville, WV 26852

J. Aleck Welton         Box 366                       35
                        Moorefield, WV 26836

Renick C. Williams      Box 664                       35
                        Moorefield, WV 26836

Michael T. Wilson       Rt. 4  Sunset View            35
                        Moorefield, WV 26836

Harry C. Welton         Rt. 4, Box 27                 35
                        Moorefield, WV 26836

A. Clyde Ours, Jr.      Box 541                       35
                        Moorefield, WV 26836

E. E. Hott              Box 1                         35
                        Franklin, WV 26807

      VI.  The existence of this corporation is to be perpetual.

      VII.  The name and  address of the person to whom shall be sent  notice or
process  served upon,  or service of which is accepted by the Secretary of State
is:

            Renick C. Williams
            Box 664
            Moorefield, WV 26836

      VIII.  The  number of  directors  constituting  the  initial  board of
directors of the corporation is eleven (11).

The names and addresses of the persons who are to serve as directors until their
term  expires  and their  successors  are elected and shall  qualify  are:

  NAME                            ADDRESS
- --------------                ----------------------

Oscar M. Bean                 Rt. 2, Box 116
                              Moorefield, WV 26836

Donald W. Biller              Rt. 1, Box 30
                              Lost River, WV 26811

Thomas J. Hawse               216 Washington Street
                              Moorefield, WV 26836

Phoebe F. Heishman            136 S. Main Street
                              Moorefield, WV 26836

Ed A. Leatherman, Jr.         Rt. 1, Box 175
                              Purgitsville, WV 26852

J. Aleck Welton               Box 366
                              Moorefield, WV 26836

Renick C. Williams            Box 664
                              Moorefield, WV 26836

Michael T. Wilson             Rt. 4, Sunset View
                              Moorefield, WV 26836

Harry C. Welton               Rt. 4, Box 27
                              Moorefield, WV 26836

A. Clyde Ours, Jr.            Box 541
                              Moorefield, WV 26836

E.E. Hott                     Box 1
                              Franklin, WV 26807

      IX.  Provisions  limiting  preemptive  rights are: The shareholders of the
corporation  shall not have any preemptive rights to acquire any shares of stock
of the corporation.

      X. Provisions for the regulations of the internal affairs of the
corporation shall be as follows:

      A. Definitions.  For purposes hereof, the following terms are defined
         ----------- 
as follows:

      1. Affiliate. An "affiliate" of, or a person "affiliated" with, a specific
         ---------
person,  means a person  (other than this  Corporation  or a  majority-owned  or
wholly owned  subsidiary  of this  Corporation)  that  directly,  or  indirectly
through one or more intermediaries,  controls,  or is controlled by, or is under
common control with, the person specified.

      2. Associate.  The term  "associate"  when used to indicate a relationship
         ---------
with any person,  means (i) any corporation,  partnership,  limited partnership,
association,  joint  venture,  group  or other  organization  (other  than  this
Corporation or a majority- owned or wholly owned subsidiary of this Corporation)
of which such person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of ten percent (10%) or more of any class of equity  securities
or other  medium of  ownership  rights,  (ii) any trust or other estate in which
such  person has a  substantial  beneficial  interest or as to which such person
serves as trustee or in a similar  fiduciary  capacity,  (iii) any  relative  or
spouse of such person,  or any relative of such spouse provided the relative has
the same home as such person,  or (iv) any investment  company  registered under
the  Investment  Company Act of 1940 for which such person or any  affiliate  of
such person serves as investment adviser.

      3. Beneficial  Owner. A person shall be considered the "Beneficial  Owner"
         -----------------
of any shares of stock whether or not owned of record by such Person:
      (a) With respect to any shares as to which such Person or any Affiliate or
Associate of such Person  directly or indirectly has or shares (i) voting power,
including the power to vote or to direct the voting of such shares of stock and
/or (ii) investment power,  including the power to dispose of or to direct the
disposition of such shares of stock;
      (b) With respect to any shares as to which such Person or any Affiliate or
Associate of such Person has (i) the right to acquire such shares  (whether such
right is exercisable  immediately or only after the passage of time) pursuant to
any agreement,  arrangement or  understanding or upon the exercise of conversion
rights,  exchange  rights,  warrants or options,  or otherwise,  and/or (ii) the
right to vote pursuant to any agreement,  arrangement or understanding  (whether
such right is exercisable immediately or only after the passage of time); or
      (c) With  respect to any shares  which are  Beneficially  Owned within the
meaning of (a) or (b) of this Paragraph (3) above by any other Person with which
such first-mentioned Person or any of its Affiliates or Associates has any
agreement,  arrangement  or  understanding,  written or oral,with respect to
acquiring,  holding or

disposing of all or substantially all, or any substantial part, of the assets or
businesses of the Corporation or a Subsidiary of the Corporation.

      For the purpose  only of  determining  whether a Person is the  Beneficial
Owner of a  percentage  of  outstanding  shares,  such shares shall be deemed to
include any shares which may be issuable pursuant to any agreement,  arrangement
or  understanding  or upon the exercise of conversion  rights,  exchange rights,
warrants,  options or otherwise and which are deemed to be beneficially owned by
such Person pursuant to the foregoing provisions of this Paragraph (3) above.

      4.  Business Combination.  A "Business Combination" means:
          ---------------------
      (a)  The sale, exchange, lease, transfer or other disposition to or with a
Related Person or any Affiliate or Associate of such Related Person by the
Corporation or any of its  Subsidiaries(in a  single  transaction  or a  series
of  related  transactions)  of  all or substantially all, or any substantial 
part, or its or their assets or businesses including, without limitation, any
securities issued by a Subsidiary;

      (b) The purchase,  exchange, lease or other acquisition by the Corporation
or any of its  Subsidiaries  (in a single  transaction  or a series  of  related
transactions)  of all or  substantially  all, or any  Substantial  Part,  of the
assets or business of a Related  Person or any  Affiliate  or  Associate of such
Related Person:

     (c) With  respect to any shares  which are  Beneficially  Owned  within the
meaning of (a) or (b) of this Paragraph (3) above by any other Person with which
such  first-mentioned  Person or any of its  Affiliates  or  Associates  has any
agreement,  arrangement  or  understanding,  written  or oral,  with  respect to
acquiring, holding or disposing of any shares of stock of the Corporation or any
Subsidiary  of the  Corporation  or  acquiring or holding or disposing of all or
substantially  all, or any substantial  part, of the assets or businesses of the
Corporation or a Subsidiary of the Corporation.

      (d)  Any   reclassification  of  securities,   recapitalization  or  other
transaction  (other  than a  redemption  in  accordance  with  the  terms of the
security redeemed) which has the effect,  directly or indirectly,  of increasing
the proportionate  amount of shares of the Corporation or any Subsidiary thereof
which are  Beneficially  Owned by a Related  Person,  or any partial or complete
liquidation,  spinoff,  splitoff  or splitup of the  Corporation  or  Subsidiary
thereof  which  has the  effect,  directly  or  indirectly,  of  increasing  the
proportionate  amount of shares of the  Corporation  or any  subsidiary  thereof
which are Beneficially Owned by a Related Person; or

      (e) The acquisition upon the issuance thereof of Beneficial Ownership by a
Related Person of voting shares or securities  convertible into voting shares or
any voting securities or securities convertible into voting securities of any
Subsidiary of the  Corporation,  or the  acquisition  upon the issuance  thereof
of  Beneficial  Ownership  by a Related

Person of any rights, warrants or options to acquire any of the foregoing or any
combination of the foregoing voting shares or voting securities of a Subsidiary.

      As used  herein a  'series  of  related  transactions'  shall be deemed to
include not only a series of transactions  with the same Related Person but also
a series of separate  transactions  with a Related  Person or any  Affiliate  or
Associate of such Related Person.

      (f) Notwithstanding the foregoing,  the term "Business  Combination" shall
not mean the  formation of the  Corporation  or the  acquisition  by it of South
Branch Valley National Bank, a national banking association,  with its principal
banking offices located in Moorefield, West Virginia.

      5. Corporation.  "Corporation" shall mean South Branch Valley Bancorp,
         ------------
Inc., a West Virginia business corporation.

      6. Date of Determination.  The term `Date of Determination'  means (a) the
         ----------------------
date on which a binding  agreement  (except for the  fulfillment  of  conditions
precedent,  including, without limitation, votes of shareholders to approve such
transaction) is entered into by this Corporation,  as authorized by its board of
directors,  and another  corporation,  person or other entity  providing for any
merger or  consolidation  of this  Corporation or any sale,  lease,  exchange or
disposition of all or substantially all of the assets of this  Corporation;  or,
(b) if such an  agreement as referred to in item (a) is amended so as to make it
less favorable to this Corporation and its shareholders,  the date on which such
amendment is approved by the board of directors of this Corporation,  or, (c) in
cases where neither items (a) nor item (b) shall be applicable,  the record date
for the determination of shareholders of this Corporation  entitled to notice of
and to vote upon the  transaction  in  question.  The board of directors of this
Corporation  shall have the power and duty to determine for the purposes  hereof
the Date of Determination as to any transaction.  Any such  determination by the
board of directors  made in good faith shall be  conclusive  and binding for any
and all purposes.

      7.  Person.  The  term  "Person"  shall  mean  any  person,   partnership,
          -------
corporation,  group or other entity (other than the Corporation,  any Subsidiary
of the Corporation,  or a trustee holding stock for the benefit of the employees
of the Corporation or its Subsidiaries,  or any one of them,  pursuant to one or
more employee benefit plans or arrangements).  When two or more Persons act as a
partnership, limited partnership, syndicate, association or other group for the
purpose of  acquiring,  holding or  disposing  of shares of stock, such
partnerships, syndicate, association or group shall be deemed a "Person".

      8.  Related  Person.  "Related  Person"  means  any  Person  which  is the
          ----------------
Beneficial  Owner as of the Date of  Determination  or immediately  prior to the
consummation of a Business Combination,  or both, of twenty-five (25) percent or
more of the  voting  shares of the  Corporation  or any  Person  who at any time
within two (2) years  preceding  the Date of  Determination  was the  Beneficial
Owner of twenty-five (25) percent or more of the then outstanding  voting shares
of the Corporation.

      9. Subsidiary.  "Subsidiary" shall mean South Branch Valley National Bank,
         ----------
a national  banking  association as of the effective date of the  acquisition of
said  bank  by  this  corporation  and  any  other  corporation,  bank,  banking
association  or  other  entity  at least a  majority  of which is owned by South
Branch Valley Bancorp, Inc.

      10. Capacity to Make Certain  Determinations.  A majority of the directors
          ----------------------------------------
of the Corporation  shall have the power to determine for the purposes hereof on
the basis of  information  known to them: (i) the number of voting shares of the
Corporation of which any Person is the Beneficial  Owner,  (ii) whether a Person
is an  Affiliate  of  Associate  of  another,  (iii)  whether  a  Person  has an
agreement,  arrangement or understanding with another as to the matters referred
to in the definition of `Beneficial Owner' as hereinabove defined,  (iv) whether
the assets subject to any Business Combination  constitute a substantial part of
total  assets,  (v) whether  two or more  transactions  constitute  a `series of
related  transactions' as hereinabove  defined, and (vi) such other matters with
respect to which a determination is required hereunder.

      A  Related  Person  shall  be  deemed  to have  acquired  a  share  of the
Corporation  at the time when such Related  Person became the  Beneficial  Owner
thereof. With respect to shares owned by Affiliates, Associates or other Persons
whose ownership is attributed to a Related Person under the foregoing definition
of Beneficial Owner, if the price paid by such Related Person for such shares is
not determinable,  the price so paid shall be deemed to be the higher of (i) the
price paid upon acquisition thereof by the Affiliate,  Associate or other Person
or (ii) the market price of the shares in question (as  determined by a majority
of the board of  directors  of the  Corporation)  at the time  when the  Related
Person became the Beneficial Owner thereof.

      B.  Voting Requirements for Merger, Consolidation or Sale of Assets.
          ---------------------------------------------------------------
Subject to any other requirements provided for by law and in this charter or any
amendment thereto, in order for any merger or consolidation of this Corporation
with  another  corporation  or  any  sale,  lease  or  exchange  by liquidation
or  otherwise  of all or  substantially  all of the  assets of this Corporation
to be approved by the  shareholders  of this  Corporation,  not less than
sixty-six and two-thirds  percent (66 2/3%) of the  authorized,  issued and 
outstanding  voting shares of the Corporation  must vote

in favor of such action  unless the  Business  Combination  has been  previously
approved by at least sixty-six and two-thirds  percent (66 2/3%) of the board of
directors of the  Corporation  in which case only a simple  majority vote of the
shareholders shall be required.

      C.  Fair Price Requirement.  Neither the Corporation or any of its
          ----------------------
Subsidiaries shall become party to any Business Combination unless all of the
following conditions are satisfied:

     (1) The ratio of (i) the  aggregate  amount of the cash and the fair market
value of other  consideration  to be received  per share of common  stock of the
Corporation  in such Business  Combination by holders of common stock other than
the Related  Person  involved in such Business  Combination,  to (ii) the market
price per share of the common stock immediately prior to the announcement of the
proposed  Business  Combination,  is at least  as great as the  ratio of (x) the
highest per share price  (including  brokerage  commissions,  transfer taxes and
soliciting  dealers'  fees) which such Related  Person has  theretofore  paid in
acquiring  any  common  stock  of  the   Corporation   prior  to  such  Business
Combination,  to  (y)  the  market  price  per  share  of  common  stock  of the
Corporation  immediately prior to the initial acquisition by such related person
of any shares of common stock of the corporation; and

     (2) The  aggregate  amount of the cash and the fair  market  value of other
consideration  to be received  per share of common stock of the  Corporation  in
such Business  Combination by holders of common stock of the Corporation,  other
than the Related Person involved in such Business  Combination,  (i) is not less
than the highest  per share price  (including  brokerage  commissions,  transfer
taxes and soliciting dealers' fees) paid by such Related Person in acquiring any
of its  holdings of common stock of the  Corporation,  and (ii) is not less than
the  earnings  per share of common  stock of the  Corporation  for the four full
consecutive fiscal quarters of the Corporation immediately preceding the Date of
Determination of such Business Combination multiplied by the then price/earnings
multiple (if any) of such Related Person as customarily computed and reported in
the financial community; provided, that for the purposes of this clause (ii), if
more than one Person  constitutes  the Related  Person  involved in the Business
Combination,  the  price/earnings  multiple  (if any) of the  Person  having the
highest  price/earnings  multiple  shall  be used  for the  computation  in this
clause, (ii); and

      (3) The consideration (if any) to be received in such Business Combination
by holders of common  stock of the  Corporation  other than the  Related  Person
involved shall, except to the extent that a stockholder agrees otherwise as to 
all or part of the shares  which he or she owns,  be in the same form and of the
same kind as the  consideration  paid by the Related Person in acquiring common
stock of the Corporation already owned by it.

      D. Evaluation of Acquisition of this  Corporation by Another  Corporation.
         -----------------------------------------------------------------------
In connection  with the exercise of its judgment in  determining  what is in the
best  interest  of the  Corporation  and its  stockholders  when  evaluating  an
acquisition of this  Corporation by another  corporation or a tender or exchange
offer for control of this Corporation, the board of directors of the Corporation
shall,  in  addition  to  considering  the  adequacy of the amount to be paid in
connection with any such transaction,  consider all of the following factors and
any other factors which it deems relevant:  (i) the social and economic  effects
of  the  transaction  on  the  Corporation  and  its  Subsidiaries,   employees,
depositors,  loan and  other  customers,  creditors  and other  elements  of the
communities  in  which  the  Corporation  and its  Subsidiaries  operate  or are
located;  (ii) the business and financial  conditions and earnings  prospects of
the acquiring  entity or entities,  including,  but not limited to, debt service
and other existing or likely  financial  obligations of the acquiring  Person or
Persons, and the possible effect of such conditions upon the Corporation and its
Subsidiaries operate or are located; and (iii) the competence,  experience,  and
integrity of the acquiring entity or entities and its or their management.

      E.  Classified  Board of  Directors.  At the first  annual  meeting of the
          -------------------------------
shareholders, after the effective date of the acquisition of South Branch Valley
National Bank as a bank subsidiary, the board of directors shall be divided into
three  classes,  designated  Class I, Class II and Class III,  consisting  of an
equal  number of  directors  per class.  The term of office of  directors of one
class  shall  expire at each  annual  meeting  of  stockholders,  and as to each
director until his or her successor shall be elected and shall qualify, or until
his or her  earlier  resignation,  removal  from  office,  death or  incapacity.
Additional directorships resulting from an increase in number of directors shall
be  apportioned  among the  classes as equally as  possible.  A decrease  in the
number  of  directors  by death,  resignation  or  removal  may but shall not be
required to be filled by the remaining board members. The initial term of office
of  directors  of  Class  I  shall  expire  at  the  first  annual   meeting  of
stockholders,  that of Class II shall expire at the second annual  meeting,  and
that of Class III shall expire at the third annual meeting,  and in all cases as
to each director until his or her successor  shall be elected and shall qualify,
or  until  his or  her  earlier  resignation,  removal  from  office,  death  or
incapacity. At each annual meeting of stockholders the number of directors equal
to the number of  directors  of the class whose term expires at the time of such
meeting (or, if less, the number of directors  properly  nominated and
qualified for election)  shall be elected to hold office until the third
succeeding annual meeting of the stockholders  after their election.

      The  directors  remaining in office  acting by a majority  vote, or a sole
remaining director,  although less than a quorum, are hereby expressly delegated
the power to fill any  vacancies in the board of directors,  however  occurring,
whether  by  an  increase  in  the  number  of  directors,  death,  resignation,
retirement,  disqualification,  removal  from  office,  or  otherwise,  and  any
director so chosen  shall hold office  until the next  election of the class for
which such director shall have been chosen and until his or her successor  shall
have  been  elected  and  qualified,  or until his or her  earlier  resignation,
removal from office, death or incapacity.

      The total number of directors of this  Corporation  shall be not less than
nine  nor more  than  twenty-one  as from  time to time  fixed  by the  board of
directors.

      F.  Nomination  of  Directors.  Nominations  for  election to the board of
          --------------------------
directors may be made by the board of directors or by any  shareholder  entitled
to vote for the election of directors.  Nominations, other than those made by or
on behalf of the existing management of the Corporation, must be made in writing
and delivered or mailed to the President of the Corporation not less than thirty
(30) days  prior to any  meeting of  shareholders  called  for the  election  of
directors;  provided,  however, that if less than thirty (30) days notice of the
meeting is given to  shareholders,  such nomination shall be mailed or delivered
to the President of the Corporation not later than the fifth (5th) day following
the day on which the notice of  meeting  was  mailed.  Such  notification  shall
contain the following  information to the extent known by the  shareholder:  (i)
the name and address of each  nominee,  (ii) the  principal  occupation  of each
nominee, (iii) the name and address of the notifying  shareholder,  and (iv) the
number of shares of the Corporation's stock owned by the notifying  shareholder.
Nominations  not made in  accordance  herewith,  may, in the  discretion  of the
chairman of the meeting,  be disregarded,  and upon his  instruction,  the votes
cast for each such nominee shall be disregarded.

      G.  Removal of a Director  for Cause Only.  The removal from office of any
          -------------------------------------
director  must be for cause as set forth  herein.  Except  as may  otherwise  be
provided by law, cause for removal shall be construed to exist only if:

      (1) the director whose removal is proposed has been convicted,  or where a
director was granted immunity to testify where another has been convicted,  of a
felony by a court of competent  jurisdiction  and such  conviction  is no longer
subject to direct appeal;  (2) such director has been  adjudicated by a court of
competent  jurisdiction  to be liable  for  negligence,  or  misconduct,  in the
performance of his duty to the Corporation and such adjudication is no longer
subject  to  direct  appeal;  (3)  such  director  has  become  mentally
incompetent,  whether or not so adjudicated,  which mental incompetency directly
affects his or her ability as a director of the  Corporation;  (4) such director

ceases to  fulfill  the  qualification  requirements  for a  director  of a West
Virginia bank holding company;  or (5) such director's actions or failure to act
have been determined by a majority of the board of directors to be in derogation
of the director's duties.

      Removal  for cause,  as cause is  defined  in (1) and (2)  above,  must be
brought within one year of such conviction or adjudication.  For purposes of (5)
above, the total number of directors as to which a majority is required will not
include the director who is the subject of the removal  determination,  nor will
such  director  be  entitled to vote  thereon  except in his or her  shareholder
capacity.

      H. Anti-Greenmail Provision. The Corporation shall not engage, directly or
         ------------------------
indirectly,  in any Stock Repurchase (as hereinafter defined) from an Interested
Stockholder (as hereinafter  defined) or an Affiliate (as previously defined) or
Associate (as previously  defined) of an Interested  Stockholder (as hereinafter
defined)  who has  beneficially  acquired  any  shares  of  voting  stock of the
Corporation  within a period of less than two (2) years immediately prior to the
date of such proposed  Stock  Repurchase (or the date of an agreement in respect
thereof)  without the affirmative  vote of not less than a majority of the votes
entitled  to be cast by the  holders  of all then  outstanding  shares of voting
stock of the Corporation which are Beneficially Owned (as previously defined) by
persons  other than such  Interested  Stockholder,  voting  together as a single
class. Such affirmative vote shall be required  notwithstanding the fact that no
vote may be required,  or that a lesser percentage or separate class vote may be
specified, by law or otherwise.

      The  provisions of this Article shall not be applicable to any  particular
Stock Repurchase from an Interested Stockholder, and such Stock Repurchase shall
require only such affirmative vote, if any, as is required by law if the
conditions specified in either of the following Paragraphs 1 or 2 are met:

      1.  The Stock Repurchase is made pursuant to a tender offer or exchange
offer for a class of common stock made available on the same basis to all
holders of such class of common stock.

      2.  The Stock Repurchase is made pursuant to an open market purchase
program approved by a majority of the directors of the  Corporation  provided
that such  repurchase is effected on the open market and is not the result of a
privately negotiated transaction.

      For purposes hereof:

      1. The term "Stock Repurchase" shall mean any repurchase (or any agreement
to repurchase),  directly or indirectly, by the Corporation or any Subsidiary of
any shares of common stock at a price greater than the Fair Market Value of such
shares.

      2. The term  "Interested  Stockholder"  shall mean any person  (other than
this Corporation or any Subsidiary and other than any  profit-sharing,  employee
stock  ownership  or other  employee  benefit  plan of this  Corporation  or any
Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity) who (1) is
the Beneficial Owner of voting stock of the Corporation representing ten percent
(10%)  or more of the  votes  entitled  to be cast by the  holders  of all  then
outstanding shares of voting stock of the Corporation; and (b) acquired at least
one-half of such shares at any time within the two year period immediately prior
to the date in question.

      3. The term `Fair Market Value' means (a) in the case of a cash  purchase,
the amount of such cash,  (b) in the case of a stock  exchange,  the fair market
value on the date in questions of a share of such offered stock as determined in
good faith by a majority of the directors; and (c) in the case of property other
than  cash or  stock,  the fair  market  value of such  property  on the date in
question as determined in good faith by a majority of the directors.

     The board of directors  shall have the power and duty to determine  for the
purposes  hereof,  on the basis of  information  known to then after  reasonable
inquiry,  (a) whether a person is an Interested  Stockholder,  (b) the number of
shares of common stock or other securities beneficially owned by any person, (c)
whether a person is an  Affiliate  or  Associate  of another and (d) whether the
consideration  to be paid in any Stock  Repurchase  has an aggregate Fair Market
Value in excess  of the then Fair  Market  Value of the  shares of common  stock
being  repurchased.  Any such  determination made in good faith shall be binding
and conclusive on all parties.

      Nothing  contained  herein shall be  construed  to relieve any  Interested
Stockholder from any fiduciary obligation imposed by law.

        1. Director and Officer Indemnification.  Unless otherwise prohibited by
          --------------------------------------
law, each director and officer of the  corporation  now or hereafter  serving as
such,  and each director and officer of any majority or wholly owned  subsidiary
of the corporation  that has been designated as entitled to  indemnification  by
resolution of the board of directors of the  corporation  as may be from time to
time determined by said board,  shall be indemnified by the corporation  against
any and all claims and  liabilities  (other than an action by or in the right of
the corporation or any majority or wholly owned  subsidiary of the  corporation)
including  expenses of defending  such claim of liability to which he or she has
or shall  become  subject  by reason of any action  alleged to have been  taken,
omitted,  or  neglected by him or her as such  director or officer  provided the
director or officer  acted in good faith and in a manner  which the  director or
officer reasonably believed to be in or not opposed to the best interests of the
corporation.  With  respect to any  criminal  proceeding,  a director or officer
shall be entitled to  indemnification  if such person had no reasonable cause to
believe his or her conduct was unlawful.  The  corporation  shall reimburse each
such person as provided above in connection with any claim or liability  brought
or arising by or in the right of the corporation or any majority or wholly owned
subsidiary of the corporation  provided,  however, that such person shall be not
indemnified  in  connection  with,  any claim or liability  brought by or in the
right of the  corporation  or any  majority or wholly  owned  subsidiary  of the
corporation  as to which the director or officer  shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation or any

majority or wholly owned  subsidiary of the  Corporation  unless and only to the
extent  that the court in which such  action or  proceeding  was  brought  shall
determine upon  application  that,  despite the adjudication of liability but in
view of all  circumstances  of the case,  such  person is fairly and  reasonably
entitled to indemnify for such expenses which such court shall deem proper.

      The  determination  of eligibility  for  indemnification  shall be made by
those board  members not party to the action or  proceeding or in the absence of
such board  members by a panel of  independent  shareholders  appointed for such
purpose by a majority of the  shareholders  of the  corporation  or in any other
manner provided by law.

      The  right  of  indemnification  hereinabove  provided  for  shall  not be
exclusive or any rights to which any director or officer of the  corporation may
otherwise be entitled by law.

      The board of directors may be by resolution, by law or other lawful manner
from time to time as it shall  determine  extend  the  indemnification  provided
herein to agents and  employees  of the  corporation,  to  directors,  officers,
agents or employees of other  corporations or entities owned in whole or in part
by the corporation.  The corporation may purchase and maintain insurance for the
purposes hereof.

      J. Voting  Requirements for Charter Amendments.  Any amendment,  change or
         -------------------------------------------- 
repeal  of  this  Article  X  or  any  other  amendment  of  these  Articles  of
Incorporation,   which  would  have  the  effect  of  modifying  or   permitting
circumvention of any provision of these Articles of Incorporation, shall require
the  affirmative  vote,  at a meeting of  stockholders  of the  Corporation,  of
holders  of at least  sixty-six  and  two-thirds  percent  (66 2/3%) of the then
outstanding  voting  shares of the  Corporation;  provided,  however,  that this
provision  shall not apply to, and such vote shall not be required for, any such
amendment, change or repeal recommended to stockholders by the favorable vote of
not less than  sixty-six and  two-thirds  percent (66 2/3%) of the directors of
the  Corporation  and any such 

amendment,  change or repeal so recommended shall require only a simple majority
vote of the shareholders to be approved.

      WE, THE  UNDERSIGNED,  for the purpose of forming a corporation  under the
laws of the State of West Virginia, do make and file in duplicate these ARTICLES
OF INCORPORATION, and we have accordingly hereunto set our hands this 3rd day of
March, 1987.

                                     /s/ Oscar M. Bean
                                   ---------------------
                                    Oscar M. Bean

                                     /s/ Donald W. Biller
                                   ---------------------------
                                    Donald W. Biller

                                     /s/ Thomas J. Hawse
                                   ---------------------------
                                    Thomas J. Hawse

                                     /s/ Phoebe F. Heishman
                                   ---------------------------
                                    Phoebe F. Heishman

                                     /s/ Ed A. Leatherman, Jr.
                                   ---------------------------
                                    Ed A. Leatherman, Jr.

                                     /s/ Aleck Welton
                                   ---------------------------
                                    J. Aleck Welton

                                     /s/ Renick C. Williams
                                   ---------------------------
                                    Renick C. Williams

                                     /s/ Michael T. Wilson
                                   ---------------------------
                                    Michael T. Wilson

                                     /s/ Harry C. Welton
                                   ---------------------------
                                    Harry C. Welton

                                     /s/ A. Clyde Ours, Jr.
                                   ---------------------------
                                    A. Clyde Ours, Jr.

                                     /s/ E.E. Hott
                                   ---------------------------
                                    E.E. Hott

                        SOUTH BRANCH VALLEY BANCORP, INC.
                         1998 OFFICER STOCK OPTION PLAN

     Witnesseth  this_______________  1998 OFFICER STOCK OPTION PLAN dated as of
the  _____  day of  __________,  1998,  by SOUTH  BRANCH  VALLEY  BANCORP,  INC.
("Corporation"), a West Virginia corporation:

1.        PURPOSE OF PLAN.  The purpose of this 1998  Officer  Stock Option Plan
          ("Plan")  is to  further  the  success  of  the  Corporation  and  its
          subsidiaries by making stock of the Corporation available for purchase
          by officers  of the  Corporation  or its  subsidiaries  through  stock
          option  grants.  The Plan  provides an  additional  incentive  to such
          officers  to  continue  in the  Corporation's  service and give them a
          greater interest as stockholders in the success of the Corporation.

2.        REFERENCE,  CONSTRUCTION, AND DEFINITIONS. Unless otherwise indicated,
          all  references  made in this Plan shall be to articles,  sections and
          subsection  of this Plan.  This Plan shall be construed in  accordance
          with  the  laws  of the  state  of West  Virginia.  The  headings  and
          subheadings  in this  Plan  have  been  inserted  for  convenience  of
          reference only and are to be ignored in  construction of the provision
          of this Plan. In the  construction  of this Plan, the masculine  shall
          include the feminine and  singular the plural,  wherever  appropriate.
          The  following  terms shall have the meanings set forth  opposite such
          terms:

          (a)  "Board" means the Board of Directors of the Corporation.

          (b)  "Business Day" means each Monday,  Tuesday,  Wednesday,  Thursday
               and Friday on which the  Corporation's  Common Stock is available
               for purchase or sale.

          (c)  "Change  of  Control"  means  (a) a  report  is  filed  with  the
               Securities and Exchange Commission (the "SEC") on Schedule 13D or
               Schedule 14D-1 (or any successor schedule,  form or report), each
               as promulgated  pursuant to the Exchange Act, disclosing that any
               "person",  as such  term is used in  section  13(d)  and  Section
               14(d)(2)  of the  Exchange  Act,  other  than the  company or any
               company  employee  benefit  plan,  is or has become a  beneficial
               owner,  directly  or  indirectly,  of  securities  of the Company
               representing  twenty-five  percent  (25%) or more of the combined
               voting power of the Company's then  outstanding  securities;  (b)
               the  Company  files a  report  or  proxy  statement  with the SEC
               pursuant to the Exchange Act  disclosing in response to Item 1 of
               Form 8-K thereunder or Item 6(e) of Schedule 14A thereunder  that
               a Change in Control of the  Company  has or may have  occurred or
               will or may occur in the  future  pursuant  to any  then-existing
               contract   or   transaction;   (c)  the   Company  is  merged  or
               consolidated  with another  corporation and, as a result thereof,
               securities  representing  less than  fifty  percent  (50%) of the
               combined voting power of the surviving or resulting corporation's
               securities (or of the securities of a parent  corporation in case
               of a merger  in which  the  surviving  or  resulting  corporation
               becomes a wholly owned subsidiary of the parent  corporation) are
               owned in the  aggregate  by holders of the  Company's  securities
               immediately  prior to such  merger or  consolidation;  (d) all or
               substantially  all of the  assets  of the  Company  are sold in a
               single  transaction  or a series  of  related  transactions  to a
               single  purchaser  or a group of  affiliated  purchasers;  or (e)
               during  any  period  of  twenty-four  (24)  consecutive   months,
               individuals who were Directors of the Company at the beginning of
               such  period  cease  to  constitute  at least a  majority  of the
               Company's  board unless the election,  or nomination for election
               by the Company's  shareholders,  of more than one-half of any new
               Directors  of the  Company  was  approved  by a vote of at  least
               two-thirds  of the  Directors of the Company then still in office
               who  were  Directors  of the  Company  at the  beginning  of such
               twenty-four  (24)  month  period,  either  actually  or by  prior
               operation  of this  clause  (e).  A Change in  Control  shall not
               include any transaction  described in the definition of Change in
               Control  in  connection  with  which the  Corporation  executes a
               letter of intent or similar agreement with another company within
               one  year  from the  effective  date of the  Plan.  The date of a
               Change of Control  shall be deemed to be the date of the  earlier
               of the date of (i) consummation of the transaction  involving the
               Change  in  Control,  or  (ii)  the  execution  of  a  definitive
               agreement by the Corporation involving a transaction deemed to be
               a Change in Control; .

      (d)     "Code" means the Internal  Revenue Code of 1986,  as amended from
               time to time.

      (e)      "Committee"  means the  Committee  of the Board  appointed by the
               Board to administer the Plan as constituted  from time to time in
               accordance  with Section  4(a);  provided,  however,  that if the
               Committee shall not be in existence,  the term "Committee"  shall
               mean the Board.

      (f)      "Common  Stock"  means the common  stock ($2.50 par value) of the
               Corporation.

      (g)      "Corporation"  means South Branch  Valley  Bancorp,  Inc., a West
               Virginia banking corporation.

      (h)      "Date of Grant"  means  the date on which an  option  is  granted
               under the Plan.

      (i)      "Effective Date" means the date on which the Plan is approved and
               adopted by the shareholders of the Corporation.

      (j)      "Fair Market Value" means the value of Common Stock (i) if listed
               on an  established  stock  exchange,  based on its  price on such
               exchange at the close of business on the date in  question;  (ii)
               if  traded on a  reasonably  active  basis  but not  listed on an
               established  stock  exchange,  based on its price as reflected on
               the  NASDAQ   Inter-dealer   Quotation  System  of  the  National
               Association of Securities Dealers,  Inc. at the close of business
               on the date in question;  (iii) if the Common Stock is not traded
               on any United  States  securities  exchange  but is traded on any
               formal  over-the-counter  quotation  system in general use in the
               United  States,  the  value  per  share  shall be the mean of the
               closing  prices  reported on the last five (5)  Business  Days on
               which the common stock traded prior to the date of grant.

      (k)      "Non Qualified  Stock Option" means an Option which is not of the
               type described in Section 422(b) or 423(b) of the Code.

      (l)      "Option"  means an  option to  purchase  a share or shares of the
               Corporation's par value Common Stock.

      (m)      "Option Agreement" means the written agreement to be entered into
               by the Corporation and the Participant,  as provided in Section 6
               hereof.

      (n)      "Participant"  means  any  officer  of  the  Corporation  or  its
               subsidiaries  designated  by the  Committee  and  approved by the
               Board to receive a stock option grant pursuant to this Plan.

      (o)      "Plan" means this 1998 Officer Stock Option Plan.

      (p)      "Retirement"   shall  mean   termination  of  employment  by  the
               Participant  (i)  at  the  age  of  65 or  more,  or  (ii)  after
               twenty-five years of service with the Corporation.

      (q)      "Term" means the period  during which a particular  Option may be
               exercised in accordance with Section 8(b) hereof.

      (r)      "Vest" or "Vesting" means the date,  event, or act prior to which
               an  Option,  in whole or in part,  is not  exercisable,  and as a
               consequence  of which the  Option,  in whole or in part,  becomes
               exercisable for the first time.

3.   STOCK SUBJECT TO PLAN.  Subject to the  provisions of Sections 6, 7, and 8,
     there shall be reserved  for  issuance  or  transfer  upon the  exercise of
     Options to be granted  from time to time under the Plan an aggregate of one
     hundred twenty thousand  (120,000) shares of Common Stock, which shares may
     be in whole or in part,  as the Board  shall  from time to time  determine,
     authorized and unissued  shares of Common Stock, or issued shares of Common
     Stock which shall have been  reacquired by the  Corporation.  If any Option
     granted  under the Plan shall  expire,  terminate,  or be canceled  for any
     reason  without  having been  exercised  in full,  the  unpurchased  shares
     subject thereto shall again be available for the purpose of the Plan.

4.    ADMINISTRATION.

      (a)      The Plan shall be administered  by the Committee.  Actions by the
               Committee  for  purposes of this Plan shall be by not less than a
               majority of its members. Any decision or determination reduced to
               writing  and signed by all  Committee  members  shall be fully as
               effective as if it had been made by a majority  vote at a meeting
               duly called and held. The Committee shall report all action taken
               by it to the Board.

      (b)      The Board may authorize the Committee to administer  the Plan. In
               the event the Board  elects  to  administer  the Plan,  the Board
               shall have the power and  authority  otherwise  delegated  to the
               Committee  in the Plan  documents  and all acts  performed by the
               Committee under the Plan shall be performed by the Board.

      (c)      The Committee shall have authority in its discretion, but subject
               to the express provisions of the Plan:

            (1)   to determine Participants to whom Option may be
                  granted;

            (2)   to determine the time or times when Option may be granted;

            (3)   to determine the purchase price of the Common Stock covered by
                  each Option grant;

            (4)   to  determine  the  number of  shares  of  Common  Stock to be
                  subject to each Option;

            (5)   to determine  when an Option can be  exercised  and whether in
                  whole or in installments  as the result of a Vesting  schedule
                  triggered  by  the  passage  of  time  or  the  attainment  of
                  performance  goals set by the  Committee  and  approved by the
                  Board;

            (6)   to prescribe, amend, or rescind rules and regulations relating
                  to the Plan;

            (7)   to determine  any other terms and  provisions  and any related
                  amendments to the individual Option Agreements, which need not
                  be identical for each  Participant,  including  such terms and
                  provisions   and  amendments  as  shall  be  required  in  the
                  judgement of the Committee to conform to any change in any law
                  or regulation  applicable thereto,  and with particular regard
                  to any  changes  in or effect of the Code and the  regulations
                  thereunder; and

            (8)   to make all other determinations deemed necessary or advisable
                  for the administration of the Plan.

5.   PARTICIPATION.   Options  may  be  granted  to  officers  employed  by  the
     Corporation  or its  subsidiaries.  In  determining  the  officers  to whom
     Options  may be  granted  and the  number of shares to be  covered  by each
     grant,  the  Committee  may take into  account  the nature of the  services
     rendered  by  the   respective   officers,   their  present  and  potential
     contributions to the Corporation's  success,  and such other factors as the
     Committee in its discretion shall deem relevant.  Options may be granted to
     officers  who  currently  hold  Corporate  stock or who  hold or have  held
     Options under this Plan.

6.    OPTION GRANTS AND LIMITS.

     (a)  Nothing  contained in this Plan or in any resolution  adopted or to be
          adopted  by the Board  shall  constitute  the  granting  of any Option
          hereunder.  The granting of an Option  pursuant to the Plan shall take
          place  only  when a  written  Option  Agreement  shall  have been duly
          executed  and  delivered  by or on behalf of the  Corporation  and the
          officer (or his duly authorized  attorney-in-fact) in whom such Option
          is to be granted.

     (b)  During the Participant's  lifetime, any Option granted under this Plan
          shall be exercisable  only by the Participant or any guardian or legal
          representation  of  the  Participant,  and  the  Option  shall  not be
          transferable  except,  in  case  of  the  death  of the  death  of the
          Participant,  by will or the laws of  descent  and  distribution,  nor
          shall the Option be subject to attachment, execution, or other similar
          process.  In the  event  of (i)  any  attempt  by the  Participant  to
          alienate, assign, pledge, hypothecate, or otherwise

          dispose of the Option,  except as  provided in this Plan,  or (ii) the
          levy of any attachment,  execution, or similar process upon the rights
          or interests  conferred by the Option,  the  Corporation may terminate
          the  Option by  notice to the  Participant  and upon such  notice  the
          Option shall become null and void.

      (c) Each Option Agreement shall include a Vesting schedule  describing the
          date,  event,  or act upon which an Option shall Vest,  in whole or in
          part, with respect to all or a specified portion of the shares covered
          by such Option.  This condition  shall not impose upon the Corporation
          any obligation to retain the Participant in its employ for any period.

      (d) Options shall be limited to Non Qualified Stock Options.

7.   OPTION  PRICES.  The  Option  price to be paid by the  Participants  to the
     Corporation  for each share purchased upon the exercise of the Option shall
     be not less than the Fair Market  Value of the share on the date the Option
     is  granted.  In no event may an Option  be  granted  under the Plan if the
     Option price per share is less than the par value of a share.

8.   EXERCISE OF OPTIONS.

      (a) A  Participant  may exercise any Option  granted  under this Plan with
          respect  to all or any part of the number of shares  then  exercisable
          under  the  terms of this  written  Option  Agreement  by  giving  the
          Committee written notice of intent to exercise. The notice of exercise
          shall  specify the number of shares to be  purchased  under the Option
          and the date of exercise.

      (b) Each Option granted under the Plan shall be exercisable  only during a
          Term  established  by the  Committee  as set  forth in the  applicable
          Option  Agreement.  In no event  shall the Term of the  Option  extend
          beyond ten (10) years from the date of grant of the Option.

      (c) Full  payment of the option  price for the shares  purchased  shall be
          made by the  Participant  on or before the exercise date  specified in
          the notice of exercise.  Payment of the  purchase  price of any shares
          with respect to which the Option is being exercised shall be (i) cash,
          (ii) certified check to the order of the Corporation,  or (iii) shares
          of Common Stock of the Corporation  valued at the Fair Market Value on
          such Business Day as the Option or portion thereof is exercised.

      (d) The Corporation shall not be required to deliver certificates for such
          shares until full payment of the Option price has been made.  On or as
          soon as is  practicable  after  the  exercise  date  specified  in the
          Participant's  notice and upon full payment of the Option  price,  the
          Corporation   shall  cause  to  be  delivered  to  the  Participant  a
          certificate or  certificates  for the shares then being purchased (out
          of previously unissued Common Stock or reacquired Common Stock, as the
          Corporation  may elect).  The exercise of the Option and the resulting
          obligation of the Corporation to deliver Common Stock shall,  however,
          be  subject  to the  condition  that  the  listing,  registration,  or
          qualification of the Option or the shares upon any securities exchange
          or under any state or federal law, or the consent,  or approval of any
          governmental regulatory body shall have been effected or obtained free
          of any conditions not acceptable to the Committee.

      (e) If the  Participant  fails to pay for any of the shares  specified  in
          such notice or fails to accept  delivery  of the shares,  his right to
          purchase such shares may be terminated  by the  Corporation.  The date
          specified in the Participant's notice as the date of exercise shall be
          deemed the date of exercise of the Option,  provided  that  payment in
          full for the shares to be purchased upon such exercise shall have been
          received by such date.

      (f) The  holder  of an  Option  shall  not  have  any of the  rights  of a
          stockholder  with  respect to the shares  subject to the Option  until
          such shares shall be issued or transferred to him upon the exercise of
          his Option.

      (g) Notwithstanding the foregoing,  any shares that may be purchased as of
          the Effective Date,  pursuant to the terms of any Option granted prior
          to the Effective  Date,  shall  continue  thereafter to be purchasable
          pursuant to the exercise of such Option.

9.    TERMINATION,  DISABILITY,  OR DEATH  OF  OPTION  HOLDER.  The  ability  to
      exercise Options under this Plan shall be conditioned as follows:

            (a)     Exercise  During  and  After  Employment.  Unless  otherwise
                    provided  in  the  terms  of an  Option,  an  Option  may be
                    exercised by the Participant while he is an employee and has
                    maintained  since  the  date  of the  grant  of  the  Option
                    continuous status as an employee.

                    In  the  event  of   termination  of  the  employment  of  a
                    Participant by either the  Participant or the Corporation to
                    whom an Option has been granted under the Plan, other than a
                    termination by reason of retirement,  permanent  disability,
                    or  death  (all  as  more  fully   described   below),   the
                    Participant  may  (unless  otherwise  provided in his or her
                    Option  Agreement)  exercise  his or her  option at any time
                    within six months after such termination, or such other time
                    as the  Committee may  authorize,  but in no event after ten
                    years from the date of the  granting  thereof,  with respect
                    to, the number of shares  covered by his or her Option which
                    were Vested at the date of termination of employment.

            (b)     Exercise Upon Retirement.  Unless otherwise  provided in the
                    terms of an Option, if a Participant's continuous employment
                    shall terminate by reason of his retirement, at a retirement
                    date  authorized by the Committee,  from the  Corporation or
                    its  subsidiaries,  a retired  Participant shall be come one
                    hundred  percent  (100%)  Vested  in any  Option he has been
                    granted under the Plan as of that date,  and he may exercise
                    the otherwise  exercisable Option anytime within one year of
                    his retirement date.

            (c)     Exercise  Upon  Permanent   Disability.   Unless   otherwise
                    provided  in the  terms  of an  Option,  if a  Participant's
                    continuous   employment  shall  terminate  by  reason  of  a
                    permanent  disability  (as  determined by the  Participant's
                    establishing  to the Committee his  disability as defined in
                    Code Section  22(e))(3) of the Code, as amended from time to
                    time),  then such Option of the disabled  Participant may be
                    exercised  with  respect to the number of shares  covered by
                    the Participant's  Option that were Vested immediately prior
                    to that disability.  Such Option of the permanently disabled
                    Participant  may be  exercised  during the period the Option
                    would  have been  exercisable  if the  permanently  disabled
                    Participant  had  not  been  permanently  disabled  and  had
                    remained in employment.

            (d)     Exercise Upon Death.  Unless otherwise provided in the terms
                    of an Option, if a Participant's continuous employment shall
                    terminate  by reason of his death,  then to the extent  that
                    the  Participant  would have been  entitled to exercise  the
                    Option  immediately  prior to his death.  Such Option of the
                    deceased  Participant may be exercised during the period the
                    Option   would  have  been   exercisable   if  the  deceased
                    Participant had not died and had remained in employment,  by
                    the person or  persons  (including  his  estate) to whom his
                    rights  under such  Option  shall have  passed by will or by
                    laws of descent and distribution.

10.   ADJUSTMENTS.

            (a)     In the event that the outstanding shares of Common Stock are
                    hereafter   increased   or  decreased  or  changed  into  or
                    exchanged for a different  number or kind of shares or other
                    securities of the Corporation or of another corporation,  by
                    reason  of  a  recapitalization,   reclassification,   stock
                    split-up,   combination  of  shares  or  dividend  or  other
                    distribution   payable   in   capital   stock,   appropriate
                    adjustment  shall be made by the Committee in the number and
                    kind of shares for which  Options  may be granted  under the
                    Plan.  In addition,  the  Committee  shall make  appropriate
                    adjustment  in the  number  and kind of  shares  as to which
                    outstanding  Options,  or portions thereof then unexercised,
                    shall be  exercisable,  to the end  that  the  proportionate
                    interest  of the holder of the Option  shall,  to the extent
                    practicable,  be maintained as before the occurrence of such
                    event. Such adjustment in outstanding Options shall be

                    made  without  change in the total price  applicable  to the
                    unexercised  portion of the Option but with a  corresponding
                    adjustment in the Option price per share.

            (b)     In the event of a Change in  Control,  any Option  under the
                    Plan  shall  terminate  as of a  date  to be  fixed  by  the
                    Committee,  provided  that not less than  ninety  (90) days'
                    written  notice of the date so fixed  shall be given to each
                    Participant,  and each such Participant shall have the right
                    during such period to exercise  any of his or her Options as
                    to all or any part of the shares covered  thereby  including
                    shares  as to which  such  Options  would not  otherwise  be
                    exercisable by reason of any insufficient lapse of time.

            (c)     Adjustment and determinations under this Section 10 shall be
                    made  by  the   Committee,   whose   decisions  as  to  what
                    adjustments or determinations  shall be made, and the extent
                    thereof, shall be final, binding, and conclusive.

11.  CHANGE OF CONTROL. Notwithstanding any other Plan provisions or grant term,
     in the event of a Change of Control,  all Options  granted  hereunder shall
     become Vested and  exercisable  regardless of the number of years that have
     passed since the Date of Grant.

12.  AMENDMENT  AND  TERMINATION.  Unless the Plan shall  theretofore  have been
     terminated as hereinafter  provided,  it shall  terminate on, and no Option
     shall be  granted  thereunder  after the tenth  (10th)  anniversary  of the
     Effective Date. The Board may terminate the Plan or make such modifications
     or  amendments  thereof  as it shall deem  advisable,  or to conform to any
     change  in  any  law  or  regulation  applicable  thereto,   including  (a)
     increasing  the  maximum  number of shares to which  Options may be granted
     under the Plan, subject to shareholder approval,  (b) changing the class of
     employees  eligible  to be  granted  or Options  may be  exercised,  or (d)
     providing for the  administration  of the Plan in a manner which may avoid,
     without the consent of the Participant to whom any Option shall theretofore
     have been granted, adversely affecting the rights of such Participant under
     such grant.

13.  RESTRICTIONS  ON ISSUING  SHARES.  The  transfer of a share of Common Stock
     upon the exercise of each Option shall be subject to the condition  that if
     at any time the  Corporation  shall  determine in its  discretion  that the
     satisfaction of withholding tax or other withholding  liabilities,  or that
     the  listing,   registration  or  qualification  of  any  shares  otherwise
     deliverable upon any securities exchange or under any state or federal law,
     or that the consent or approval of such  regulatory  body,  is necessary or
     desirable as a  condition,  of, or in  connection  with,  such  transfer of
     shares pursuant thereto, then in any such event, such transfer shall not be
     effective unless such withholding,  listing,  registration,  qualification,
     consent,  or approval shall have been effected or obtained under conditions
     acceptable to the Corporation.

14.  USE OF  PROCEEDS.  The  proceeds  received  from the sale of  Common  Stock
     pursuant to the exercise of Options  granted  under the Plan shall be added
     to the Corporation's general funds and used for general corporate purposes.

15.  INDEMNIFICATION  OF  COMMITTEE.   In  addition  to  such  other  rights  of
     indemnification  as they may have as  members of the Board or as members of
     the  Committee,  the members of the Committee  shall be  indemnified by the
     Corporation  against all costs and expenses  reasonable incurred by them in
     connection  with any action,  suit,  or  proceeding to which they or any of
     them may be party by reason of any action  taken or failure to act under or
     in connection  with the Plan, or any Option and against all amounts paid by
     them in settlement  thereof  (provided such settlement is approved by legal
     counsel  selected by the  Corporation) or paid by them in satisfaction of a
     judgment in any such action,  suit, or proceeding,  except a judgment based
     upon a finding of bad faith. Upon the institution of any such action, suit,
     or proceeding,  a Committee member shall notify the Corporation in writing,
     giving an  opportunity,  at its own expense,  to handle and defend the same
     before such Committee member undertakes to handle it on his own behalf.

16.  EFFECTIVENESS  OF THE  PLAN.  The Plan  shall  become  effective  as of the
     Effective Date.  Options may be granted to Participants prior to such date,
     but the  ability to  exercise  all such  Options  from such grant  shall be
     conditioned upon such approval and advice.

17.   MISCELLANEOUS.

            (a)     Employment  Not Affected.  Neither the granting of an Option
                    nor its  exercise  shall be  construed  as  granting  to the
                    Participant  any right with  respect to  continuance  of his
                    employment with the Corporation or its subsidiaries.  Except
                    as may otherwise be limited by a written  agreement  between
                    the Corporation or its subsidiaries and the Participant, the
                    right of the Corporation or its subsidiaries to terminate at
                    will  the  Participant's  employment  with  it at  any  time
                    (whether by dismissal, discharge,  retirement, or otherwise)
                    is   specifically   reserved  by  the   Corporation  or  its
                    subsidiaries  as the  employer or on behalf of the  employer
                    (whichever  the  case  may  be)  and   acknowledged  by  the
                    Participant.

            (b)     Notice.  Any notice to the Corporation  provided for in this
                    instrument shall be addressed to it in care of its President
                    at its principal office in West Virginia,  and any notice to
                    the Participant shall be addressed to the Participant at the
                    current   address  shown  on  the  payroll  records  of  the
                    Corporation.  Any notice shall be deemed to be duly given if
                    and when  properly  addressed  and  posed by  registered  or
                    certified mail, postage prepaid.

SOUTH BRANCH VALLEY BANCORP, INC.

By: 
- ------------------------------------
      H. Charles Maddy, III
      President
                                     Attest:
- ----------------------------------

                                     Title:
- ------------------------------------

  

                                      9
                                 0000811808
   SOUTH BRANCH VALLEY NATIONAL BANK

                        6-MOS
                    DEC-31-1998
                       JAN-01-1998
                         JUN-30-1998
                                 3,660,346
                 1,166,000
                       1,142,915
                               0
           38,404,373
                         0
                           0
                              129,398,006
                           (1,248,619)
                       182,742,125
                           142,860,253
                           5,927,892
                    1,626,585
                            8,966,545
                          0
                                    0
                               1,501,018
                            21,859,832
       182,742,125
                        5,135,590
                      1,086,633
                         133,588
                       6,355,811
                     2,791,855
                     3,250,658
                  3,105,153
                            120,000
                         4,131
                        2,067,764
                        1,204,044
               797,897
                                0
                                      0
                             797,897
                                .69
                                .69
                              4.30
                              139,000
                              54,000
                          54,440
                        1,278,246
                         935,938
                             71,623
                              32,625
                      1,248,619
                   1,318,619
                            0
                   70,000