Jefferson Security Bank (OTCPK: JFWV) reported net income of $898 thousand for the quarter ended September 30, 2022, representing an increase of $35 thousand, or 4.1%, when compared to net income of $863 thousand for the quarter ended September 30, 2021. Basic and diluted earnings per common share was $3.26 for the third quarter of 2022, compared to $3.13 for the third quarter of 2021.

Net income for the nine months ended September 30, 2022 totaled $2.5 million, representing a decrease of $128 thousand, compared to $2.7 million for the same period in 2021. Basic and diluted earnings per common share was $9.15 and $9.58 for the first nine months of 2022 and 2021, respectively. Annualized return on average assets and average equity for September 30, 2022 was 0.77% and 13.65%, respectively, compared to 0.87% and 11.33%, respectively, for September 30, 2021.

“We are pleased with our third quarter performance, which was highlighted by significant loan growth, stable liquidity through core deposits and continued strength in asset quality metrics,” said President and Chief Executive Officer, Cindy Kitner. “We are prudently navigating the rising rate environment and uncertain market conditions, while maintaining a disciplined approach to underwriting standards and the current credit culture. Our team has worked diligently to drive purposeful growth, deliver continued personalized service and invest in the communities we serve,” continued Cindy Kitner.

Net interest income increased by $423 thousand, or 15.0%, when comparing the third quarter of 2022 to the same period in 2021 and increased by $688 thousand, or 8.1%, when comparing the nine months ended September 30, 2022 to the same period in 2021. The increase in net interest income was driven by significant loan growth and rising loan yields. The increase in interest income was 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.

The Bank’s provision for loan losses was $190 thousand for the third quarter and $405 thousand for the first nine months of 2022, compared to no provision for loan losses for the third quarter of 2021 and $80 thousand for the first nine months of 2021. The increased provision for loan losses is attributed to loan growth and not an indication of credit quality concerns or increased charge-off activity.

As of September 30, 2022, total assets increased $16.9 million, or 3.9%, to $454.7 million compared to total assets of $437.8 million as of September 30, 2021. Loans, net of the allowance for loan losses, increased $49.3 million or 20.2% to $293.4 million as of September 30, 2022, compared to $244.2 million as of September 30, 2021. Deposits totaled $431.7 million at September 30, 2022, representing an increase of $33.4 million or 8.4%, when compared to $398.3 million at September 30, 2021. Since December 31, 2021, total assets increased $27.9 million; loans, net of the allowance for loans losses, increased $48.6 million; and total deposits increased $41.0 million. As of September 30, 2022, book value per share declined to $71.48 per share compared to $119.52 per share at December 31, 2021 and $112.87 per share at September 30, 2021.

Third Quarter Highlights Compared to Second Quarter of 2022

Net income for the third quarter of 2022 increased by $65 thousand, or 7.8%, from the second quarter of 2022. During the third quarter, net interest income increased by $227 thousand, or 7.5%, from the second quarter of 2022. The increase in net interest income was primarily driven by continued growth in loans and rising yields on earning assets. These changes were in part offset by increased interest expenses as market interest rates have continued to rise. Provision for loan losses increased by $50 thousand during the third quarter, when compared to provision for loan losses expense of $140 thousand for the second quarter of 2022. This increase is the result of loans growth as credit quality metrics continued to show improvement through the third quarter of 2022.

When comparing September 30, 2022 to June 30, 2022, total assets increased $5.8 million, or 1.3%, loans, net of the allowance for loan losses, increased by $20.8 million, or 7.6%, and total deposits increased $6.1 million, or 1.4%.

Credit Quality

The Bank’s asset quality continues to be sound with continued improvement in asset quality metrics. At September 30, 2022, noncurrent loans totaled $268 thousand, or 0.09% of loans, net of the allowance for loan losses, representing a decline from $892 thousand, or 0.36% of loans, net of the allowance for loan losses, at December 31, 2021. At September 30, 2021, noncurrent loans totaled $2.9 million, or 1.19% of total loans, net of the allowance for loan losses.

As of September 30, 2022, the allowance for loan losses was $3.2 million, or 1.09% of total loans compared to $2.8 million, or 1.14% as of December 31, 2021, and $2.8 million, or 1.15% as of September 30, 2021. The Bank closely monitors the loan portfolio with a focus on credit quality and risk management.

Available for Sale Securities Transferred to Held to Maturity

During the third quarter, 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 total $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 quarter, the amortization of the unrealized losses from the transferred securities totaled $110 thousand, or $83 thousand net of tax. The transfer of securities mitigates the further decline in carrying value of these securities and the related impact on accumulated other comprehensive loss in shareholder’s equity resulting from higher market interest rates.

Capital

At September 30, 2022, the Bank’s regulatory capital ratios exceeded the well capitalized standard based upon regulatory guidelines. However, the Bank’s Tier 1 capital ratio decreased to 8.05% from 8.24% at December 31, 2021 and 8.36% at September 30, 2021. This decline is attributed to the significant increase in total assets related primarily to the continued funding from deposit inflows. The ratio of Common Equity Tier 1 capital and Tier 1 capital to risk weighted assets was 13.76%, 16.01% and 15.60% at September 30, 2022, December 31, 2021 and September 30, 2021, respectively. The total risk-based capital ratio was 14.96%, 17.26% and 16.85% at September 30, 2022, December 31, 2021 and September 30, 2021, respectively. The decline in the Bank’s regulatory capital ratios reflect the impact from the rapid rise in total assets and the significant growth of the loan portfolio through the first nine months of 2022. Management maintains regular monitoring of capital planning strategies to support and maintain adequate capital levels.

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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