Document:

Incentive Compensation

    

     

    EXHIBIT
      10.2

    

    

    Summit
      Financial Group, Inc.

    Incentive
      Compensation Plan 

    

    December
      14,
      2006

    

    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:

     

    

      
        	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              
	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              	
                *

              

      

    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
      InformationMemo Miller

    EXHIBIT
      10.3

    Memorandum

     

    

      
        	
                To:

              	
                Ron
                  Miller

              
	
                From:

              	
                Charlie
                  Maddy

              
	
                Date:

              	
                December
                  1, 2006

              
	
                Re:

              	
                Incentive
                  Plan - SVNB

              

      

    

     

    Here
      is the
      Incentive Plan for Shenandoah Valley National Bank’s community banking division,
      for the year ending December 31, 2007. It follows the same principles as last
      year’s plan.

     

    As
      you know,
      we have established a budget of $* in net income and approximately $* in total
      assets for the community banking division of Shenandoah Valley National Bank
      for
      year ended December 31, 2007. If we meet our operating plan budget and the
      average assets for December of 2007 are at least $*, yourself, Dawn and Cyndie
      would be paid the following bonus.

     

    

      
        	
                Ron
                  Miller

              	
                $
                  *

              
	
                Dawn
                  Frye

              	
                $
                  *

              
	
                Cyndie
                  Layman

              	
                $
                  *

              

      

    

     

    
 

     

     

     

    

    In
      addition,
      if net income exceeds the budgeted $*, we will reserve *% of the amount over
      the
      $* to a pool, which would be divided among the above key managers. In order
      to
      qualify for this additional amount, net income for Shenandoah Valley National
      Bank would have to be greater than $* after any and all bonuses (including
      the
      above “budget bonus”) were paid. The calculation would work as
      follows:

    

      
        	
                *

              	
                $*

              
	
                *

              	
                 *

              
	
                *

              	
                 *

              
	
                *

              	
                 *%

              
	
                *

              	
                $*

              
	
                *

              	
                 *

              
	
                *

              	
                $*

              
	
                *

              	
                $*

              

      

    

    

    

       

    

     

    
      The
        performance pool payment would be divided as follows:

    

    

      

        
          	
                  Ron
                    Miller

                	
                  *%
                    

                	
                  $*

                
	
                  Dawn
                    Frye

                	
                  *%

                	
                  *

                
	
                  Cyndie
                    Layman 

                	
                  *%

                	
                  *

                
	
                  Discretionary

                	
                  *%
                    

                	
                  *

                
	
                  Reserved

                	
                  *%
                    

                	
                  *

                

        

      

    

    

     

    

    

    The
      President of Shenandoah Valley National Bank could award the discretionary
      amount to whatever Shenandoah Valley National Bank employee(s) he thought was
      deserving or could leave it in income, at his discretion.

    

    To
      recap, in
      my example, if the bank were to make $* net in the year 2007, Ron Miller’s
      bonuses would be as follows:

    

    

      
        	
                Budget
                  bonus

              	
                $
                  *

              
	
                Performance
                  bonus

              	
                  
                  *

              
	
                Total
                  bonus

              	
                $
                  *

              

      

    The
      total
      performance pool total bonus cannot exceed $*. Securities gains and losses
      will
      be excluded for bonus calculation purposes. The operating plan and budget may
      be
      revised if significant structural changes occur such as the purchase of a new
      branch, merger, etc. Summit management and board of directors will have sole
      discretion as to whether these changes have occurred in amounts sufficient
      to
      make such changes and will advise Shenandoah Valley National Bank management
      if
      these changes are made. Any questions or “gray” areas will be resolved using the
      sole discretion of the Board of Summit or the President of Summit depending
      on
      the complexity of the matter in question.

    

    Ron,
      as you
      are aware, you may receive quarterly “ROE bonus payments” this year. If these
      payments exceed the amount due to you under this plan, no payment will be
      awarded under this plan. So, in summary, you will receive the greater of the
      two
      amounts, but not both. Thanks for all your hard work and good luck.

    

    *
      Confidential, Business Proprietary
      Information

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