Jefferson Security Bank (OTCPK: JFWV) reported unaudited financial results for the fourth quarter and year ended December 31, 2022. Net income for the fourth quarter of 2022 was $1.3 million, representing an increase of $415 thousand, or 44.82%, when compared to net income of $926 thousand for the quarter ended December 31, 2021. Basic and diluted earnings per common share was $4.86 for the fourth quarter of 2022, compared to $3.36 for the same period in 2021.

Net income for the year ended December 31, 2022 totaled $3.9 million, representing an increase of $286 thousand or 8.01% when compared to $3.6 million for the year ended December 31, 2021. Basic and diluted earnings per common share was $14.01 and $12.93 for the year ended December 31, 2022 and 2021, respectively. Return on average assets and return on average equity for December 31, 2022 was 0.87% and 16.37%, respectively, compared to 0.87% and 11.43%, respectively, for December 31, 2021.

“We are pleased to report record earnings for the fifth consecutive year,” said President and Chief Executive Officer, Cindy Kitner. “Throughout the year, we experienced organic growth, including record loan originations, while asset quality remained strong with loss rates at historically low levels. Our net interest margin has improved throughout the year and expense management remains a focus. As we navigate an uncertain environment in the short term, our focus on our long term goals and our core values drives our strategic initiatives. I am extremely proud of our team and their commitment to exceptional customer service.”

Net Interest Income

For the fourth quarter of 2022, net interest income totaled $3.8 million, representing an increase of $995 thousand, or 35.52%, from $2.8 million for the fourth quarter of 2021. For the year ended December 31, 2022, net interest income totaled $13.0 million, representing an increase of $1.7 million, or 14.91%, from $11.3 million for the year ended December 31, 2021. The increase in net interest income was driven by significant loan growth, higher yields on earning assets and an interest recovery from one customer relationship, which were in part offset by higher interest expense as interest bearing deposit balances increased and repriced due to the continued rise in market interest rates and increasing competition. For the year ended December 31, 2022, the net interest margin was 3.08%, representing an increase of 21 basis points when compared to 2.87% for the year ended December 31, 2021.

Balance Sheet

As of December 31, 2022, total assets increased $34.5 million, or 8.07%, to $461.2 million compared to total assets of $426.8 million as of December 31, 2021. Loans, net of the allowance for loan losses, increased $59.4 million or 24.28% to $304.2 million as of December 31, 2022, compared to $244.8 million as of December 31, 2021. Deposits totaled $414.8 million at December 31, 2022, representing an increase of $24.1 million or 6.16%, when compared to $390.7 million at December 31, 2021. As of December 31, 2022, book value per share declined to $81.64 per share compared to $119.52 per share at December 31, 2021. The reasons for this decline are set forth under the Capital section below.

Asset Quality

The Bank’s asset quality was strong at December 31, 2022 with noncurrent assets totaling $55 thousand, or 0.01% of total assets. This represents a decline from noncurrent assets totaling $892 thousand, or 0.21% of total assets at December 31, 2021. Nonaccrual loans totaled $55 thousand and $618 thousand at December 31, 2022 and 2021, respectively. Past due loans still accruing interest totaled $17 thousand with no loans past due 90 days or more at December 31, 2022. This represents an improvement from $303 thousand in past due loans still accruing interest with $274 thousand in loans past due 90 days or more at December 31, 2021. The Bank had net recoveries on loans totaling $3 thousand for the year ended December 31, 2022 compared to net charge offs totaling $35 thousand for the year ended December 31, 2021.

Allowance for Loan Losses

At December 31, 2022, the allowance for loan losses was $3.5 million, or 1.12% of total loans compared to $2.8 million, or 1.14% of total loans at December 31, 2021. With improving credit quality metrics and historically low charge offs, the increase in the allowance for loan losses resulted directly from loan growth and was not related to specific credit quality concerns. The Bank closely monitors the loan portfolio with a focus on credit quality and risk management.

The Bank’s provision for loan losses was $225 thousand for the fourth quarter of 2022 and $630 thousand for the year ended December 31, 2022, compared to no provision for loan losses for the fourth quarter of 2021 and $80 thousand for the year ended December 31, 2021.

Capital

Total shareholders’ equity was $22.5 million at December 31, 2022, representing a decline from $33.0 million at December 31, 2021. This change resulted in a decline in book value per share to $81.64 per share at December 31, 2022 compared to $119.52 per share at December 31, 2021. During 2022, shareholders’ equity and book value per share declined as a result of market adjustments to the investment portfolio. The decline in equity, related to the change in net unrealized losses on the investment portfolio, totaled $14.5 million, when comparing year end 2022 to the same period in 2021. The unrealized losses recognized in shareholders’ equity will decline over time or if market interest rates decline. Management continues to closely monitor the Bank’s capital position based on growth expectations and market fluctuations.

The decline in shareholders’ equity related to unrealized losses and gains on the investment portfolio does not impact the Bank’s regulatory capital ratios. At December 31, 2022, the Bank’s regulatory capital ratios exceeded the well capitalized standard based upon regulatory guidelines. The Bank’s Tier 1 capital ratio declined to 8.09% at December 31, 2022 from 8.24% at December 31, 2021. The ratio of Common Equity Tier 1 capital and Tier 1 capital to risk weighted assets was 13.61% and 16.01% at December 31, 2022 and 2021, respectively, and the total risk-based capital ratio was 14.84% and 17.26% at December 31, 2022 and 2021, respectively. The decline in the Bank’s regulatory capital ratios reflect the impact from the significant increase in total assets and historic growth of the loan portfolio. Management maintains regular monitoring of capital planning strategies to support and maintain adequate capital levels.

Available for Sale Securities Transferred to Held to Maturity

During the third quarter of 2022, the Bank transferred 93 municipal securities designated as available for sale with a combined book value of $56.0 million and a market value of $46.5 million to securities designated as held to maturity. The unrealized losses at the time of transfer totaled $9.5 million and are being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss impacting total shareholders’ equity. For the third and fourth quarter of 2022, the amortization of the unrealized losses from the transferred securities totaled $110 thousand, or $83 thousand net of tax and $120 thousand, or $90 thousand net of tax, respectively. The net effect of the amortization has no impact on the Bank’s reported net income. The transfer of securities mitigates the further decline in carrying value of these securities and the related impact on accumulated other comprehensive loss in shareholders’ equity resulting from higher market interest rates.

Fourth Quarter Highlights Compared to Third Quarter of 2022

Net income for the fourth quarter of 2022 totaled $1.3 million, an increase of $442 thousand, or 49.22%, from net income of $898 thousand for the third quarter of 2022. During the fourth quarter, net interest income increased by $553 thousand, or 17.06%, from the third quarter of 2022. The increase in net interest income was in part driven by continued growth in loans and rising yields on earning assets along with an interest recovery from one customer relationship. These changes were in part offset by an increase in interest expense as market interest rates and deposit competition has risen. Provision for loan losses totaled $225 thousand, representing an increase of $35 thousand during the fourth quarter, when compared to provision for loan losses of $190 thousand for the third quarter of 2022. This increase is attributed to loan growth as credit quality metrics improved through the fourth quarter of 2022.

When comparing December 31, 2022 to September 30, 2022, total assets increased $6.6 million, or 1.45%, loans, net of the allowance for loan losses, increased by $10.8 million, or 3.69%, and total deposits decreased by $16.9 million, or 3.92%. Book value per share increased to $81.64 per share at December 31, 2022 compared to $71.48 per share at September 30, 2022.

About Jefferson Security Bank

Jefferson Security Bank is an independent community bank evolving with the needs of the customers and the communities it serves. Serving individuals, businesses and community organizations, Jefferson Security Bank strives to support entrepreneurial efforts within its target markets. Delivering long-term value to its shareholders is at the core of the organization’s culture. Jefferson Security Bank is a West Virginia state-chartered bank that was formed and opened for business on May 19, 1869, making it the oldest bank in Jefferson County, West Virginia. The bank provides general banking services in Berkeley County and Jefferson County, West Virginia, and Washington County, Maryland. Visit www.JSB.bank for more information

This press release may contain forward-looking statements, as defined by federal securities laws, which may involve significant risks and uncertainties. The statements are based on estimates and assumptions made by management in conjunction with other factors deemed appropriate under the circumstances. Actual results could differ materially from current projections.

Offices:

105 East Washington Street, Shepherdstown, WV (304-876-9000)

7994 Martinsburg Pike, Shepherdstown, WV (304-876-2800)

873 East Washington Street, Suite 100, Charles Town, WV (304-725-9752)

277 Mineral Drive, Suite 1, Inwood, WV (304-229-6000)

1861 Edwin Miller Boulevard, Martinsburg, WV (304-264-0900)

103 West Main Street, Sharpsburg, MD (301-432-3900)

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