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 June 30, 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
--- ---
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POTOMAC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
(Unaudited)
June 30 December 31
2001 2000
----------- -----------
Assets:
Cash and due from banks $ 9,028 $ 6,053
Securities purchased under agreements to resell
and federal funds sold 4,307 $ 17,366
Securities held to maturity (fair value of $21,462 at
June 30, 2001 and $18,105 at December 31, 2000) 20,977 17,928
Securities available for sale, at fair value 21,531 18,162
Loans held for sale 209 --
Loans, net of allowance for loan losses of $1,265 at
June 30, 2001 and $1,268 at December 31, 2000 92,501 83,179
Other real estate owned -- 13
Bank premises and equipment, net 3,291 3,177
Accrued interest receivable 1,103 1,051
Other assets 1,321 1,293
-------- --------
Total Assets $154,268 $148,222
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Noninterest bearing deposits $ 18,354 $ 19,423
Interest bearing deposits 112,772 109,522
-------- --------
Total Deposits 131,126 128,945
Accrued interest payable 278 303
Federal funds purchased and securities sold
under agreements to repurchase 536 --
Advances payable to Federal Home Loan Bank 2,500 --
Other liabilities 1,131 1,010
-------- --------
Total Liabilities $135,571 $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) 147 (44)
Undivided profits 12,550 12,008
-------- --------
Total Stockholders' Equity 18,697 17,964
-------- --------
Total Liabilities and Stockholders' Equity $154,268 $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 For the Six Months
Ended June 30 Ended June 30
-------------------- ------------------
2001 2000 2001 2000
------ ------ ------ ------
Interest Income:
Interest and fees on loans $2,026 $1,747 $3,905 $3,412
Interest on securities held to maturity - Taxable 282 367 535 647
Interest on securities available for sale - Taxable 301 346 567 750
Interest on securities purchased under agreements
to resell and federal funds sold 101 111 291 250
Income on other securities 8 7 16 15
Other interest income 2 -- 4 --
------ ------ ------ ------
Total Interest Income $2,720 $2,578 $5,318 $5,074
Interest Expense:
Interest on deposits 956 985 1,945 1,960
Interest on federal funds purchased and securities
purchased under agreements to resell 3 -- 3 --
------ ------ ------ ------
Total Interest Expense 959 985 1,948 1,960
Net Interest Income $1,761 $1,593 $3,370 $3,114
Provision for Loan Losses 19 50 40 50
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses $1,742 $1,543 $3,330 $3,064
------ ------ ------ ------
Noninterest Income:
Commissions and fees from fiduciary activities $ 134 $ 146 $ 259 $ 273
Service charges on deposit accounts 100 97 196 174
Net servicing fees 1 1 1 1
Insurance commissions and fees 22 9 29 15
Other noninterest income 52 39 90 74
Gain on sale of equipment -- 1 -- 1
Gain on sale of other real estate (net) -- 11 -- 28
------ ------ ------ ------
Total Noninterest Income $ 309 $ 304 $ 575 $ 566
------ ------ ------ ------
Noninterest Expenses:
Salaries and employee benefits $ 735 $ 714 $1,515 $1,442
Net occupancy expense of premises 68 53 133 113
Furniture and equipment expenses 106 92 199 185
Other operating expenses 353 281 689 557
------ ------ ------ ------
Total Noninterest Expenses $1,262 $1,140 $2,536 $2,297
------ ------ ------ ------
Income before Income Tax Expense $ 789 $ 707 $1,369 $1,333
Income Tax Expense 289 255 497 488
------ ------ ------ ------
Net Income $ 500 $ 452 $ 872 $ 845
====== ====== ====== ======
Earnings Per Share, basic and diluted $ .83 $ .75 $ 1.45 $ 1.41
====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements
4
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(000 Omitted)
(Unaudited)
Accumulated
Other
Common Capital Undivided Comprehensive Comprehensive
Stock Surplus Profits Income (Loss) Income Total
------ ------- --------- ------------- ------------- -----
Balances, December 31, 1999 $600 $5,400 $10,944 $(256) $16,688
Comprehensive income
Net income -- -- 845 -- $ 845 845
Other comprehensive income,
unrealized holding gains
arising during the period
(net of tax, $4) -- -- -- 8 8 8
------
Comprehensive income $ 853
======
Cash dividends -- -- (300) -- (300)
---- ------ ------- ----- -------
Balances, June 30, 2000 $600 $5,400 $11,489 $(248) $17,241
==== ====== ======= ===== =======
Balances, December 31, 2000 $600 $5,400 $12,008 $ (44) $17,964
Comprehensive income
Net income -- -- 872 -- $ 872 872
Other comprehensive income,
unrealized holding gains
arising during the period
(net of tax, $98) -- -- -- 191 191 191
------
Comprehensive income $1,063
======
Cash dividends -- -- (330) -- (330)
---- ------ ------- ----- -------
Balances, June 30, 2001 $600 $5,400 $12,550 $ 147 $18,697
==== ====== ======= ===== =======
See Accompanying Notes to Consolidated Financial Statements
5
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
(Unaudited)
For the Six Months Ended
------------------------
June 30 June 30
2001 2000
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 872 $ 845
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 40 50
Depreciation 120 101
Deferred tax (benefit) -- (2)
Discount accretion and premium amortization on securities, net (16) (15)
(Gain) on sale of real estate -- (19)
(Gain) on sale of equipment -- (1)
(Increase) in accrued interest receivable (52) (62)
(Increase) in other assets (126) (181)
Fees on loans sold (5) --
Proceeds from sale of loans 227 --
Purchase of loans for sale (431) --
(Decrease) in accrued interest payable (25) (15)
Increase in other liabilities 121 65
-------- --------
Net cash provided by operating activities $ 725 $ 766
-------- --------
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 5,000 1,000
Purchase of securities held to maturity (9,035) (9,890)
Purchase of securities available for sale (8,078) --
Net (increase) in loans (9,362) (4,941)
Purchases of bank premises and equipment (234) (920)
Proceeds from sale of real estate 13 95
-------- --------
Net cash (used in) investing activities $(15,696) $(12,656)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest bearing deposits $ (1,069) $ 703
Net increase (decrease) in interest bearing deposits 3,250 (2,461)
Net increase in securities sold under agreements to repurchase 536 --
Net increase in advances payable to Federal Home Loan Bank 2,500 --
Cash dividends (330) (300)
-------- --------
Net cash provided by (used in) financing activities $ 4,887 $ (2,058)
-------- --------
(Decrease) in cash and cash equivalents $(10,084) $(13,948)
CASH AND CASH EQUIVALENTS
Beginning 23,419 21,054
-------- --------
Ending $ 13,335 $ 7,106
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,973 $ 1,975
======== ========
Income taxes $ 423 $ 526
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Unrealized gain on securities available for sale $ 289 $ 13
======== ========
See Accompanying Notes to Consolidated Financial Statements
6
POTOMAC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 2001, and December 31,
2000, the results of operations for the three months ended June 30, 2001 and
2000, and the results of operations and cash flows for the six months ended
June 30, 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 six month periods ended June 30, 2001 and
2000, are not necessarily indicative of the results to be expected for the
full year.
2. Securities held to maturity as of June 30, 2001 and December 31, 2000 are
summarized below:
(000 Omitted)
June 30, 2001
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ----------- ----------- -------
Securities held to maturity:
Obligations of U.S. Government
agencies $20,977 $485 $ -- $21,462
======= ==== ==== =======
(000 Omitted)
December 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 June 30, 2001 and December 31, 2000 are
summarized below:
(000 Omitted)
June 30, 2001
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ----------- ----------- -------
Securities available for sale:
Obligations of U.S. Government
agencies $21,309 $222 $ -- $21,531
======= ==== ==== =======
(000 Omitted)
December 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
======= ==== ==== =======
7
3. The consolidated loan portfolio, stated at face amount, is composed of the
following:
(000 Omitted)
------------------------
June 30 December 31
2001 2000
------- -----------
Real estate loans:
Construction and land development $ -- $ 14
Secured by farmland 2,607 2,763
Secured by 1-4 family residential 48,778 45,056
Other real estate loans 17,023 12,150
Loans to farmers (except those secured by real estate) 127 209
Commercial and industrial loans (except those secured
by real estate) 2,443 2,027
Loans to individuals for personal expenditures 22,571 22,023
All other loans 217 205
------- -------
$93,766 $84,447
Less: Allowance for loan losses 1,265 1,268
------- -------
Total loans $92,501 $83,179
======= =======
4. The following is a summary of transactions in the allowance for loan losses:
(000 Omitted)
------------------------
June 30 December 31
2001 2000
------- -----------
Balance at beginning of period $ 1,268 $ 1,218
Provision charged (credited) to operating
expense 40 (70)
Recoveries added to the allowance 14 226
Loan losses charged to the allowance (57) (106)
------- -------
Balance at end of period $ 1,265 $ 1,268
======= =======
5. Information about impaired loans as of June 30, 2001 and December 31, 2000
is as follows:
(000 Omitted)
------------------------
June 30 December 31
2001 2000
------- -----------
Impaired loans for which an allowance has been provided $ 11 $ 725
Impaired loans for which no allowance has been provided -- --
------- -------
Total impaired loans $ 11 $ 725
======= =======
Allowance provided for impaired loans, included in the
allowance for loan losses $ 3 $ 218
======= =======
Average balance in impaired loans $ 195 $ 239
======= =======
Interest income recognized $ 1 $ 18
======= =======
There were no loans on nonaccrual status at June 30, 2001 or at December 31,
2000.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Between December 31, 2000 and June 30, 2001, total assets increased $6,000,000.
Total securities (held to maturity and available for sale) have increased
$6,000,000. Loans have increased $9,300,000. The increases in these asset
categories account for the $13,000,000 decrease in securities purchased under
agreements to resell and federal funds sold. Total deposits increased
approximately $2,200,000.
The June 30 annualized return on average assets is 1.15% compared to 1.25% at
December 31. At June 30 the annualized return on average equity is 9.51%
compared to 10.46% at December 31. The leverage capital (equity to assets)
ratio is 12.12% at June 30 compared to 12.32% at December 31.
The table shown below 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.
(000 Omitted)
June 30, 2001
-------------
Balance at beginning of period $1,268
Charge-offs:
Commercial, financial and agricultural 8
Real estate - construction --
Real estate - mortgage 6
Consumer 43
------
Total charge-offs 57
------
Recoveries:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage --
Consumer 14
------
Total recoveries 14
------
Net charge-offs 43
Additions charged to operations 40
------
Balance at end of period $1,265
======
Ratio of net charge-offs during the period to average
loans outstanding during the period .0483%
======
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)
June 30, 2001
-------------
Nonaccrual loans $ --
Restructured loans --
Foreclosed properties --
------
Total nonperforming assets $ --
======
Loans past due 90 days accruing interest $ 18
======
Allowance for loan losses to period end loans 1.35%
======
Nonperforming assets to period end loans and
foreclosed properties --
======
There were no loans on nonaccrual status at June 30, 2001.
9
At June 30, 2001, other potential problem loans totalled $26,907. 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 loan losses for these
loans according to the review of the potential loss in each loan situation.
Although the overall increase in deposits at June 30 compared to December 31 was
only $2,200,000, the balances in the different types of deposit accounts
fluctuated in various directions. Noninterest bearing accounts decreased
$1,000,000. Now accounts increased $800,000, which included over $500,000 in
selected business accounts participating in our new daily cash management
product. Daily these account balances are swept and invested in securities sold
under agreements to repurchase, a product that pays higher interest than a
regular Now account. Select checking balances decreased $650,000. Money market
balances increased $200,000. Savings account balances increased $1,850,000.
Certificates of deposit balances increased $1,000,000.
The comparison of the income statements for the three months and six months
ended June 30, 2001 and 2000 shows similar changes in all income and expense
categories. Net interest income in 2001 increased almost 9% when comparing the
six month figures to 2000. Interest income has increased due to increased loan
fees and increased loan volume. Interest expense has decreased slightly due to
decreased interest rates. Net income for the six month period in 2001 has
increased over 3% when compared to 2000.
Noninterest income has increased over 1.5% in 2001 compared to 2000. The
increase is due to increased fees in certain areas and additional commissions on
insurance due to increased sales of insurance. These increases were enough to
counteract the over 5% decrease in fiduciary fees.
Noninterest expense increased over 10% in 2001 compared to 2000 for the six
month period. Salaries and benefits increased due to annual salary increases,
additional personnel, and increased insurance claims. Occupancy and furniture
and equipment expenses increased due to the building and renovation projects
completed in 2000. Advertising expense is up 46% in 2001 compared to 2000 due
to creation of a new bank logo and replacement expense that accompanies such a
change. Telephone expense has increased 14% in 2001 compared to 2000 due to
increased service requirements because of growth and increased use of the
internet system.
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
investment securities, existing cash and financing activities were used to fund
investing activities. Financing activities included increased deposits,
increased securities sold under agreements to repurchase, and an advance from
the Federal Home Loan Bank. Cash and cash equivalents decreased during this
period, however liquidity of the Corporation is more than adequate to meet
present and future financial obligations.
10
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 4. Submission of Matters to a Vote of Security-Holders.
The annual meeting of security-holders was held on April 24, 2001 and the
following matters were submitted to the security-holders for a vote:
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 2001.
3. Any other business which may properly be brought before the
meeting or any adjournment thereof.
Results of the voting in regard to the above listed matters were as follows:
Votes Votes
Votes For Against Withheld Total
--------- ------- -------- -------
1. J. Scott Boyd 339,594 None 26,580 366,174
John P. Burns, Jr. 339,694 None 26,480 366,174
2. Ratification of accountants 357,531 7,960 683 366,174
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
11
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
12
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 August 6, 2001 /s/ Robert F. Baronner, Jr.
-------------- ---------------------------
Robert F. Baronner, Jr., President & CEO
Date August 6, 2001 /s/ L. Gayle Marshall Johnson
--------------- -----------------------------
L. Gayle Marshall Johnson, Vice
President & Chief Financial Officer