Potomac Bancshares, Inc. (OTC: PTBS), the one bank holding Company for Bank of Charles Town (BCT), for the quarter ended December 31, 2020 earned $1.142 million or $0.28 per share compared to $0.859 million or $0.21 per share for the quarter ended December 31, 2019, an increase of 33.3%. Net income for the year ended December 31, 2020 was $3.785 million or $0.92 per share compared to $3.213 million or $0.78 per share for the same period in 2019, an increase of 17.9%.

"The resiliency of the BCT team shined as we did not allow historic low interest rates, economic uncertainty or our pandemic response hinder our ability to post record results for 2020," stated Alice P. Frazier, President and CEO. "Core loan and deposit growth through new banking relationships, aggressive decreases in deposit rates and expense management all contributed to our 17.9% growth in earnings despite significantly higher loan loss provisions. In addition to the financial results presented below, we successfully converted to an enhanced digital banking system in the fourth quarter as we execute upon our digital strategy. I am proud of the team's ability to achieve our goals and operational excellence in these challenging times."

Balance Sheet Highlights

• Total assets were up to $620.7 million as of December 31, 2020, a $104.8 million increase or 20.3% over December 31, 2019.
• Total investment securities increased $12.6 million to $63.2 million as of December 31, 2020 compared to $50.6 million as of December 31, 2019.
• Total loans were $494.0 million which is an increase of $81.5 million, or 19.8% over December 31, 2019. Excluding PPP loans, total loans grew $34.9 million since December 31, 2019, an 8.5% increase. Commercial loans increased $21.8 million in Q4 2020, an increase of 8.7% over Q3 2020.
• Deposits and cash management accounts were $551.5 million, an increase of $99.7 million over December 31, 2019, or 22.1%. Noninterest-bearing deposits increased $35.7 million, or 50.9%, to end at $105.7 million as of December 31, 2020. The increase is primarily attributable to new product initiatives, stimulus funds, and to a minor extent PPP deposits.
• A Federal Home Loan Bank Advance of $5.0 million with a rate of 2.2% was prepaid mid fourth quarter 2020. The Company incurred $142 thousand of expense associated with the prepayment penalty.
• The Tier 1 leverage capital ratio for the Bank of Charles Town was 10.23% on December 31, 2020 compared to 10.48% on December 31, 2019. The Company successfully raised $10 million in subordinated debt in September 2020 and subsequently transferred $7.5 million to BCT in October 2020.

Income Statement Highlights

• Net interest income was $4.701 million for Q4 2020, an increase of $0.497 million, or 11.8% compared to same period of 2019. For the full year, net interest income increased 9.5% to $17.8 million compared to $16.3 million for 2019.
• The net interest margin was 3.07% for Q4 2020 compared to 3.38% for Q4 2019. The net interest margin improved 6 basis points up from the 3.01% recorded in the quarter ended September 30, 2020. The net interest margin was impacted on a full year basis in 2020 by the Federal Reserve rate cuts, significant buildup in liquidity, and in Q4 2020 from our subordinated debt issuance in September. The improved margin in Q4 2020 over Q3 2020 resulted from a continued decrease in cost of deposits to 0.45% for Q4 2020 compared to 0.84% for Q4 2019, accelerated amortization from PPP loan forgiveness, and a reduction in liquidity by moving to higher earning assets with growth in securities of $9.9 million and loans of $24.2 million (excluding PPP loans). Actions to further reduce deposit costs and to deploy excess liquidity into higher earning assets will continue into 2021.
• Key components of non-interest income include trust fees, deposit service charges, debit card interchange fees, secondary market mortgage fees, earnings on bank owned life insurance (BOLI), and other income.
  • Non-interest income for Q4 2020 was $1.570 million, an increase of 3.0% compared to Q4 2019 at $1.524 million. Increases in secondary market income were 11.4% to $0.419 million, interchange fees were up 19.9% to $0.404 million, and other operating income was up 42.0% to $0.159 million. These increases were partly offset by decreases in trust and financial services being down 13.2% to $0.310 million and service charges on deposits being down 22.8% to $0.233 million. Market volatility and a restructuring of our trust and financial services business unit resulted in the decline in revenues, however this has been partly offset by a reduction in salaries and benefit expense.
  • Non-interest income for the full year 2020 was $5.753 million, up $0.288 million or 5.3% over 2019. Secondary market income was $1.364 million, an increase of $0.314 million or 30.0%. Interchange fees were up 8.0% to $1.495 million. Other operating income was up 95.9% to $0.664 million and was partly offset by decreases in trust and financial services being down 12.3% to $1.170 million and service charges on deposits being down 25.0% to $0.880 million. Deposit service charges including overdraft fees were significantly impacted by COVID in the second quarter. Mortgage loan originations reached record levels driving a 44.9% increase to $116.9 million compared to $80.7 million the year before. Approximately 63.6% of the mortgage loan production was sold into the secondary market during 2020 compared to 73.1% in 2019, as part of a strategic initiative to increase portfolio loans.
• Non-interest expense was $4.664 million for Q4 2020, a 3.6% increase compared to $4.501 million for Q4 2019. Excluding the one-time expenses associated with the prepayment penalty of $142 thousand and the digital banking conversion of $61 thousand, non-interest expenses decreased 0.89% compared to Q4 2019. Increases in salaries and benefits (1.6 %), computer services and online banking (26.8%), other professional fees (34.6%), printing and supplies (43.1%), and other operating expenses (27.5%) were partly offset by decreases in net occupancy expense (8.2%), marketing (42.7%), and legal fees (57.9%).
• For the full year 2020, non-interest expense was $17.3 million, an increase of 0.8% compared to $17.2 million for the full year 2019. Decreases in third party contract renewals, and better overhead management offset increases in digital banking implementation costs and related customer communications, salaries and benefits, and a prepayment penalty of $142 thousand on the early payoff of a $5.0 million FHLB Advance. Full year one-time costs of the digital banking launch approximated $131 thousand.

Paycheck Protection Program (PPP)

• As of December 31, 2020, PPP loans outstanding, net were $46.6 million. Originations in 2020 were 561 loans for $55 million. The Company began accepting applications for Round 2 of PPP on January 22, 2021.

Loan Payment Deferrals, Non-Performing Assets and Allowance for Loan Losses

• Commercial and consumer loans participating in the loan deferment program under the Cares Act totaled $20.2 million as of December 31, 2020 or 4.5% of the loan portfolio excluding PPP loans. This is a decrease from $22.4 million or 5.3% as of September 30, 2020 and $63.8 million or 15.1% as of June 30, 2020. As of December 31, 2020, $19.5 million on deferral are commercial loans. The Company monitors monthly the impact of the pandemic to these remaining borrowing relationships and remains confident each will return to normal payments. As of January 25, 2021, total loans on deferral have been reduced to $14.8 million, and now represent 3.3% of total loans (excluding PPP loans).
• Non-performing assets as a percentage of total assets including other real estate owned (OREO) was 0.02% as of December 31, 2020, down from 0.04% as of September 30, 2020 and 0.19% as of December 31, 2019. There was no other real estate owned as of December 31, 2020.
• Loans identified as troubled debt restructurings reduced 37.2% during 2020 to $1.0 million at year end.
• Net loan recoveries for the quarter were 0.015% compared to net loan charge offs of 0.016% in Q4 2019. Year to date net loan recoveries were 0.050% compared to net charge offs in 2019 of 0.007%.
• The provision for loan losses in Q4 2020 was $150 thousand compared to $132 thousand in Q4 2019. The full year loan loss provision was $1.441 million compared to $0.474 million in 2019. The allowance to loans (excluding PPP loans) was 1.20% as of December 31, 2020 compared to 0.90% as of December 31, 2019. The allowance to loans (excluding PPP loans) as of Q3 2020 was 1.23%.

At our January 2021 Board meeting, Potomac Bancshares, Inc. Board of Directors declared a $0.07 per share dividend payable to shareholders of record as of February 3, 2021 for payment on February 10, 2021.

About the Company

Founded in 1871, BCT - Bank of Charles Town, also known as The Community's Bank, is a wholly owned subsidiary of Potomac Bancshares, Inc. (OTC:PTBS). The Company conducts operations through its main office, an additional eight branch offices, and one loan production office. BCT's offices are located in Jefferson and Berkeley Counties (WV), Washington County (MD), and Loudoun County (VA). The Bank provides various banking products and services including free access to over 55,000 ATMs through the Allpoint® network plus online and mobile banking for individuals, businesses, and local governments. The Bank also offers commercial lines and term loans, residential and commercial construction, commercial real estate loans and agricultural loans. The Residential Lending division offers secondary market and portfolio mortgage loans, one-time close construction to perm loans, as well as home equity loans and lines of credit. For over 60 years, BCT Wealth Advisors has provided financial management, investment, trust, and estate services to its clients. In 2019 and 2020, the Bank was named a "Best Bank To Work For" by American Banker. In 2018, Forbes named BCT a "Best In State Bank" for Maryland.

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