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 September 30, 1999
-----------------------------------
- ---- 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
-------- ---------
<PAGE>
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POTOMAC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
(Unaudited)
September 30 December 31
1999 1998
---------------- ---------------
<S> <C> <C>
Assets:
Cash and due from banks $ 5 986 $ 4 646
Securities (fair value: September 30, 1999, $50,436;
December 31, 1998, $50,530) 50 453 50 208
Securities purchased under agreements to resell
and federal funds sold 10 634 13 483
Loans 78 618 77 807
Less reserve for loan losses (1 213) (1 140)
--------------- ------------
Net loans 77 405 76 667
Bank premises and equipment, net 1 769 1 224
Accrued interest receivable 1 220 1 168
Other assets 972 708
--------------- ------------
Total Assets $ 148 439 $ 148 104
=============== ============
Liabilities and Stockholders' Equity:
Liabilities:
Non-interest bearing deposits $ 16 214 $ 17 422
Interest bearing deposits 114 171 113 244
--------------- ------------
Total Deposits 130 385 130 666
Accrued interest payable 315 350
Other liabilities 924 892
--------------- ------------
Total Liabilities $ 131 624 $ 131 908
--------------- ------------
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 (147) 105
Undivided profits 10 962 10 091
--------------- ------------
Total Stockholders' Equity 16 815 16 196
--------------- ------------
Total Liabilities and Stockholders' Equity $ 148 439 $ 148 104
=============== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
3
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------------- --------------------------
1999 1998 1999 1998
------------- -------------- ------------- -----------
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1 678 $ 1 760 $ 5 010 $ 5 268
Interest on investment securities
Taxable 356 448 1 083 1 337
Interest and dividends on securities available for sale
Taxable 360 217 1 019 576
Dividends 7 7 22 20
Interest on securities purchased under agreements
to resell and federal funds sold 122 131 372 321
---------- ---------- ---------- ----------
Total Interest Income $ 2 523 $ 2 563 $ 7 506 $ 7 522
Interest Expense:
Interest on deposits $ 1 041 $ 1 149 $ 3 173 $ 3 269
Interest on federal funds purchased -- -- -- --
---------- ---------- ---------- ----------
Total Interest Expense $ 1 041 $ 1 149 $ 3 173 $ 3 269
---------- ---------- ---------- ----------
Net Interest Income $ 1 482 $ 1 414 $ 4 333 $ 4 253
Provision for Loan Losses 50 50 125 125
---------- ---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses $ 1 432 $ 1 364 $ 4 208 $ 4 128
---------- ---------- ---------- ----------
Other Income:
Commissions and fees from fiduciary activities $ 138 $ 132 $ 463 $ 418
Service charges on deposit accounts 88 93 257 284
Fees for other customer services 48 39 137 121
Other operating income 15 8 91 23
---------- ---------- ---------- ----------
Total Other Income $ 289 $ 272 $ 948 $ 846
---------- ---------- ---------- ----------
Other Expenses:
Salaries and employee benefits $ 662 $ 656 $ 1 906 $ 1 941
Net occupancy expense of premises 57 47 153 140
Furniture and equipment expenses 110 98 318 264
Other operating expenses 287 294 930 834
---------- ---------- ---------- ----------
Total Other Expenses $ 1 116 $ 1 095 $ 3 307 $ 3 179
---------- ---------- ---------- ----------
Income before Income Tax Expense $ 605 $ 541 $ 1 849 $ 1 795
Income Tax Expense 226 204 678 669
---------- ---------- ---------- ----------
Net Income $ 379 $ 337 $ 1 171 $ 1 126
========== ========== ========== ==========
Earnings Per Share, basic and diluted $ .63 $ .56 $ 1.95 $ 1.88
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
4
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Undivided Comprehensive
Stock Surplus Income Profits Income Total
---------- ---------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 $ 600 $ 5 400 $ 10 091 $ 105 $ 16 196
Comprehensive income
Net income -- -- $ 1 171 1 171 -- 1 171
Other comprehensive income,
net of tax
Change in unrealized
gain (loss) on
securities -- -- (252) -- (252) (252)
---------
Comprehensive income $ 919
=========
Cash dividends -- -- (300) -- (300)
--------- --------- ------------ -------- -----------
Balances, September 30, 1999 $ 600 $ 5 400 $ 10 962 $ (147) $ 16 815
========= ========= ============ ======== ===========
Balances, January 1, 1998 $ 600 $ 5 400 $ 9 292 $ 6 $ 15 298
Comprehensive income
Net income -- -- $ 1 126 1 126 -- 1 126
Other comprehensive income,
net of tax
Change in unrealized
gain (loss) on
securities -- -- 152 -- 152 152
---------
Comprehensive income $ 1 278
=========
Cash dividends -- -- (300) -- (300)
--------- --------- ------------ -------- -----------
Balances, September 30, 1998 $ 600 $ 5 400 $ 10 118 $ 158 $ 16 276
========= ========= ============ ======== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
5
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------
September 30 September 30
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1 171 $ 1 126
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 125 125
Depreciation 192 153
Amortization 7 9
Discount accretion and premium amortization on
securities, net 27 10
(Gain) loss on sale of real estate (59) 10
(Increase) in accrued interest receivable (52) (107)
(Increase) in other assets (17) (79)
Increase (decrease) in accrued interest payable (36) 7
Increase in other liabilities 32 88
----------- ---------
Net cash provided by operating activities $ 1 390 $ 1 342
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities $ 2 000 $ 8 000
Proceeds from maturity of securities available for sale 3 550 1 000
Purchase of investment securities -- (11 014)
Purchase of securities available for sale (6 204) (5 065)
Net (increase) in loans (1 139) (1 230)
Purchases of bank premises and equipment (737) (188)
Proceeds from sale of real estate 211 147
----------- ---------
Net cash (used in) investing activities $ (2 319) $ (8 350)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts and
savings accounts $ (313) $ 10 766
Net increase in certificates of deposit 33 1 656
Cash dividends (300) (300)
----------- ---------
Net cash provided by (used in) financing activities $ (580) $ 12 122
------------ ---------
Increase (decrease) in cash and cash equivalents $ (1 509) $ 5 114
CASH AND CASH EQUIVALENTS
Beginning 18 129 13 118
------------ ---------
Ending $ 16 620 $ 18 232
============ =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 3 209 $ 3 261
=========== =========
Income taxes $ 741 $ 679
=========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 312 $ 55
=========== =========
Loans made on sale of real estate $ 249 $ --
=========== =========
Unrealized gain (loss) on securities available for sale $ (382) $ 229
=========== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
6
POTOMAC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
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 September 30,
1999, and December 31, 1998, the results of operations for the three
months ended September 30, 1999 and 1998, and the results of operations
and cash flows for the nine months ended September 30, 1999 and 1998.
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, 1998. The results of operations
for the nine month periods ended September 30, 1999 and 1998, are not
necessarily indicative of the results to be expected for the full year.
2. Securities held to maturity as of September 30, 1999 and December 31,
1998 are summarized below:
<TABLE>
<CAPTION>
(000 Omitted)
September 30, 1999
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities $ 6 000 $ 18 $ -- $ 6 018
Obligations of U.S. Government
agencies 17 008 8 (43) 16 973
------------- --------- ------ ------------
$ 23 008 $ 26 $ (43) $ 22 991
============= ========= ====== ============
(000 Omitted)
December 31, 1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ----------- ----------- --------------
Securities held to maturity:
U.S. Treasury securities $ 17 009 $ 229 $ -- $ 17 238
Obligations of U.S. Government
agencies 8 021 92 -- 8 113
------------- --------- ------ ------------
$ 25 030 $ 321 $ -- $ 25 351
============= ========= ====== ============
</TABLE>
<PAGE>
7
Securities available for sale as of September 30, 1999 and December 31,
1998 are summarized below:
<TABLE>
<CAPTION>
(000 Omitted)
September 30, 1999
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities $ 2 000 $ 9 $ -- $ 2 009
Obligations of U.S. Government
agencies 25 218 14 (246) 24 986
Federal Home Loan Bank stock 450 -- -- 450
------------- --------- ------ ------------
$ 27 668 $ 23 $ (246) $ 27 445
============= ========= ====== ============
(000 Omitted)
December 31, 1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------ ----------- -------------
Securities available for sale:
U.S. Treasury securities $ 5 000 $ 43 $ -- $ 5 043
Obligations of U.S. Government
agencies 19 570 140 (24) 19 686
Federal Home Loan Bank stock 450 -- -- 450
------------- --------- ------ ------------
$ 25 020 $ 183 $ (24) $ 25 179
============= ========= ====== ============
</TABLE>
3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<TABLE>
<CAPTION>
(000 Omitted)
September 30 December 31
1999 1998
--------------- -------------
<S> <C> <C>
Real estate loans:
Construction and land development $ 48 $ 652
Secured by farmland 2 852 1 394
Secured by 1-4 family residential 44 502 42 541
Other real estate loans 11 302 12 624
Loans to farmers (except those secured by real estate) 422 246
Commercial and industrial loans (except those secured
by real estate) 2 035 2 188
Loans to individuals for personal expenditures 17 110 17 738
All other loans 347 424
----------- -----------
Total loans $ 78 618 $ 77 807
=========== ===========
4. The following is a summary of transactions in the reserve for loan losses:
(000 Omitted)
September 30 December 31
1999 1998
------------------- --------------------------
Balance at beginning of period $ 1 140 $ 1 139
Provision charged to operating expense 125 125
Recoveries added to the reserve 21 43
Loan losses charged to the reserve (73) (167)
----------- -----------
Balance at end of period $ 1 213 $ 1 140
=========== ==========
</TABLE>
<PAGE>
8
5. Information about impaired loans as of September 30, 1999 and December
31, 1998 is as follows:
<TABLE>
<CAPTION>
(000 Omitted)
---------------------------------
September 30 December 31
1999 1998
------------ ------------
<S> <C> <C>
Impaired loans for which a reserve has been provided $ 232 $ 398
Impaired loans for which no reserve has been provided -- --
---------- -----------
Total impaired loans $ 232 $ 398
========== ===========
Reserve provided for impaired loans, included in the
reserve for loan losses $ 69 $ 199
========== ===========
Average balance in impaired loans $ 414 $ 398
========== ===========
Interest income recognized $ 12 $ 34
========== ===========
</TABLE>
Nonaccrual loans excluded from impaired loan disclosures under FASB 114
amounted to $112,844 at September 30, 1999 and $-0- at December 31, 1998.
Interest accrued on these loans is $4,739 in 1999 and nonaccrual interest
is $2,287 for the first nine months of 1999.
6. The "Year 2000 Problem" exists because computers and computer programs
were written using only a two digit field for the year rather than a four
digit field. As we move into the Year 2000 and continue to use "00" for
the date, many computers, computer programs, and any equipment using date
sensitive microchips may not recognize "00" as the Year 2000, but may
"think" it is the year 1900. For many businesses and industries, this
misconception may cause problems. Hence, the challenge facing the world
has been to prepare for the Year 2000 by ensuring that all equipment is
appropriately date sensitive to the four digit date 2000 and beyond. The
Subsidiary Bank depends heavily on computer processing in connection with
its business activities. Failure of its computer systems could have a
significant impact on its operations.
During 1997 the Subsidiary Bank began preparing to meet the challenge by
sending letters to third party vendors and suppliers requesting written
documentation regarding their planning, renovation, and testing of
computer systems and software and other equipment containing embedded
microchips to ensure Year 2000 compliance. Vendors contacted included all
parties that supplied service that the Subsidiary Bank believed could be
affected by embedded microchips, such as electric, water, computer
hardware and software providers. In January 1998, the Subsidiary Bank's
Board of Directors approved the appointment of a Year 2000 Committee
composed of directors, officers and staff. The Committee has written a
Year 2000 Plan that was approved by the Board of Directors which details
steps to be taken for Year 2000 compliance.
The Plan includes the following phases of procedure: awareness,
assessment, renovation, validation and implementation. The AWARENESS
PHASE was educating all personnel within the organization including
directors, officers and staff so that everyone understood the definition
of the problem. All personnel also needed to understand that the
Corporation was seriously undertaking the challenge to complete all the
remaining phases of the Plan in a timely manner. The ASSESSMENT PHASE
included identifying all systems and equipment that would be affected by
the problem. The RENOVATION PHASE included performing repairs, upgrades
and/or replacements of all computer systems and equipment containing
embedded microchips that were identified in the assessment phase as
needing renovation. The VALIDATION PHASE includes testing of all systems
and equipment. The IMPLEMENTATION PHASE occurs when all previous phases
are complete and all systems have been certified as Year 2000 compliant.
<PAGE>
9
The status of these phases as of September 30, 1999 is listed below:
Awareness Complete
Assessment Complete
Renovation Complete
Validation Complete for all mission critical systems
Implementation Complete for all mission critical systems
The Subsidiary Bank does not maintain a formal budget. Therefore,
expenses related to the Year 2000 are reviewed and approved by the Board
of Directors on an as needed basis. As of September 30, 1999, actual
costs were $261,789. Most of the costs were for computers and related
equipment. There have also been expenditures for testing of our major
software vendors. It is estimated that the total costs for the Year 2000
will not exceed $350,000, assuming that the Subsidiary Bank has
identified the most significant Year 2000 issues. These costs do not
include the costs of personnel who have performed Year 2000 functions in
addition to their regular responsibilities during this time of
preparation.
The Subsidiary Bank has continued to communicate with third party vendors
and suppliers to update documentation from them in regard to their Year
2000 readiness. The majority of these vendors and suppliers have stated
that they have successfully completed their renovations and testing.
Questionnaires were mailed to significant loan customers (limited to
commercial purpose loans) to determine the effectiveness of their Year
2000 preparation including anticipated problems and proposed solutions.
Written responses were requested with approximately 69% responding as of
September 30, 1999. Response and no response customers have been
evaluated by loan personnel. At this time, the Subsidiary Bank does not
expect any of these loan customer Year 2000 situations to have an adverse
material impact on Bank operations. The aggregate balances (including
available and outstanding amounts on lines of credit) of the loan
customers questioned represent approximately 27% of the Bank's total loan
portfolio.
Questionnaires were sent to significant deposit customers. The aggregate
balances of the deposit customers receiving questionnaires represent 2%
of the total deposit portfolio. Upon evaluation of these customer
situations, the Subsidiary Bank does not expect any of them to have an
adverse material impact on Bank operations.
The Year 2000 Committee has identified customer awareness as an important
part of Year 2000 preparation. We have a Customer Awareness Policy and
have mailed several communications to customers regarding Year 2000
plans, including a brochure entitled "The Year 2000 Date Change: What the
Year 2000 Date Change Means to You and Your Insured Financial
Institution" that was mailed during the second quarter of 1999. It is
necessary that all customers understand that the Subsidiary Bank's
deposits are insured by the Federal Deposit Insurance Corporation if the
deposit accounts are structured appropriately and balances are within the
coverage limitations. The Subsidiary Bank had sessions at two of its
three locations where a short video entitled "You and Your Bank: A
Successful Partnership for the Year 2000" prepared by the American
Bankers Association was shown and where bank personnel were available to
discuss questions and concerns customers may have had regarding the
Subsidiary Bank's preparation for the Year 2000. A session at the third
location will be held soon. At least one additional mailing is scheduled
during 1999 in order to provide customers with additional information
regarding Year 2000.
The Year 2000 Committee has written a Year 2000 Contingency Plan which
has been approved by the Board of Directors. Many issues were discussed
during the development and planning for business resumption and
remediation contingency plans. Responsibility and reporting structure
have been designated. Critical personnel have been designated to be
available as needed. Special staffing and hours have been approved as
needed. Core business processes were identified. Event timelines were
designated including critical testing dates. Numerous failure scenarios
were discussed including power outages from complete to localized,
telecommunications outages, water outages, various hardware and software
failures, and lack of vendor supplies. Considerations were given to the
following factors during the planning process: estimated costs,
feasibility, functionality, and appropriateness.
<PAGE>
10
The most likely worst-case scenario would be a localized disruption or
failure of power and/or telecommunications, although the Subsidiary Bank
has no reason to conclude that these events will happen. If these events
did occur, the Subsidiary Bank would implement its contingency plan. It
is important for customers to understand that if a contingency plan is
implemented there may be some customer inconvenience since service levels
will not be at peak.
Finally, we must admit that even after detailed preparation as described
above, there are no guarantees that the assumptions, estimates, tests,
and validation will be as we expect. The Corporation is still dependent
on third party vendors and suppliers for a large part of our business
operations. If events are not as the Corporation and our vendors expect,
the Subsidiary Bank's business, results of operations and financial
position could be materially adversely affected.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Between December 31, 1998 and September 30, 1999, total assets have increased
only slightly although there are changes in some of the asset groups. Cash and
cash equivalents have decreased $1,500,000 as detailed in the statement of cash
flows. Loans have increased about $750,000 and bank premises and equipment have
increased about $500,000.
Bank premises have increased due to a construction project in progress. The two
story older building that housed the Trust and Financial Services Department and
storage facilities that was connected to the newer main office building has been
demolished and a new building is beginning to be built. This three level new
building will also be connected with the main office and will house the Trust
Services, storage in a complete basement, and additional offices on the second
floor for loan and administrative personnel. In addition to this new building,
there will be renovations to the existing main office building including
lighting, painting and carpet.
Equipment has increased due mostly to upgrading of computer and other equipment
due to Year 2000 renovations.
The September 30 annualized return on average assets is 1.05% compared to 1.07%
at December 31. At September 30 the annualized return on average equity is 9.46%
compared to 9.39% at December 31. The leverage capital (equity to assets) ratio
is 11.33% at September 30 compared to 11.15% at December 31.
<PAGE>
11
The table shown below is an analysis of the Corporation's reserve 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 quarterly basis with the procedures that allow for problem loans
and potentially problem loans to be highlighted and watched. Based on
experience, the loan policies and the current monitoring program, management
believes the loan loss reserve is adequate.
<TABLE>
<CAPTION>
(000 Omitted)
September 30, 1999
-----------------------
<S> <C>
Balance at beginning of period $ 1 140
Charge-offs:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage 27
Consumer 46
---------
Total charge-offs 73
---------
Recoveries:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage --
Consumer 21
---------
Total recoveries 21
---------
Net charge-offs 52
Additions charged to operations 125
---------
Balance at end of period $ 1 213
=========
Ratio of net charge-offs during the period to average
loans outstanding during the period .0665%
=========
</TABLE>
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.
<TABLE>
<CAPTION>
(000 Omitted)
September 30, 1999
--------------------
<S> <C>
Nonaccrual loans $ 113
Restructured loans --
Foreclosed properties 201
----------
Total nonperforming assets $ 314
==========
Loans past due 90 days accruing interest $ 232
==========
Reserve for loan losses to period end loans 1.54%
==========
Nonperforming assets to period end loans and foreclosed properties .40%
==========
</TABLE>
Loans on nonaccrual status at September 30, 1999 totalled $112,844.
At September 30, 1999, other potential problem loans totalled $11,952. 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 reserve for these loans according to
the review of the potential loss in each loan situation.
<PAGE>
12
Total deposits have remained basically unchanged when comparing September 30,
1999 with December 31, 1998. The mix of different types of accounts have also
remained basically unchanged.
The comparison of the income statements for the nine months ended September 30,
1999 and 1998 shows relatively little difference in the net figures for the two
periods. There were increases in noninterest income and noninterest expense.
Noninterest income increases included an increase in income from fiduciary
activities and in other operating income which is due to gains on sales on
foreclosed properties. Noninterest expense increases include the same items as
described in the June 10-QSB: increased depreciation expense due to new
equipment purchases; legal and professional fees not actually an increase but
appears that way since 1998 expense was reduced by payment of prior period legal
fees from sale of property securing two loans that had been on nonaccrual
status; printing, stationery, supplies and printed checks; increased ATM
expenses due to late billings from vendor; increased foreclosure expenses due to
increased number of foreclosures in 1999.
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 and financing activities partially funded investing
activities. Financing activities used funds since total deposits decreased and
dividends were paid. Cash and cash equivalents decreased during this period, but
liquidity of the Corporation is more than adequate to meet present and future
financial obligations.
<PAGE>
13
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.
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K.
<S> <C>
(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
27. Financial Data Schedule.
99. Additional exhibits.
Not applicable
(b) Reports on Form 8-K:
NONE
</TABLE>
<PAGE>
14
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.
<TABLE>
<CAPTION>
<S> <C>
POTOMAC BANCSHARES, INC.
Date November 10, 1999 /s/ Charles W. LeMaster
------------------------------- --------------------------------------------
Charles W. LeMaster, President & CEO
Date November 10, 1999 /s/ L. Gayle Marshall Johnson
------------------------------- --------------------------------------------
L. Gayle Marshall Johnson, Vice
President and Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,986
<INT-BEARING-DEPOSITS> 81
<FED-FUNDS-SOLD> 10,634
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,445
<INVESTMENTS-CARRYING> 23,008
<INVESTMENTS-MARKET> 22,991
<LOANS> 78,618
<ALLOWANCE> 1,213
<TOTAL-ASSETS> 148,439
<DEPOSITS> 130,385
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,239
<LONG-TERM> 0
0
0
<COMMON> 600
<OTHER-SE> 16,215
<TOTAL-LIABILITIES-AND-EQUITY> 148,439
<INTEREST-LOAN> 5,010
<INTEREST-INVEST> 2,124
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 7,506
<INTEREST-DEPOSIT> 3,173
<INTEREST-EXPENSE> 3,173
<INTEREST-INCOME-NET> 4,333
<LOAN-LOSSES> 125
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,307
<INCOME-PRETAX> 1,849
<INCOME-PRE-EXTRAORDINARY> 1,171
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,171
<EPS-BASIC> 1.95
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 7.28
<LOANS-NON> 113
<LOANS-PAST> 232
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12
<ALLOWANCE-OPEN> 1,140
<CHARGE-OFFS> 73
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 1,213
<ALLOWANCE-DOMESTIC> 1,213
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
