1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
XX Quarterly report under Section 13 or 15(d) of the Securities Exchange
----
Act of 1934
For quarterly period ended March 31, 2001
------------------------
________ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to _____________
Commission file number 0-24958
Potomac Bancshares, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
West Virginia 55-0732247
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
111 East Washington Street, Charles Town WV 25414-1071
(Address of Principal Executive Offices) (Zip Code)
304-725-8431
(Issuer's Telephone Number, Including Area Code)
NO CHANGE
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XXX No ___________
-----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes_______________ No_______________ Not applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 600,000 shares
--------------
Transitional Small Business Disclosure Format (check one):
Yes_______________ No XXX
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POTOMAC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
(Unaudited)
March 31 December 31
2001 2000
----------- -----------
Assets:
Cash and due from banks $ 7 357 $ 6 053
Securities purchased under agreements to resell
and federal funds sold 16 316 17 366
Securities held to maturity (fair value of $12,330 at
March 31, 2001 and $18,105 at December 31, 2000 11 937 17 928
Securities available for sale, at fair value 24 451 18 162
Loans, net of allowance for loan losses of $1,279 at
March 31, 2001 and $1,268 at December 31, 2000 87 341 83 179
Other real estate owned -- 13
Bank premises and equipment, net 3 175 3 177
Accrued interest receivable 1 033 1 051
Other assets 1 329 1 293
----------- ------------
Total Assets $ 152 939 $ 148 222
=========== ============
Liabilities and Stockholders' Equity:
Liabilities:
Non-interest bearing deposits $ 17 605 $ 19 423
Interest bearing deposits 115 327 109 522
----------- ------------
Total Deposits 132 932 128 945
Accrued interest payable 284 303
Other liabilities 1 251 1 010
----------- ------------
Total Liabilities $ 134 467 $ 130 258
----------- ------------
Stockholders' Equity:
Common stock par value $1.00 per share (5,000,000 shares
authorized, 600,000 shares issued and outstanding) $ 600 $ 600
Surplus 5 400 5 400
Accumulated other comprehensive income (loss) 92 (44)
Undivided profits 12 380 12 008
----------- ------------
Total Stockholders' Equity 18 472 17 964
----------- ------------
Total Liabilities and Stockholders' Equity $ 152 939 $ 148 222
=========== ============
See Accompanying Notes to Consolidated Financial Statements
3
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except for per share data)
(Unaudited)
For the Three Months
Ended March 31
----------------------------
2001 2000
---------- ----------
Interest Income:
Interest and fees on loans $ 1 879 $ 1 665
Interest on securities held to maturity
Taxable 253 279
Interest on securities available for sale
Taxable 266 404
Interest on securities purchased under agreements
to resell and federal funds sold 190 139
Income on other securities 8 8
Other interest income 2 1
---------- ----------
Total Interest and Dividend Income $ 2 598 $ 2 496
Interest Expense,
interest on deposits 989 975
---------- ----------
Net Interest Income $ 1 609 $ 1 521
Provision for Loan Losses 21 --
---------- ----------
Net Interest Income after
Provision for Loan Losses $ 1 588 $ 1 521
---------- ----------
Noninterest Income:
Commissions and fees from fiduciary activities $ 125 $ 127
Service charges on deposit accounts 96 77
Fees for other customer services 39 32
Other operating income 6 26
---------- ----------
Total Other Income $ 266 $ 262
---------- ----------
Noninterest Expenses:
Salaries and employee benefits $ 780 $ 728
Net occupancy expense of premises 65 60
Furniture and equipment expenses 93 93
Other operating expenses 336 276
---------- ----------
Total Other Expenses $ 1 274 $ 1 157
---------- ----------
Income before Income Tax Expense $ 580 $ 626
Income Tax Expense 208 233
---------- ----------
Net Income $ 372 $ 393
========== ==========
Earnings Per Share, basic and diluted $ .62 $ .65
========== ==========
See Accompanying Notes to Consolidated Financial Statements
4
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(000 Omitted)
(Unaudited)
Accumulated
Other
Common Undivided Comprehensive Comprehensive
Stock Surplus Profits Income Income Total
-------- -------- --------- ------------- ------------- --------
Balances, December 31, 1999 $ 600 $ 5 400 $ 10 944 $ (256) $ 16 688
Comprehensive income
Net income -- -- 393 -- $ 393 393
Other comprehensive income,
unrealized holding losses
arising during the period
(net of tax, $13) -- -- -- (25) (25) (25)
--------
Comprehensive income $ 368
========
-------- -------- -------- -------- --------
Balances, March 31, 2000 $ 600 $ 5 400 $ 11 337 $ (281) $ 17 056
======== ======== ======== ======== ========
Balances, December 31, 2000 $ 600 $ 5 400 $ 12 008 $ (44) $ 17 964
Comprehensive income
Net income -- -- 372 -- $ 372 372
Other comprehensive income,
unrealized holding gains
arising during the period
(net of tax, $70) -- -- -- 136 136 136
--------
Comprehensive income $ 508
========
-------- -------- -------- -------- --------
Balances, March 31, 2001 $ 600 $ 5 400 $ 12 380 $ 92 $ 18 472
======== ======== ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements
5
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
(Unaudited)
For the Three Months Ended
---------------------------------
March 31 March 31
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 372 $ 393
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 21 --
Depreciation 60 51
Discount accretion and premium amortization on securities, net (12) (7)
(Gain) loss on sale of real estate 5 (19)
(Gain) on sale of equipment -- (1)
Decrease (increase) in accrued interest receivable 18 (18)
(Increase) in other assets (106) (124)
(Decrease) in accrued interest payable (19) (16)
Increase in other liabilities 241 234
---------- ----------
Net cash provided by operating activities $ 580 $ 493
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities held to maturity $ 6 000 $ 2 000
Proceeds from maturity of securities available for sale -- --
Purchase of securities held to maturity -- (7 898)
Purchase of securities available for sale (6 080) --
Net (increase) in loans (4 183) (611)
Purchases of bank premises and equipment (58) (500)
Proceeds from sale of real estate 8 95
---------- ----------
Net cash (used in) investing activities $ (4 313) $ (6 914)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing deposits $ (1 818) $ 759
Net increase in interest bearing deposits 5 805 1 365
---------- ----------
Net cash provided by financing activities $ 3 987 $ 2 124
---------- ----------
Increase (decrease) in cash and cash equivalents $ 254 $ (4 297)
CASH AND CASH EQUIVALENTS
Beginning 23 419 21 054
---------- ----------
Ending $ 23 673 $ 16 757
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1 008 $ 991
========== ==========
Income taxes $ 9 $ 17
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ -- $ --
========== ==========
Loans made on sale of real estate $ -- $ --
========== ==========
Unrealized gain (loss) on securities available for sale $ 206 $ (37)
========== ==========
See Accompanying Notes to Consolidated Financial Statements
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POTOMAC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 (UNAUDITED) AND DECEMBER 31, 2000
1. In the opinion of management, the accompanying financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 2001, and December
31, 2000, and the results of operations and cash flows for the three months
ended March 31, 2001 and 2000. The statements 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, 2000. The
results of operations for the three month periods ended March 31, 2001 and
2000, are not necessarily indicative of the results to be expected for the
full year.
2. Securities held to maturity as of March 31, 2001 and December 31, 2000 are
summarized below:
(000 Omitted)
March 31, 2001
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- ---------
Securities held to maturity:
Obligations of U.S. Government
agencies $ 11 937 $ 393 $ -- $ 12 330
========= ========== ========== =========
(000 Omitted)
March 31, 2000
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- ---------
Securities held to maturity:
Obligations of U.S. Government
agencies $ 17 928 $ 187 $ (10) $ 18 105
========= ========== ========== =========
Securities available for sale as of March 31, 2001 and December 31, 2000
are summarized below:
(000 Omitted)
March 31, 2001
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- ---------
Securities available for sale:
Obligations of U.S. Government
agencies $ 24 312 $ 139 $ -- $ 24 451
========= ========== ========== =========
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(000 Omitted)
March 31, 2000
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- ---------
Securities available for sale:
Obligations of U.S. Government
agencies $ 18 229 $ 15 $ (82) $ 18 162
========= ========== ========== =========
3. The consolidated loan portfolio, stated at face amount, is composed of the
following:
(000 Omitted)
March 31 December 31
2001 2000
---------- -----------
Real estate loans:
Construction and land development $ -- $ 14
Secured by farmland 2 629 2 763
Secured by 1-4 family residential 45 455 45 056
Other real estate loans 15 324 12 150
Loans to farmers (except those secured by real estate) 95 209
Commercial and industrial loans (except those secured
by real estate) 2 182 2 027
Loans to individuals for personal expenditures 22 748 22 023
All other loans 187 205
---------- ----------
$ 88 620 $ 84 447
Less: Allowance for loan losses 1 279 1 268
---------- ----------
Total loans $ 87 341 $ 83 179
========== ==========
4. The following is a summary of transactions in the allowance for loan
losses:
(000 Omitted)
March 31 December 31
2001 2000
---------- -----------
Balance at beginning of period $ 1 268 $ 1 218
Provision charged (credited) to operating expense 21 (70)
Recoveries added to the allowance 9 226
Loan losses charged to the allowance (19) (106)
---------- ----------
Balance at end of period $ 1 279 $ 1 268
========== ==========
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5. Information about impaired loans as of March 31, 2001 and December 31, 2000
is as follows:
(000 Omitted)
---------------------------------
March 31 December 31
2001 2000
-------- -----------
Impaired loans for which an allowance has been provided $ 46 $ 725
Impaired loans for which no allowance has been provided -- --
-------- --------
Total impaired loans $ 46 $ 725
======== ========
Allowance provided for impaired loans, included in the
allowance for loan losses $ 14 $ 218
======== ========
Average balance in impaired loans $ 193 $ 239
======== ========
Interest income recognized $ 1 $ 18
======== ========
Nonaccrual loans excluded from impaired loan disclosures under FASB 114
amounted to $33,092 at March 31, 2001 and $-0- at December 31, 2000. If
interest on these loans had been accrued, such income would have been $477
for the first three months of 2001 and $-0- in 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Between December 31, 2000 and March 31, 2001, total assets have increased
$4,700,000. Investment volume overall has remained relatively stable. There has
been a shift from the held to maturity investment portfolio to the available for
sale portfolio to increase liquidity. Loans have increased $4,200,000 since
December 31. Approximately $3,200,000 are in the other real estate loans
category and are commercial purpose loans.
Management goals for 2001 are to continue increasing loans and deposits while
maintaining held to maturity and available for sale securities stable. Daily
investments in repurchase agreements are anticipated to decrease with increased
loan demand. In order to accomplish increased loan goals, two additional loan
officers have been added to the staff during the first quarter. One officer is
concentrating primarily in commercial lending, an area the Bank has not actively
pursued previously. The commercial lending focus will be to small businesses.
Although commercial lending inherently carries more risk, management does not
intend to compromise it's current stringent underwriting standards. In fact,
underwriting standards for small business loans are being enhanced. The second
additional loan officer will concentrate, but not necessarily be limited to,
secondary market lending, which will not add to the Bank's loan portfolio but
will service our customers and increase noninterest income.
The March 31 annualized return on average assets is 1.01% compared to 1.25% at
December 31. At March 31 the annualized return on average equity is 8.17%
compared to 10.46% at December 31. The leverage capital (equity to assets) ratio
is 12.08% at March 31 compared to 12.32% at December 31.
The table on the next page is an analysis of the Corporation's allowance for
loan losses. Net charge-offs for the Corporation have been very low when
compared with the size of the total loan portfolio. Management monitors the loan
portfolio on a continual basis with procedures that allow for problem loans and
potentially problem loans to be highlighted and watched. Written reports
detailing this loan information are prepared on a quarterly basis. Based on
experience, the loan policies and the current monitoring program, management
believes the loan loss allowance is very adequate.
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(000 Omitted)
March 31, 2001
--------------
Balance at beginning of period $ 1 268
Charge-offs:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage 2
Consumer 17
-------
Total charge-offs 19
-------
Recoveries:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage --
Consumer 9
-------
Total recoveries 9
-------
Net charge-offs 10
Additions charged to operations 21
-------
Balance at end of period $ 1 279
=======
Ratio of net charge-offs during the period to average
loans outstanding during the period .0116%
======
Loans are placed on nonaccrual status when a loan is specifically determined to
be impaired or when principal or interest is delinquent for 90 days or more.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received. Following
is a table showing the risk elements in the loan portfolio.
(000 Omitted)
March 31, 2001
--------------
Nonaccrual loans $ 67
Restructured loans --
Foreclosed properties --
-------
Total nonperforming assets $ 67
=======
Loans past due 90 days accruing interest $ 27
=======
Allowance for loan losses to period end loans 1.44%
=======
Nonperforming assets to period end loans and foreclosed properties .076%
=======
At March 31, 2001, other potential problem loans (excluding impaired loans)
totalled $84,494. Loans are viewed as potential problem loans according to the
ability of such borrowers to comply with current repayment terms. These loans
are subject to constant management attention, and their status is reviewed on a
regular basis. Management has allocated a portion of the allowance for these
loans according to the review of the potential loss in each loan situation.
Total deposits have increased approximately $4,000,000 as of March 31, 2001
compared with December 31, 2000. Demand deposits decreased $1,800,000. There are
increases in the following deposit categories: NOW (including Select checking),
$2,200,000; money market accounts, $2,100,000; savings accounts, $700,000 and
certificates of deposit, $800,000.
The comparison of the income statements for the three months ended March 31,
2001 and 2000 shows a decrease of 5% in net income in 2001. Net interest income
increased nearly 6%, interest income increased 4%, and interest expense
increased over 1%.
10
Increased loan production, additional fee income in the loan area, closer
scrutiny of all expenses, and close monitoring of deposit interest rates are
among the steps management is taking to stabilize the net income level.
Noninterest income increased over 1% as of March 31, 2001 compared to March 31,
2000. Noninterest expense increased 10%. This included a 7% increase in salaries
in 2001 compared to 2000 and some nonrecurring expenses.
Liquid assets of the Corporation include cash and due from banks, securities
purchased under agreements to resell, securities available for sale, and loans
and investments maturing within one year. The Corporation's statement of cash
flows details this liquidity. Net income after certain adjustments for noncash
transactions provided cash from operating activities. Funds from maturity of
securities held to maturity and cash on hand were used to fund investing
activities. Financing activities provided funds since total deposits increased.
Cash and cash equivalents increased slightly during this period, and liquidity
of the Corporation is more than adequate to meet present and future financial
obligations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material legal proceedings to which the Registrant or its
subsidiary, directors or officers is a party or by which they, or any of them,
are threatened. All legal proceedings presently pending or threatened against
Potomac Bancshares, Inc. and its subsidiary involve routine litigation
incidental to the business of the Company or the subsidiary and are either not
material in respect to the amount in controversy or fully covered by insurance.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession.
Not applicable
4. Instruments defining the rights of security holders, including
indentures.
Not applicable
10. Material contracts.
Not applicable
11. Statement re: computation of per share earnings.
Not applicable
15. Letter on unaudited interim financial information.
Not applicable
18. Letter on change in accounting principles.
Not applicable
19. Reports furnished to security holders.
Not applicable
22. Published report regarding matters submitted to vote of security
holders.
Not applicable
23. Consent of experts and counsel.
Not applicable
24. Power of attorney.
Not applicable
99. Additional exhibits.
Not applicable
(b) Reports on Form 8-K:
NONE
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
POTOMAC BANCSHARES, INC.
Date May 9, 2001 /s/ Robert F. Baronner, Jr.
----------------------- ---------------------------
Robert F. Baronner, Jr., President & CEO
Date May 9, 2001 /s/ L. Gayle Marshall Johnson
---------------------- -----------------------------
L. Gayle Marshall Johnson, Vice
President and Chief Financial Officer