<PAGE>
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, 2000
-------------
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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POTOMAC BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
(Unaudited)
June 30 December 31
2000 1999
----------- -----------
<S> <C> <C>
Assets:
Cash and due from banks $ 5 988 $ 5 523
Securities purchased under agreements to resell
and federal funds sold 1 118 $ 15 531
Securities held to maturity (fair value of $22,788 at
June 30, 2000 and $14,917 at December 31, 1999) 22 910 15 007
Securities available for sale, at fair value 26 297 27 281
Loans, net of allowance for loan losses of $1,245 at
June 30, 2000 and $1,218 at December 31, 1999 82 003 77 112
Other real estate owned 125 202
Bank premises and equipment, net 2 961 2 143
Accrued interest receivable 1 174 1 112
Other assets 983 803
-------- --------
Total Assets $143 559 $144 714
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Non-interest bearing deposits $ 16 737 $ 16 034
Interest bearing deposits 108 189 110 650
-------- --------
Total Deposits 124 926 126 684
Accrued interest payable 293 308
Other liabilities 1 099 1 034
-------- --------
Total Liabilities $126 318 $128 026
-------- --------
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) (248) (256)
Undivided profits 11 489 10 944
-------- --------
Total Stockholders' Equity 17 241 16 688
-------- --------
Total Liabilities and Stockholders' Equity $143 559 $144 714
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
-------------------- ------------------
2000 1999 2000 1999
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1 747 $1 682 $3 412 $3 332
Interest on securities held to maturity
Taxable 367 363 647 727
Interest and dividends on securities available for sale
Taxable 346 335 750 659
Dividends 7 8 15 15
Interest on securities purchased under agreements
to resell and federal funds sold 111 130 250 250
------ ------ ------ ------
Total Interest Income $2 578 $2 518 $5 074 $4 983
Interest Expense,
interest on deposits 985 1 058 1 960 2 132
------ ------ ------ ------
Net Interest Income $1 593 $1 460 $3 114 $2 851
Provision for Loan Losses 50 75 50 75
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses $1 543 $1 385 $3 064 $2 776
------ ------ ------ ------
Other Income:
Commissions and fees from fiduciary activities $ 146 $ 132 $ 273 $ 325
Service charges on deposit accounts 97 85 174 169
Fees for other customer services 38 50 70 89
Other operating income 23 16 49 76
------ ------ ------ ------
Total Other Income $ 304 $ 283 $ 566 $ 659
------ ------ ------ ------
Other Expenses:
Salaries and employee benefits $ 714 $ 610 $1 442 $1 244
Net occupancy expense of premises 53 48 113 96
Furniture and equipment expenses 92 106 185 208
Other operating expenses 281 337 557 643
------ ------ ------ ------
Total Other Expenses $1 140 $1 101 $2 297 $2 191
------ ------ ------ ------
Income before Income Tax Expense $ 707 $ 567 $1 333 $1 244
Income Tax Expense 255 203 488 452
------ ------ ------ ------
Net Income $ 452 $ 364 $ 845 $ 792
====== ====== ====== ======
Earnings Per Share, basic and diluted $.75 $.61 $1.41 $1.32
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Undivided Comprehensive Comprehensive
Stock Surplus Profits Income Income Total
------ ------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $ 600 $5 400 $10 091 $ 105 $16 196
Comprehensive income
Net income -- -- 792 -- $792 792
Other comprehensive income
net of tax, unrealized
holding (losses) arising
during the period -- -- -- (239) (239) (239)
-----
Comprehensive income $ 553
=====
Cash dividends -- -- (300) -- (300)
------- ------ ------- ----- -------
Balances, June 30, 1999 $ 600 $5 400 $10 583 $(134) $16 449
======= ====== ======= ===== =======
Balances, December 31, 1999 $600 $5 400 $10 944 $(256) $16 688
Comprehensive income
Net income -- -- 845 -- 845 845
Other comprehensive income
net of tax, unrealized
holding gains arising
during the period -- -- -- 8 8 8
-----
Comprehensive income $ $ 853
======= =====
Cash dividends -- -- (300) -- (300)
------- ------ ------- ----- -------
Balances, June 30, 2000 $ 600 $5 400 $11 489 $(248) $17 241
======= ====== ======= ===== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
POTOMAC BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30 June 30
2000 1999
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 845 $ 792
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 50 75
Depreciation 101 126
Amortization -- 6
Deferred tax (benefit) (2) --
Discount accretion and premium amortization on
securities, net (15) 21
(Gain) on sale of real estate (19) (59)
(Gain) on sale of equipment (1) --
(Increase) decrease in accrued interest receivable (62) 7
(Increase) in other assets (181) (25)
(Decrease) in accrued interest payable (15) (24)
Increase in other liabilities 65 75
-------- -------
Net cash provided by operating activities $ 766 $ 994
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities held to maturity $ 2 000 $ --
Proceeds from maturity of securities available for sale 1 000 3 000
Purchase of securities held to maturity (9 890) --
Purchase of securities available for sale -- (3 221)
Net (increase) in loans (4 941) (1 885)
Purchases of bank premises and equipment (920) (324)
Proceeds from sale of real estate 95 211
-------- -------
Net cash (used in) investing activities $(12 656) $(2 219)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing deposits $ 703 $ 175
Net (decrease) in interest bearing deposits (2 461) (315)
Cash dividends (300) (300)
-------- -------
Net cash (used in) financing activities $ (2 058) $ (440)
-------- -------
(Decrease) in cash and cash equivalents $(13 948) $(1 665)
CASH AND CASH EQUIVALENTS
Beginning 21 054 18 129
-------- -------
Ending $ 7 106 $16 464
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1 975 $ 2 156
======== =======
Income taxes $ 526 $ 499
======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ -- $ 168
======== =======
Loans made on sale of real estate $ -- $ 249
======== =======
Unrealized gain (loss) on securities available for sale $ 13 $ (363)
======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
POTOMAC BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
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, 2000, and December 31,
1999, the results of operations for the three months ended June 30, 2000 and
1999, and the results of operations and cash flows for the six months ended
June 30, 2000 and 1999. 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, 1999. The
results of operations for the six month periods ended June 30, 2000 and
1999, are not necessarily indicative of the results to be expected for the
full year.
2. Securities held to maturity as of June 30, 2000 and December 31, 1999 are
summarized below:
<TABLE>
<CAPTION>
(000 Omitted)
June 30, 2000
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities $ 2 000 $ 1 $ -- $ 2 001
Obligations of U.S. Government
agencies 20 910 13 (136) 20 787
------- --- ----- -------
$22 910 $14 $(136) $22 788
======= === ===== =======
<CAPTION>
(000 Omitted)
December 31, 1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities $ 2 000 $ 2 $ -- $ 2 002
Obligations of U.S. Government
agencies 13 007 1 (93) 12 915
------- --- ----- -------
$15 007 $ 3 $ (93) $14 917
======= === ===== =======
</TABLE>
Securities available for sale as of June 30, 2000 and December 31, 1999 are
summarized below:
<TABLE>
<CAPTION>
(000 Omitted)
June 30, 2000
------------------------------------------------
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 $ -- $ (1) $ 1 999
Obligations of U.S. Government
agencies 24 223 -- (375) 23 848
Federal Home Loan Bank stock 450 -- -- 450
------- ---- ----- -------
$26 673 $ -- $(376) $26 297
======= ==== ===== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(000 Omitted)
December 31, 1999
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities $ 2 000 $ 1 $ -- $ 2 001
Obligations of U.S. Government
agencies 25 220 -- (390) 24 830
Federal Home Loan Bank stock 450 -- -- 450
------- --- ----- -------
$27 670 $ 1 $(390) $27 281
======= === ===== =======
</TABLE>
3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<TABLE>
<CAPTION>
(000 Omitted)
June 30 December 31
2000 1999
------- -----------
<S> <C> <C>
Real estate loans:
Construction and land development $ 14 $ 31
Secured by farmland 2 702 2 605
Secured by 1-4 family residential 45 460 43 798
Other real estate loans 11 813 11 859
Loans to farmers (except those secured by real estate) 680 389
Commercial and industrial loans (except those secured
by real estate) 2 318 2 435
Loans to individuals for personal expenditures 20 034 16 879
All other loans 227 334
------- -------
Total loans $83 248 $78 330
======= =======
</TABLE>
4. The following is a summary of transactions in the reserve for loan losses:
<TABLE>
<CAPTION>
(000 Omitted)
June 30 December 31
2000 1999
------- -----------
<S> <C> <C>
Balance at beginning of period $1 218 $1 140
Provision charged to operating expense 50 125
Recoveries added to the reserve 22 42
Loan losses charged to the reserve (45) (89)
------ -----
Balance at end of period $1 245 $1 218
====== ======
</TABLE>
<PAGE>
5. Information about impaired loans as of June 30, 2000 and December 31, 1999
is as follows:
<TABLE>
<CAPTION>
(000 Omitted)
--------------------------------
June 30 December 31
2000 1999
---------- -------------
<S> <C> <C>
Impaired loans for which a reserve has been provided $ -- $ 232
Impaired loans for which no reserve has been provided -- --
---------- -----------
Total impaired loans $ -- $ 232
========== ===========
Reserve provided for impaired loans, included in the
reserve for loan losses $ -- $ 69
========== ===========
Average balance in impaired loans $ 174 $ 373
========== ===========
Interest income recognized $ -- $ 22
========== ===========
</TABLE>
There were no loans on nonaccrual status at June 30, 2000. Nonaccrual
loans excluded from impaired loan disclosures under FASB 114 amounted to
$112,844 at December 31, 1999. If interest had been accrued, such income
would have been $5,377 in 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Between December 31, 1999 and June 30, 2000, total assets decreased $1,100,000.
An explanation of the major components of this decrease follows. Total
investments have decreased $7,400,000. Loans have increased $4,800,000,
including a $1,000,000 purchase of loans secured by 1-4 family residential
property and an over $3,000,000 increase in installment loans to individuals for
personal expenditures. Bank premises has increased over $800,000 as the
building and renovation project nears completion.
The June 30 annualized return on average assets is 1.17% compared to 1.05% at
December 31. At June 30 the annualized return on average equity is 9.96%
compared to 9.33% at December 31. The leverage capital (equity to assets) ratio
is 12.01% at June 30 compared to 11.55% at December 31.
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)
June 30, 2000
-------------
<S> <C>
Balance at beginning of period $1 218
Charge-offs:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage --
Consumer 45
------
Total charge-offs 45
------
Recoveries:
Commercial, financial and agricultural --
Real estate - construction --
Real estate - mortgage 8
Consumer 14
------
Total recoveries 22
------
Net charge-offs 23
Additions charged to operations 50
------
Balance at end of period $1 245
======
Ratio of net charge-offs during the period to
average loans outstanding during the period .0285%
======
</TABLE>
<PAGE>
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)
June 30, 2000
-------------
<S> <C>
Nonaccrual loans $ --
Restructured loans --
Foreclosed properties 125
----
Total nonperforming assets $125
====
Loans past due 90 days accruing interest $339
====
Reserve for loan losses to period end loans 1.50%
====
Nonperforming assets to period end loans and
foreclosed properties .15%
====
</TABLE>
There were no loans on nonaccrual status at June 30, 2000.
At June 30, 2000, other potential problem loans totalled $60,976. 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.
Total deposits have decreased $1,700,000 when comparing June 30, 2000 with
December 31, 1999. There has been a flucuation among the several types of
deposit accounts with the most dramatic change being a decrease in certificates
of deposit accounts of almost $2,000,000. The loss of deposits is due to
competitive rates in the area that have not been matched by the Bank.
The comparison of the income statements for the six months ended June 30, 2000
and 1999 shows an increase in net income of over 6% or $53,000 in 2000 over
1999. Interest income is up slightly due to increased loan volume. Interest
expense is down 8% due to decreased amounts of deposits as well as decreased
rates.
Noninterest income decreased 14% in 2000 compared to 1999. Fiduciary fees are
based on percentages of the market value of accounts and percentages of income
that accounts receive. Fees from fiduciary activities decreased 16% in 2000
compared to 1999 since market values have declined and income is lower as a
result of lower interest rates. Fees for other customer services decreased 21%
due to decreased income from installment loan insurance commissions. Service
charges on deposit accounts increased almost 3% due to increased income from
return check charges. Other operating income decreased 23% due to a decrease in
gains on sales of foreclosed properties since the Bank has had fewer
foreclosures.
Noninterest expense increased about 5%. Salaries and employee benefits
increased because of salary increases and increased group insurance expense.
Occupancy expense increased due primarily to rental and leasehold expenses of
the temporary quarters for the Trust Department during the building project.
Other operating expenses decreased 13% due to various increases and decreases
within the numerous accounts in this category. Advertising, external audit,
printing and stationery, and postage expenses decreased in 2000 compared with
1999 because expenses related to Y2K were not repeated in 2000. Directors fees
have increased in 2000 because fees paid to directors for each meeting attended
were increased. West Virginia franchise tax is less in 2000 than 1999 expense
which included both a cash payment for 1998 and accrued expense for 1999. There
were foreclosure expenses in 1999 included as of June 30 that were reversed
later in the year that have not been repeated in 2000.
<PAGE>
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 existing cash were used to fund investing activities.
Financing activities were funded through existing cash. Cash and cash
equivalents decreased during this period, however liquidity of the Corporation
is more than adequate to meet present and future financial obligations.
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 25, 2000 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 2000.
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:
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Withheld Total
--------- ------- -------- -------
<S> <C> <C> <C> <C>
1. William R. Harner 412,629 None 25,309 437,938**
E. William Johnson 414,254 None 23,684 437,938**
John C. Skinner, Jr. 412,894 None 25,084 437,978**
Donald S. Smith 412,729 None 25,209 437,938**
2. 413,958 23,496 494 437,948
</TABLE>
** Votes for ten shares of stock were voted cumulatively for John C.
Skinner, Jr. Since four directors were being elected there were
four times ten shares or 40 votes available to vote cumulatively.
Therefore Mr. Skinner has 40 more votes in total than the other
directors.
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
<PAGE>
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:
One Form 8-K was filed during the quarter to report change in upper
management of Bank of Charles Town, wholly-owned subsidiary of Potomac
Bancshares, Inc.
The following information was reported:
. Mr. Charles LeMaster is no longer President and Chief Executive Officer
effective June 23, 2000.
. Effective July 18, 2000, Mr. Charles W. LeMaster also resigned as
President, CEO and director of Potomac Bancshares, Inc. and as director
of Bank of Charles Town.
. Mr. LeMaster is now a Vice President of Bank of Charles Town and his
duties have been reassigned as manager of the Kearneysville Branch of
the Bank effective July 21, 2000.
. Mr. William R. Harner, Senior Vice President of Potomac Bancshares, Inc.
and Bank of Charles Town, will be serving as Acting CEO of Bank of
Charles Town while a search is being conducted for a new President and
CEO.
The date of this report was June 23, 2000.
<PAGE>
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 8 , 2000 /s/ William R. Harner
---------------- ---------------------
William R. Harner, Senior Vice President,
Secretary & Treasurer
Date August 8, 2000 /s/ L. Gayle Marshall Johnson
---------------- -----------------------------
L. Gayle Marshall Johnson, Vice
President & Chief Financial Officer
