-----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, KNsI9/Fmqw/qT71zKbLKue0fwXLRRh/QC1Pncz9pUeEOWfihgCZCx8CU2opK0P9Q KbeWDigqbecZpBDFJIWd1g== 0001021408-02-010482.txt : 20020812 0001021408-02-010482.hdr.sgml : 20020812 20020812140708 ACCESSION NUMBER: 0001021408-02-010482 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020812 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: 1934 Act SEC FILE NUMBER: 000-24958 FILM NUMBER: 02726478 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 d10qsb.htm FORM 10-QSB Prepared by R.R. Donnelley Financial -- Form 10-QSB
 
 
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-QSB
 
(Mark One)
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For quarterly period ended June 30, 2002
 
¨
 
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
Incorporation or Organization)
  
(IRS Employer
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  x  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  x
 

PART I.    FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
POTOMAC BANCSHARES, INC.
 
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
 
    
June 30, 2002
   
December 31, 2001
    
(Unaudited)
     
ASSETS:
              
Cash and due from banks
   
$
9,532
   
$
9,351
Interest-bearing deposits in financial institutions
   
 
2,160
   
 
2,466
Securities purchased under agreements to resell and federal funds sold
   
 
4,665
   
$
3,912
Securities held to maturity (fair value of $16,432 at June 30, 2002 and $19,614 at December 31, 2001)
   
 
16,004
   
 
18,990
Securities available for sale, at fair value
   
 
33,763
   
 
30,708
Loans held for sale
   
 
719
   
 
916
Loans, net of allowance for loan losses of $1,546 at June 30, 2002 and $1,402 at December 31, 2001
   
 
108,101
   
 
100,987
Bank premises and equipment, net
   
 
3,485
   
 
3,388
Accrued interest receivable
   
 
1,137
   
 
1,145
Other assets
   
 
1,354
   
 
1,229
    
  
Total Assets
   
$
180,920
   
$
173,092
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY:
              
Liabilities:
              
Noninterest-bearing deposits
   
$
21,715
   
$
20,611
Interest-bearing deposits
   
 
132,189
   
 
126,283
    
  
Total Deposits
   
 
153,904
   
 
146,894
Accrued interest payable
   
 
183
   
 
223
Securities sold under agreements to repurchase
   
 
3,066
   
 
2,949
Federal Home Loan Bank advances
   
 
2,199
   
 
2,352
Other liabilities
   
 
1,217
   
 
1,257
    
  
Total Liabilities
   
$
160,569
   
$
153,675
    
  
Stockholders’ Equity:
              
Common stock, $1 per share par value; 5,000,000 shares authorized; 600,000 shares issued and outstanding
   
$
600
   
$
600
Surplus
   
 
5,400
   
 
5,400
Undivided profits
   
 
14,112
   
 
13,208
Accumulated other comprehensive income
   
 
409
   
 
209
    
  
    
 
20,521
   
 
19,417
Less treasury shares, June 30, 2002; 4,310 shares
   
 
170
   
 
—  
    
  
Total Stockholders’ Equity
   
 
20,351
   
 
19,417
    
  
Total Liabilities and Stockholders’ Equity
   
$
180,920
   
$
173,092
    
  
 
See Notes to Consolidated Financial Statements

2

 
POTOMAC BANCSHARES, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except for per share data)
(Unaudited)
 
    
For the Three
Months Ended
June 30,
   
For the Six
Months Ended
June 30,
    
2002
   
2001
   
2002
   
2001
Interest Income:
                            
Interest and fees on loans
   
$
2,175
   
$
2,026
   
$
4,299
   
$
3,905
Interest on securities held to maturity—taxable
   
 
261
   
 
282
   
 
547
   
 
535
Interest on securities available for sale—taxable
   
 
366
   
 
301
   
 
691
   
 
567
Interest on securities purchased under agreements
                            
to resell and federal funds sold
   
 
23
   
 
101
   
 
45
   
 
291
Other interest and dividends
   
 
19
   
 
10
   
 
39
   
 
20
    
  
  
  
Total Interest and Dividend Income
   
$
2,844
   
$
2,720
   
$
5,621
   
$
5,318
Interest Expense:
                            
Interest on deposits
   
 
650
   
 
956
   
 
1,322
   
 
1,945
Interest on securities sold under agreements to repurchase
   
 
22
   
 
3
   
 
41
   
 
3
Federal Home Loan Bank advances
   
 
31
   
 
—  
   
 
63
   
 
—  
    
  
  
  
Total Interest Expense
   
 
703
   
 
959
   
 
1,426
   
 
1,948
Net Interest Income
   
$
2,141
   
$
1,761
   
$
4,195
   
$
3,370
Provision for Loan Losses
   
 
109
   
 
19
   
 
199
   
 
40
    
  
  
  
Net Interest Income after Provision for Loan Losses
   
$
2,032
   
$
1,742
   
$
3,996
   
$
3,330
    
  
  
  
Noninterest Income:
                            
Trust and financial services
   
$
120
   
$
134
   
$
232
   
$
259
Service charges on deposit accounts
   
 
274
   
 
100
   
 
545
   
 
196
Insurance commissions
   
 
29
   
 
22
   
 
40
   
 
29
Loan servicing fees
   
 
—  
   
 
1
   
 
l
   
 
1
Net gain on sale of loans
   
 
26
   
 
5
   
 
63
   
 
5
Other operating income
   
 
63
   
 
47
   
 
110
   
 
85
    
  
  
  
Total Noninterest Income
   
$
512
   
$
309
   
$
991
   
$
575
    
  
  
  
Noninterest Expenses:
                            
Salaries and employee benefits
   
$
920
   
$
735
   
$
1,710
   
$
1,515
Net occupancy expense of premises
   
 
84
   
 
68
   
 
158
   
 
133
Furniture and equipment expenses
   
 
129
   
 
106
   
 
238
   
 
199
Other operating expenses
   
 
425
   
 
353
   
 
820
   
 
689
    
  
  
  
Total Other Expenses
   
$
1,558
   
$
1,262
   
$
2,926
   
$
2,536
    
  
  
  
Income before Income Tax Expense
   
$
986
   
$
789
   
$
2,061
   
$
1,369
Income Tax Expense
   
 
351
   
 
289
   
 
737
   
 
497
    
  
  
  
Net Income
   
$
635
   
$
500
   
$
1,324
   
$
872
    
  
  
  
Earnings Per Share, basic and diluted
   
$
1.06
   
$
.83
   
$
2.21
   
$
1.45
    
  
  
  
 
 
See Notes to Consolidated Financial Statements

3

 
POTOMAC BANCSHARES, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For The Six Months Ended June 30, 2002 And 2001
(000 Omitted)
(Unaudited)
 
    
Common
Stock
   
Capital
Surplus
   
Undivided
Profits
     
Treasury
Stock
       
Accumulated
Other
Comprehensive
Income (Loss)
       
Comprehensive
Income
   
Total
  
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
 
                                                 
        
Total comprehensive income
                                                
$
1,063
         
                                                 
        
Cash dividends
   
 
—  
   
 
—  
   
 
(330
)
   
 
—  
 
     
 
—  
 
            
 
(330
)
    
  
  
  
    
           
Balances, June 30, 2001
   
$
600
   
$
5,400
   
$
12,550
 
   
$
—  
 
     
$
147
 
            
$
18,697
 
    
  
  
  
    
           
Balances, December 31, 2001
   
$
600
   
$
5,400
   
$
13,208
 
   
$
—  
 
     
$
209
 
            
$
19,417
 
Comprehensive income
                                                             
Net income
   
 
—  
   
 
—  
   
 
1,324
 
   
 
—  
 
     
 
—  
 
     
$
1,324
   
 
1,324
 
Other comprehensive income, unrealized holding gains arising during the period (net of tax, $103)
   
 
—  
   
 
—  
   
 
—  
 
   
 
—  
 
     
 
200
 
     
 
200
   
 
200
 
                                                 
        
Total comprehensive income
                                                
$
1,524
         
                                                 
        
Cash dividends
   
 
—  
   
 
—  
   
 
(420
)
   
 
—  
 
     
 
—  
 
            
 
(420
)
Purchase of treasury shares; 4,310
   
 
—  
   
 
—  
   
 
—  
 
   
 
(170
)
     
 
—  
 
            
 
(170
)
    
  
  
  
    
           
Balances, June 30, 2002
   
$
600
   
$
5,400
   
$
14,112
 
   
$
(170
)
     
$
409
 
            
$
20,351
 
    
  
  
  
    
           
 
 
See Notes to Consolidated Financial Statements

4

 
POTOMAC BANCSHARES, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
(Unaudited)
 
    
For the Six Months Ended
  
    
June 30, 2002
     
June 30, 2001
  
CASH FLOWS FROM OPERATING ACTIVITIES
                  
Net income
   
$
1,324
 
   
$
872
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Provision for loan losses
   
 
199
 
   
 
40
 
Depreciation
   
 
144
 
   
 
120
 
Deferred tax expense (benefit)
   
 
(96
)
   
 
—  
 
Discount accretion and premium amortization on securities, net
   
 
18
 
   
 
(16
)
Changes in assets and liabilities:
                  
(Increase) decrease in accrued interest receivable
   
 
8
 
   
 
(52
)
(Increase) in other assets
   
 
(132
)
   
 
(126
)
Proceeds from sale of loans
   
 
3,671
 
   
 
222
 
Origination of loans for sale
   
 
(3,475
)
   
 
(431
)
(Decrease) in accrued interest payable
   
 
(40
)
   
 
(25
)
Increase (decrease) in other liabilities
   
 
(40
)
   
 
121
 
    
  
Net cash provided by operating activities
   
$
1,581
 
   
$
725
 
    
  
CASH FLOWS FROM INVESTING ACTIVITIES
                  
Proceeds from maturity of securities held to maturity
   
$
3,000
 
   
$
6,000
 
Proceeds from maturity of securities available for sale
   
 
6,250
 
   
 
5,000
 
Purchase of securities held to maturity
   
 
—  
 
   
 
(9,035
)
Purchase of securities available for sale
   
 
(9,034
)
   
 
(8,078
)
Net (increase) in loans
   
 
(7,312
)
   
 
(9,362
)
Purchases of bank premises and equipment
   
 
(241
)
   
 
(234
)
Proceeds from sale of real estate
   
 
—  
 
   
 
13
 
    
  
Net cash (used in) investing activities
   
$
(7,337
)
   
$
(15,696
)
    
  
CASH FLOWS FROM FINANCING ACTIVITIES
                  
Net increase (decrease) in noninterest-bearing deposits
   
$
1,104
 
   
$
(1,069
)
Net increase in interest-bearing deposits
   
 
5,906
 
   
 
3,250
 
Net proceeds in securities sold under agreements to repurchase
   
 
117
 
   
 
536
 
Proceeds (repayment) of Federal Home Loan Bank advances
   
 
(153
)
   
 
2,500
 
Purchase of treasury shares, June 30, 2002; 4,310 shares
   
 
(170
)
   
 
—  
 
Cash dividends
   
 
(420
)
   
 
(330
)
    
  
Net cash provided by financing activities
   
$
6,384
 
   
$
4,887
 
    
  
Increase (decrease) in cash and cash equivalents
   
$
628
 
   
$
(10,084
)
CASH AND CASH EQUIVALENTS
                  
Beginning
   
 
15,729
 
   
 
23,419
 
    
  
Ending
   
$
16,357
 
   
$
13,335
 
    
  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                  
Cash payments for:
                  
Interest
   
$
1,466
 
   
$
1,973
 
    
  
Income taxes
   
$
924
 
   
$
423
 
    
  
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
                  
Unrealized gain on securities available for sale
   
$
303
 
   
$
289
 
    
  
 
See Notes to Consolidated Financial Statements

5

 
POTOMAC BANCSHARES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 (Unaudited) and December 31, 2001
 
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, 2002, and December 31, 2001, the results of operations for the three months ended June 30, 2002 and 2001, and the results of operations and cash flows for the six months ended June 30, 2002 and 2001. 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, 2001. The results of operations for the six month periods ended June 30, 2002 and 2001, are not necessarily indicative of the results to be expected for the full year.
 
2.  The amortized cost and fair value of securities being held to maturity as of June 30, 2002 and December 31, 2001 are as follows:
 
    
June 30, 2002
    
    Amortized     Cost
   
Gross Unrealized Gains
   
Gross Unrealized
(Losses)
   
Fair Value
    
(000 Omitted)
Obligations of U.S. Government agencies
   
$
16,004
   
$
428
   
$
—  
   
$
16,432
    
  
  
  
 
    
December 31, 2001
    
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized (Losses)
   
Fair Value
    
(000 Omitted)
Obligations of U.S. Government agencies
   
$
18,990
   
$
624
   
$
—  
   
$
19,614
    
  
  
  
 
The amortized cost and fair value of securities available for sale as of June 30, 2002 and December 31, 2001 are as follows:
 
    
June 30, 2002
    
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized (Losses)
   
Fair Value
    
(000 Omitted)
Obligations of U.S. Government agencies
   
$
33,144
   
$
619
   
$
—  
   
$
33,763
    
  
  
  
 
    
December 31, 2001
    
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized (Losses)
     
Fair Value
    
(000 Omitted)
Obligations of U.S. Government agencies
   
$
30,391
   
$
378
   
$
(61
)
   
$
30,708
    
  
  
  

6

 
3.  The consolidated loan portfolio, stated at face amount, is composed of the following:
 
    
June 30,
2002
   
December 31,
2001
    
(000 Omitted)
Mortgage loans on real estate:
              
Construction, land development and other land
   
$
1,375
   
$
530
Farmland
   
 
1,739
   
 
1,801
One to four family residential
   
 
62,815
   
 
56,283
Other
   
 
19,170
   
 
19,275
Loans to farmers (except those secured by real estate)
   
 
167
   
 
46
Commercial and industrial loans (except those secured by real estate)
   
 
3,489
   
 
2,952
Loans to individuals for personal expenditures
   
 
20,208
   
 
21,214
All other loans
   
 
684
   
 
288
    
  
Total loans
   
$
109,647
   
$
102,389
Less: Allowance for loan losses
   
 
1,546
   
 
1,402
    
  
    
$
108,101
   
$
100,987
    
  
 
4.  The following is a summary of transactions in the allowance for loan losses:
 
    
June 30,
2002
     
December 31,
2001
  
    
(000 Omitted)
  
Balance at beginning of period
   
$
1,402
 
   
$
1,268
 
Provision charged to operating expense
   
 
199
 
   
 
221
 
Recoveries added to the allowance
   
 
23
 
   
 
35
 
Loan losses charged to the allowance
   
 
(78
)
   
 
(122
)
    
  
Balance at end of period
   
$
1,546
 
   
$
1,402
 
    
  
 
5.  Information about impaired loans as of June 30, 2002 and December 31, 2001 is as follows:
 
    
June 30,
2002
     
December 31,
2001
    
(000 Omitted)
Impaired loans for which an allowance has been provided
   
$
—  
     
$
—  
Impaired loans for which no allowance has been provided
   
 
—  
     
 
—  
    
    
Total impaired loans
   
$
—  
     
$
—  
    
    
Allowance provided for impaired loans, included in the allowance for loan losses
   
$
—  
     
$
—  
    
    
Average balance in impaired loans
   
$
—  
     
$
14
    
    
Interest income recognized
   
$
—  
     
$
1
    
    
 
Nonaccrual loans excluded from impaired loan disclosures under FASB 114 amounted to $51,144 at June 30, 2002 and $9,060 at December 31, 2001. If interest on these loans had been accrued, such income would have been $1,759 for the first six months of 2002 and $497 in 2001.
 

7

 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
CRITICAL ACCOUNTING POLICIES
 
General
 
The Corporation’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
 
Allowance for Loan Losses
 
The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
 
Our allowance for loan losses has two basic components: the formula allowance and the unallocated allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The formula allowance uses a historical loss view as an indicator of future losses and, as a result, could differ from the loss incurred in the future. However, since this history is updated with the most recent loss information, the errors that might otherwise occur are mitigated. The unallocated allowance captures losses that are attributable to various economic events, industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in the formula allowance.
 
FINANCIAL OVERVIEW
 
Between December 31, 2001 and June 30, 2002, total assets increased $8,000,000. Investments (held to maturity and available for sale) have remained stable. Loans have increased $7,000,000. Growth in deposits of $7,000,000 has funded the growth in loans.
 
The June 30 annualized return on average assets is 1.50% compared to 1.27% at December 31. At June 30 the annualized return on average equity is 13.32% compared to 10.68% at December 31. The leverage capital (equity to assets) ratio is 11.25% at June 30 compared to 11.30% 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. The loan policy regarding the grading and review system has recently been revised to enhance procedures for our growing portfolio of commercial loans as well as to update procedures for all other loans. Written reports are prepared on a quarterly basis for all loans except the commercial portfolio. Information on commercial loans graded below a certain level are reported to the Board of Directors on a monthly basis. Based on experience, the loan policies, and the Bank’s grading and review system, management believes the loan loss allowance is adequate.

8

 
      
June 30, 2002
  
      
(000 Omitted)
  
Balance at beginning of period
     
$
1,402
 
Charge-offs:
           
Commercial, financial and agricultural
     
 
—  
 
Real estate—construction
     
 
—  
 
Real estate—mortgage
     
 
—  
 
Consumer
     
 
78
 
      
Total charge-offs
     
 
78
 
      
Recoveries:
           
Commercial, financial and agricultural
     
 
—  
 
Real estate—construction
     
 
—  
 
Real estate—mortgage
     
 
—  
 
Consumer
     
 
23
 
      
Total recoveries
     
 
23
 
      
Net charge-offs
     
 
55
 
Additions charged to operations
     
 
199
 
      
Balance at end of period
     
$
1,546
 
      
Ratio of net charge-offs during the period to average loans outstanding during the period
     
 
.0519
%
      
 
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.
 
      
June 30, 2002
  
      
(000 Omitted)
  
Nonaccrual loans
     
$
51
 
Restructured loans
     
 
—  
 
Foreclosed properties
     
 
—  
 
      
Total nonperforming assets
     
$
51
 
      
Loans past due 90 days accruing interest
     
$
1
 
      
Allowance for loan losses to period end loans
     
 
1.41
%
      
Nonperforming assets to period end loans and foreclosed properties
     
 
.05
%
      
 
At June 30, 2002, other potential problem loans (excluding impaired loans) totalled $658,245. 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.
 
The overall increase in deposits at June 30 compared to December 31 was $7,000,000. Noninterest bearing accounts increased $1,100,000 helping to stabilize our cost of funds. Select checking balances increased by $4,500,000. This account has the flexibility of a NOW account yet pays a higher rate of interest on balances over $5,000, a rate at this time considerably higher than other checking accounts. Customers have access to their funds yet are still earning a decent return. Certificates of deposit have increased slightly by $500,000. Now accounts, money market accounts and savings deposits have remained stable since December 31.
 
The comparison of the income statements for the three months and six months ended June 30, 2002 and 2001 shows similar changes in most income and expense categories. Net interest income in 2002 increased 20% when comparing the six month figures to 2001. Interest income has increased due to increased loan fees and increased loan volume. Interest expense has decreased due to decreased interest rates. Net income for the six month period in 2002 has increased over 50% when compared to 2001.

9

 
Noninterest income has increased 72% in 2002 compared to 2001. The increase is due in large to fees generated through an overdraft protection program for customers that was started in December 2001. Additional increases were from secondary market fee income and commissions from increased sales of loan related insurance. These increases counteracted the 10% decrease in fiduciary fees in 2002 compared to 2001.
 
Noninterest expense increased 15% in 2002 compared to 2001 for the six month period. Salaries and benefits increased 13% due to annual salary increases, some higher paid personnel, additional personnel, and loan and other incentive programs. Occupancy, furniture and equipment expenses increased 19% in 2002 due to the addition of a branch office, improvements at the two previously existing branch offices and continual updating of technological equipment. Other operating expenses increased 19% in 2002 compared to 2001. Advertising expense increased due to increased volumes and more strategic ads. A number of expense increases can be attributed to growth such as postage, printing and stationery, telephone, and check card expenses. Training and study expenses have increased due to more emphasis on improving employee capabilities to perform jobs.
 
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 were used to fund investing activities. Financing activities provided funds with increased deposits and increased securities sold under agreements to repurchase. Cash and cash equivalents increased slightly during this period and liquidity of the Corporation is 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 23, 2002 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 2002.
 
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 For
   
Votes
Against
   
Votes
Withheld
   
Total
1.  Robert F. Baronner, Jr.
   
435,868
   
None
   
9,244
   
445,112
Robert W. Butler
   
431,555
   
None
   
13,557
   
445,112
Guy Gareth Chicchirichi
   
435,881
   
None
   
9,231
   
445,112
Thomas C. G. Coyle
   
431,555
   
None
   
13,557
   
445,112
2.  Ratification of accountants
   
436,708
   
7,998
   
406
   
445,112
 
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

11

 
19.  
   
Reports furnished to security holders.
    
Not applicable
22.  
   
Published report regarding matters submitted to vote of security holders.
    
Not applicable
23.  
   
Consent of experts and counsel.
    
Not applicable
  24.  
   
Power of attorney.
    
Not applicable
99.1
   
Certification Pursuant to 18 U.S.C. Section 1350, Chief Executive Officer
99.2
   
Certification Pursuant to 18 U.S.C. Section 1350, Chief Financial Officer
 
(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.
/s/    ROBERT F. BARONNER, JR.        
Robert F. Baronner, Jr.,
President & CEO
 
Date August 9 , 2002
 
/s/    L. GAYLE MARSHALL JOHNSON        
L. Gayle Marshall Johnson,
Vice President & Chief Financial Officer
 
Date August 9, 2002

13
EX-99.1 3 dex991.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Potomac Bancshares, Inc. (the "Corporation") on Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert F. Baronner, Jr., Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. /s/ Robert F. Baronner, Jr. Robert F. Baronner, Jr. Chief Executive Officer August 9, 2002 EX-99.2 4 dex992.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Potomac Bancshares, Inc. (the "Corporation") on Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, L. Gayle Marshall Johnson, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. /s/ L. Gayle Marshall Johnson L. Gayle Marshall Johnson Chief Financial Officer August 9, 2002 -----END PRIVACY-ENHANCED MESSAGE-----