UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) August 4, 2009
Potomac Bancshares, Inc.
(Exact Name of Registrant as Specified in Charter)
West Virginia
(State of Other Jurisdiction of Incorporation)
0-24958
(Commission File Number)
55-0732247
(IRS Employer Identification No.)
111 E. Washington St., PO Box 906, Charles Town WV 25414-0906
(Address of Principal Executive Offices) (Zip Code)
304-725-8431
Registrant’s telephone number, including area code
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 – Financial Information
| Item 2.02. | Results of Operations and Financial Condition. |
For Immediate Release August 4, 2009
Robert F. Baronner Jr., President and CEO of Potomac Bancshares Inc., announced the following unaudited results for the second quarter of 2009.
For the quarter ended June 30, 2009, Potomac Bancshares Inc. had a loss of 16 cents per share compared to earnings for the quarter ended June 30, 2008 of 30 cents per share. The loss for this quarter is due to an increase in the loan loss reserve of $1.560 million during the period. Year-to-date some $3.137 million has been added to the loan loss reserve. As a community bank, Bank of Charles Town makes an effort to work with its loan customers that are having problems due to the slow economy. Unfortunately, some loan customers have simply not been able to recover from the current economic challenges they face to include job losses, reductions in cash flow, and unprecedented declines in both real estate values and sales activity. Unfortunately, at times our only alternative is to liquidate the collateral that secures some of these loans showing stress. In conjunction with liquidation, we use the loan loss reserve to write down the value of a property to its current fair market value. Our largest market, Jefferson County, West Virginia, has been especially hard hit in the current real estate recession with values declining nearly 40% during the last several years. Our objective, once we take control of a property, is to promptly sell it and convert that cash into an earning asset as soon as practical.
Our opinion is that the economy is not out of the woods yet; however, many of the larger under performing credits on our books have either been liquidated and or reserved for properly at the current value of the underlying collateral. As of this writing we believe our performance in the second half of 2009 will see some improvement. Early evidence of an improving economy includes a stabilization of real estate values in nearby Northern Virginia. Our area historically lags behind Northern Virginia six to nine months so we are optimistic that the tide may turn in early 2010.
The true strength of a banking franchise to survive a downturn like this is its capitalization which we have maintained at very strong levels (as of June 30, 2009) as evidenced below:
| Actual | Minimum Capital Requirement |
Excess Over Minimum Capital Requirement | |||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | |||||||||||
| Total Capital (to risk weighted assets) |
$ | 30,933 | 13.16 | % | $ | 18,808 | 8.00 | % | $ | 12,125 | |||||
| Tier 1 Capital (to risk weighted assets) |
$ | 27,983 | 11.90 | % | $ | 9,404 | 4.00 | % | $ | 18,579 | |||||
| Tier 1 Capital (to average assets) |
$ | 27,983 | 9.08 | % | $ | 12,322 | 4.00 | % | $ | 15,661 | |||||
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As you can see your company’s capital ratios are strong and well above regulatory minimums. However, given the uncertainty of what may lie ahead for the economy and a special one time assessment for all banks by the FDIC to occur in September, your Board has decided to reduce the dividend for the first time in 26 consecutive quarters. This decision was not made lightly as the Board recognizes how important the cash dividend is to shareholders; but again given the uncertainty of the markets, we think it is prudent to maintain as much capital as possible during these turbulent times. Accordingly, the dividend to be paid will be 3 cents per share to all shareholders of record as of August 15, 2009. This dividend will be payable on September 1, 2009. This represents a reduction from the second quarter dividend of 11.75 cents. We expect the reduction in the dividend is only temporary and when we see definite signs the economy and the earnings of your company are reversing to sustainable levels, the Board will reassess the appropriate level of the dividend based on those increased results.
The statements below should be read in conjunction with Notes to Consolidated Financial Statements included in the Potomac Bancshares, Inc. annual report for the year ended December 31, 2008.
POTOMAC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| (Unaudited) June 30 2009 |
December 31 2008 |
|||||||
| Assets: |
||||||||
| Cash and due from banks |
$ | 4,947 | $ | 3,754 | ||||
| Interest-bearing deposits in other financial institutions |
181 | 1,282 | ||||||
| Federal funds sold |
— | 3,313 | ||||||
| Securities available for sale, at fair value |
38,229 | 27,478 | ||||||
| Loans held for sale |
1,000 | 329 | ||||||
| Loans, net of allowance for loan losses of $3,819 and $4,079, respectively |
233,122 | 242,375 | ||||||
| Premises and equipment, net |
8,764 | 8,015 | ||||||
| Other real estate owned |
5,566 | 1,644 | ||||||
| Accrued interest receivable |
999 | 1,108 | ||||||
| Federal Home Loan Bank of Pittsburgh stock |
737 | 725 | ||||||
| CFSI stock |
— | 117 | ||||||
| Other assets |
10,538 | 10,241 | ||||||
| Total Assets |
$ | 304,083 | $ | 300,381 | ||||
| Liabilities and Stockholders’ Equity: |
||||||||
| Liabilities: |
||||||||
| Deposits |
||||||||
| Noninterest-bearing |
$ | 27,667 | $ | 25,469 | ||||
| Interest-bearing |
232,947 | 228,619 | ||||||
| Total Deposits |
260,614 | 254,088 | ||||||
| Securities sold under agreements to repurchase and federal funds purchased |
9,855 | 8,352 | ||||||
| Federal Home Loan Bank advances |
4,321 | 4,776 | ||||||
| Accrued interest payable |
474 | 481 | ||||||
| Other liabilities |
2,903 | 4,880 | ||||||
| Total Liabilities |
$ | 278,167 | $ | 272,577 | ||||
| Stockholders’ Equity: |
||||||||
| Common stock, $1 per share par value; 5,000,000 shares authorized; 3,671,691 shares issued |
$ | 3,672 | $ | 3,672 | ||||
| Surplus |
3,875 | 3,851 | ||||||
| Undivided profits |
23,302 | 25,070 | ||||||
| Accumulated other comprehensive (loss), net |
(2,067 | ) | (1,952 | ) | ||||
| $ | 28,782 | $ | 30,641 | |||||
| Less cost of shares acquired for the treasury, 2009, 281,513 shares; 2008, 278,086 shares |
2,866 | 2,837 | ||||||
| Total Stockholders’ Equity |
$ | 25,916 | $ | 27,804 | ||||
| Total Liabilities and Stockholders’ Equity |
$ | 304,083 | $ | 300,381 | ||||
See Notes to Consolidated Financial Statements.
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POTOMAC BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(Unaudited)
| For the Three Months Ended June 30 |
For the Six Months Ended June 30 | |||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||
| Interest and Dividend Income: |
||||||||||||||
| Interest and fees on loans |
$ | 3,509 | $ | 3,818 | $ | 7,031 | $ | 7,891 | ||||||
| Interest on securities available for sale – taxable |
254 | 380 | 497 | 791 | ||||||||||
| Interest on securities available for sale – nontaxable |
37 | 28 | 71 | 55 | ||||||||||
| Interest on federal funds sold |
1 | 70 | 3 | 198 | ||||||||||
| Other interest and dividends |
4 | 22 | 13 | 54 | ||||||||||
| Total Interest and Dividend Income |
$ | 3,805 | $ | 4,318 | $ | 7,615 | $ | 8,989 | ||||||
| Interest Expense: |
||||||||||||||
| Interest on deposits |
$ | 1,210 | $ | 1,581 | $ | 2,503 | $ | 3,408 | ||||||
| Interest on securities sold under agreements to repurchase and federal funds purchased |
38 | 61 | 76 | 139 | ||||||||||
| Federal Home Loan Bank advances |
52 | 2 | 106 | 4 | ||||||||||
| Total Interest Expense |
$ | 1,300 | $ | 1,644 | $ | 2,685 | $ | 3,551 | ||||||
| Net Interest Income |
$ | 2,505 | $ | 2,674 | $ | 4,930 | $ | 5,438 | ||||||
| Provision for Loan Losses |
1,560 | 276 | 3,137 | 429 | ||||||||||
| Net Interest Income after Provision for Loan Losses |
$ | 945 | $ | 2,398 | $ | 1,793 | $ | 5,009 | ||||||
| Noninterest Income: |
||||||||||||||
| Trust and financial services |
$ | 189 | $ | 200 | $ | 364 | $ | 445 | ||||||
| Service charges on deposit accounts |
539 | 608 | 1,034 | 1,168 | ||||||||||
| Fee income on secondary market loans |
56 | 26 | 108 | 54 | ||||||||||
| Visa/MC Fees |
140 | 136 | 267 | 261 | ||||||||||
| Cash surrender value of life insurance |
60 | 62 | 118 | 123 | ||||||||||
| Miscellaneous income |
3 | 242 | 3 | 242 | ||||||||||
| Other operating income |
60 | 60 | 175 | 91 | ||||||||||
| Total Noninterest Income |
$ | 1,047 | $ | 1,334 | $ | 2,069 | $ | 2,384 | ||||||
| Noninterest Expenses: |
||||||||||||||
| Salaries and employee benefits |
$ | 1,293 | $ | 1,201 | $ | 2,544 | $ | 2,520 | ||||||
| Net occupancy expense of premises |
141 | 127 | 273 | 274 | ||||||||||
| Furniture and equipment expenses |
247 | 238 | 467 | 457 | ||||||||||
| Advertising and marketing |
35 | 52 | 85 | 123 | ||||||||||
| Impairment loss on CFSI stock |
— | — | 117 | — | ||||||||||
| FDIC assessment |
52 | 10 | 96 | 14 | ||||||||||
| Printing, stationery and supplies |
45 | 53 | 120 | 100 | ||||||||||
| ATM and check card expenses |
89 | 70 | 184 | 144 | ||||||||||
| Foreclosed property expense |
539 | 26 | 718 | 26 | ||||||||||
| Other operating expenses |
555 | 460 | 1,018 | 862 | ||||||||||
| Total Noninterest Expenses |
$ | 2,996 | $ | 2,237 | $ | 5,622 | $ | 4,520 | ||||||
| (Loss) Income before Income Tax Expense |
$ | (1,004 | ) | $ | 1,495 | $ | (1,760 | ) | $ | 2,873 | ||||
| Income Tax (Benefit) Expense |
(451 | ) | 472 | (789 | ) | 959 | ||||||||
| Net (Loss) Income |
$ | (553 | ) | $ | 1,023 | $ | (971 | ) | $ | 1,914 | ||||
| (Loss) Earnings Per Share, basic |
$ | (.16 | ) | $ | .30 | $ | (.29 | ) | $ | .56 | ||||
| (Loss) Earnings Per Share, diluted |
$ | (.16 | ) | $ | .30 | $ | (.29 | ) | $ | .56 | ||||
See Notes to Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| POTOMAC BANCSHARES, INC. |
| /s/ Robert F. Baronner, Jr. |
| Robert F. Baronner, Jr., President and CEO August 4, 2009 |
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