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>
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
<PAGE>
<TABLE>
<CAPTION>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1998 1997
(unaudited) (*)
------------------- -------------------
ASSETS
<S> <C> <C>
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
</TABLE>
3
<PAGE>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------------------ ------------
Interest income
<S> <C> <C> <C> <C>
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
</TABLE>
4
<PAGE>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
June 30, June 30,
1998 1997
------------------- --------------------
<S> <C> <C>
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
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
June 30, June 30,
1998 1997
------------------ -------------------
Cash Flows from Operating Activities
<S> <C> <C>
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
================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------
June 30, June 30,
1998 1997
------------------- --------------------
Supplement Disclosures of Cash Flow
Information
Cash payments for:
<S> <C> <C>
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 -
------------------- --------------------
</TABLE>
7
<PAGE>
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------
June 30, June 30,
1998 1997
------------------- --------------------
<S> <C> <C>
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
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements
8
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------------------------
Amortized Unrealized Estimated
---------------------
Cost Gains Losses Fair Value
---------------------------------------------------
Available for Sale
Taxable:
<S> <C> <C> <C>
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
===================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------
Amortized Unrealized Estimated
--------------------
Cost Gains Losses Fair
Value
---------------------------------------------------
Available for Sale
Taxable:
<S> <C> <C> <C> <C>
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
===================================================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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).
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
15
<PAGE>
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
<PAGE>
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>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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%
========== =========
</TABLE>
(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
<PAGE>
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
<PAGE>
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>
<CAPTION>
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
-----------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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".
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
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; .
<PAGE>
(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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
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:
- ------------------------------------
<PAGE>
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<CIK> 0000811808
<NAME> SOUTH BRANCH VALLEY NATIONAL BANK
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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0
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