SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant

x

Filed by a Party other than the Registrant

o

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission on Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12

POTOMAC BANCSHARES, INC.

(Name of Registrant as Specified in Its Charter)

Gayle Marshall Johnson

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

 

 

(2)

Aggregate number of securities to which transactions applies:

 

 

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

 

 

(5)

Total fee paid:

 

 

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

 

 

(3)

Filing Party:

 

 

 

 

 

 

(4)

Date Filed:

 

 

 

 

 


POTOMAC BANCSHARES, INC.
Charles Town, West Virginia

NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD APRIL 26, 2005

To the Shareholders:

          The Regular Annual Meeting of Shareholders of Potomac Bancshares, Inc. (“Potomac”), will be held at Clarion Hotel and Conference Center, Shepherdstown, West Virginia, at 10:30 a.m., on April 26, 2005, for the purposes of considering and voting upon proposals:

          1.     To elect a class of directors for a term of three years.

          2.     To ratify the selection by the board of directors of Yount, Hyde & Barbour, P.C., as independent certified public accountants for the year 2005.

          3.     To approve any other business that may properly be brought before the meeting or any adjournment thereof.

          Only those shareholders of record at the close of business on March 11, 2005, shall be entitled to notice of the meeting and to vote at the meeting.

 

By Order of the Board of Directors

 

 

 

 

 

Robert F. Baronner, Jr.

 

President and Chief Executive Officer

PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.  IF YOU DO ATTEND THE MEETING, YOU HAVE THE OPTION TO WITHDRAW YOUR PROXY.

March 30, 2005


POTOMAC BANCSHARES, INC.
111 EAST WASHINGTON STREET
P.O. BOX 906
CHARLES TOWN, WEST VIRGINIA 25414-0906
(304) 725-8431

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS - APRIL 26, 2005

          Potomac Bancshares, Inc. is furnishing this statement in connection with its solicitation of proxies for use at the annual meeting of shareholders of Potomac Bancshares, Inc. to be held on April 26, 2005, at the time and for the purposes set forth in the accompanying notice of regular annual meeting of shareholders.

Solicitation of Proxies

          Potomac’s management, at the direction of Potomac’s board of directors, is making this proxy solicitation.  These proxies enable shareholders to vote on all matters scheduled to come before the meeting. If the enclosed proxy is signed and returned, it will be voted as directed; or if not directed, the proxy will be voted “FOR” all of the various proposals to be submitted to the vote of shareholders described in the enclosed notice of regular annual meeting and this proxy statement. A shareholder executing the proxy may revoke it at any time before it is voted by:

 

•

notifying Potomac in person,

 

 

 

 

•

giving written notice to Potomac of the revocation of the proxy,

 

 

 

 

•

submitting to Potomac a subsequently-dated proxy, or

 

 

 

 

•

attending the meeting and withdrawing the proxy before it is voted at the meeting.

          Potomac will pay the expenses of this proxy solicitation.  In addition to this solicitation by mail, officers and regular employees of Potomac and Bank of Charles Town may, to a limited extent, solicit proxies personally or by telephone or telegraph, although no person will be engaged specifically for that purpose.

Eligibility of Stock for Voting Purposes

          Under Potomac’s bylaws, the board of directors has fixed March 11, 2005, as the record date for determining the shareholders entitled to notice of, and to vote at, the meeting or any adjournment thereof.  Only shareholders of record at the close of business on that date are entitled to notice of and to vote at the annual meeting or any adjournment thereof.

1


          As of the record date for the annual meeting, 1,696,561 shares of the capital stock of Potomac were outstanding and entitled to vote.  The principal holders of Potomac common stock are discussed under the section of this proxy statement entitled, “Principal Holders of Voting Securities”.  As of the record date, Potomac had a total of approximately 1,100 shareholders of record.

PURPOSES OF MEETING

1.        ELECTION OF DIRECTORS

General

          Potomac’s articles of incorporation currently provide for a classified board of directors.  There are three classes with each being elected for a three-year term.  There are presently 12 directors on the board, four of whom are nominees for election at the 2005 annual meeting.  Three of the nominees are non-employee directors.

          Directors are elected by a plurality of the shares voted.  As required by West Virginia law, each share is entitled to one vote per nominee, unless a shareholder requests cumulative voting for directors at least 48 hours before the meeting.  If a shareholder properly requests cumulative voting for directors, then each shareholder will have the right to vote the number of shares owned by that shareholder for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of shares owned shall equal, or to distribute them on the same principle among as many candidates as the shareholder sees fit.  If any shares are voted cumulatively for the election of directors, the proxies, unless otherwise directed, shall have full discretion and authority to cumulate their votes and vote for less than all such nominees.  For all other purposes, each share is entitled to one vote. 

          Potomac does not have a separate nominating committee and the board of directors serves this function.  The board of directors makes nominations based upon its belief that candidates for director should have certain minimum qualifications, including:

 

•

Directors should be of the highest ethical character.

 

 

 

 

•

Directors should have excellent personal and professional reputations in the company’s market area.

 

 

 

 

•

Directors should be accomplished in their professions or careers.

 

 

 

 

•

Directors should be able to read and understand financial statements and either have knowledge of, or the ability and willingness to learn, financial institution law.

 

 

 

 

•

Directors should have relevant experience and expertise to evaluate financial data and provide direction and advice to the chief executive officer and the ability to exercise sound business judgment.

 

 

 

 

•

Directors must be willing and able to expend the time to attend meetings of the board of directors of the company and the bank and to serve on board committees.

2


 

•

The board of directors will consider whether a nominee is independent, as legally defined.  In addition, directors should avoid the appearance of any conflict and should be independent of any particular constituency and be able to serve all shareholders of the company.

 

 

 

 

•

Because the directors of the company also serve as directors of the bank, a majority of directors must be residents of West Virginia, as required by state banking law.

 

 

 

 

•

Directors must be acceptable to the company’s and the bank’s regulatory agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation and the West Virginia Division of Banking and must not be under any legal disability which prevents them from serving on the board of directors or participating in the affairs of a financial institution.

 

 

 

 

•

Directors must own or acquire sufficient capital stock to satisfy the requirements of federal law, state law and the bylaws of Potomac.

 

 

 

 

•

Directors must be at least 21 years of age.

          The board of directors of the company reserves the right to modify these minimum qualifications from time to time, except where the qualifications are required by the laws relating to financial institutions.

          The process of identifying and evaluating nominees is as follows:  In the case of incumbent directors whose terms are set to expire, the board considers the directors’ overall service to the company during their term, including such factors as the number of meetings attended, the level of participation, quality of performance and any transactions between such directors of the company and the bank.  The board also reviews the payment history of loans, if any, made to such directors of the bank to ensure that the directors are not chronically delinquent and in default.  The board considers whether any transactions between the directors and the bank have been criticized by any banking regulatory agency or the bank’s external auditors and whether corrective action, if required, has been taken and was sufficient.  The board also confirms that such directors remain eligible to serve on the board of directors of a financial institution under federal and state law.  For new director candidates, the board uses its network of contacts in the company’s market area to compile a list of potential candidates.  The board then meets to discuss each candidate and whether he or she meets the criteria set forth above.  The board then discusses each candidate’s qualifications and chooses a candidate by majority vote.

          The board will consider director candidates recommended by stockholders, provided that the recommendations are received at least 120 days before the next annual meeting of shareholders.  In addition, the procedures set forth below are followed by stockholders for submitting nominations.  The board does not intend to alter the manner in which it evaluates candidates, regardless of whether or not the candidate was recommended or nominated by a shareholder.

          Potomac’s bylaws provide that nominations for election to the board of directors, other than those made by or on behalf of Potomac’s existing management, must be made by a shareholder in writing delivered or mailed to the President not less than 14 days nor more than 50 days prior to the meeting called for the election of directors; provided, however, that if less than 21 days’ notice of the meeting is given to shareholders, the nominations must be mailed or delivered to the President not later than the close of business on the 7th day following the day on which the notice of meeting was mailed.  The notice of nomination must contain the following information, to the extent known:

3


 

•

name and address of proposed nominee(s);

 

 

 

 

•

principal occupation of nominee(s);

 

 

 

 

•

total shares to be voted for each nominee;

 

 

 

 

•

name and address of notifying shareholder; and

 

 

 

 

•

number of shares owned by notifying shareholder.

          Nominations not made in accordance with these requirements may be disregarded by the chairman of the meeting and in such case the votes cast for each such nominee will likewise be disregarded.

          The table beginning on page 7 of this proxy statement contains background information on each director nominee.

Committees of the Board

          Potomac’s board of directors has a standing audit committee.  The report of this committee is given on pages 6 and 7 of this proxy statement.  Other functions of board committees for Potomac have been carried out by the board of directors as a whole or through committees of the board of directors of Bank of Charles Town.  While there is no such requirement, the board of directors of the bank and Potomac are, and have at all times been, identical.

          The audit committee consists of five independent directors: J. Scott Boyd, Guy Gareth Chicchirichi, E. William Johnson, Barbara H. Pichot and Donald S. Smith.  All members of the committee meet the NASDAQ definition for independence.  The audit committee is appointed and approved by the boards of Potomac and the bank.  The committee is to assist these boards in monitoring (1) the integrity of the financial statements of the company, (2) the compliance by the company with legal and regulatory requirements, (3) the independence of the company’s internal and external auditors and (4) the effectiveness of internal controls and procedures.  During 2004, the audit committee held six regular meetings and four special meetings.

          The company’s board of directors has determined that E. William Johnson meets the requirements of an audit committee financial expert as defined by the Securities and Exchange Commission for 2004 and that Barbara H. Pichot meets the requirements of an audit committee financial expert as defined by the Securities and Exchange Commission for 2005.

          The bank has a standing asset/liability/investment management committee, Community Reinvestment Act committee, personnel committee, trust committee, trust investment review committee and executive committee.

          The asset/liability/investment management committee consists of six members:  Robert F. Baronner, Jr., Guy Gareth Chicchirichi, William R. Harner, E. William Johnson, Gayle Marshall Johnson, and C. Larry Togans.  This committee is comprised of board members and officers whose responsibilities are to manage the balance sheet of the bank by maximizing and maintaining the spread between interest earned and interest paid while assuming acceptable business risks and ensuring adequate liquidity.  The committee recommends investment policies to the board and reviews investments as necessary.  This committee held four meetings during 2004.

4


          The Community Reinvestment Act (CRA) committee consists of eight members: Robert F. Baronner, Jr., Donna J. Burns, Margaret Cogswell, Thomas C. G. Coyle, David Irvin, Marcia Lerch, Susan Myers and Linda Wasilius.  The CRA committee is responsible for recommending to the board of directors policies that address fair lending concerns and the requirements of the CRA. Fair lending concerns are directed at preventing lending practices that discriminate either overtly or that have the effect of discrimination.  The Community Reinvestment Act requires that banks meet the credit needs of their communities, including those of low- and moderate-income borrowers.  This committee held two meetings in 2004.

          The personnel committee consists of seven members:  Diane Armstrong, Robert F. Baronner, Jr. (ex-officio), J. Scott Boyd, Guy Gareth Chicchirichi, Thomas C.G. Coyle, John C. Skinner, Jr. and Donald S. Smith.  The personnel committee’s responsibilities include evaluating staff performance and requirements, reviewing salaries, and making necessary recommendations to the board regarding these responsibilities.  The committee held two meetings in 2004. The executive officer who serves on this committee did not make recommendations or participate in meetings relating to his own salary.  See “Personnel Committee Report on Executive Compensation.”

          The trust committee consists of seven members:  Robert F. Baronner, Jr., John P. Burns, Jr., Thomas C.G. Coyle, William R. Harner, Robert L. Hersey, John C. Skinner, Jr. and C. Larry Togans.  The trust committee is responsible for the general supervision of the fiduciary activities performed by the Trust and Financial Services Division in order to ensure proper administration of all aspects of the bank’s fiduciary business.  It sets forth prudent policies and guidelines under which the department can fulfill its fiduciary responsibilities in a timely and efficient manner and meet state and federal regulatory requirements.  The committee makes periodic reports to the board of directors and oversees the activities of the trust investment review committee.  The trust committee held eight regular meetings in 2004.

          The trust investment review committee, consisting of two trust officers and two directors (Robert L. Hersey, David S. Smith, William R. Harner and C. Larry Togans), meets regularly to review investments in trust accounts and to determine that these investments remain within the guidelines of the account.  This committee held 10 meetings during 2004.

          The executive committee consists of seven members:  Robert F. Baronner, Jr., J. Scott Boyd, John P. Burns, Jr., William R. Harner, John C. Skinner, Jr. Donald S. Smith and C. Larry Togans.  This committee meets on an as needed basis to review and approve loans that exceed the chief executive officer’s lending authority.  This committee held four meetings in 2004.

          Neither Potomac nor the bank has a nominating committee.  Rather, the board of directors of each selects nominees to fill vacancies on the boards.

          The board of directors of Potomac met for seven regular meetings and three special meetings in 2004.  The board of directors of the bank held regular monthly meetings the second Tuesday of each month in 2004.  Special meetings are held from time to time as required. During 2004, the bank board held 12 regular meetings and one special meeting.  During the year, each of the directors attended at least 75% of all meetings of the boards of Potomac and the bank and all committees of the boards on which they served.

5


Audit Committee Report

          The audit committee’s report to the shareholders which follows was approved and adopted by the committee on March 1, 2005, and by the board of directors on March 8, 2005.  The members of the audit committee are all independent in accordance with the requirements of NASDAQ.

          The audit committee oversees Potomac’s financial reporting process on behalf of the board of directors.   Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls.

          The audit committee has reviewed and discussed the audited financial statements with management, discussed with the independent auditor the matters required by SAS 61, received communications from the independent auditor as to their independence, and discussed independence with the auditor.

          The audit committee has received the written disclosures and the letter from the independent accountant required by Independence Standards Board No. 1, “Independence Discussions with Audit Committees”, and has discussed with the independent accountant the independent accountant’s independence.

          Based on its review and discussions with management and the independent auditor, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K filed by the company.

          The audit committee and the board of directors have adopted a written charter for the audit committee.

          The following fees were paid to Yount, Hyde & Barbour, P.C., Potomac Bancshares, Inc.’s certified public accountants, for services provided to the company for the fiscal year ending December 31, 2004.

 

 

2004

 

2003

 

 

 

 

 

 

 

Fees

 

Percentage

 

Fees

 

Percentage

 

 

 

 

 

 

 

Audit fees

 

$

36,700

 

 

59.8

%

$

37,600

 

 

67.2

%

Audit-related fees

 

 

20,500

 

 

33.4

%

 

14,288

 

 

25.6

%

Tax fees

 

 

4,200

 

 

6.8

%

 

4,000

 

 

7.2

%

All other fees

 

 

—  

 

 

0.0

%

 

—  

 

 

0.0

%

 

 

 

 

 

 

 

 

$

61,400

 

 

100.0

%

$

55,888

 

 

100.0

%

 

 

 

 

 

 

A description of these fees is as follows:

 

•

Audit fees:  Audit and review service and review of documents filed with SEC.

 

 

 

 

•

Audit-related fees:  Agreed upon procedures related to the Trust Department’s Regulation 9 examination and IT review.

 

 

 

 

•

Tax fees:  Preparation of federal and state tax returns.

6


          The audit committee of the board believes that the non-audit services provided by Yount, Hyde & Barbour are compatible with maintaining the auditor’s independence.  The audit committee charter requires that the audit committee pre-approve all services performed by the independent auditors.  However, the pre-approval requirement is waived for non-audit services if the amount of the non-audit service is not more than 5% of the total amount paid to the independent auditors during the fiscal year in which the services are provided and such services were not recognized at the time of the engagement to be non-audit services and such services are promptly brought to the committee’s attention and approved prior to the completion of the audit.  All of the services described above for which Yount, Hyde & Barbour, P.C., billed the company for the fiscal year ended December 31, 2004, were pre-approved by the company’s audit committee.  For the fiscal year ended December 31, 2004, the company’s audit committee did not waive the pre-approval requirement of any non-audit services to be provided to the company by Yount, Hyde & Barbour, P.C.

          This report should not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Potomac specifically incorporates this report by reference, and shall not otherwise be filed with such Acts.

 

E. William Johnson, Chairman

 

J. Scott Boyd

 

Guy Gareth Chicchirichi

 

Barbara H. Pichot

 

Donald S. Smith

Management Nominees to the Board of Potomac

          The management nominees for the board of directors are:

Nominees

 

Age

 

Served As
Director
of
Potomac
Since

 

Family
Relation-
ship With
Other
Nominees

 

Year
in Which
Term
Expires

 

Principal Occupation or
Employment Last Five Years

 

 

 

 

 

 

 

Robert F. Baronner, Jr.

 

 

46

 

 

2001

 

 

None

 

 

2005

 

 

Employed by bank as of 1/1/01 as President and Chief Executive Officer; former Senior Credit Officer, BB&T Northern West Virginia, May 2000 to December 2000; former Executive Vice President, One Valley Bank East September 1997 to April 2000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guy Gareth Chicchirichi

 

 

63

 

 

1994

 

 

None

 

 

2005

 

 

Executive Manager, Secretary/Treasurer, Guy’s Buick-Pontiac-Oldsmobile-GMC Truck, Inc., Jefferson County, West Virginia; charter member of Charles Town Rotary Club; Director, Jefferson County Boys & Girls’ Club.

 

7


Management Nominees to the Board of Potomac (Continued)

Margaret Cogswell

 

 

46

 

 

2003

 

 

None

 

 

2005

 

 

Executive Director, Hospice of the Panhandle, Berkeley County, West Virginia since 1986.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas C. G. Coyle

 

 

76

 

 

1994

 

 

None

 

 

2005

 

 

Retired owner/operator of Riddleberger’s Store, Jefferson County, West Virginia; Trustee and Elder, Charles Town Presbyterian Church; Director, Edge Hill Cemetery.

 

Directors Continuing to Serve Unexpired Terms

Directors

 

Age

 

Served As
Director
of
Potomac
Since

 

Family
Relation-
ship With
Other
Nominees

 

Year
in Which
Term
Expires

 

Principal Occupation or
Employment Last Five Years

 

 

 

 

 

 

 

J. Scott Boyd

 

 

48

 

 

1999

 

 

None

 

 

2007

 

 

Pharmacist and President of Jefferson  Pharmacy, Inc. in Jefferson County, West Virginia since 1982; President and Chairman of Board of Directors of In Home Medications West Virginia, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John P. Burns, Jr.

 

 

63

 

 

1994

 

 

None

 

 

2007

 

 

Owner/operator of a beef and grain farm in Jefferson County, West Virginia; President, Jefferson County Fair Association; Director, Valley Farm Credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William R. Harner

 

 

64

 

 

1994

 

 

None

 

 

2006

 

 

Employed at Bank 1967 to 2004; Senior Vice President and Cashier 1988 to 2004 (retired); Senior Vice President of Potomac since 1994.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E. William Johnson

 

 

60

 

 

1994

 

 

None

 

 

2006

 

 

Professor of Economics, Shepherd College, Jefferson County, West Virginia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barbara H. Pichot

 

 

57

 

 

2004

 

 

None

 

 

2007

 

 

Certified public accountant and partner in  CoxHollida LLP, a public accounting firm in Berkeley County, West Virginia, since 1981; President, Hospice of the Panhandle;  member Board of Governors, Shepherd  College.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John C. Skinner, Jr.

 

 

63

 

 

1994

 

 

None

 

 

2006

 

 

Attorney, owner of Nichols & Skinner, L. C., Jefferson County, West Virginia; Bank attorney since 1986; Potomac attorney since 1994.

 

8


Directors Continuing to Serve Unexpired Terms (Continued)

Donald S. Smith

 

 

76

 

 

1994

 

 

None

 

 

2006

 

 

Employed at Bank 1947 to 1991; President 1978 to 1991 (retired); Vice President and Assistant Secretary of Potomac since 1994.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C. Larry Togans

 

 

58

 

 

2004

 

 

None

 

 

2007

 

 

Retired Deputy, Branch of Human Resources, U. S. Geological Survey, employed 1973 to 2001.

 

Ownership of Securities by Nominees, Directors and Officers

          The following table shows the amount of Potomac’s outstanding common stock beneficially owned by nominees, directors and principal officers of Potomac individually and as a group.  Beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days.  No shares are disclosed in the amounts below that are exercisable by any nominee, director or principal officer. The information is furnished as of February 24, 2005, on which date 1,696,561 shares were outstanding.

Non-Nominees

 

Amount of
Beneficial Ownership

 

Percent of Common Stock

 

 

 

 

J. Scott Boyd
201 S Preston Street
Ranson WV  25438

 

 

1,500 shares

 

 

.0884

 

John P. Burns, Jr.
1 Burns Farm Road
Charles Town WV  25414

 

 

11,374 shares

 

 

.6704

 

William R. Harner
259 Fenway Drive
Charles Town WV  25414-5046

 

 

4,200 shares

 

 

.2476

 

E. William Johnson
Division of Business and Social Sciences
Shepherd College, PO Box 3210
Shepherdstown WV  25443

 

 

2,825 shares

 

 

.1665

 

Barbara H. Pichot
PO Box 1207
Martinsburg WV  25402

 

 

1,290 shares

 

 

.0760

 

John C. Skinner, Jr.
PO Box 487
Charles Town WV  25414

 

 

14,879 shares

 

 

.8770

 

9


Ownership of Securities by Nominees, Directors and Officers (Continued)

Non-Nominees (Continued)

 

Amount of
Beneficial Ownership

 

Percent of Common Stock

 

 

 

 

Donald S. Smith
419 S. Church Street
Charles Town WV  25414

 

 

16,200 shares

 

 

.9549

 

C. Larry Togans
1486 Tuscawilla Drive
Charles Town WV  25414

 

 

100 shares

 

 

.0059

 

Nominees

 

Amount of
Beneficial Ownership

 

Percent of Common Stock

 

 

 

 

Robert F. Baronner, Jr
PO Box 906
Charles Town, WV  25414-0906

 

 

4,493 shares

 

 

.2648

 

Guy Gareth Chicchirichi
139 Blakeley Place
Charles Town WV  25414

 

 

8,500 shares

 

 

.5010

 

Margaret Cogswell
122 Waverly Court
Martinsburg WV  25401

 

 

150 shares

 

 

.0089

 

Thomas C.G. Coyle
78 High Street
Charles Town WV  25414

 

 

11,193 shares

 

 

.6598

 

Officers (Non-Nominees)

 

Amount of
Beneficial Ownership

 

Percent of Common Stock

 

 

 

 

David W. Irvin
PO Box 906
Charles Town WV  25414

 

 

569 shares

 

 

.0335

 

Gayle Marshall Johnson
PO Box 906
Charles Town WV  25414-906

 

 

1,524 shares

 

 

.0898

 

All nominees, directors & principal
officers as a group (14 persons)

 

 

78,797 shares

 

 

4.6445

 

 

 

 

 

Executive Compensation

          Potomac’s officers did not receive compensation as such during 2004.  The Summary Compensation Table on the top of the next page sets forth the annual and long-term compensation for services in all capacities to the bank for the fiscal years ended December 31, 2004, 2003 and 2002 of the named executive officers.  Neither Potomac nor the bank has any stock option plans, employee stock ownership plans or other employee benefit plans except for the pension plan, 401(k) plan and stock incentive plan described in this proxy statement.  There were 17,994 options granted in 2004 through the stock incentive plan.

10


SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

Long-Term Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Compensation

 

Awards

 

Payouts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name And
Principal
Position

 

 

Year

 

 

Salary
($)

 

 

Bonus
($)

 

 

Other
Annual
Compen-
sation
($)

 

 

Restricted
Stock
Award(s)
($)

 

 

Securities
Under-
Lying
Options/
SARs(#)

 

 

LTIP
Payouts
($)

 

 

All
Other
Compen-
sation
($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert F. Baronner, Jr.

 

 

2004

 

 

147,250

 

 

24,255

 

 

9,120

 

 

N/A

 

 

2,000

 

 

N/A

 

 

0

 

President and

 

 

2003

 

 

137,000

 

 

20,448

 

 

9,120

 

 

N/A

 

 

N/A

 

 

N/A

 

 

0

 

Chief Executive Officer

 

 

2002

 

 

126,469

 

 

20,895

 

 

9,120

 

 

N/A

 

 

N/A

 

 

N/A

 

 

0

 

David W. Irvin

 

 

2004

 

 

81,250

 

 

86,821

 

 

N/A

 

 

N/A

 

 

1,000

 

 

N/A

 

 

0

 

Senior Vice President

 

 

2003

 

 

77,156

 

 

52,456

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

0

 

and Commercial Loan

 

 

2002

 

 

74,562

 

 

65,011

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

0

 

Division Manager

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Benefit Plans

          Potomac sponsors a noncontributory, defined benefit pension plan under which benefits are determined based on an employee’s average annual compensation for any five consecutive full calendar years of service which produce the highest average.  An employee is any person (but not including a person acting only as a director) who is regularly employed on a full-time basis.  An employee becomes eligible to participate in the plan upon completion of at least one year of service and attainment of age 21.

          Normal retirement is at age 65 with the accrued monthly benefit determined on actual date of retirement.  An employee may take early retirement from age 60 and the accrued monthly benefit as of the normal retirement date is actuarially reduced.  There is no reduction if an employee is 62 years of age and has 30 years service.

          The Pension Plan Table below shows estimated annual pension benefits based on sample five year averages for annual compensation and specified total years of service figures.

PENSION PLAN TABLE

Average compensation
for highest five
consecutive full
years of service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years of Service

 

 

 

 

 

5

 

 

10

 

 

15

 

 

20

 

 

25

 

 

30

 

 

 

 

 

 

 

 

$

20,000

 

 

$

1,760

 

$

3,520

 

$

5,280

 

$

7,040

 

$

8,800

 

$

8,800

 

 

30,000

 

 

 

2,760

 

 

5,520

 

 

8,280

 

 

11,040

 

 

13,800

 

 

13,800

 

 

40,000

 

 

 

3,760

 

 

7,520

 

 

11,280

 

 

15,040

 

 

18,800

 

 

18,800

 

 

50,000

 

 

 

4,760

 

 

9,520

 

 

14,280

 

 

19,040

 

 

23,800

 

 

23,800

 

 

60,000

 

 

 

5,760

 

 

11,520

 

 

17,280

 

 

23,040

 

 

28,800

 

 

28,800

 

 

70,000

 

 

 

6,760

 

 

13,520

 

 

20,280

 

 

27,040

 

 

33,800

 

 

33,800

 

 

80,000

 

 

 

7,760

 

 

15,520

 

 

23,280

 

 

31,040

 

 

38,800

 

 

38,800

 

 

100,000

 

 

 

9,760

 

 

19,520

 

 

29,280

 

 

39,040

 

 

48,801

 

 

48,800

 

 

120,000

 

 

 

11,760

 

 

23,520

 

 

35,280

 

 

47,040

 

 

58,800

 

 

58,800

 

 

140,000

 

 

 

13,760

 

 

27,520

 

 

41,280

 

 

55,040

 

 

68,800

 

 

68,800

 

 

160,000

 

 

 

15,760

 

 

31,520

 

 

47,280

 

 

63,040

 

 

78,800

 

 

78,800

 

 

180,000

 

 

 

17,760

 

 

35,520

 

 

53,280

 

 

71,040

 

 

88,800

 

 

88,800

 

 

200,000

 

 

 

19,760

 

 

39,520

 

 

59,280

 

 

79,040

 

 

98,800

 

 

98,800

 

11


          Compensation covered by the pension plan is based upon total pay.  Effective for plan years beginning in 2004, Internal Revenue Code Section 401(a)(17) prohibits taking into account compensation in excess of $205,000 in determining one’s pension benefit.

          As of December 31, 2004, the current credited years of service for each of the following officers is:

 

Name

 

Current Credited
Years of Service

 

 

 

 

 

Robert F. Baronner, Jr.

 

4 Years

 

 

David W. Irvin

 

3 Years

 

          During 2002, the company established a 401(k) profit sharing plan available initially to all fulltime employees.  After initiation of the plan, employees become eligible to participate in the plan upon reaching age 21 and completing one year of service.  Employees can make a salary deferral election authorizing the employer to withhold up to the amount allowed by law each calendar year.  The employer may make a discretionary matching contribution each plan year.  The employer may also make other discretionary contributions to the plan.

          During 2003 the Potomac board and the shareholders adopted and approved the 2003 Stock Incentive Plan which reserves 90,000 shares of common stock that may be granted as incentive stock options (“ISO”) and non-statutory stock options.  There were 17,994 options granted in 2004.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Name

 

Number of
Securities
Underlying
Option/SARs
Granted (#)

 

Percent Of
Total  Options/
SARs Granted
To Employees
In Fiscal Year

 

Exercise
Price
Per
Share

 

Expiration
Date

 

Potential Realizable
Value at Assumed
Annual Rates Of Stock
Price Appreciation
For Option Term (1)

 

Alternative
to
(f) and (g)
Grant Date
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

5% ($)

 

10% ($)

 

Grant Date
Present Value
($)

 

 

 

 

 

 

 

 

 

Robert R. Baronner, Jr.

 

 

2,000

 

 

16.67

%

$

22.55

 

 

2/10/14

 

$

28,363

 

$

71,878

 

 

N/A

 

David W. Irvin

 

 

1,000

 

 

8.30

%

$

22.55

 

 

2/10/14

 

$

14,182

 

$

35,939

 

 

N/A

 

(l) Potential realizable value at the assumed annual rate of stock appreciation indicated, based on actual option term (10 years) and annual compounding, less cost of shares at exercise price.

12


Personnel Committee Report on Executive Compensation

          The personnel committee is comprised of seven members:  Diane Armstrong (Human Resources Director), Robert F. Baronner, Jr. (ex-officio), J. Scott Boyd, Guy Gareth Chicchirichi, Thomas C.G. Coyle, John C. Skinner, Jr. and Donald S. Smith.  The personnel committee reviews and recommends to the board changes to the compensation levels of all executive officers of the bank.  The committee seeks to attract and retain highly capable and well-qualified executives and to compensate executives at levels commensurate with their amount of service to the bank.  The committee met November 23, 2004 to review and approve the bank’s 2005 compensation levels.  The bank’s chief executive officer reviews each executive officer’s compensation and makes recommendations to the committee.   The committee reviews these recommendations and independently evaluates each executive’s job performance and contribution to the bank.  The committee also considers the inflation rate and the compensation levels of executive officers holding similar positions with the bank’s competitors.  For instance, the committee compares the compensation levels of its executive officers with the levels, when known, of such institutions as United National Bank, Jefferson Security Bank, City National Bank and BB&T.  Compensation levels for executives of the bank are competitive when compared to these institutions.

          The chief executive officer’s salary and bonus are tied to performance goals of the bank and the bank’s profitability for the prior fiscal year.  Robert F. Baronner, Jr. served on the committee and was the bank’s chief executive officer; however, he did not make any recommendations relating to his salary and was not present at committee meetings when his compensation was being discussed.

          In 2004 Mr. Baronner had the opportunity to earn up to 20% of his base salary in bonus.  This incentive program is based on a number of factors including average market price per share, net income per share, loan and deposit growth, the bank’s efficiency ratio, credit quality, and trust department income. During 2004, Mr. Baronner earned $24,255 out of a possible bonus of $29,400.

          In 2001 Potomac and the bank entered into an employment agreement with Mr. Baronner.  The first year’s base salary for 2001 for Mr. Baronner as stated in the employment agreement was set after discussions with a professional executive recruiter as well as research regarding market rates for similar positions for candidates with equivalent education and experience.  The salary is set each year as the agreement renews and is based on performance goals of the bank and the bank’s profitability as discussed above.

          This report should not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Potomac specifically incorporates this report by reference, and shall not otherwise be filed under such Acts.  This report is submitted by:

 

Robert F. Baronner, Jr. (ex-officio)

 

J. Scott Boyd

 

Guy Gareth Chicchirichi

 

Thomas C.G. Coyle

 

John C. Skinner, Jr.

 

Donald S. Smith

13


Performance Graph

          The following graph compares the yearly percentage change in Potomac’s cumulative total shareholder return on common stock for the five-year period ending December 31, 2004, with the cumulative total return of the CoreData Index and the Bank Holding Companies Index (SIC Code 6712).  Shareholders may obtain a copy of the index by calling CoreData, Inc. at telephone number (800) 775-8118.  There is no assurance that Potomac’s stock performance will continue in the future with the same or similar trends as depicted in the graph. 

          The graph shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Potomac specifically incorporates this graph by reference, and shall not otherwise be filed under such Acts.

Message

ASSUMES $100 INVESTED ON JANUARY 1, 2000.  ASSUMES
DIVIDENDS ARE REINVESTED THROUGH YEAR ENDING
DECEMBER 31, 2004.

Employment Agreement

          Potomac and the bank have an employment agreement with Robert F. Baronner, Jr., president and chief executive officer of Potomac and the bank.  The agreement is for a one-year term, with additional renewals for one year each, unless terminated by one of the parties.  The agreement provided for an annual salary of $110,000 plus director’s fees in 2001.  The subsequent annual salaries are set each year as the agreement renews.  The personnel committee set the annual salary at $162,000 for 2005.  Under the agreement, if Mr. Baronner’s employment is terminated (other than for cause), he is entitled to one year’s salary and benefits. In the event of an actual or constructive termination of Mr. Baronner’s employment after a change in control of Potomac or the bank, Mr. Baronner would receive two years’ compensation and benefits for 18 months.

14


Compensation of Directors

          Directors of Potomac were not compensated for their services as directors for 2004.  Directors of the bank were compensated at the rate of $760 for each regular board meeting attended in 2004.  Directors are additionally compensated $100 for each committee meeting attended.  Directors who are operating officers of the bank are not compensated for committee meetings attended.

Certain Transactions with Directors, Officers and Their Associates

          Potomac and the bank have had, and expect to have in the future, transactions in the ordinary course of business with directors, officers, principal shareholders and their associates.  All of these transactions remain on substantially the same terms, including interest rates, collateral and repayment terms on the extension of credit, as those prevailing at the same time for comparable transactions with unaffiliated persons, and in the opinion of management of Potomac and the bank, did not involve more than the normal risk of collectibility or present other unfavorable features. 

          Nichols and Skinner, L.C., a law firm in which Director John C. Skinner, Jr. is a shareholder, performed legal services for the bank and Potomac in 2004 and will perform similar services in 2005.  On the basis of information provided by Mr. Skinner, it is believed that less than five percent of the gross revenues of this law firm in 2004 resulted from payment for legal services by Potomac and the bank.  In the opinion of Potomac and the bank, the transactions with Nichols and Skinner, L.C., were on terms as favorable to Potomac and the bank as they would have been with third parties not otherwise affiliated with Potomac or the bank.

          J. Scott Boyd, Thomas C.G. Coyle, William R. Harner, Barbara H. Pichot and C. Larry Togans, directors of the bank and Potomac, have been indebted to the bank during 2004 in an amount in excess of $60,000.  In the opinion of Potomac and the bank, these loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectability or present other unfavorable features.

2.       RATIFICATION OF SELECTION OF AUDITORS

          The board of directors has selected the firm of Yount, Hyde & Barbour, P.C. to serve as independent auditors for Potomac for the calendar year 2005.  If the shareholders do not ratify the appointment of Yount, Hyde & Barbour, P.C., the board will consider the appointment of other auditors.  Potomac is advised that no member of this accounting firm has any direct or indirect material interest in Potomac, or any of its subsidiaries.

          A representative of Yount, Hyde & Barbour, P.C., will be present at the annual meeting to respond to appropriate questions and to make a statement if he so desires.  The enclosed proxy will be voted “FOR” the ratification of the selection of Yount, Hyde & Barbour, P.C., unless otherwise directed.  The affirmative vote of a majority of the shares of Potomac’s common stock represented at the annual meeting of shareholders is required to ratify the appointment of Yount, Hyde & Barbour, P.C.

15


FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION

          Upon written request by any shareholder to Gayle Marshall Johnson, Vice President and Chief Financial Officer, Potomac Bancshares, Inc., 111 East Washington Street, PO Box 906, Charles Town, West Virginia 25414-0906, a copy of Potomac’s 2004 Annual Report on Form 10-K will be provided without charge.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

          Section 16(a) of the Securities Exchange Act of 1934 requires Potomac’s directors and executive officers, and persons who own more than ten percent of a registered class of Potomac’s equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Potomac.  Officers, directors and shareholders owning more than ten percent are required by SEC regulation to furnish Potomac with copies of all Section 16(a) forms which they file.

          To Potomac’s knowledge, based solely upon review of the copies of such reports furnished to Potomac and written representations that no other reports were required, during the two fiscal years ended December 31, 2004, all Section 16(a) filing requirements applicable to its officers, directors and persons owning more than ten percent were complied with except the late filing by Director C. Larry Togans of one Form 4 for one transaction.  A Form 4 has now been filed disclosing this transaction.

OTHER MATTERS

          If any of the nominees for election as directors should be unable to serve as a director by reason of death or other unexpected occurrence, a proxy will be voted for a substitute nominee or nominees designated by the board of Potomac unless the board of directors adopts a resolution pursuant to the bylaws reducing the number of directors.

          The board of directors is unaware of any other matters to be considered at the meeting but, if any other matters properly come before the meeting, persons named in the proxy will vote such proxy in accordance with their judgment on such matters.

SHAREHOLDER PROPOSALS FOR 2006

          Any shareholder who wishes to have a proposal placed before the next Annual Meeting of Shareholders must submit the proposal to Robert F. Baronner, Jr., President & Chief Executive Officer of Potomac, at its executive offices, no later than December 1, 2005, to have it considered for inclusion in the proxy statement of the annual meeting in 2006.

 

Robert F. Baronner, Jr.

 

President and Chief Executive Officer

 

 

 

 

Charles Town, West Virginia

 

March 30, 2005

 

16


ANNUAL MEETING OF SHAREHOLDERS OF

POTOMAC BANCSHARES, INC.

April 26, 2005

Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.

Please detach along perforated line and mail in the envelope provided.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE   x

1. Election of four Directors

 

 
     

 

 

NOMINEES:

o

FOR ALL NOMINEES

O

Robert F. Baronner, Jr.

 

 

O

Guy G. Chicchirichi

o

WITHHOLD AUTHORITY
FOR ALL NOMINEES

O

Margaret M. Cogswell

 

 

O

Thomas C. G. Coyle

o

FOR ALL EXCEPT

 

 

 

(See instructions below)

 

 

 

 

 

 

 

 

 

 

INSTRUCTION:

To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.

o

 

 

 

FOR  

AGAINST  

ABSTAIN

2.

A proposal to ratify the appointment by the Board of Directors of Yount, Hyde & Barbour, P.C., as Independent Certified Public Accountants for the year 2005.

 

o

o

o

 

 

 

 

 

 

3.

Any other business which may be brought before the meeting or any adjournment thereof.

 

 

 

 

 

 

Unless otherwise specified on this Proxy, the shares represented by the Proxy will be voted “FOR” the propositions listed above and described more fully in the Proxy Statement of Potomac Bancshares, Inc. distributed in connection with this Annual Meeting. Each share is entitled to one vote per nominee, unless a shareholder requests cumulative voting for directors at least 48 hours before the meeting. If cumulative voting is elected for the election of Directors, the Proxies, unless otherwise directed, shall have full discretion and authority to cumulate their votes and vote for less than all such nominees. If any other business is presented at said meeting, this Proxy shall be voted in accordance with recommendations of management.

 

 

 

 

 

 

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.


Signature of Shareholder ______________________

 

Date: ___________

 

Signature of Shareholder ______________________

 

Date: ___________

 

Note:

Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

POTOMAC BANCSHARES, INC.

111 EAST WASHINGTON STREET, PO BOX 906, CHARLES TOWN, WV 25414-0906
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS

April 26, 2005

          KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned shareholder(s), of Potomac Bancshares, Inc. (“Potomac”), Charles Town, West Virginia, does (do) hereby nominate, constitute and appoint Donald S. Smith and Thomas C.G. Coyle, or either one of them, with full power to act alone as my (our) true and lawful attorney(s) with full power of substitution for me (us) in my (our) name, place and stead to vote all the Common Stock of Potomac, standing in my (our) name on its books at the close of business on March 11, 2005, at the Annual Meeting of Shareholders of Potomac Bancshares, Inc., called for and to be held at the Clarion Hotel and Conference Center, Shepherdstown, West Virginia, on April 26, 2005 at 10:30 a.m., and at any and all adjournments of said meeting, with all the powers the undersigned would possess if personally present as follows:

(Continued and to be signed on the reverse side)