POTOMAC BANCSHARES,
INC.
Charles Town, West Virginia
_________________________________________________________________
NOTICE
OF REGULAR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2008
_________________________________________________________________
To the Shareholders:
The Regular Annual Meeting of Shareholders of Potomac Bancshares, Inc.
("Potomac") will be held at Cliffside Inn Hotel and Conference Center, Harpers
Ferry, West Virginia, at 10:30 a.m., on April 22, 2008, 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 2008.
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 February
29, 2008, shall be entitled to notice of the meeting and to vote at the meeting.
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By Order of the Board of Directors
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Robert F. Baronner, Jr.
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President and Chief Executive Officer
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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 31, 2008
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
22, 2008
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 22, 2008, 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:
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notifying Potomac in person,
-
giving written notice to Potomac of the revocation of the
proxy,
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submitting to Potomac a subsequently-dated proxy,
or
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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 February 29,
2008, 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. On that day, there were
issued and outstanding 3,405,500 shares of common stock. The presence, in
person, or by properly executed proxy, of the holders of a majority of the
outstanding shares of the company’s common stock entitled to vote at the annual
meeting is necessary to constitute a quorum at the annual meeting. Abstentions
will be counted as shares present for purposes of determining the presence of a
quorum. Any shares held in street name that are not voted (“broker non-votes”)
in the election of directors or the proposal to ratify the company’s appointment
of Yount, Hyde & Barbour, P. C. will not be included in determining the
number of votes.
As of the record date for the annual meeting, 3,405,500 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.
1
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 10 directors on the board, three of whom
are nominees for election at the 2008 annual meeting. Two of the nominees are
non-employee directors and the third is an employee director.
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. Because director nominees must receive a
plurality of the votes cast at the meeting, a vote withheld will not affect the
outcome of the election.
The Board of Directors created a nominating committee in 2007. The
committee has been tasked with identifying potential Board of Director members.
The nominating committee makes nominations based upon its belief that candidates
for director should have certain minimum qualifications, including:
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Directors should be of the highest ethical
character.
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Directors should have excellent personal and
professional reputations in the company’s market area.
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Directors should be accomplished in their
professions or careers.
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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.
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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.
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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.
2
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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.
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Directors must own or acquire sufficient capital
stock to satisfy the requirements of federal law, state law and the bylaws of
Potomac.
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Directors must be at least 21 years of age.
The nominating committee 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 committee
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 committee 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
nominating committee 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 committee uses its network of contacts in
the company’s market area to compile a list of potential candidates. The
committee then meets to discuss each candidate and whether he or she meets the
criteria set forth above. The committee then discusses each candidate’s
qualifications and chooses a candidate by majority vote.
The committee 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 to be followed by stockholders submitting nominations. The
committee 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:
-
name and address of proposed
nominee(s);
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principal occupation of
nominee(s);
-
total shares
to be voted for each nominee;
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name and
address of notifying shareholder; and
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number of shares owned by notifying
shareholder.
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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.
3
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 and an
asset/liability/investment management committee. 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 boards of directors of the bank and
Potomac are, and have at all times been, identical.
The report of the audit committee is given on pages 6 and 7 of this proxy
statement.
The audit committee consists of four independent directors: J. Scott
Boyd, Guy Gareth Chicchirichi, Barbara H. Pichot and Donald S. Smith. All
members of the committee meet the NASDAQ definition for independence. That
definition is attached hereto as Exhibit B. 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
2007, the audit committee held eight regular meetings.
The company’s board of directors has determined that Barbara H. Pichot
meets the requirements of an audit committee financial expert as defined by the
Securities and Exchange Commission for 2007 and 2008.
The asset/liability/investment management committee consists of nine
members: Robert F. Baronner, Jr., Guy Gareth Chicchirichi, William R. Harner,
David W. Irvin, Gayle Marshall Johnson, Tim Lewis, Brent Milbourne, C. Larry
Togans and Bernadine Wean. The asset/liability/investment committee is appointed
and approved by the boards of Potomac and the bank. 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
2007.
The bank has a standing Community Reinvestment Act committee, personnel
committee, trust committee, trust investment review committee, merger and
acquisition committee, executive committee, information technology (IT)
committee, Sarbanes-Oxley 404 (SOX 404) steering committee and nominating
committee.
The Community Reinvestment Act (CRA) committee consists of seven members:
Robert F. Baronner, Jr., Donna J. Burns, Margaret Cogswell, David W. Irvin,
Marcia Lerch, Susan Myers and Linda Sager. 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 2007.
4
The personnel committee consists of six members: one employee, Diane
Armstrong; one employee director, Robert F. Baronner, Jr. (ex-officio); and four
independent directors, J. Scott Boyd, Guy Gareth Chicchirichi, John C. Skinner,
Jr. and Donald S. Smith. The independence definition attached as Exhibit B is
also applicable for personnel committee independent members. The committee
operates under the same charter as the company. 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 one meeting in 2007. 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 six members: Robert F. Baronner, Jr.,
John P. Burns, Jr., William R. Harner, John C. Skinner, Jr., David S. (Joe)
Smith 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
seven regular meetings in 2007.
The trust investment review committee, consisting of two trust officers,
David S. (Joe) Smith and Deborah A. Watts, and two directors, 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 12 meetings during 2007.
The merger and acquisition committee consists of five members: Robert F.
Baronner, Jr., Guy Gareth Chicchirichi, Barbara H. Pichot, John C. Skinner, Jr.
and Donald S. Smith. The committee shall have the authority to review and
recommend merger and acquisition transactions and investment transactions
proposed by management to the full Board of Potomac Bancshares, Inc. The
committee held two meetings in 2007.
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 2007.
The IT (Information Technology) committee consists of 19 members: Diane
Armstrong, Robert F. Baronner, Jr., Donna J. Burns, Clara Carroll, Margaret
Cogswell, Josh Householder, David W. Irvin, Gayle Marshall Johnson, Tim Lewis,
Cindy Light, Brent Milbourne, Susan S. Myers (ex-officio), Linda Sager, David S.
(Joe) Smith, Linda Stewart, Matt Stickel, Shawn Stotler, Bernadine Wean and Bob
Weddle. The committee’s responsibilities are to prioritize major IT projects,
establish IT policies and procedures, identify technology related opportunities,
and set IT standards that insure cost effective and efficient operations. This
committee held eleven meetings in 2007.
The SOX 404 steering committee consists of 10 members: Robert F.
Baronner, Jr., Donna J. Burns, David W. Irvin, Gayle Marshall Johnson, Tim
Lewis, Susan S. Myers, Barbara H. Pichot, David (Joe) Smith, Shawn Stotler and
Bernadine Wean. Additional non voting committee members attending on an as
needed basis are Tammy Frazier of Yount, Hyde & Barbour, P.C. and Gayla
Anderson of Bank of Charles Town. The SOX 404 steering committee is responsible
for assisting with and reviewing project goals and timelines, reviewing and
approving the mapping process of significant accounts, and reviewing SOX 404
documentation and testing materials to ensure that the bank will be in
compliance with Section 404 of the Sarbanes-Oxley act. This committee held no
meetings in 2007.
5
The nominating committee consists of five members: J. Scott Boyd, John P.
Burns, Guy Gareth Chicchirichi, Margaret Cogswell, and John C. Skinner, Jr. This
committee is made up of five board members whose responsibility is to recommend
candidates for positions on the Boards of Directors. This committee held two
meetings during 2007.
The board of directors of Potomac met for thirteen regular meetings in
2007. The board of directors of the bank held regular monthly meetings the
second Tuesday of each month in 2007. Special meetings are held from time to
time as required. During 2007, the bank board held 13 regular meetings. 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.
Audit Committee Report
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 as amended, 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 which is included as Exhibit A at the end of
this proxy statement.
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 years ending December 31, 2007 and 2006.
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2007
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2006
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Fees
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Percentage
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Fees
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Percentage
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Audit fees
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$
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44,300
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51.1%
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$
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42,400
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54.0%
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Audit-related
fees
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37,600
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43.3%
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31,515
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40.1%
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Tax fees
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4,860
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5.6%
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4,650
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5.9%
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$
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86,760
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100.0%
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$
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78,565
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100.0%
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A description of these fees is as follows:
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Audit fees: Audit and review services, consents, and review
of documents filed with SEC.
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Audit-related fees: Agreed-upon procedures related to the
Trust Department’s Regulation 9 examination, audit of the Bank’s pension plan
and consultation concerning financial accounting and reporting standards and
other related issues.
-
Tax fees: Preparation of federal and state tax returns and
consultation concerning tax compliance issues.
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, 2007, were pre-approved by the company’s
audit committee. For the fiscal year ended December 31, 2007, 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.
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Barbara H.
Pichot, Chairperson
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J. Scott
Boyd
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Guy Gareth
Chicchirichi
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Donald S.
Smith
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March 17, 2008
Management Nominees to the Board of
Potomac
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Served
As
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Family
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Director
|
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Relation-
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Year
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of
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ship
With
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in
Which
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Potomac
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Other
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Term
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Principal
Occupation or
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Nominees
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Age
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Since
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Nominees
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Expires
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Employment
Last Five Years
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Robert F. Baronner, Jr.
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49
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2001
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None
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2008
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Employed by bank as of 1/1/01 as President and Chief Executive
Officer.
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Guy Gareth Chicchirichi
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66
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1994
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None
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2008
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Executive Manager, Secretary/Treasurer, Guy’s
Buick-Pontiac-Oldsmobile-GMC Truck, Inc., Jefferson County, West Virginia;
charter member of Charles Town Rotary Club.
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Margaret Cogswell
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49
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2003
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None
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2008
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Executive Director, Hospice of the Panhandle, Berkeley, Hampshire,
Jefferson and Morgan Counties, West Virginia since
1986.
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The Board of Directors recommends that
shareholders vote “For” all of the nominees listed above.
7
Directors Continuing to Serve Unexpired Terms
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Served
As
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Family
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Director
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Relation-
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Year
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of
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ship
With
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in
Which
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Potomac
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Other
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Term
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Principal
Occupation or
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Directors
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Age
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Since
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Nominees
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Expires
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Employment
Last Five Years
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J. Scott Boyd
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51
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1999
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None
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2010
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Pharmacist, owner Jefferson Pharmacy, Inc., Jefferson County, West
Virginia since 1982; Pharmacist, owner JSB Enterprises, Inc. dba South
Berkeley Pharmacy, Berkeley County, West Virginia since 2006; President
and Chairman of Board of Directors of In Home Medications West Virginia,
Inc; President Mountain Spring Properties, LLC.
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John P. Burns, Jr.
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66
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1994
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None
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2010
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Owner/operator of a beef and grain farm in Jefferson County, West
Virginia; past President, Jefferson County Fair Association; Director,
Valley Farm Credit.
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William R. Harner
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67
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1994
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None
|
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2009
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Employed at bank 1967 to 2004; Senior Vice President and Cashier
1988 to 2004 (retired); Senior Vice President and Secretary of Potomac
1994 to 2004.
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Barbara H. Pichot
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60
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2004
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None
|
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2010
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Retired certified public accountant and partner in CoxHollida LLP,
a public accounting firm in Berkeley County, West Virginia, 1981—2006;
past President, Hospice of the Panhandle; past Chair Board of Governors,
Shepherd University.
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John C. Skinner, Jr.
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66
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1994
|
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None
|
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2009
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Retired Attorney, President and CEO of Nichols & Skinner, L.
C., Jefferson County, West Virginia; bank attorney since 1986; Potomac
attorney since 1994.
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Donald S. Smith
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79
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1994
|
|
None
|
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2009
|
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Employed at bank 1947 to 1991; President 1978 to 1991 (retired);
Vice President of Potomac since 1994.
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C. Larry Togans
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61
|
|
2004
|
|
None
|
|
2010
|
|
Retired Deputy, Branch of Human Resources, U. S. Geological Survey,
employed 1973 to 2001.
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Robert F. Baronner, Jr. is
the only management nominee or director who does not meet the NASDAQ definition
of independence as detailed in Exhibit B to this proxy statement. Mr. Baronner
is currently employed by the bank.
8
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. The information is furnished as of January 31, 2008, on which date
3,405,500 shares were outstanding.
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Aggregate
|
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Amount and Nature of
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Shares
Subject to a
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Percent
of
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Nominees
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of Beneficial Ownership
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Right to
Acquire **
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Common
Stock
|
|
Robert F. Baronner, Jr.
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PO Box 906
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18,934 shares
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D
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Charles Town WV 25414
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740 shares
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I
|
|
|
9,164
|
|
.5777
|
|
|
|
Guy Gareth Chicchirichi
|
|
|
|
|
|
|
|
|
|
139 Blakeley Place
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
25,870 shares
|
D
|
|
|
5,250
|
|
.7597
|
|
|
|
Margaret Cogswell
|
|
|
|
|
|
|
|
|
|
122 Waverly Court
|
|
|
|
|
|
|
|
|
|
Martinsburg WV 25403
|
|
5,656 shares
|
D
|
|
|
5,250
|
|
.1661
|
|
|
|
Non-Nominees
|
|
|
|
|
|
|
|
|
|
J. Scott Boyd
|
|
|
|
|
|
|
|
|
|
201 S Preston Street
|
|
7,494 shares
|
D
|
|
|
|
|
|
|
Ranson WV 25438
|
|
1,122 shares
|
I
|
|
|
5,250
|
|
.2530
|
|
|
|
John P. Burns, Jr.
|
|
|
|
|
|
|
|
|
|
1 Burns Farm Road
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
28,378 shares
|
D
|
|
|
5,250
|
|
.8333
|
|
|
|
William R. Harner
|
|
|
|
|
|
|
|
|
|
259 Fenway Drive
|
|
|
|
|
|
|
|
|
|
Charles Town WV
25414
|
|
13,818 shares
|
D
|
|
|
5,250
|
|
.4058
|
|
|
|
Barbara H. Pichot
|
|
|
|
|
|
|
|
|
|
12586 Leetown Road
|
|
|
|
|
|
|
|
|
|
Kearneysville, WV 25430
|
|
7,090 shares
|
D
|
|
|
3,892
|
|
.2082
|
|
|
|
John C. Skinner, Jr.
|
|
|
|
|
|
|
|
|
|
PO Box 487
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
28,584 shares
|
D
|
|
|
5,250
|
|
.8393
|
|
|
|
Donald S. Smith
|
|
|
|
|
|
|
|
|
|
419 S. Church Street
|
|
21,890 shares
|
D
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
18,360 shares
|
I
|
|
|
5,250
|
|
1.1819
|
|
|
|
C. Larry Togans
|
|
|
|
|
|
|
|
|
|
1486 Tuscawilla Drive
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
4,096 shares
|
D
|
|
|
3,892
|
|
.1203
|
9
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Amount and Nature of
|
|
Shares
Subject to a
|
|
Percent
of
|
|
|
Officers
(Non-Nominees)
|
|
of Beneficial Ownership
|
|
Right to
Acquire **
|
|
Common
Stock
|
|
|
David W.
Irvin
|
|
|
|
|
|
|
|
|
|
|
PO Box 906
|
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414
|
|
5,852 shares
|
D
|
|
|
4,692
|
|
.1718
|
|
|
|
|
|
Gayle Marshall Johnson
|
|
|
|
|
|
|
|
|
|
|
PO Box 906
|
|
|
|
|
|
|
|
|
|
|
Charles Town WV 25414-906
|
|
7,800 shares
|
D
|
|
|
4,692
|
|
.2290
|
|
|
|
|
|
All nominees, directors and
|
|
|
|
|
|
|
|
|
|
|
principal officers as a group
|
|
|
|
|
|
|
|
|
|
|
(14 persons)
|
|
195,684 shares
|
|
|
|
|
|
5.7461
|
|
|
D
|
|
Direct ownership
|
|
I
|
|
Indirect ownership
|
|
**
|
|
Consists of options exercisable within 60
days of January 31, 2008.
|
Although there is no formal written
policy, the company expects all directors to attend the annual meeting of
shareholders. Twelve directors attended the annual meeting held on April 24,
2007.
Executive Compensation
Potomac's officers did not receive
compensation as such during 2007. The Summary Compensation Table sets forth the
annual and long term compensation for services in all capacities to the bank for
the fiscal years ended December 31, 2007 and 2006 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 45,889 options granted in 2006 and 36,723 options granted in 2007
through the stock incentive plan.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive
Plan
|
|
Compensation
|
|
All
Other
|
|
|
|
Name
and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
|
Principal
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Robert F. Baronner, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and
|
|
2006
|
|
175,000
|
|
12,331
|
|
19,788
|
|
- -
|
|
20,812
|
|
15,770
|
|
243,701
|
|
Chief Executive
Officer
|
|
2007
|
|
190,000
|
|
2,484
|
|
15,040
|
|
- -
|
|
29,395
|
|
20,210
|
|
257,129
|
|
Gayle Marshall Johnson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President
|
|
2006
|
|
78,000
|
|
15,000
|
|
10,290
|
|
1,000
|
|
25,899
|
|
2,726
|
|
132,915
|
|
and Chief Financial
Officer
|
|
2007
|
|
81,500
|
|
8,500
|
|
7,670
|
|
- -
|
|
58,752
|
|
7,200
|
|
163,622
|
|
David W. Irvin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President
|
|
2006
|
|
100,000
|
|
10,466
|
|
10,290
|
|
41,937
|
|
10,503
|
|
4,233
|
|
177,429
|
|
and Senior
Lender
|
|
2007
|
|
106,000
|
|
1,260
|
|
7,670
|
|
50,707
|
|
18,836
|
|
3,957
|
|
188,430
|
Each officer receives option awards,
incentive and other compensation. Option awards are calculated by multiplying
the grant date fair value by the number of options granted. The grant date fair
value is calculated under the provisions set forth by FASB statement 123(R).
Non-equity incentive plan compensation is the incentives paid in cash as opposed
to stock options. The non-equity incentive paid to the Chief Financial Officer
was awarded for her recommendation of a new employee who was hired and remains
with the bank. The non-equity incentive paid to the Executive Vice President is
10% of the total fees collected on commercial loans. All other compensation is
the dollar value of certain benefits provided to each officer.
10
The all other compensation total for
each named executive officer can differ depending on their position. The CEO is
paid, as a director, for board of director meetings. Each named executive
officer is compensated in the form of matching contributions to their individual
401(k) plans and in the form of premiums paid for life insurance
policies.
During 2003, the Potomac board and
the shareholders adopted and approved the 2003 Stock Incentive Plan which
reserves 433,600 (183,600 original and 250,000 additional shares approved by
shareholders in 2007) shares of common stock that may be granted as incentive
stock options (“ISO”) and nonqualified or non-statutory stock options. There
were 45,889 shares granted in 2006 and 36,723 options granted in
2007.
The following table provides detail
of the outstanding stock options for each named executive officer. No options
have been exercised as of December 31, 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR END
|
|
Option Awards
|
|
|
Number of
|
Number of
|
|
|
|
|
Securities
Underlying
|
Securities
Underlying
|
Options
|
|
|
|
Unexercised Options
|
Unexercised Options
|
Exercise
|
Options
|
|
|
(#)
|
(#)
|
Price
|
Expiration
|
|
Name
|
Exercisable
|
Unexercisable
|
($)
|
Date
|
|
Robert F. Baronner,
Jr.
|
-
-
|
4,000
|
15.60
|
1/09/2017
|
|
|
1,020
|
4,080
|
17.25
|
1/10/2016
|
|
|
2,040
|
3,060
|
14.00
|
1/11/2015
|
|
|
2,448
|
1,632
|
11.28
|
2/10/2014
|
|
Gayle Marshall
Johnson
|
-
-
|
2,040
|
15.60
|
1/09/2017
|
|
|
530
|
2,122
|
17.25
|
1/10/2016
|
|
|
1,061
|
1,591
|
14.00
|
1/11/2015
|
|
|
1,224
|
816
|
11.28
|
2/10/2014
|
|
David W. Irvin
|
-
-
|
2,040
|
15.60
|
1/10/2017
|
|
|
530
|
2,122
|
17.25
|
1/10/2016
|
|
|
1,061
|
1,591
|
14.00
|
1/11/2015
|
|
|
1,224
|
816
|
11.28
|
2/10/2014
|
For each named
executive officer above, an additional 20% of options granted for each year
became exercisable on the anniversary of the grant dates in January and February
of 2008.
Stock options vest 20%
per year for a five year period. Fully vested options are eligible to be
exercised for a period of 10 years after the grant date. Exercisable options
represent 60% of the 2004 grant, 40% of the 2005 grant and 20% of the 2006 grant
for each named executive officer.
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 produces 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.
11
Compensation covered by the pension
plan is based upon total pay. Effective for plan years beginning in 2007,
Internal Revenue Code Section 401(a) (17) prohibits taking into account
compensation in excess of $225,000 in determining one’s pension benefit.
During 2002, the company established
a 401(k) profit sharing plan available initially to all full-time employees. In
2007 the plan was expanded to include part time 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. Part time employees are not eligible to receive matching contributions
under the current plan.
Personnel Committee Report on Executive
Compensation
The personnel committee is comprised
of six members: one employee, Diane Armstrong (Human Resources Director); one
employee director, Robert F. Baronner, Jr. (ex-officio); and four independent
directors, J. Scott Boyd, Guy Gareth Chicchirichi, 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 27, 2007 to review and
approve the bank's 2008 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 Bank of Clarke
County, First Bank and Marathon Bank. 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 2007 Mr. Baronner had the
opportunity to earn up to 22% of his base salary in bonus. This incentive
program is based entirely on the following performance factors: earnings per
share, return on equity, return on assets, average price per share, loan growth,
deposit growth, efficiency ratio, credit quality and the growth of income of BCT
Investments and the Trust Department. During 2007, Mr. Baronner earned $2,484
out of a possible bonus of $41,800.
In 2001 Potomac and the bank entered
into a written 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.
12
|
|
This report is
submitted by:
|
|
|
|
|
|
Robert F. Baronner, Jr. (ex-officio)
J.
Scott Boyd
Guy Gareth Chicchirichi
John C. Skinner, Jr.
Donald
S. Smith
|
March 17, 2008
Employment Agreement
Potomac and the bank have a written
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
automatic 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 $190,000 for 2008. 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.
Compensation of Directors
Directors of Potomac were not
compensated for their services as directors for 2007. Directors of the bank were
compensated at the rate of $850 for each regular and each special board meeting
attended in January through April in 2007 and $900 for each regular and each
special board meeting attended in May through December in 2007. Directors were
additionally compensated $100 for each committee meeting attended in January
through April of 2007 and $110 for each committee meeting attended in May
through December 2007. Directors that serve on the audit committee were
compensated $200 for each audit committee meeting attended between January and
April of 2007 and $220 for audit committee meetings attended in May through
December of 2007. The audit committee member that is deemed the financial expert
was compensated $300 dollars for each meeting attended from January through
April and $330 per meeting attended from May through December of 2007. Directors
who are operating officers of the bank are not compensated for committee
meetings attended.
DIRECTOR COMPENSATION
|
|
Fees Earned or
|
|
All Other
|
|
|
|
Paid in
Cash
|
Option
Awards
|
Compensation
|
Total
|
|
Name
|
($)
|
($)
|
($)
|
($)
|
|
J. Scott
Boyd
|
12,950
|
4,185
|
- -
|
17,135
|
|
John P. Burns,
Jr.
|
11,680
|
4,185
|
- -
|
15,865
|
|
Guy Gareth
Chicchirichi
|
13,060
|
4,185
|
- -
|
17,245
|
|
Margaret
Cogswell
|
11,980
|
4,185
|
- -
|
16,165
|
|
William R.
Harner
|
13,500
|
4,185
|
- -
|
17,685
|
|
Barbara H.
Pichot
|
13,350
|
4,185
|
- -
|
17,535
|
|
Johns C. Skinner,
Jr.
|
12,690
|
4,185
|
- -
|
16,875
|
|
Donald S.
Smith
|
12,930
|
4,185
|
- -
|
17,115
|
|
C. Larry
Togans
|
13,400
|
4,185
|
- -
|
17,585
|
13
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.
The company does not have a policy
on related transactions. As stated in the previous paragraph, transactions with
directors are on the same terms and require the same documentation as those
transactions with unaffiliated persons. These transactions are voted on by the
Board of Directors with the particular director absent for the discussion and
voting. The transactions and voting are recorded in the minutes. These
transactions are designated so the information is accessible as needed for
reporting purposes.
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 2007 and will perform similar services in
2008. 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 2007 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 and John P. Burns,
Jr., directors of the bank and Potomac, have been indebted to the bank during
2007 in excess of $120,000. 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 2008. 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 or she 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. Because a majority of the votes cast will be sufficient for
the ratification of the appointment of Yount, Hyde & Barbour, P. C., neither
broker non-votes nor abstentions will affect the outcome of the proposal. Any
shares held in street name that are not voted (“broker non-votes”) will not be
included in determining the number of votes cast.
The Audit Committee and the
Board of Directors unanimously recommend that shareholders vote “For” such
ratification.
FORM 10-K ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
Upon written request by any
shareholder to Gayle Marshall Johnson, Sr. 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 2007 Annual Report
on Form 10-K will be provided without charge.
14
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, 2007, all Section 16(a) filing requirements applicable to its
officers, directors and persons owning more than ten percent were complied with
except as described herewith. Director Guy Gareth Chicchirichi filed late for
two transactions in 2006. Forms 4’s for Director Chicchirichi were filed in May
and December of 2006 for these two transactions.
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 COMMUNICATIONS WITH THE
BOARD
Any shareholder desiring to contact
the Board of Directors or any individual director serving on the Board may do so
by written communication mailed to: Board of Directors, Attention: (name of
director(s), as applicable), c/o Corporate Secretary Gayle Marshall Johnson,
Potomac Bancshares, Inc., PO Box 906, Charles Town WV 25414. Any proper
communication so received will be processed by the Corporate Secretary as agent
for the Board. Unless, in the judgment of the Corporate Secretary, the matter is
not intended or appropriate for the Board (and subject to any applicable
regulatory requirements), the Corporate Secretary will prepare a summary of the
communication for prompt delivery to each member of the Board or, as
appropriate, to the member(s) of the Board named in the communication. Any
director may request the Corporate Secretary to produce for his or her review
the original of the shareholder communication.
SHAREHOLDER PROPOSALS FOR 2008
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 and Chief Executive Officer of
Potomac, at its executive offices, no later than November 21, 2008, to have it
considered for inclusion in the proxy statement of the annual meeting in 2009.
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Robert F.
Baronner, Jr.
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President and
Chief Executive Officer
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Charles Town,
West Virginia
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March 31,
2008
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15
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