Jefferson Security Bank (OTCPK: JFWV) reported net income of $643 thousand for the quarter ended September 30, 2023, representing a decline of $255 thousand when compared to $898 thousand for the quarter ended September 30, 2022. Basic and diluted earnings per common share were $2.33 and $3.26 for the third quarter of 2023 and 2022, respectively.

Net income for the nine months ended September 30, 2023 totaled $2.3 million, representing a decline of $189 thousand when compared to $2.5 million for the same period in 2022. Basic and diluted earnings per common share were $8.46 and $9.15 for the nine months ended September 30, 2023 and 2022, respectively. Annualized return on average assets and average equity for September 30, 2023 was 0.66% and 13.17%, respectively, and 0.77% and 13.65%, respectively, for September 30, 2022.

“The decline in net income during 2023 is the result of the impacts of the dramatic rise in interest rates and inflation reflected in the current environment. This has increased funding costs, created more competition in the banking industry and resulted in higher overall spending requirements. We remain steadfast in our long-standing focus to provide exceptional customer service, grow customer relationships and support the needs of our customers and communities,” said President and Chief Executive Officer, Cindy Kitner. “The growth in our loans and deposits is a testament to our mission and the efforts of our dedicated team. The Bank maintains a strong liquidity position, and asset quality is solid with historically low levels of nonperforming assets, past due loans and charge offs.”

Net Interest Income

For the third quarter of 2023, net interest income totaled $3.0 million, representing a decrease of $217 thousand, or 6.7%, from $3.2 million for the third quarter of 2022. For the nine months ended September 30, 2023, net interest income totaled $9.2 million, representing an increase of $18 thousand, or 0.2%, when compared to the same period in 2022. Interest and fees on loans increased year-over-year as the Bank continued to organically grow the loan portfolio, which was primarily led by 1-4 family mortgage loan originations. Loan yields increased over the prior year due to the higher interest rates on new loan originations as well as the repricing of the Bank’s variable rate loan portfolio. Interest and fees on loans totaled $4.1 million and $3.1 million for the third quarter 2023 and 2022, respectively, and $11.4 million and $8.5 million for the nine months ended September 30, 2023 and 2022, respectively.

Total interest expense was $1.8 million for the third quarter of 2023, representing an increase of $1.2 million when compared to $600 thousand for the third quarter 2022. For the nine months ended September 30, 2023, interest expense totaled $4.6 million, representing an increase of $3.1 million, when compared to $1.5 million for the same period in 2022. The increase in total interest expense was driven by higher costs of interest-bearing deposits, a shift in the deposit mix in favor of higher cost customer deposits and an increase in borrowings.

Net interest margin decreased to 2.73% for the third quarter of 2023, a decline of 35 basis points from December 31, 2022 and 21 basis points from September 31, 2022. These decreases from year-end and the prior year are primarily due to higher funding costs for both deposits and borrowed funds.

Balance Sheet

Total assets were $498.4 million as of September 30, 2023, an increase of $37.2 million, or 8.1%, from $461.2 million as of December 31, 2022. Year-over-year total assets increased $43.7 million, or 9.6%, from $454.7 million as of September 30, 2022.

Loans, net of the allowance for credit losses, reached a record level of $342.0 million as of September 30, 2023, an increase of $37.8 million, or 12.4%, from $304.2 million as of December 31, 2022. Year-over-year net loans grew $48.6 million, or 16.5%, from $293.4 million as of September 30, 2022.

Deposits totaled $441.1 million as of September 30, 2023, an increase of $26.3 million, or 6.4%, from $414.8 million as of December 31, 2022. Noninterest bearing deposits represent 27.4% of total deposits as of September 30, 2023, which is down from 31.5% as of December 31, 2022. Year-over-year total deposits increased $9.4 million, or 2.2%, from $431.7 million as of September 30, 2022. The current rate environment has contributed to greater competition for deposits with additional deposit rate specials being offered to attract new funds. The Bank has experienced an increase in consumer certificates of deposit specifically related to these specials.

Total borrowings increased $9.5 million since December 31, 2022 and $30.9 million from September 30, 2022. The Bank maintains on and off-balance sheet liquidity through cash and cash equivalents; unpledged available for sale securities at fair value; FHLB and Federal Reserve borrowing capacities; and unsecured correspondent bank lines of credit. In total, on and off-balance sheet liquidity sources exceeded $220.0 million as of September 30, 2023. FHLB borrowings totaled $7.9 million and borrowings through the Bank Term Funding Program (BTFP) totaled $23.0 million as of September 30, 2023.

Stockholders’ equity was $22.9 million, representing book value per share of $83.05, as of September 30, 2023, both increasing 1.7% from December 31, 2022. Year-over-year stockholders’ equity increased $3.2 million, or 16.2%, from $19.7 million as of September 30, 2022. The Bank’s regulatory capital ratios remain in excess of applicable regulatory requirements for well-capitalized institutions. Tier 1 capital ratio decreased to 8.01% from 8.09% at December 31, 2022 and 8.05% at September 30, 2022. The ratio of Common Equity Tier 1 capital and Tier 1 capital to risk weighted assets was 12.85%, 13.61% and 13.76% at September 30, 2023, December 31, 2022 and September 30, 2022, respectively. The total risk-based capital ratio was 14.09%, 14.84% and 14.96% at September 30, 2023, December 31, 2022 and September 30, 2022, respectively. The decline in the Bank’s regulatory capital ratios reflects the impact of organic loan growth and the increase in total assets through the first nine months of 2023. Management maintains regular monitoring of capital planning strategies to support and maintain adequate capital levels.

Asset Quality

As of September 30, 2023, the credit quality of the loan portfolio remained strong with nonaccrual loans totaling $53 thousand, or 0.02% of total loans, compared to $55 thousand, or 0.02% of total loans, at December 31, 2022 and $268 thousand, or 0.09% of total loans, at September 30, 2022. As of September 30, 2023, total past due loans increased slightly to $357 thousand, or 0.10% of total loans, compared to $72 thousand, or 0.02%, of total loans at December 31, 2022 and decreased when compared to $525 thousand, or 0.18% of total loans, as of September 30, 2022. Net charge offs totaled $2 thousand for the first nine months of 2023, compared to a net recovery of $4 thousand for the same period in 2022.

As of September 30, 2023, the allowance for credit losses was $3.7 million, or 1.09% of total loans, compared to $3.5 million, or 1.12% as of December 31, 2022 and $3.2 million, or 1.09% as of September 30, 2022.

The provision for credit losses totaled $75 thousand for the third quarter of 2023. The Bank recorded a $75 provision for credit losses on loans and a $5 thousand provision for credit losses on unfunded commitments. For the first nine months of 2023, total provision for credit losses was $122 thousand, which was comprised of a $213 thousand provision for credit losses on loans and a $91 thousand recovery of credit losses on unfunded commitments. The provision for loan losses totaled $190 thousand for the third quarter of 2022 and $405 thousand for the nine months ended September 30, 2022.

Third Quarter Highlights Compared to Second Quarter of 2023

Net income for the third quarter of 2023 decreased $162 thousand, or 20.2%, from the second quarter of 2023. During the third quarter, net interest income decreased by $18 thousand, or 0.6%, from the second quarter of 2023. This decrease was primarily the result of higher funding costs for both deposits and borrowings, offset in part by an increase in interest income from higher loan interest and fees. Total interest expense increased during the third quarter by $257 thousand, while total interest and dividend income increased $239 thousand.

Provision for credit losses increased $46 thousand during the third quarter 2023, when compared to a provision for credit losses of $29 thousand for the second quarter of 2023. This increase was primarily related to the recognition of a provision for credit losses on unfunded commitments during the third quarter of 2023 compared to a recovery of provision for credit losses on unfunded commitments in the second quarter of 2023.

When comparing September 30, 2023 to June 30, 2023, total assets increased $23.2 million, or 4.9%, loans, net of the allowance for credit losses, increased by $18.8 million, or 5.8%, and total deposits increased $26.4 million, or 6.4%.

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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