UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2004
Commission File Number 0-24958
POTOMAC BANCSHARES, INC.
(Exact name of registrant 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
PO Box 906
Charles Town WV 25414
(Address of principal executive offices) (zip code)
304-725-8431
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
As of November 5, 2004, Potomac Bancshares, Inc. had 1,696,561 shares of common stock outstanding.
FORM 10-Q
September 30, 2004
INDEX
| PAGE | ||||
| PART I. |
||||
| Item 1. |
||||
| Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003 (Audited) |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 – 10 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
10 | ||
| Item 3. |
14 | |||
| Item 4. |
15 | |||
| Part II. |
||||
| Item 1. |
15 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities. |
15 | ||
| Item 5. |
16 | |||
| Item 6. |
16 | |||
| Signatures | 17 | |||
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 evidences Congress’ determination that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by corporate management. This Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve risk and uncertainty. “Forward-looking statements” are easily identified by the use of words such as “could,” “anticipate,” “estimate,” “believe,” and similar words that refer to a future outlook. To comply with the terms of the safe harbor, the company notes that a variety of factors could cause the company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the company’s forward-looking statements.
The risks and uncertainties that may affect the operations, performance, development and results of the company’s business include, but are not limited to, the growth of the economy, interest rate movements, the impact of competitive products, services and pricing, customer business requirements, Congressional legislation and similar matters. We caution readers of this report not to place undue reliance on forward-looking statements which are subject to influence by the named risk factors and unanticipated future events. Actual results, accordingly, may differ materially from management expectations.
2
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
| (Unaudited) September 30 |
December 31 2003 | |||||
| Assets: |
||||||
| Cash and due from banks |
$ | 11 301 | $ | 102 98 | ||
| Interest-bearing deposits in financial institutions |
82 | 336 | ||||
| Securities purchased under agreements to resell and federal funds sold |
495 | 2 390 | ||||
| Securities held to maturity (fair value $6,039 at December 31, 2003) |
— | 6 001 | ||||
| Securities available for sale, at fair value |
46 867 | 38 425 | ||||
| Loans held for sale |
494 | 564 | ||||
| Loans, net of allowance for loan losses of $1,948 and $1,724 respectively |
163 072 | 138 334 | ||||
| Bank premises and equipment, net |
5 269 | 4 992 | ||||
| Accrued interest receivable |
914 | 909 | ||||
| Other assets |
4 737 | 4 394 | ||||
| Total Assets |
$ | 233 231 | $ | 206 643 | ||
| Liabilities and Stockholders’ Equity: |
||||||
| Liabilities: |
||||||
| Deposits |
||||||
| Noninterest-bearing deposits |
$ | 32 858 | $ | 25 396 | ||
| Interest-bearing deposits |
165 615 | 147 860 | ||||
| Total Deposits |
198 473 | 173 256 | ||||
| Accrued interest payable |
189 | 128 | ||||
| Securities sold under agreements to repurchase and federal funds purchased |
9 650 | 9 199 | ||||
| Federal Home Loan Bank advances |
1 458 | 1 715 | ||||
| Other liabilities |
1 074 | 1 013 | ||||
| Total Liabilities |
$ | 210 844 | $ | 185 311 | ||
| Stockholders’ Equity: |
||||||
| Common stock, $1 per share par value; 5,000,000 shares authorized; 1,800,000 shares issued |
$ | 1 800 | $ | 1 800 | ||
| Surplus |
4 200 | 4 200 | ||||
| Undivided profits |
18 070 | 16 543 | ||||
| Accumulated other comprehensive income, net |
168 | 498 | ||||
| $ | 24 238 | $ | 23 041 | |||
| Less cost of shares acquired for the treasury, 2004, 103,439 shares; 2003, 97,329 shares |
1 851 | 1 709 | ||||
| Total Stockholders’ Equity |
$ | 22 387 | $ | 21 332 | ||
| Total Liabilities and Stockholders’ Equity |
$ | 233 231 | $ | 206 643 | ||
See Notes to Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(000 omitted except for per share data)
(Unaudited)
| For the Three Months Ended September 30 |
For the Nine Months Ended September 30 | |||||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||||
| Interest and Dividend Income: |
||||||||||||||
| Interest and fees on loans |
$ | 2 688 | $ | 2 242 | $ | 7 486 | $ | 6 548 | ||||||
| Interest on securities held to maturity - taxable |
— | 75 | 35 | 284 | ||||||||||
| Interest on securities available for sale - taxable |
402 | 357 | 1 163 | 1 133 | ||||||||||
| Interest on secuirities available for sale – nontaxable |
2 | — | 2 | — | ||||||||||
| Interest on securities purchased under agreements to resell and federal funds sold |
2 | 7 | 29 | 36 | ||||||||||
| Other interest and dividends |
2 | 3 | 6 | 16 | ||||||||||
| Total Interest and Dividend Income |
$ | 3 096 | $ | 2 684 | $ | 8 721 | $ | 8 017 | ||||||
| Interest Expense: |
||||||||||||||
| Interest on deposits |
$ | 539 | $ | 464 | $ | 1 510 | $ | 1 498 | ||||||
| Interest on securities sold under agreements to repurchase and federal funds purchased |
60 | 42 | 151 | 125 | ||||||||||
| Federal Home Loan Bank advances |
21 | 26 | 66 | 80 | ||||||||||
| Total Interest Expense |
$ | 620 | $ | 532 | $ | 1 727 | $ | 1 703 | ||||||
| Net Interest Income |
$ | 2 476 | $ | 2 152 | $ | 6 994 | $ | 6 314 | ||||||
| Provision for Loan Losses |
131 | 64 | 264 | 148 | ||||||||||
| Net Interest Income after Provision for Loan Losses |
$ | 2 345 | $ | 2 088 | $ | 6 730 | $ | 6 166 | ||||||
| Noninterest Income: |
||||||||||||||
| Trust and financial services |
$ | 211 | $ | 135 | $ | 610 | $ | 393 | ||||||
| Service charges on deposit accounts |
389 | 316 | 1 114 | 863 | ||||||||||
| BCT Visa/MC Fees |
48 | 28 | 126 | 78 | ||||||||||
| Gain (loss) on sale of securities available for sale |
(28 | ) | 19 | (26 | ) | 99 | ||||||||
| Net gain on sale of loans |
46 | 98 | 119 | 318 | ||||||||||
| Cash surrender value of life insurance |
36 | 43 | 105 | 123 | ||||||||||
| Other operating income |
102 | 105 | 267 | 243 | ||||||||||
| Total Noninterest Income |
$ | 804 | $ | 744 | $ | 2 315 | $ | 2 117 | ||||||
| Noninterest Expenses: |
||||||||||||||
| Salaries and employee benefits |
$ | 1 044 | $ | 951 | $ | 2 996 | $ | 2 910 | ||||||
| Net occupancy expense of premises |
103 | 85 | 300 | 286 | ||||||||||
| Furniture and equipment expenses |
229 | 262 | 642 | 667 | ||||||||||
| Stationery and supplies |
31 | 42 | 94 | 136 | ||||||||||
| Communications |
37 | 37 | 111 | 104 | ||||||||||
| Legal and professional |
68 | 23 | 126 | 63 | ||||||||||
| Postage |
37 | 35 | 112 | 105 | ||||||||||
| Advertising and marketing |
65 | 56 | 147 | 162 | ||||||||||
| ATM and check card expenses |
51 | 44 | 143 | 122 | ||||||||||
| Other operating expenses |
304 | 250 | 866 | 711 | ||||||||||
| Total Noninterest Expenses |
$ | 1 969 | $ | 1 785 | $ | 5 537 | $ | 5 266 | ||||||
| Income before Income Tax Expense |
$ | 1180 | $ | 1 047 | $ | 3 508 | $ | 3 017 | ||||||
| Income Tax Expense |
432 | 361 | 1 243 | 1 049 | ||||||||||
| Net Income |
$ | 748 | $ | 686 | $ | 2 265 | $ | 1 968 | ||||||
| Earnings Per Share, basic and diluted |
$ | .44 | $ | .40 | $ | 1.33 | $ | 1.11 | ||||||
See Notes to Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(000 Omitted)
(Unaudited)
| Common Stock |
Surplus |
Undivided Profits |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Comprehensive Income |
Total |
|||||||||||||||||||||
| Balances, December 31, 2002 |
$ | 600 | $ | 5 400 | $ | 14 801 | $ | (248 | ) | $ | 759 | $ | 21 312 | ||||||||||||||
| Comprehensive income |
|||||||||||||||||||||||||||
| Net income |
— | — | 1 968 | — | — | $ | 1 968 | 1 968 | |||||||||||||||||||
| Other comprehensive income: |
|||||||||||||||||||||||||||
| unrealized holding (losses) arising during the period (net of tax, $116) |
— | — | — | — | (227 | ) | (227 | ) | (227 | ) | |||||||||||||||||
| Reclassification for gains included in net income (net of tax, $34) |
— | — | — | — | (65 | ) | (65 | ) | |||||||||||||||||||