ex10-1.htm


    


    


    Exhibit
      10.1

    


    HIGHLANDS
      BANKSHARES, INC.

    2008
      INCENTIVE BONUS PLAN FOR SUBSIDIARY BANK PRESIDENTS

     

    
      	
              I.

            	
              Purpose.  The
                purpose of the Plan is to provide the Presidents of the Company’s
                subsidiary banking organizations with direct incentives for achieving
                specific financial goals aimed at enhancing profitability.
                

            


    

     

    
      	
              II.

            	
              Definitions.
                

            


    

     

    
      	
               

            	
              (a)

            	
              “Applicable
                Subsidiary Bank” means Grant County Bank, in the case of the President of
                Grant County Bank, and Capon Valley Bank, in the case of the President
                of
                Capon Valley Bank. 

            


    

     

    
      	
               

            	
              (b)

            	
              “Average
                Total Assets” means the average of the Applicable Subsidiary Bank’s total
                assets at the beginning of the Plan Year and the Applicable Subsidiary
                Bank’s total assets at the end of the Plan Year, determined in accordance
                with GAAP. 

            


    

     

    
      	
               

            	
              (c)

            	
              “Average
                Total Equity” means the average of the Applicable Subsidiary Bank’s total
                equity capital at the beginning of the Plan Year and the Applicable
                Subsidiary Bank’s total equity capital at the end of the Plan Year,
                determined in accordance with GAAP, subject to Section VII.
                

            


    

     

    
      	
               

            	
              (d)

            	
              “Capon
                Valley Bank” means Capon Valley Bank, a West Virginia-chartered bank and
                wholly owned subsidiary of the Company.


            


    

     

    
      	
               

            	
              (e)

            	
              “Committee”
                means the Compensation Committee of the Board of Directors of the
                Company.
                

            


    

     

    
      	
               

            	
              (f)

            	
              “Company”
                means Highlands Bankshares, Inc., a West Virginia corporation.
                

            


    

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    
      	
               

            	
              (g)

            	
              “Efficiency
                Ratio” means the Applicable Subsidiary Bank’s non-interest expenses for
                the Plan Year divided by the sum of the Applicable Subsidiary Bank’s net
                interest income and non-interest income for the Plan Year, each as
                determined in accordance with GAAP, subject to Section VII.
                

            


    

     

    
      	
               

            	
              (h)

            	
              “GAAP”
                means accounting principles generally accepted in the United States
                of
                America. 

            


    

     

    
      	
               

            	
              (i)

            	
              “Grant
                County Bank” means Grant County Bank, a West Virginia-chartered bank and
                wholly owned subsidiary of the Company.


            


    

     

    
      	
               

            	
              (j)

            	
              “Growth
                in Net Income” means the increase, if any, in the Applicable Subsidiary
                Bank’s annual Net Income from 2007 to 2008.


            


    

     

    
      	
               

            	
              (k)

            	
              “Net
                Income” means the net income of the Applicable Subsidiary Bank, as
                determined in accordance with GAAP, subject to Section VII.
                

            


    

     

    
      	
               

            	
              (l)

            	
              “Plan”
                means this Highlands Bankshares, Inc. 2008 Incentive Bonus Plan for
                Subsidiary Bank Presidents. 

            


    

     

    
      	
               

            	
              (m)

            	
              “Plan
                Year” means the 2008 calendar year.


            


    

     

    
      	
               

            	
              (n)

            	
              “Return
                on Average Assets” means the Applicable Subsidiary Bank’s Net Income for
                the Plan Year divided by the Applicable Subsidiary Bank’s Average Total
                Assets for the Plan Year, as determined in accordance with GAAP,
                subject
                to Section VII. 

            


    

     

    
      	
               

            	
              (o)

            	
              “Return
                on Average Equity” means the Applicable Subsidiary Bank’s Net Income for
                the Plan Year divided by the Applicable Subsidiary Bank’s Average Total
                Equity for the Plan Year, as determined in accordance with GAAP,
                subject
                to Section VII. 

            


    

     

    
      	
              III.

            	
              Administration.  The
                Plan will be administered by the Committee.  The Committee shall
                have the authority, in its sole and absolute discretion, to interpret
                the
                Plan, adopt rules and procedures for the administration of the Plan,
                determine the extent to which any bonuses have been earned under
                the Plan
                and perform the other responsibilities assigned to the Committee
                under the
                Plan.  All actions and decisions of the Committee pursuant to
                the foregoing authority shall be conclusive and binding on all persons
                having or claiming to have any right or interest in or under the
                Plan.
                

            


    

     

    
      	
              IV.

            	
              Participants.
                The Plan
                participants shall consist of the Presidents of Grant County Bank
                and
                Capon Valley Bank. 

            


    

     

    
      	
              V.

            	
              Bonus
                Opportunity.  Each participant is eligible to earn a cash
                bonus for the Plan Year in an amount up to a percentage, specified
                by the
                Committee, of his gross annual base salary payable by the Applicable
                Subsidiary Bank effective as of January 1, 2008.
                

            


    

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    Corporate
      Performance.  Ninety percent of the participant’s bonus shall
      be based on the extent to which the Applicable Subsidiary Bank achieves
      corporate performance goals established for the Plan Year by the
      Committee.

     

    The
      criteria to be used for the corporate performance goals, and the relative
      weighting of each, are as follows:

     

    Growth
      in
      Net Income (25%)

    Return
      on
      Average Assets (25%)

    Return
      on
      Average Equity (25%)

    Efficiency
      Ratio (25%)

     

    Achievement
      of 100% or greater than 100% of a performance goal will result in payment of
      100% of the portion of the potential bonus based on that
      goal.  Achievement of 90% to 99% of a performance goal will result in
      payment of 90% of the portion of the potential bonus based on that
      goal.  Achievement of 80% to 89% of a performance goal will result in
      payment of 75% of the portion of the potential bonus based on that
      goal.  Achievement of 70% to 79% of a performance goal will result in
      payment of 25% of the portion of the potential bonus based on that
      goal.  Achievement of less than 70% of a performance goal will result
      in no payment of the portion of the potential bonus based on that
      goal.  Percentages shall be rounded up or down to the nearest whole
      percent (for example, 89.6% shall be rounded up to 90% and 89.4% shall be
      rounded down to 89%).

     

    Individual
      Performance.  The remaining ten percent of the participant’s
      bonus shall be based on the Committee’s assessment of the participant’s
      individual performance during the Plan Year; provided, however, that if no
      payment of the potential bonus is to be made based on the corporate performance
      goals (because none of the corporate performance goals are achieved at or above
      the 70% level), then no payment of the potential bonus will be made based on
      individual performance either, resulting in no bonus paid for the Plan Year,
      subject to Section VIII.

     

    Example.
The
      following example
      illustrates how the bonus amount is to be determined.  A participant’s
      gross annual base salary payable by the Applicable Subsidiary Bank effective
      January 1, 2008 is $180,000 and the Committee has determined that he will be
      eligible to earn a cash bonus for the 2008 calendar year of up to 15% of his
      gross annual base salary, or $27,000, 90% of which, or $24,300, is based on
      the
      achievement of corporate performance goals and 10% of which, or $2,700, is
      based
      on the Committee’s assessment of his individual performance during
      2008.  After the end of 2008, the Committee determines that the
      corporate performance goals have been achieved to the following
      extent:  Growth in Net Income: 83% of performance goal; Return on
      Average Assets: 77% of performance goal; Return on Average Equity: 107% of
      performance goal; and Efficiency Ratio: 68% of performance goal.  The
      Committee also determines, based on the participant’s individual performance
      during 2008, to award 95% of the portion of the bonus based on individual
      performance.  This results in a total bonus for the Plan Year of
      $14,715, determined as follows:

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    
      	
              Growth
                in Net Income:

            	
              $24,300
                x 25% x   75% =

            	 	$	4,556	 
	
              Return
                on Average Assets:

            	
              $24,300
                x 25% x   25% =

            	 	$	1,519	 
	
              Return
                on Average Equity:

            	
              $24,300
                x 25% x 100% =

            	 	$	6,075	 
	
              Efficiency
                Ratio:

            	
              $24,300
                x 25% x     0% =

            	 	$	0	 
	
              Total
                based on corporate performance:

            	 	 	$	12,150	 
	
              Individual
                performance:

            	
              $  2,700
                x 95%  =

            	 	$	2,565	 
	
              Total
                bonus

            	 	 	$	14,715	 


    

    


     

    
      	
              VI.

            	
              Timing
                ofDetermination
                and Payment of
                Bonus Amount.  Following the end of the Plan Year, once
                each Applicable Subsidiary Bank’s results of operations for the Plan Year
                are reasonably certain, the Committee shall determine the amount
                of the
                bonus, if any, earned by each participant, in the manner described
                in
                Section V.  Any bonus earned for the Plan Year shall be paid by
                the Applicable Subsidiary Bank to the participant in cash by March
                15,
                2009. 

            


    

     

    
      	
              VII.

            	
              Extraordinary
                Items.  In determining the extent to which corporate
                performance goals have been met, the Committee may, but is not required
                to, exclude extraordinary or other non-recurring items.
                

            


    

     

    
      	
              VIII.

            	
              Additional
                Committee
                Discretion.  The Committee may, in its sole and absolute
                discretion, increase or reduce (but not below zero) the amount of
                any
                bonus earned under the Plan.  Nothing in the Plan shall preclude
                the Committee, in its discretion, from awarding bonuses to participants
                in
                addition to any bonuses which they may earn under the Plan.
                

            


    

     

    
      	
              IX.

            	
              Employment
                Status.  A participant must be employed by the Applicable
                Subsidiary Bank as of the end of the Plan Year in order to qualify
                for a
                bonus under the Plan; provided, however, that if the participant’s
                employment is terminated prior to the end of the Plan Year due to
                death or
                disability, the participant (or his estate) shall qualify for a prorated
                bonus, to the extent earned, for the portion of the Plan Year the
                participant was employed by the Applicable Subsidiary Bank, based
                on
                achievement of the corporate performance goals for the full year
                and the
                Committee’s assessment of the participant’s individual performance during
                the Plan Year through the termination date.  Any such prorated
                bonus shall be determined and paid at the times specified in Section
                VI.
                

            


    

     

    
      	
              X.

            	
              Termination,
                Amendment or
                Other Modification of Plan.  The Committee may terminate,
                amend or otherwise modify the Plan at any time.


            


    

     


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


     

    
      	
              XI.

            	
              Miscellaneous.
                

            


    

     

    
      	
               

            	
              A.

            	
              No
                Right to Continued
                Employment.  The Plan does not give any participant any
                right to continued employment, and the right to terminate the employment
                of any participant is specifically reserved to the Company and/or
                the
                Applicable Subsidiary Bank. 

            


    

     

    
      	
               

            	
              B.

            	
              Withholding
                for
                Taxes.  The Applicable Subsidiary Bank shall be entitled
                to deduct from any bonus payment hereunder the amount of all applicable
                income and employment taxes required by law to be withheld with respect
                to
                such payment. 

            


    

     

    
      	
               

            	
              C.

            	
              No
                Assignment.  No right or interest of any participant in
                the Plan shall be assignable or transferable, whether by operation
                of law
                or otherwise (except by will or the laws of descent and distribution).
                

            


    

     

    
      	
               

            	
              D.

            	
              Governing
                Law.
                The Plan shall be governed by and construed in accordance with the
                laws of
                the State of West Virginia, except to the extent preempted by the
                Federal
                laws of the United States of America.