Potomac Bancshares Reports Fourth Quarter and Record Full-Year 2025 Results

Fourth Quarter Highlights

Key highlights of the three-month period ending December 31, 2025, are as follows. Comparisons are to the three-month period ending September 30, 2025, unless otherwise noted:

• Net income increased 2%, and 31% year‑over‑year
• Return on assets was 0.97%
• Return on equity was 11.51%
• Loan balances increased 3% during the quarter, and increased 7% year-over-year
• Deposit balances decreased 2% as expected, but increased 8% year‑over‑year
• Asset quality metrics improved with nonperforming assets decreasing to zero
• Tangible book value per share increased 12% year‑over‑year to $19.88
• Quarterly cash dividend on common stock remained $0.13 per share

Net Interest Income

Net interest income was $8.8 million for the fourth quarter of 2025, up 9% from the third quarter of 2025, and was attributable to an increase in average earning assets, an increase in net interest margin, and the recognition of interest income from the payoff of nonaccrual loans during the period. Net interest income was higher as total interest income increased by $527 thousand and total interest expense decreased by $193 thousand.

The increase in interest income was primarily the result of $405 thousand of interest income recognized from prior periods on nonaccrual loans that were paid off during the fourth quarter, as well as an increase in other interest and dividend income. Higher average balances of interest-bearing deposits in other financial institutions resulted in an increase in other interest and dividend income. The decrease in interest expense was attributable to a decrease in the Bank's cost of deposits during the period.

The net interest margin, excluding the recognition of interest income on nonaccrual loans attributable to prior periods, increased slightly to 3.55% for the period, up from 3.54% for the third quarter of 2025.

Noninterest Income

Noninterest income totaled $2.0 million for the fourth quarter, up 7% from the third quarter of 2025, reflecting higher wealth and investment income, gains and fees on mortgage loan sales, and increased service charges on deposits. Gains on the sale of mortgage loans totaled $443 thousand, which was up 9% over the third quarter of 2025 and totaled $1.4 million for the year, which was a 46% increase over the prior year.

Noninterest Expense

Noninterest expense totaled $7.5 million for the fourth quarter, up 10% from the third quarter of 2025, with the linked-quarter increase primarily driven by higher salaries and employee benefits, marketing, other professional fees, and other operating costs. The increase in salaries and employee benefits was attributable to the addition of new employee positions and additional incentives related to exceeding performance goals. Incentive expense increased by $365 thousand in the fourth quarter compared to the third quarter of 2025. Marketing expenses, other professional fees, and other operating costs increased over the third quarter of 2025 and were impacted by expenses related to the Bank's renaming initiative. Renaming expenses totaled $154 thousand for the quarter compared to $82 thousand for the third quarter of 2025.

Asset Quality

Overview

Loans 30 to 89 days past due decreased slightly to $677 thousand, while loans over 90 days past due increased slightly from zero to $18 thousand at quarter end. Substandard loans decreased from $1.1 million to $455 thousand. Nonperforming assets decreased to zero during the fourth quarter.

Provision for Credit Losses

Provision for credit losses totaled $250 thousand for the fourth quarter of 2025 compared to $200 thousand in the third quarter of 2025. Net charge-offs remained low at $18 thousand for the quarter, compared to $13 thousand in the third quarter of 2025. While there were no changes in the specific reserve component of the allowance for credit losses and remained at zero, the general reserve component increased during the fourth quarter of 2025 primarily from growth of the loan portfolio.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans totaled $7.8 million, or 1.04% of total loans on December 31, 2025, compared to $7.5 million, or 1.03% of total loans on September 30, 2025.

The following table provides the changes in the allowance for credit losses on loans for the three-month periods ended:

Allowance for Credit Losses on Unfunded Commitments

The allowance for credit losses on unfunded commitments totaled $430 thousand on December 31, 2025, and $489 thousand on September 30, 2025. The recovery of credit losses on unfunded commitments was $59 thousand, compared to the provision for credit losses on unfunded commitments that totaled $40 thousand for the third quarter of 2025.

Balance Sheet

Total assets were $944.1 million on December 31, 2025, compared to $962.0 million on September 30, 2025, and $877.3 million year-over-year. Total loans (gross) were $751.6 million, up 3% from the prior quarter and 7% year-over-year. Deposits totaled $813.0 million, down 2% for the linked quarter and up 8% year-over-year.

Total (gross) loans increased $19.5 million, or 11% annualized, from the third quarter of 2025, while quarterly average loans decreased $4.0 million. The increase in loans was primarily attributable to a $13.7 million increase in other real estate loans (CRE) and a $5.2 million increase in commercial and industrial loans. On a year-over-year basis, total loans increased $47.5 million, or 7%.

Deposits decreased $20.4 million from the third quarter of 2025. The decrease was primarily attributable to noninterest-bearing deposits from one client's short-term escrow deposit made during the third quarter. Average total deposits totaled $837.3 million for the quarter, up $28.5 million from the third quarter of 2025. Compared to December 31, 2024, total deposits increased $58.7 million, or 8%.

Securities available for sale totaled $80.9 million, up $3.0 million from September 30, 2025, and up $3.5 million year-over-year. Net unrealized losses on the securities portfolio totaled $4.8 million, which was a decrease of $268 thousand from the third quarter of 2025 and a decrease of $2.8 million year-over-year.

Other borrowings totaled $31.5 million, compared to $32.0 million on September 30, 2025, and $34.2 million on December 31, 2024. This included $29.0 million borrowed from the Federal Home Loan Bank of Pittsburgh, with a weighted average fixed interest rate of 4.21% and maturities ranging from 2026 to 2028.

Total shareholders' equity totaled $82.4 million, an increase of $2.0 million, or 10%, annualized from September 30, 2025, and $9.0 million, or 12%, from December 31, 2024. These increases were primarily driven by growth in retained earnings, which increased $1.8 million quarter-over-quarter and $6.8 million year-over-year. Accumulated other comprehensive loss decreased by $194 thousand from the prior quarter and $2.1 million from the prior year.

Capital ratios remained strong at the end of the quarterly periods:

Dividends

During the fourth quarter of 2025, the Company paid a quarterly cash dividend of $0.13 per common share, unchanged from the third quarter and up $0.01 per share, or 8%, from the first quarter of 2025.

Stock Repurchase Plan

On October 19, 2025, the Company's board of directors authorized a stock repurchase plan pursuant to which Potomac Bancshares, Inc. may repurchase up to the aggregate of 100,000 shares or $2.0 million of the Company's outstanding common stock. The plan ends on October 19, 2027, unless the entire amount authorized to be repurchased has been acquired before that date. There were no repurchases of common stock during the fourth quarter of 2025.

Renaming Initiative

On November 3, 2025, Bank of Charles Town was renamed Potomac Bank, reflecting the Bank's growth and expanding regional presence across the Potomac River region, while also better aligning its brand with the holding company. The transition was a natural progression that honored the Bank's heritage and values while celebrating the shared connection that unites the Bank's identity with its clients, employees, communities, and shareholders.

Non-GAAP Financial Measures

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures that management believes provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is included at the end of this release.

About Potomac Bancshares

Potomac Bancshares, Inc. (OTCID: PTBS) is the bank holding company of Potomac Bank, Inc., which was founded in 1871 as Bank of Charles Town and renamed Potomac Bank on November 3, 2025. The Bank conducts operations through its nine-branch network and two loan production offices serving the eastern panhandle of West Virginia, Washington County, Maryland, and northern Virginia. The Bank offers comprehensive financial solutions through its consumer and commercial banking divisions, Trust, Wealth, and BCT Investments divisions, and its Residential Lending mortgage division. The Bank is also proud to serve its communities as a Small Business Administration (SBA) Preferred Lender. Over the past several years, the Bank has received many awards and recognitions, including American Banker's "Top 200 Community Banks" and "Best Banks to Work For", the Journal-News "Best of the Best" award, and the LoudounNow "Loudoun's Favorite" award. 

The Company's shares are quoted on the OTCID marketplace under the symbol "PTBS." For more information about Potomac Bancshares, Inc., and the Bank, please visit our website at www.potomac.bank.

Forward-Looking Statements

Certain statements made in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about events or results or otherwise are not statements of historical facts, such as statements about the Company's growth strategy and deployment of capital. Although the Company believes that its expectations with respect to such forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, but are not limited to, the following: (1) general economic conditions, especially in the communities and markets in which the Company conducts its business; (2) credit risk, including risk that negative credit quality trends may lead to a deterioration of asset quality, risk that our allowance for credit losses may not be sufficient to absorb actual losses in the Company's loan portfolio, and risk from concentrations in the Company's loan portfolio; (3) changes in the real estate market, including the value of collateral securing portions of the Company's loan portfolio; (4) changes in the interest rate environment; (5) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; (6) changes in technology and increased competition, including competition from non-bank financial institutions; (7) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers' performance and creditworthiness; (8) difficulty growing loan and deposit balances; (9) the Company's ability to effectively execute its business plan; (10) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their subsidiaries, including changes in deposit insurance premiums; (11) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions; (12) regulatory enforcement actions and adverse legal actions; (13) difficulty attracting and retaining key employees; and (14) other economic, competitive, technological, operational, governmental, regulatory, and market factors affecting the Company's operations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise, except as required by applicable law.