-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9AuVdXtA+UY1Uevc9MJDf0FD2ACiYls43qTaviPmGdtW6+0/oIzP3c6B087pddq yi61VKRHJkFk8z14rJJAag== 0000950168-99-002874.txt : 19991115 0000950168-99-002874.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950168-99-002874 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC BANCSHARES INC CENTRAL INDEX KEY: 0000925173 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 550732247 STATE OF INCORPORATION: WV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24958 FILM NUMBER: 99747722 BUSINESS ADDRESS: STREET 1: 111 EAST WASHINGTON ST CITY: CHARLES TOWN STATE: WV ZIP: 25414 BUSINESS PHONE: 3047258431 MAIL ADDRESS: STREET 1: P O BOX 906 CITY: CHARLES TOWN STATE: WV ZIP: 25414 10QSB 1 POTOMAC BANCSHARES, INC. 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 -------- --------- 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements POTOMAC BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (000 OMITTED)
(Unaudited) September 30 December 31 1999 1998 ---------------- --------------- 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 =============== ============
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 Nine Months Ended September 30 Ended September 30 ---------------------------- -------------------------- 1999 1998 1999 1998 ------------- -------------- ------------- ----------- Interest Income: 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 ========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements 4 POTOMAC BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (000 Omitted) (Unaudited)
Accumulated Other Common Capital Comprehensive Undivided Comprehensive Stock Surplus Income Profits Income Total ---------- ---------- ------------ ------------- ------------ ----------- 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 ========= ========= ============ ======== ============
See Accompanying Notes to Consolidated Financial Statements 5 POTOMAC BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (000 Omitted) (Unaudited)
For the Nine Months Ended --------------------------- September 30 September 30 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES 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 =========== =========
See Accompanying Notes to Consolidated Financial Statements 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:
(000 Omitted) September 30, 1999 ---------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value ------------ ---------- ---------- ------------- 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 ============= ========= ====== ============
7 Securities available for sale as of September 30, 1999 and December 31, 1998 are summarized below:
(000 Omitted) September 30, 1999 ----------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains (Losses) Value -------------- ----------- ---------- -------------- 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 ============= ========= ====== ============
3. The consolidated loan portfolio, stated at face amount, is composed of the following:
(000 Omitted) September 30 December 31 1999 1998 --------------- ------------- 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 =========== ==========
8 5. Information about impaired loans as of September 30, 1999 and December 31, 1998 is as follows:
(000 Omitted) --------------------------------- September 30 December 31 1999 1998 ------------ ------------ 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 ========== ===========
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. 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. 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. 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.
(000 Omitted) September 30, 1999 ----------------------- 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% =========
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) September 30, 1999 -------------------- 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% ==========
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. 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. 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.
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 27. Financial Data Schedule. 99. Additional exhibits. Not applicable (b) Reports on Form 8-K: NONE
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.
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
EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 5,986 81 10,634 0 27,445 23,008 22,991 78,618 1,213 148,439 130,385 0 1,239 0 0 0 600 16,215 148,439 5,010 2,124 372 7,506 3,173 3,173 4,333 125 0 3,307 1,849 1,171 0 0 1,171 1.95 1.95 7.28 113 232 0 12 1,140 73 21 1,213 1,213 0 0
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