f8k093009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
Report (Date of earliest event reported):
September 24,
2009
Summit Financial Group,
Inc.
(Exact
name of registrant as specified in its charter)
West
Virginia No.
0-16587 55-0672148
(State or
other jurisdiction
of (Commission File
Number) (I.R.S.
Employer
incorporation
or
organization) Identification No.)
300
North Main Street
Moorefield, West Virginia
26836
(Address
of Principal Executive Offices)
(304)
530-1000
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
3.02 Unregistered
Sales of Equity Securities
On
September 30, 2009, Summit Financial Group, Inc. (“Summit”) sold in a private
placement $3.71 million of a new series of 8% Non-Cumulative Convertible
Preferred Stock, Series 2009, $1.00 par value, with a liquidation preference of
$1,000 per share (the “Preferred Stock”), based on the private placement
exemption under Section 4(2) of the Securities Act of 1933 (the “Securities
Act”) and Rule 506 of Regulation D. Pursuant to the terms of the private
placement, Summit issued 3,710 shares of the Preferred Stock, the terms of which
are more fully described in the amendment to the articles of incorporation filed
with the West Virginia Secretary of State on September 30, 2009, designating
voting and other powers, preferences and relative, participating, optional and
other rights, and the qualifications limitations and restrictions of the
Preferred Stock. The Preferred Stock will qualify as Tier 1 capital
for regulatory capital purposes. The proceeds of the sale of the
Preferred Stock and the proceeds of the issuance of the subordinated debt
described under Item 8.01 “Other Events” will be used to augment the capital of
Summit Community Bank, Summit’s wholly-owned subsidiary.
The terms
of the Preferred Stock provide that the Preferred Stock may be converted into
common stock under three different scenarios. First, the Preferred
Stock may be converted at the holder’s option, on any dividend payment date, at
the option of the holder, into shares of common stock based on a conversion rate
determined by dividing $1,000 by $5.50, plus cash in lieu of fractional shares
and subject to anti-dilution adjustments. Second, after three years,
on or after June 1, 2012, Summit may, at its option, on any dividend payment
date, convert some or all of the Preferred Stock into shares of Summit’s common
stock at the then applicable conversion rate. Summit may exercise
this conversion right if, for 20 trading days within any period of 30
consecutive trading dates during the six months immediately preceding the
conversion, the closing price of the common stock exceeds 135% of
$5.50. Third, after ten years, on June 1, 2019, all of the Preferred
Stock will be converted at the then applicable conversion
price. Adjustments to the conversion price will be made in the event
of a stock dividend, stock split, reclassification, reorganization, merger or
other similar transaction.
The
Preferred Stock will pay noncumulative dividends, if and when declared by the
board of directors, at a rate of 8.0% per annum. Dividends declared
will be payable quarterly in arrears on the 1st day of
March, June, September and December of each year.
Item
3.03. Material
Modification to Rights of Security Holders
Under the
amendment to Summit’s articles of incorporation filed on September 30, 2009, the
Preferred Stock will rank senior to Summit’s common stock and pari passu with
other preferred stock, other than preferred stock which by their terms rank
junior to any existing preferred stock. Holders of the Preferred
Stock will have no voting rights, except as otherwise required by law or
Summit’s articles of incorporation and are not entitled to any preemptive or
preferential rights to purchase any of Summit’s securities. For so
long as any Preferred Stock is outstanding, no dividends may be declared or paid
on junior preferred stock, preferred stock ranking pari passu with the Preferred
Stock, or common stock (other than in the case of pari passu preferred stock and
dividends on a pro rata basis with the Preferred Stock), nor may Summit
repurchase or redeem any junior preferred shares, preferred shares ranking pari
passu with the Preferred Stock or common shares, unless the full dividend for
the latest completed dividend period has been declared and paid in
full.
In
addition to the foregoing, the information set forth under “Item 3.02
Unregistered Sales of Equity Securities” is incorporated herein by
reference.
Item
5.03. Amendment
to Articles of Incorporation or Bylaws; Change in Fiscal Year
On
September 30, 2009, Summit filed an amendment to its articles of incorporation
with the West Virginia Secretary of State’s Office for the purpose of
designating the Preferred Stock’s voting and other powers, preferences and
relative, participating, optional and other rights, and the qualifications
limitations and restrictions.
A copy of
the amendment to the articles of incorporation setting forth the terms of the
Preferred Stock and the specimen certificate of the Preferred Stock, which
represents the form of certificate that will be issued to holders of the
Preferred Stock, are attached as Exhibit 3.1 and Exhibit 4.1, respectively,
and are incorporated by reference herein.
Item
8.01. Other
Events
Current
Regulatory Matters
On
September 24, 2009, Summit Community Bank, Inc. (the “Bank”), a wholly-owned
subsidiary of the Company entered into an informal Memorandum of Understanding
(“MOU”) with the FDIC and the West Virginia Division of Banking. A
memorandum of understanding is characterized by regulatory authorities as an
informal action that is not published or publicly available and that is used
when circumstances warrant a milder form of action than a formal supervisory
action, such as a formal written agreement or order. Among other things, under
the MOU, Summit’s management team has agreed to address the following matters
relative to the Bank:
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increased
monitoring of the Bank’s current financial
position;
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approval
of an internally-prepared written risk assessment of all business
activities and product lines of the Bank and the establishment of goals
and limitations for each such business activity or product identified as
containing elevated degrees of
risk;
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achieving
and maintaining a minimum Tier 1 leverage capital ratio of at least 8% and
a total-risk-based capital ratio of at least
11%;
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providing
prior notice of any declaration of intent to pay cash
dividends;
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reviewing
the adequacy of the Bank’s loan policies and approve necessary changes to
strengthen credit administration and risk
identification;
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reviewing
the investment policy and approving changes as
appropriate;
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reviewing
the organizational structure of the Bank’s lending
department;
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providing
the Bank’s regulatory authorities with updated reports of criticized
assets and/or formal work-out plans for all nonperforming borrowers with
outstanding balances exceeding $1.0
million;
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establishing
procedures to report all loans with balances exceeding $500,000 that have
credit weaknesses or that fall outside of the Bank’s
policy;
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maintaining
an adequate allowance for loan and lease losses through charges to current
operating income;
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employing
a qualified independent third party to assess the procedures used to
estimate the Bank’s allowance for loan and lease losses in accordance with
FAS 5 and FAS 114;
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preparing
an updated comprehensive budget and earnings forecast for the
bank;
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developing
a comprehensive three-year strategic plan for the bank;
and
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providing
quarterly progress reports to the Bank’s regulatory authorities detailing
steps taken to comply with the Memorandum of
Understanding.
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Summit
and the Bank are committed to addressing and resolving the issues raised by
their principal banking regulators, and the Board of Directors and management of
each have initiated corrective actions to comply with the provisions of the
MOU.
In
addition to the MOU, Summit received a letter from the Federal Reserve Bank of
Richmond dated September 1, 2009, that requires Summit to suspend all cash
dividends on its common stock until further notice. Dividends on all
preferred stock, including the Series 2009 preferred stock, as well as interest
payments on subordinated notes underlying Summit’s trust preferred securities,
continue to be permissible. However, such dividends and interest
payments on Summit’s preferred stock and trust preferred debt are subject to
future review by the Federal Reserve should Summit continue to experience
deterioration in our financial condition.
Although
dividends from the Bank are Summit’s principal source of funds to pay dividends
and interest payments on Summit’s common stock, preferred stock, trust preferred
debt and subordinated debt, Summit currently has sufficient cash on hand to
continue to service its trust preferred and subordinated debt obligations as
well as the expected dividend payments on its Preferred Stock through at least
2011. Nevertheless, Summit can make no assurances that it will
continue to have sufficient funds available for distributions to the holders of
our Preferred Stock or that such dividends will continue to be permitted by our
regulatory authorities.
The MOU
will remain in effect until modified, terminated, lifted, suspended or set aside
by the FDIC and the West Virginia Division of Banking.
Issuance
of Subordinated Debt
On
September 30, 2009, Summit issued $800,000 in subordinated debt to an
unaffiliated investor. The debt was issued at an interest rate of 10%
and will be redeemable by Summit on or after the fifth anniversary of
issuance and will be due and payable in ten (10) years. The
subordinated debt will be treated as Tier 2 capital for regulatory capital
purposes at the holding company level. The proceeds of the
subordinated debt and the proceeds of the sale of the Preferred Stock described
in Item 3.02 “Unregistered Sale of Equity Securities” will be used to augment
the capital of Summit Community Bank, Inc.
Item
9.01. Financial
Statements and Exhibits
(d) Exhibits.
3.1 Articles
of Amendment to Articles of Incorporation
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4.1
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Form
of Certificate Representing the 8.00% Non-Cumulative Convertible Preferred
Stock, Series 2009
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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 hereunto
duly authorized.
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Date: September
30, 2009
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SUMMIT
FINANCIAL GROUP, INC.
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By: /s/ Julie R.
Cook______________________________
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Vice President, Chief Accounting
Officer