Exhibit 10.12
Summit Financial Group, Inc.
Incentive Compensation Plan

December 6, 2005

Introduction:
In order to provide management with incentive to assure that the company
operates to its fullest potential, the Board of Directors of Summit Financial
Group, Inc. (the “Company”) has implemented various incentive programs. The
Board of Directors of the Company established the Incentive Compensation Plan to
reward those officers who oversee the various facets of the entire company. The
basic specific performance measure for the Incentive Compensation Plan is Return
on Average Equity (ROAE). This performance measure was chosen because it is
widely recognized as being a core measure of the Company’s performance and uses
our shareholder’s equity as a base for measurement.

Incentive Compensation Plan Criteria and Method of Calculation:
At the end of each year, the Compensation and Nominating Committee will review
data and determine the ROAE level at which officers will become eligible for a
bonus. During this review, the Committee will consider, among other things, the
Company’s peer group data.

After determining these levels, the Compensation and Nominating Committee will
determine the percentage of earnings to allocate to the bonus pool for each
bonus level.

The current ROAE levels at which bonuses will be paid and corresponding
percentage allocation levels to the bonus pool are as follows:
 

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Should the Company achieve an ROAE of *% to *%, then the allocation to the bonus
pool will be calculated at *% of net earnings. An allocation of *% of earnings
will be made for an ROAE of *% or greater.

The Company’s ROAE will be calculated on a quarterly basis. For bonus purposes,
“other comprehensive income (loss)” will not be considered when calculating
average equity. The bonus pool will be established by applying the appropriate
percentage to the current earnings on a quarterly basis. The bonus pool will
then be divided among plan participants using the percentages shown on “Exhibit
A”*.

Attached to this policy as “Exhibit A”* is the chart which represents sample
calculations that would be applicable based on the above guidelines. The sample
calculation is shown on an annual basis for ease of illustration. However, the
Company’s Board of Directors has approved the payment of bonuses under the
Incentive Compensation Plan on a quarterly basis.

Payment:
The Board of Directors or Compensation and Nominating Committee shall approve
the payments under this plan on a quarterly basis.

 
Any items that qualify as “Extraordinary” under Generally Accepted Accounting
Principals (GAAP) shall not be considered when calculating bonuses, regardless
of whether these items have a positive or negative affect.

With respect to Messrs. Miller and Robertson, the Company has established an
annual incentive compensation plan which includes specific performance goals and
business criteria based on their achievement of the net income budgets for their
respective subsidiary banks. However, if the payments due to Messrs. Miller and
Robertson under the Incentive Compensation Plan exceed those payments due under
these plans, then Messrs. Miller and Robertson are entitled to receive only the
payments under the Incentive Compensation Plan.

In addition to the bonus pool established based on the ROAE criteria discussed
above, the Company has also established a discretionary bonus pool under the
Incentive Compensation Plan. Bonuses paid from the discretionary pool are paid
at the sole discretion of the Chief Executive Officer and may be awarded to any
employee other than the Chief Executive Officer or any other Executive Officer.

Any conflicts, ambiguities or questions of interpretation will be resolved by
the Company’s Board of Directors, in its sole discretion.

* Confidential, Business Proprietary Information