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What changed in BANK OF THE JAMES FINANCIAL GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BANK OF THE JAMES FINANCIAL GROUP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+290 added−257 removedSource: 10-K (2024-03-27) vs 10-K (2023-03-31)

Top changes in BANK OF THE JAMES FINANCIAL GROUP INC's 2023 10-K

290 paragraphs added · 257 removed · 227 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

36 edited+5 added−3 removed143 unchanged
Biggest changeThese included a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on non-accrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures. 11 Table of Contents As discussed above under “ Supervision and Regulation - The Regulatory Relief Ac t ,” recently enacted legislation directed the federal bank regulatory agencies to develop a “Community Bank Leverage Ratio,” calculated by dividing tangible equity capital by average consolidated total assets, of not less than 8% and not more than 10%.
Biggest changeThese included a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on non-accrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.
In addition, the Bank expanded into Charlottesville in 2013 (opening a full-service branch in 2015), Harrisonburg in 2014 (opening a full-service branch in 2015), Appomattox in 2016 (opening a permanent full-service branch in 2017), Roanoke in 2013 (opening a full-service branch in 2017), Blacksburg in 2018 (opening a mortgage origination office), Lexington in 2019 with a full-service branch, and Rustburg in 2019 with a full-service branch.
In addition, the Bank expanded into Charlottesville in 2013 (opening a full-service branch in 2015), Harrisonburg in 2014 (opening a full-service branch in 2015), Appomattox in 2016 (opening a permanent full-service branch in 2017), Roanoke in 2013 (opening permanent a full-service branch in 2017), Blacksburg in 2018 (opening a mortgage origination office), Lexington in 2019 with a full-service branch, and Rustburg in 2019 with a full-service branch.
The Dodd-Frank Act also made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000. The Dodd-Frank Reform Act repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. The Dodd-Frank Reform Act required new disclosure relating to executive compensation and corporate governance. The Dodd-Frank Reform Act implemented amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations. The Dodd-Frank Reform Act established the Financial Stability Oversight Council, which will be responsible for identifying and monitoring systemic risks posed by financial firms, activities, and practices. The Dodd-Frank Reform Act amended the Electronic Fund Transfer Act (EFTA) to, among other things, require that debit card interchange fees must be reasonable and proportional to the actual cost incurred by the issuer with respect to the transaction.
The Dodd-Frank Act also made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000. The Dodd-Frank Reform Act repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. The Dodd-Frank Reform Act required new disclosure relating to executive compensation and corporate governance. 9 Table of Contents The Dodd-Frank Reform Act implemented amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations. The Dodd-Frank Reform Act established the Financial Stability Oversight Council, which will be responsible for identifying and monitoring systemic risks posed by financial firms, activities, and practices. The Dodd-Frank Reform Act amended the Electronic Fund Transfer Act (EFTA) to, among other things, require that debit card interchange fees must be reasonable and proportional to the actual cost incurred by the issuer with respect to the transaction.
An insured depository institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities. As of December 31, 2022, the Bank was considered “well-capitalized.” Regulatory Enforcement Authority . Applicable banking laws include substantial enforcement powers available to federal banking regulators.
An insured depository institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities. As of December 31, 2023, the Bank was considered “well-capitalized.” Regulatory Enforcement Authority . Applicable banking laws include substantial enforcement powers available to federal banking regulators.
As such, the Bank is subject to various statutes and regulations administered by these agencies that govern, among other things, required 10 Table of Contents reserves, investments, loans, lending limits, acquisitions of fixed assets, interest rates payable on deposits, transactions among affiliates and the Bank, the payment of dividends, mergers and consolidations, and establishment of branch offices.
As such, the Bank is subject to various statutes and regulations administered by these agencies that govern, among other things, required reserves, investments, loans, lending limits, acquisitions of fixed assets, interest rates payable on deposits, transactions among affiliates and the Bank, the payment of dividends, mergers and consolidations, and establishment of branch offices.
If the Bank finds a name of an “enemy” of the United States on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account or place transferred funds into a blocked account, file a suspicious activity report with the Treasury and notify the FBI. 13 Table of Contents Mortgage Banking Regulation .
If the Bank finds a name of an “enemy” of the United States on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account or place transferred funds into a blocked account, file a suspicious activity report with the Treasury and notify the FBI. Mortgage Banking Regulation .
The federal bank regulatory agencies expect financial institutions to establish appropriate security controls and to ensure that their risk management processes address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution's operations after a cyberattack.
The federal bank regulatory agencies expect financial institutions to establish appropriate security controls and to ensure that their risk management processes address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption 14 Table of Contents and maintenance of the institution’s operations after a cyberattack.
Products and Services Retail and Commercial Banking The Bank currently conducts business within Virginia from 17 full-service offices, two limited service offices, and one residential mortgage loan production office. The location of and services provided by each of our facilities is described in “Item 2. Properties” below.
Products and Services Retail and Commercial Banking The Bank currently conducts business within Virginia from 17 full-service offices, two limited service offices, and one residential mortgage loan production office. The location of and services provided by each of our facilities is described in “ Item 2 . Properties” below.
It is difficult at this time to determine the direct impact of the Regulatory Relief Act on Financial or the Bank. Implementing rules and regulations are required and many have not yet been written or finalized. Regulation of the Bank The Bank is a Virginia chartered commercial bank and a state member bank.
It is difficult at this time to determine the direct impact of the Regulatory Relief Act on Financial or the Bank. Implementing rules and regulations are required and many have not yet been written or finalized. 11 Table of Contents Regulation of the Bank The Bank is a Virginia chartered commercial bank and a state member bank.
Item 1. Business General Bank of the James Financial Group, Inc. (“Financial” or the “Company”) is a bank holding company with its headquarters in Lynchburg, Virginia. Financial was incorporated at the direction of Bank of the James (the “Bank” or “Bank of the James”) on October 3, 2003 to serve as a bank holding company of the Bank.
Item 1. Busine ss General Bank of the James Financial Group, Inc. (“Financial” or the “Company”) is a bank holding company with its headquarters in Lynchburg, Virginia. Financial was incorporated at the direction of Bank of the James (the “Bank” or “Bank of the James”) on October 3, 2003 to serve as a bank holding company of the Bank.
Major elements of the Dodd-Frank Reform Act include: 8 Table of Contents The Dodd-Frank Reform Act changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminated the ceiling on the size of the Deposit Insurance Fund (DIF) and increased the floor applicable to the size of the DIF.
Major elements of the Dodd-Frank Reform Act include: The Dodd-Frank Reform Act changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminated the ceiling on the size of the Deposit Insurance Fund (DIF) and increased the floor applicable to the size of the DIF.
The rule, which became effective on May 1, 2022, requires a banking organization to notify its primary federal regulator within 36 hours of determining that a "computer-security incident" has materially affected - or is reasonably likely to materially affect - the viability of the banking organization's operations, its ability to deliver banking products and services, or the stability of the financial sector.
The rule, which became effective on May 1, 2022, requires a banking organization to notify its primary federal regulator within 36 hours of determining that a “computer-security incident” has materially affected - or is reasonably likely to materially affect - the viability of the banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.
Subsidiary banks of a financial holding company must continue to be well-capitalized and well-managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries.
Subsidiary banks of a financial holding company must continue to be well-capitalized and well-managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or 8 Table of Contents subsidiaries.
The Bank currently has a CRA rating of “satisfactory.” 12 Table of Contents Safety and Soundness . The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions.
The Bank currently has a CRA rating of “satisfactory.” Safety and Soundness . The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions.
In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards that in good faith would be offered to or would apply to non-affiliated companies. Loans to Insiders.
In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards that in good faith would be offered to or would apply to non-affiliated companies. 13 Table of Contents Loans to Insiders.
Since January 1, 2019 and the rules have required the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Since January 1, 2019 and the rules have required the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% 12 Table of Contents common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education and personal 4 Table of Contents investments.
Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education and personal investments.
The Mortgage Division competes by attracting the top salespeople in our 6 Table of Contents market, providing an operational infrastructure that manages the guideline changes efficiently and effectively, offering a product menu that is both competitive in loan parameters as well as price, and providing consistently high-quality customer service.
The Mortgage Division competes by attracting the top salespeople in our market, providing an operational infrastructure that manages the guideline changes efficiently and effectively, offering a product menu that is both competitive in loan parameters as well as price, and providing consistently high-quality customer service.
We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future. Regulation of Financial General .
We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future. 7 Table of Contents Regulation of Financial General .
The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
The findings of the supervisory 10 Table of Contents initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk- 9 Table of Contents management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
While is it is not possible to fully predict the nature or impact of future changes in monetary and fiscal policies, we anticipate that continued rate increases in 2023 could have a negative impact on our results of operations and/or financial condition.
While is it is not possible to fully predict the nature or impact of future changes in monetary and fiscal policies, we anticipate that rate changes in 2024 could have a negative impact on our results of operations and/or financial condition.
We provide investment advisory services through Financial’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (“PWW”), a Lynchburg-based investment advisor registered with the Securities and Exchange Commission. Financial purchased the issued and outstanding shares of PWW on December 31, 2021. PWW generates revenue primarily through investment advisory fees.
We provide investment advisory services through Financial’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (“PWW”), a Lynchburg, Virginia-based investment advisor registered with the Securities and Exchange Commission. Financial purchased the issued and outstanding shares of PWW on December 31, 2021.
Our primary focus is on making loans to small and medium-sized businesses and consumers in the Region 2000 (Lynchburg, Amherst, Bedford, Campbell) area, Charlottesville, Harrisonburg, Roanoke, Appomattox, and Blacksburg. In addition, we also provide a wide range of real estate finance services.
The Bank offers a full range of short- to medium-term commercial and consumer loans. Our primary focus is on making loans to small and medium-sized businesses and consumers in the Region 2000 (Lynchburg, Amherst, Bedford, Campbell) area, Charlottesville, Harrisonburg, Roanoke, Appomattox, and Blacksburg. In addition, we also provide a wide range of real estate finance services.
In 2022, the Bank expensed $500,000 in FDIC assessments which compared to $548,000 in 2021. Any increases in FDIC insurance premiums could adversely affect the Bank’s profitability.
In 2023, the Bank expensed $419,000 in FDIC assessments which compared to $500,000 in 2022. Any increases in FDIC insurance premiums could adversely affect the Bank’s profitability.
(nuclear fuel); Framatome (nuclear services); Centra Health, Inc. (health care services); Southern Air, Inc. (mechanical and HVAC contractors); Pacific Life (life insurance and other financial products); Frito-Lay, Inc. (snack foods); U.S. Pipe (ductile iron pipe); as well as six colleges and universities including Randolph College, Sweet Briar College, Liberty University, and the University of Lynchburg.
(nuclear fuel); Framatome (nuclear services); Centra Health, Inc. (health care services); Southern Air, Inc. (mechanical and HVAC contractors); Shentel (telecommunications services); Frito-Lay, Inc. (snack foods); U.S. Pipe (ductile iron pipe); as well as six colleges and universities including Randolph College, Sweet Briar College, Liberty University, and the University of Lynchburg.
Deposit competition is strong and comes from institutions in the market, U.S. Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors, among other sources. As a result, the Bank has paid, and may in the future pay, above-market rates to attract deposits.
Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors, among other sources. As a result, the Bank has paid, and may in the future pay, above-market rates to attract deposits.
All deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to the maximum amount allowed by law (generally, $250,000 per depositor, subject to aggregation rules). The Bank solicits such accounts from individuals, businesses, associations and organizations, and governmental authorities. Lending Services . The Bank offers a full range of short- to medium-term commercial and consumer loans.
All deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to the maximum amount allowed by law (generally, $250,000 per depositor, subject to aggregation rules). The Bank solicits such accounts from individuals, businesses, associations and organizations, and governmental authorities. 4 Table of Contents Lending Services .
Pursuant to the BHCA, the FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or ownership constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company. 7 Table of Contents The FRB also has the authority to examine the Company and its subsidiaries, as well as any arrangements between the Company and its subsidiaries, with the cost of any such examinations to be borne by the Company.
Pursuant to the BHCA, the FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or ownership constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.
These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level. ‎ 15 Table of Contents Effect of Governmental Monetary Policies Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
To date the operating results of the Investment Division have not had a material impact on our financial performance. We provide insurance and annuity products through BOTJ Insurance as an agent for national insurance companies. As of the date hereof, we offer the following insurance products: life insurance, fixed annuities, and disability insurance.
As of the date hereof, we offer the following insurance products: life insurance, fixed annuities, and disability insurance. We began providing these services in September 2008. To date the operating results of BOTJ Insurance have not had a material impact on our financial performance.
Competition in the market area for loans to individuals, small businesses, and professional concerns, the Bank’s target market, is keen, and pricing is important. Most of the Bank’s competitors have substantially greater resources and lending limits than the Bank and offer certain services, such as extensive and established branch networks and trust services, that the Bank is not currently providing.
Most of the Bank’s competitors have substantially greater resources and lending limits than the Bank and offer certain services, such as extensive and established branch networks and trust services, that the Bank is not currently providing. Deposit competition is strong and comes from institutions in the market, U.S.
We compete with other commercial banks, savings institutions, credit unions, financial technology companies, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, and other financial institutions operating in the Region 2000 market area and elsewhere.
We compete with other commercial banks, savings institutions, credit unions, financial technology companies, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, and other financial institutions operating in the Region 2000 market area and elsewhere. 6 Table of Contents Many of our nonbank competitors are not subject to the same extensive federal regulations that govern federally-insured banks and state regulations governing state-chartered banks.
None of our employees are represented by any collective bargaining agreements, and relations with employees are considered excellent. We maintain employee benefit programs that include health insurance, a health savings account, a 401(k) plan, and an employee stock purchase plan.
We maintain employee benefit programs that include health insurance, a health savings account, a 401(k) plan, and an employee stock purchase plan.
Many of our nonbank competitors are not subject to the same extensive federal regulations that govern federally-insured banks and state regulations governing state-chartered banks. As a result, such nonbank competitors may have advantages over the Bank in providing certain services. Virginia law permits statewide branching by banks. Consequently, the Bank’s market area is a highly competitive, highly branched banking market.
As a result, such nonbank competitors may have advantages over the Bank in providing certain services. Virginia law permits statewide branching by banks. Consequently, the Bank’s market area is a highly competitive, highly branched banking market. Competition in the market area for loans to individuals, small businesses, and professional concerns, the Bank’s target market, is keen, and pricing is important.
Other Activities We provide brokerage and investment services through the Bank’s Investment division (“Investment Division”). The Investment Division provides securities brokerage services to Bank customers and others through an agreement with Infinex Financial Group, LLC (“Infinex”), a registered broker-dealer. Under our agreement, Infinex operates a service center at the main office located at 828 Main St, Lynchburg, Virginia.
PWW generates revenue primarily through investment advisory fees. 5 Table of Contents Other Activities We provide brokerage and investment services through the Bank’s Investment division (“Investment Division”). The Investment Division provides securities brokerage services to Bank customers and others through an agreement with Osaic Institutions, Inc. (“Osaic”), a registered broker-dealer.
Removed
Because Financial acquired PWW on December 31, 2021, PWW had no effect on Financial’s net income for the period ended December 31, 2021.
Added
Under our agreement, Osaic operates a service center at the main office located at 828 Main St, Lynchburg, Virginia. To date the operating results of the Investment Division have not had a material impact on our financial performance. We provide insurance and annuity products through BOTJ Insurance as an agent for national insurance companies.
Removed
We began providing these services in September 2008. To date the operating results of BOTJ Insurance have not had a material impact on our financial performance. 5 Table of Contents Employees As of March 31, 2023, we had approximately 173 employees, 163 of which are full-time and ten of which are part-time.
Added
Employees As of March 15, 2024, we had approximately 172 employees, 163 of which are full-time and nine of which are part-time. None of our employees are represented by any collective bargaining agreements, and relations with employees are considered excellent.
Removed
Effect of Governmental Monetary Policies Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
Added
The FRB also has the authority to examine the Company and its subsidiaries, as well as any arrangements between the Company and its subsidiaries, with the cost of any such examinations to be borne by the Company.
Added
As discussed above under “ Supervision and Regulation - The Regulatory Relief Ac t ,” recently enacted legislation directed the federal bank regulatory agencies to develop a “Community Bank Leverage Ratio,” calculated by dividing tangible equity capital by average consolidated total assets, of not less than 8% and not more than 10%.
Added
Conversely, while rate cuts by the FOMC would result in an increase in the value of our loans and investment securities, such cuts are likely to put pressure on our net interest margin.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

51 edited+27 added−4 removed156 unchanged
Biggest changeVirginia law and the provisions of our articles of incorporation and bylaws could deter or prevent takeover attempts by a potential purchaser of our common stock that would be willing to pay holders a premium for their shares of our common stock. 25 Table of Contents Our articles of incorporation and bylaws contain provisions that may be deemed to have the effect of discouraging or delaying uninvited attempts by third parties to gain control of us.
Biggest changeHolders of our common stock are not entitled to preemptive rights or other protections against dilution. Virginia law and the provisions of our articles of incorporation and bylaws could deter or prevent takeover attempts by a potential purchaser of our common stock that would be willing to pay holders a premium for their shares of our common stock.
Our decisions regarding how we manage our credit exposure may materially and adversely affect our business. We manage our credit exposure through careful monitoring of lending relationships and loan concentrations in particular industries, and through loan approval and review procedures. The adequacy of our allowance for loan losses is crucial in monitoring credit exposure.
Our decisions regarding how we manage our credit exposure may materially and adversely affect our business. We manage our credit exposure through careful monitoring of lending relationships and loan concentrations in particular industries, and through loan approval and review procedures. The adequacy of our allowance for credit losses is crucial in monitoring credit exposure.
Moreover, any increase in our allowance will adversely affect our earnings by decreasing our net income. In June 2016, the FASB issued a new accounting standard, commonly referred to as the Current Expected Credit Losses (CECL) standard, which replaced the current approach under GAAP for establishing our allowance for loan losses. We adopted the standard on January 1, 2023.
Moreover, any increase in our allowance will adversely affect our earnings by decreasing our net income. In June 2016, the FASB issued a new accounting standard, commonly referred to as the Current Expected Credit Losses (CECL) standard, which replaced the current approach under GAAP for establishing our allowance for credit losses. We adopted the standard on January 1, 2023.
The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, many of which are beyond our control. In addition, our underwriting policies, adherence to credit monitoring processes and risk management systems and controls may not prevent unexpected losses. Our allowance may not be adequate to cover actual loan losses.
The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, many of which are beyond our control. In addition, our underwriting policies, adherence to credit monitoring processes and risk management systems and controls may not prevent unexpected losses. Our allowance may not be adequate to cover actual credit losses.
Any future additions to our allowance could materially decrease our net income. In addition, the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions (the “BFI”) periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs.
Any future additions to our allowance could materially decrease our net income. In addition, the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions (the “BFI”) periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs.
Prior to CECL, our allowance for loan losses generally considered only past events and current conditions. The CECL methodology requires a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
Prior to CECL, our allowance for credit losses generally considered only past events and current conditions. The CECL methodology requires a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities might have a material adverse effect on our financial condition and results of operations. Our allowance may not be adequate to cover actual loan losses.
Any increase in our allowance for credit losses or loan charge-offs as required by regulatory authorities might have a material adverse effect on our financial condition and results of operations. Our allowance may not be adequate to cover actual credit losses.
In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance.
In determining the amount of the allowance for credit losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for credit losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance.
If we suffer loan losses from a decline in credit quality, our earnings will decrease. We could sustain losses if borrowers, guarantors or related parties fail to perform in accordance with the terms of their loans.
If we suffer credit losses from a decline in credit quality, our earnings will decrease. We could sustain losses if borrowers, guarantors or related parties fail to perform in accordance with the terms of their loans.
Expansion involves a number of risks, including, without limitation: the time and costs of evaluating new markets, hiring experienced local management and opening new offices; the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; our entrance into new markets where we lack experience; the introduction of new products and services with which we have no prior experience into our business; failure to culturally integrate an acquisition target or new branches or failing to identify and select the optimal candidate for integration or expansion; and failure to identify and retain experienced key management members with local expertise and relationships in new markets.
Expansion involves a number of risks, including, without limitation: the time and costs of evaluating new markets, hiring experienced local management and opening new offices; the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; our entrance into new markets where we lack experience; 20 Table of Contents the introduction of new products and services with which we have no prior experience into our business; failure to culturally integrate an acquisition target or new branches or failing to identify and select the optimal candidate for integration or expansion; and failure to identify and retain experienced key management members with local expertise and relationships in new markets.
We can make no assurances that our loan loss reserves will be sufficient to absorb future loan losses or prevent a material adverse effect on our business, financial condition or results of operations. Our profitability is vulnerable to interest rate fluctuations and changes in monetary policies. Our profitability depends substantially upon our net interest income.
We can make no assurances that our credit loss reserves will be sufficient to absorb future credit losses or prevent a material adverse effect on our business, financial condition or results of operations. Our profitability is vulnerable to interest rate fluctuations and changes in monetary policies. Our profitability depends substantially upon our net interest income.
Upon foreclosure, a charge-off to the allowance for loan losses is recorded for any excess between the value of the asset on our books over its fair value. Thereafter, we periodically reassess our judgment of fair value based on updated appraisals or other factors, including, at times, at the request of our regulators.
Upon foreclosure, a charge-off to the allowance for credit losses is recorded for any excess between the value of the asset on our books over its fair value. Thereafter, we periodically reassess our judgment of fair value based on updated appraisals or other factors, including, at times, at the request of our regulators.
These loans represent higher risk and could result in a sharp increase in loans charged-off and could require us to significantly increase our allowance for loan losses, which could have a material adverse impact on our business, financial condition, results of operations and cash flows.
These loans represent higher risk and could result in a sharp increase in loans charged-off and could require us to significantly increase our allowance for credit losses, which could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Item 1A. Risk Factors RISK FACTORS In addition to the other information included in this Annual Report on Form 10-K, the following risk factors should be carefully considered in connection with evaluating our business and any forward-looking statements contained herein.
Item 1A. Risk Factor s RISK FACTORS In addition to the other information included in this Annual Report on Form 10-K, the following risk factors should be carefully considered in connection with evaluating our business and any forward-looking statements contained herein.
As we increase our portfolio of these loans, we may experience higher levels of non-performing assets or loan losses , or both . Our efforts to increase our levels of commercial and industrial loans may be impacted by increased interest rates, recession, or other adverse economic conditions.
As we increase our portfolio of these loans, we may experience higher levels of non-performing assets or credit losses , or both . Our efforts to increase our levels of commercial and industrial loans may be impacted by increased interest rates, recession, or other adverse economic conditions.
These provisions include the division of our board of directors into classes with staggered terms, the ability of our board of directors to set the price, terms and rights of, and to issue, one or more series of our preferred stock and the ability of our board of directors, in evaluating a proposed business combination or other fundamental change transaction, to consider the effect of the business combination on us and our stockholders, employees, customers and the communities which we serve.
These provisions include the division of our board of directors into classes with staggered terms, the ability of our board of directors to set the price, terms and rights of, and to 29 Table of Contents issue, one or more series of our preferred stock and the ability of our board of directors, in evaluating a proposed business combination or other fundamental change transaction, to consider the effect of the business combination on us and our stockholders, employees, customers and the communities which we serve.
Additionally, acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition. Our loan portfolio contains a number of real estate loans with relatively large balances.
Additionally, acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition. ‎ 17 Table of Contents Our loan portfolio contains a number of real estate loans with relatively large balances.
Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, can have an adverse effect on our financial condition and results of operations. The markets for our deposit and lending products and services are highly competitive, and we face substantial competition.
Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, can have an adverse effect on our financial condition and results of operations. ‎ 19 Table of Contents The markets for our deposit and lending products and services are highly competitive, and we face substantial competition.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our business, financial condition, operating results and cash flows could be materially adversely affected. RISKS RELATED TO OUR BUSINESS Our profitability depends significantly on local economic conditions.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our business, financial condition, operating results and cash flows could be materially adversely affected. 16 Table of Contents RISKS RELATED TO OUR BUSINESS Our profitability depends significantly on local economic conditions.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify as a matter of course.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other 18 Table of Contents financial information, which we do not independently verify as a matter of course.
We have adopted underwriting and credit monitoring procedures and policies, including the establishment and review of the allowance for loan losses, that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan 16 Table of Contents performance and diversifying our credit portfolio.
We have adopted underwriting and credit monitoring procedures and policies, including the establishment and review of the allowance for credit losses, that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio.
Our business, 14 Table of Contents financial condition, results of operations and cash flows could be harmed by any of the risk factors described below, or other risks that have not been identified or which we believe are immaterial or unlikely.
Our business, financial condition, results of operations and cash flows could be harmed by any of the risk factors described below, or other risks that have not been identified or which we believe are immaterial or unlikely.
Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities or otherwise negatively impact our operations. Revenues and profitability from our investment advisory business may be adversely affected by any reduction in assets under management, which could reduce fees earned.
Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities or otherwise negatively impact our operations. ‎ 25 Table of Contents Revenues and profitability from our investment advisory business may be adversely affected by any reduction in assets under management, which could reduce fees earned.
Net interest income is the difference between the interest earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing 19 Table of Contents liabilities, such as NOW accounts, savings accounts, time deposits and other borrowings. Market interest rates for loans, investments and deposits are highly sensitive to many factors beyond our control.
Net interest income is the difference between the interest earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as NOW accounts, savings accounts, time deposits and other borrowings. Market interest rates for loans, investments and deposits are highly sensitive to many factors beyond our control.
The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, which could result in a net loss 15 Table of Contents of earnings, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.
The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, which could result in a net loss of earnings, an increase in the provision for credit losses and an increase in loan charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.
We may not be successful in continuing to penetrate this market segment, which has helped to drive some of our recent earnings. 17 Table of Contents A significant percentage of our loans are commercial and industrial loans.
We may not be successful in continuing to penetrate this market segment, which has helped to drive some of our recent earnings. A significant percentage of our loans are commercial and industrial loans.
Accordingly, we can make no assurances of our ability to raise additional capital, if needed, on terms 18 Table of Contents acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired.
Accordingly, we can make no assurances of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired.
At this point the Bank has chosen not to opt in to the community bank leverage ratio framework. 24 Table of Contents RISKS RELATED TO OUR STOCK Our ability to pay cash dividends is limited, and we may be unable to pay future dividends even if we desire to do so.
At this point the Bank has chosen not to opt in to the community bank leverage ratio framework. RISKS RELATED TO OUR STOCK Our ability to pay cash dividends is limited, and we may be unable to pay future dividends even if we desire to do so.
These provisions may also strengthen the position of current management by restricting the ability of stockholders to change the composition of the board of directors, to affect its policies generally and to benefit from actions which are opposed by the current board of directors. Item 1B. Unresolved Staff Comments None.
These provisions may also strengthen the position of current management by restricting the ability of stockholders to change the composition of the board of directors, to affect its policies generally and to benefit from actions which are opposed by the current board of directors. Item 1B. Unresolved Staff Comm ents None. Item 1.C.
Our executive management and other key personnel have not signed non-competition covenants. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel.
Our executive management and other key personnel have not signed non-competition covenants. 21 Table of Contents Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel.
As of December 31, 2022, our allowance as a percentage of total loans was 1.02% and our allowance as a percentage of nonperforming loans was 988.78%. The determination of the appropriate level of allowance is an inherently difficult process and is based on numerous assumptions.
As of December 31, 2023, our allowance as a percentage of total loans was 1.22% and our allowance as a percentage of nonperforming loans was 1,895%. The determination of the appropriate level of allowance is an inherently difficult process and is based on numerous assumptions.
Banking regulators have indicated that Virginia banking organizations should generally pay dividends only (1) from net undivided profits of the bank, after providing for all expenses, losses, interest and taxes accrued or due by the bank and (2) if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.
PWW’s ability to pay dividends is likewise subject to certain limits imposed by state law. 28 Table of Contents Banking regulators have indicated that Virginia banking organizations should generally pay dividends only (1) from net undivided profits of the bank, after providing for all expenses, losses, interest and taxes accrued or due by the bank and (2) if the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.
The Bank is primarily regulated by the BFI and the Federal Reserve. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets by a financial institution and the adequacy of a financial institution’s allowance for loan losses.
These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets by a financial institution and the adequacy of a financial institution’s allowance for credit losses.
Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. Actions by monetary and fiscal authorities, including the Federal Reserve Board, could have an adverse effect on our deposit levels, loan demand or business and earnings. Inflation can have an adverse impact on our customers and their ability to repay.
Actions by monetary and fiscal authorities, including the Federal Reserve Board, could have an adverse effect on our deposit levels, loan demand or business and earnings. Inflation can have an adverse impact on our customers and their ability to repay.
In addition, changes in consumer spending and saving habits could adversely affect our operations, and we may be unable to timely develop competitive new products and services in response to these changes that are accepted by new and existing customers.
In addition, changes in consumer spending and saving habits could adversely affect our operations, and we may be unable to timely develop competitive new products and services in response to these changes that are accepted by new and existing customers. ‎ 23 Table of Contents Failure to implement new technologies in our operations may adversely affect our growth or profits.
As of December 2022, the Lynchburg MSA had an unemployment rate (not seasonally adjusted) of 2.9%, as compared to a statewide average unemployment rate of 2.6%.
As of December 2023, the Lynchburg MSA had an unemployment rate (not seasonally adjusted) of 3.2%, as compared to a statewide average unemployment rate of 3.0%.
Any failure to adapt to new technologies could adversely affect our business, financial condition or operating results. In addition, the financial services industry is undergoing rapid technological changes, with new technology-driven products and services being frequently introduced. The changes could cause our customers to use these new services and products rather than the Bank.
In addition, the financial services industry is undergoing rapid technological changes, with new technology-driven products and services being frequently introduced. The changes could cause our customers to use these new services and products rather than the Bank.
Many of our competitors have greater resources than we have. Our ability to successfully attract and retain investment advisory clients is dependent upon our ability to compete with competitors' investment products, level of investment performance, client services and marketing and distribution capabilities.
Many of our competitors have greater resources than we have. Our ability to successfully attract and retain investment advisory clients is dependent upon our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively impacted.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition. 21 Table of Contents Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could hinder our ability to accurately report our operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with The NASDAQ Capital Market.
Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could hinder our ability to accurately report our operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with The NASDAQ Capital Market.
From time to time, we hold as investments certain securities that have unrealized losses. As of December 31, 2022, we had unrealized losses in our available-for-sale securities portfolio net of taxes of $26,781,000.
These increases generally had an adverse impact on the value of our securities available-for-sale portfolio. From time to time, we hold as investments certain securities that have unrealized losses. As of December 31, 2022 and December 31, 2023, we had unrealized losses in our available-for-sale securities portfolio net of taxes of $26,781,000 and $21,615,000, respectively.
In addition, we cannot predict whether interest rates will continue to remain at present levels. Changes in interest rates may cause significant changes, up or down, in our net interest income. Depending on our portfolio of loans and investments, our results of operations may be adversely affected by changes in interest rates.
In addition, we cannot predict whether interest rates will continue to remain at present levels. Changes in interest rates may cause significant changes, up or down, in our net interest income.
If we are not successful, our results of operations and financial condition may be negatively impacted. 22 Table of Contents The investment advisory industry is subject to extensive regulation, supervision and examination by regulators, and any enforcement action or adverse changes in the laws or regulations governing our business could decrease our revenues and profitability.
The investment advisory industry is subject to extensive regulation, supervision and examination by regulators, and any enforcement action or adverse changes in the laws or regulations governing our business could decrease our revenues and profitability.
The effects of any such recently enacted, or proposed, legislation and regulatory programs on us cannot reliably be determined at this time. 23 Table of Contents The Consumer Financial Protection Bureau’s (the “CFPB”) “ability-to-repay” and “qualified mortgage” rules may have a negative impact on our loan origination process and foreclosure proceedings, which could adversely affect our business, operating results and financial condition.
The Consumer Financial Protection Bureau’s (the “CFPB”) “ability-to-repay” and “qualified mortgage” rules may have a negative impact on our loan origination process and foreclosure proceedings, which could adversely affect our business, operating results and financial condition.
The Company faces the risk that the design of its controls and procedures, including those to mitigate the risk of fraud by employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection of errors or inaccuracies in data and information.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and effectively prevent or detect fraud and to operate successfully as a public company. 24 Table of Contents The Company faces the risk that the design of its controls and procedures, including those to mitigate the risk of fraud by employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection of errors or inaccuracies in data and information.
In addition, the CFPB likely will continue to make rules relating to consumer protection, and it is difficult to predict which of our products and services will be subject to these rules or how these rules will be implemented.
In addition, the CFPB likely will continue to make rules relating to consumer protection, and it is difficult to predict which of our products and services will be subject to these rules or how these rules will be implemented. 27 Table of Contents Compliance with the Dodd-Frank Reform Act will increase our regulatory compliance burdens, and may increase our operating costs and may adversely impact our earnings or capital ratios, or both.
Compliance with the Dodd-Frank Reform Act will increase our regulatory compliance burdens, and may increase our operating costs and may adversely impact our earnings or capital ratios, or both. Signed into law on July 21, 2010, the Dodd-Frank Reform Act has represented a significant overhaul of many aspects of the regulation of the financial services industry.
Signed into law on July 21, 2010, the Dodd-Frank Reform Act has represented a significant overhaul of many aspects of the regulation of the financial services industry.
Our failure to compete for these personnel, or the loss of the services of several of such key personnel, could adversely affect our growth strategy and seriously harm our business, results of operations and financial condition.
Our failure to compete for these personnel, or the loss of the services of several of such key personnel, could adversely affect our growth strategy and seriously harm our business, results of operations and financial condition. ‎ 26 Table of Contents REGULATORY AND LEGAL RISKS We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability.
On December 31, 2021, the Fed funds rate was 0% to 0.25%. By June 30, 2022, the rate stood at 1.5% to 1.75% and by December 31, 2022 the rate was 4.25% to 4.5%. These increases generally had an adverse impact on the value of our securities available-for-sale portfolio.
On December 31, 2021, the Fed funds target rate was 0% to 0.25%. By June 30, 2022, the target rate stood at 1.5% to 1.75% and by December 31, 2022 the rate was 4.25% to 4.5%. By December 31, 2023, the target rate had increased to 5.25% to 5.5% where it currently remains.
Failure to implement new technologies in our operations may adversely affect our growth or profits. 20 Table of Contents The market for financial services, including banking services and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-based banking and telebanking.
The market for financial services, including banking services and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-based banking and telebanking. Our ability to compete successfully in our markets may depend on the extent to which we are able to exploit such technological changes.
Our ability to compete successfully in our markets may depend on the extent to which we are able to exploit such technological changes. However, we can provide no assurance that we will be able to properly or timely anticipate or implement such technologies or properly train our staff to use such technologies.
However, we can provide no assurance that we will be able to properly or timely anticipate or implement such technologies or properly train our staff to use such technologies. Any failure to adapt to new technologies could adversely affect our business, financial condition or operating results.
Also, the 2020 national election results and new administration have introduced additional uncertainty into future implementation and enforcement of the Dodd-Frank Reform Act and other financial sector regulatory requirements. Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities.
Regulatory authorities continue to implement provisions of the Dodd-Frank Reform Act and other financial sector regulatory requirements. Additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities. The effects of any recently enacted, or proposed, legislation and regulatory programs on us cannot reliably be determined at this time.
Removed
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and effectively prevent or detect fraud and to operate successfully as a public company.
Added
Depending on our portfolio of loans and investments, our results of operations may be adversely affected by changes in interest rates. 22 Table of Contents Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve Board.
Removed
REGULATORY AND LEGAL RISKS We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability. As a bank holding company, we are primarily regulated by the Federal Reserve.
Added
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.
Removed
PWW’s ability to pay dividends is likewise subject to certain limits imposed by state law.
Added
As a bank holding company, we are primarily regulated by the Federal Reserve. The Bank is primarily regulated by the BFI and the Federal Reserve.
Removed
Holders of our common stock are not entitled to preemptive rights or other protections against dilution.
Added
Our articles of incorporation and bylaws contain provisions that may be deemed to have the effect of discouraging or delaying uninvited attempts by third parties to gain control of us.
Added
Cybersecu rity As a publicly-traded financial institution, we are subject to various cybersecurity risks that could adversely affect our business, financial condition, results of operations and reputation, including, but not limited to, cyber-attacks against us or our service providers focused on gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.
Added
As described below, we have risk management and governance practices and processes designed to address these risks. The Company has established an enterprise risk management framework that outlines the processes and procedures the Company uses to identify, assess, mitigate, and monitor the risks faced by the Company, including cybersecurity risk.
Added
Within the overarching enterprise risk management framework, we have an information security program (“ISP”) designed to preserve the confidentiality, integrity, and availability of information or data on our systems and those of our service providers, as documented in our information security policy.
Added
The Company maintains an ISP to support the management of cybersecurity risk as an integral component of the Company’s ERM framework. The ISP encompasses the Company’s cybersecurity policies and practices and procedures that we use to identify, assess, mitigate, and monitor the risks faced by the Company .
Added
In addition, as part of the ISP, the Company has a Cyberecurity Incident Response Policy (“CIRP”) and Incident Response Team (“IRT”). The IRT includes members of executive and senior management and other employees, including representatives from audit, compliance, human resources, finance, credit, information technology, information security, and legal.
Added
The IRT manages how incidents are defined, identified, and classified and ensures that procedures are in place to properly escalate, report and respond to incidents, as they are defined in the policy. The CIRP covers incident preparation, detection, analysis, and declaration, as well as plan execution and process guides for specific scenarios.
Added
Post incident activity, which covers incident termination, metrics, lessons learned, evidence retention, and plan maintenance is also included. The ISP follows relevant industry frameworks and standards set by the relevant legal and regulatory authorities and is being updated to align with the NIST Cybersecurity Framework 2.0. The Board is responsible for the oversight of cybersecurity risk management.
Added
In 2022, we elevated the Enterprise Risk Committee to a “committee of the whole” of the Bank’s board of directors. At the second board meeting of each calendar quarter, a significant portion of the meeting is dedicated to enterprise risk management.
Added
At that board meeting, management presents the enterprise risk management matrix, including the portions related to cybersecurity, to the board. In addition, the board receives regular reports from management on our cybersecurity threat risk management and strategic processes on topics including information on any cybersecurity incidents (including any remedial actions), including, for example, results of our EDR and XDR programs.
Added
At the management level, the company has designated an information security officer (“ISO”). Our ISO is responsible for the overall administration and execution of the ISP and reports to our EVP-General Counsel. Our ISO has over twenty years of experience working in information security.
Added
The ISO monitors the security of, among other things, systems, applications, tools, databases, computers, websites, cloud infrastructure, vendor tools, and user access systems. The ISO also works with and oversees third-party vendors that provide us with information security services and products.
Added
The ISO performs an annual information security risk assessment, which, among other things, documents inherent risk levels and controls in place to manage those risks. The information security risk assessment is presented to the Board 30 Table of Contents annually. The ISO has various professional certifications in relevant fields.
Added
The ISO is responsible for administering and executing the ISP and formulating a risk-based approach for evaluating and managing technology and cybersecurity threats. Management determines and prioritizes appropriate risk responses for each identified enterprise risk. In doing so, executive and senior management work directly with our information technology team and our ISO.
Added
Management is accountable for our day-to-day risk management activities. We strive to minimize the occurrence of cybersecurity incidents and the risks resulting from such incidents. However, when a cybersecurity incident does occur, the Company has in place an incident response program to guide our assessment of and response to the incident.
Added
The ISO coordinates the Company’s response to a cybersecurity incident, including investigating, recording and evaluating any potential, suspected or confirmed incidents involving non-public customer information or Company confidential information. On a regular basis, the ISO reports to executive management and the Board information security risk issues, risk mitigation progress and developments, and information security enhancement initiatives.
Added
The ISO also reports the status of information security-related key risk indicators to executive management. The Company employs third parties in certain aspects of its information security and cybersecurity risk management. For example, we engage third parties to assess the information security risks related to our ISP as well as information security products, services, and security infrastructure.
Added
We have adopted a Third-Party Relationship Risk Management Program to help us effectively assess, measure, monitor and control the risks associated with third party relationships, including those related to information security. The board and senior management are responsible for all vendor relationships.
Added
The ISO assesses and monitors information risks posed by third parties and any non-compliance with the controls created to address such risks.
Added
With respect to cybersecurity incidents affecting our third-party service providers, the ISO works with our service providers to understand and document any incidents, along with managing the impact to us and reporting such incidents to executive management, and, if applicable, the Board.
Added
We utilize endpoint detection and response (EDR) and extended detection and response (XDR) platforms which both align to the MITRE ATT&CK ® knowledge base for threat modeling and methodologies. These assist us in detecting, investigating, and responding to actual and potential security incidents.
Added
Based on information known to us, to date, we have not incurred any material losses related to cybersecurity incidents. However, the risk management and governance processes described above may not be sufficient to prevent cybersecurity incidents, and we could incur substantial costs and suffer other negative consequences from cybersecurity incidents.

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Item 2. Properties

Properties — owned and leased real estate

9 edited+6 added−0 removed3 unchanged
Biggest changeThe building currently houses all personnel of the Company’s wholly-owned subsidiary, PWW. PWW is currently leasing the space from the Bank on a month-to-month basis. While the Bank currently does not have a timeline for a branch at this location, the space is attractive for a branch due to its close proximity to Centra’s Lynchburg General Hospital.
Biggest changeThe building currently houses all personnel of the Company’s wholly-owned subsidiary, PWW. PWW is currently leasing the space from the Bank on a month-to-month basis.
The following table describes the location and general character of our operating facilities: Address Type of Facility Year Opened Owned/Leased 5204 Fort Avenue Lynchburg, Virginia Full-service branch with drive thru and ATM 2000 Owned 4698 South Amherst Highway Madison Heights, Virginia Full-service branch with drive thru and ATM 2002 Owned 17000 Forest Road Forest, Virginia Full-service branch with drive thru and ATM Headquarters for Mortgage Division 2005 Owned 164 South Main Street Amherst, Virginia Full-service branch with drive thru and ATM 2007 Owned 1405 Ole Dominion Blvd Bedford, Virginia Full-service branch with drive thru and ATM 2008 Owned 1110 Main Street Altavista, Virginia Full-service branch with drive thru and ATM 2009 Owned 828 Main Street Lynchburg, Virginia Corporate Headquarters; Full-service branch with drive thru and ATM 2004 Leased (1) 4935 Boonsboro Road, Suites C and D Lynchburg, Virginia Full-service branch with drive thru and ATM 2006 Leased (2) 501 VES Road Lynchburg, Virginia Limited service branch 2010 Leased (3) 250 Pantops Mountain Road Charlottesville, Virginia Limited service branch 2015 Leased (4) 1391 South High Street Harrisonburg, Virginia Full-service branch with drive thru and ATM 2015 Owned 1745 Confederate Blvd Appomattox, Virginia Full-service branch with drive thru and ATM 2017 Owned 26 Table of Contents 225 Merchant Walk Avenue Charlottesville, Virginia Full-service branch with drive thru and ATM 2016 Leased (5) 3562 Electric Road Roanoke, Virginia Full-service branch with ATM 2017 Leased (6) 2001 South Main Street #107 Blacksburg, Virginia Mortgage origination office 2018 Leased (7) 550 East Water Street Suite 100 Charlottesville, Virginia Full-service branch with ATM 2019 Owned 2101 Electric Road Roanoke, Virginia Full-service branch with drive thru and ATM 2019 Leased (8) 45 South Main Street Lexington, Virginia Full-service branch with ATM 2019 Owned 13 Village Highway Rustburg, VA 24588 Full-service branch with drive thru and ATM 2019 Owned 4105 Boonsboro Road Lynchburg, Virginia Full-service branch with drive thru and ATM 2022 Owned (1) The current term of the amended and restated lease expires in three years and the Bank has three five-year renewal options (subject to the terms and conditions outlined in the lease).
The following table describes the location and general character of our operating facilities: Address Type of Facility Year Opened Owned/Leased 5204 Fort Avenue Lynchburg, Virginia Full-service branch with drive thru and ATM 2000 Owned 4698 South Amherst Highway Madison Heights, Virginia Full-service branch with drive thru and ATM 2002 Owned 31 Table of Contents 17000 Forest Road Forest, Virginia Full-service branch with drive thru and ATM Headquarters for Mortgage Division 2005 Owned 164 South Main Street Amherst, Virginia Full-service branch with drive thru and ATM 2007 Owned 1405 Ole Dominion Blvd Bedford, Virginia Full-service branch with drive thru and ATM 2008 Owned 1110 Main Street Altavista, Virginia Full-service branch with drive thru and ATM 2009 Owned 828 Main Street Lynchburg, Virginia Corporate Headquarters; Full-service branch with drive thru and ATM 2004 Leased (1) 4935 Boonsboro Road, Suites C and D Lynchburg, Virginia Full-service branch with drive thru and ATM 2006 Leased (2) 501 VES Road Lynchburg, Virginia Limited service branch 2010 Leased (3) 250 Pantops Mountain Road Charlottesville, Virginia Limited service branch 2015 Leased (4) 1391 South High Street Harrisonburg, Virginia Full-service branch with drive thru and ATM 2015 Owned 1745 Confederate Blvd Appomattox, Virginia Full-service branch with drive thru and ATM 2017 Owned 225 Merchant Walk Avenue Charlottesville, Virginia Full-service branch with drive thru and ATM 2016 Leased (5) 3562 Electric Road Roanoke, Virginia Full-service branch with ATM 2017 Leased (6) 2001 South Main Street #107 Blacksburg, Virginia Mortgage origination office 2018 Leased (7) 550 East Water Street Suite 100 Charlottesville, Virginia Full-service branch with ATM 2019 Owned 2101 Electric Road Roanoke, Virginia Full-service branch with drive thru and ATM 2019 Leased (8) 45 South Main Street Lexington, Virginia Full-service branch with ATM 2019 Owned 13 Village Highway Rustburg, VA 24588 Full-service branch with drive thru and ATM 2019 Owned 4105 Boonsboro Road Lynchburg, Virginia Full-service branch with drive thru and ATM 2022 Owned 32 Table of Contents (1) The current term of the amended and restated lease expires in three years and the Bank has three five-year renewal options (subject to the terms and conditions outlined in the lease).
(5) Base lease expires October 31, 2026. We have one or more renewal options that we may exercise at our discretion subject to the terms and conditions outlined in the lease. (6) Base lease expires January 31, 2027. (7) Base lease expired February 28, 2021. The Bank currently leases on a month-to-month basis. (8) Base lease expires February 28, 2024.
(5) Base lease expires October 31, 2026. We have one or more renewal options that we may exercise at our discretion subject to the terms and conditions outlined in the lease. (6) Base lease expires January 31, 2027. (7) Base lease expired February 28, 2021. The Bank currently leases on a month-to-month basis. (8) Base lease expires February 28, 2029.
Item 2. Properties Current Locations and Property Depending on such factors as cost, availability, and location, we may either lease or purchase our operating facilities. The existing facilities that we have purchased typically have been former branches of other financial institutions.
Item 2. Properti es Current Locations and Property Depending on such factors as cost, availability, and location, we may either lease or purchase our operating facilities. The existing facilities that we have purchased typically have been former branches of other financial institutions.
As of March 31, 2023 the Bank conducts its operations from 19 locations, of which we own 11 and lease 8.
As of March 27, 2024 the Bank conducts its operations from 19 locations, of which we own 11 and lease 8 .
The opening of all additional branches is contingent upon the receipt of regulatory approval. We will use the internet, consistent with applicable regulatory guidelines, to augment our growth plans. We currently offer online account access, bill payment, and account management functions through our website and apps for mobile devices.
We will use the internet, consistent with applicable regulatory guidelines, to augment our growth plans. We currently offer online account access, bill payment, and account management functions through our website and apps for mobile devices.
The investment needed to upfit the property will be minimal. Management of the Bank continues to look for and evaluate additional locations for future branch growth and will consider opening an additional branch in the next 18 months if a suitable location is available on acceptable terms.
Management of the Bank continues to look for and evaluate additional locations for future branch growth and will consider opening an additional branch in the next 18 months if a suitable location is available on acceptable terms. The opening of all additional branches is contingent upon the receipt of regulatory approval.
We believe that each of these operating facilities is maintained in good operating condition and is suitable for our operational needs. 27 Table of Contents Interest in Additional Properties As discussed in “Management’s Discussion and Analysis—Expansion Plans” in addition to the facilities set forth above, the Bank owns the following properties which are being held for possible expansion: real property located in the Timberlake Road area of Campbell County (Lynchburg), Virginia.
As discussed in “Management’s Discussion and Analysis—Expansion Plans” in addition to the facilities set forth above, the Bank owns the following properties which are being held for possible expansion: Real property located in the Timberlake Road area of Campbell County (Lynchburg), Virginia.
We have one or more renewal options that we may exercise at our discretion subject to the terms and conditions outlined in the lease.
We have one or more renewal options that we may exercise at our discretion subject to the terms and conditions outlined in the lease. We believe that each of these operating facilities is maintained in good operating condition and is suitable for our operational needs.
Added
Interest in Additional Properties The Bank recently acquired the following two properties in which it intends to open branches in 2024:  Real property located at 19792 Main Street, Buchanan, Virginia. On August 7, 2023, the Bank purchased real property located at 19792 Main Street, Buchanan, Virginia.
Added
The building on the property previously served as a bank branch for another financial institution. The Bank anticipates that that it will open a branch at this location during the second quarter of 2024.  Real Property located at 2935 Rockfish Valley Highway, Nellysford, Virginia.
Added
On September 18, 2023, the Bank purchased real property located at 2935 Rockfish Valley Highway, Nellysford, Virginia. The building on the property previously served as a bank branch for another financial institution. The Bank anticipates that the cost to upfit the building will be minimal.
Added
The property is a subject to a restrictive covenant that prohibits the Bank from using the property for any banking-related activity until the covenant expires in September 2025. We anticipate that we will open a temporary location in the vicinity of this property in the second quarter of 2024.
Added
The Bank has received regulatory approval to open the permanent location in Buchanan and the temporary location in Nellysford.
Added
While the Bank currently does not have a timeline for a branch at this location, the space is attractive for a branch due to its close 33 Table of Contents proximity to Centra’s Lynchburg General Hospital. The investment needed to upfit the property will be minimal.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−3 removed4 unchanged
Biggest changePurchases may be made in open market transactions or privately negotiated transactions, in accordance with Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Biggest changeThe plan allowed the Company to make purchases in open market transactions or privately negotiated transactions, in accordance with Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Pursuant to the Plan, the Company purchased an aggregate of 85,319 shares between the adoption date and April 6, 2023.
On February 6, 2023, the Company's board of directors approved a stock repurchase plan to purchase up to $998,000 of the Company's common stock. The plan authorizes the Company to make purchases from March 8, 2023 through March 7, 2024, unless extended or sooner terminated.
On February 6, 2023, the Company’s board of directors approved a stock repurchase plan to purchase up to $998,000 of the Company’s common stock. The plan authorized the Company to make purchases from March 8, 2023 through March 7, 2024, unless extended or sooner terminated.
PWW’s ability to pay dividends is subject to certain limits imposed by state law. On January 17, 2023 Financial declared a cash dividend for the fourth quarter of 2022 of $0.08 per common share. The dividend was paid on March 17, 2023 to shareholders of record at the close of business on March 3, 2023.
PWW’s ability to pay dividends is subject to certain limits imposed by state law. 34 Table of Contents On January 16, 2024 Financial declared a cash dividend for the fourth quarter of 2023 of $0.10 per common share. The dividend was paid on March 15, 2024 to shareholders of record at the close of business on March 1, 2024.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Prices and Dividends As of January 25, 2012, the Common Stock of Financial is traded on the NASDAQ Capital Market LLC (NASDAQ) under the symbol “BOTJ.” Prior to this time, the Common Stock of Financial was quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol “BOJF (“BOJF.OB” on some systems) and transactions generally involved a small number of shares.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securi ties Market Prices and Dividends As of January 25, 2012, the Common Stock of Financial is traded on the NASDAQ Capital Market LLC (NASDAQ) under the symbol “BOTJ.” Prior to this time, the Common Stock of Financial was quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol “BOJF” (“BOJF .
Financial will evaluate the factors set forth above when making a determination of whether to continue to pay a cash dividend in 2023. ‎ 29 Table of Contents As set forth in the following table, during the quarter ended December 31, 2022, Financial repurchased no shares of common stock.
Financial will evaluate the factors set forth above when making a determination of whether to continue to pay a cash dividend in 2024. Financial does not have an active stock repurchase plan and during the quarter ended December 31, 2023, Financial repurchased no shares of common stock.
As of March 31, 2023, there were approximately 4,575,038 shares of Common Stock outstanding, which shares are held by approximately 1,500 active shareholders of record.
OB” on some systems) and transactions generally involved a small number of shares. As of March 31, 2024, there were approximately 4,543,338 shares of Common Stock outstanding, which shares are held by approximately 1,500 active shareholders of record.
Removed
Beginning Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs (000’s) (1) October 1, 2022 through October 31, 2022 (2) – N/A – $98 November 1, 2022 through November 30, 2022 – N/A – $98 December 1, 2022 through December 31, 2022 – N/A – $98 Total – N/A – $98 (1) The company repurchased no shares during the quarter ended December 31, 2022.
Added
Because the Company used substantially all of the funds allocated under the Plan, on April 18, 2023, the Company’s board of directors terminated the repurchase plan. Following the termination, the Company did not have a stock repurchase plan in place.
Removed
(2) On July 19, 2022, the Company's board of directors approved a share repurchase program under which the Company was authorized to repurchase, from time to time as the Company deems appropriate, up to an aggregate of $500,000 of shares of the Company's common stock.
Removed
On August 18, 2022, the Company's board of directors increased this aggregate amount available for the repurchase of shares to $1,500,000. The program, as amended, was scheduled by its terms to expire on July 18, 2023, but was terminated on February 6, 2023 when a new repurchase plan was adopted.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

125 edited+24 added−20 removed83 unchanged
Biggest changeThe following table summarizes net charge-offs, average loan balance and the percentage of net (charge-offs) recoveries to average loan balance for each of the Company’s loan segments at the end of the period: Loan Portfolio (dollars in thousands) December 31, 2022 (Recovery of) Provision for Loan Losses Net (Charge-offs) Recoveries Average Loans Ratio of Annualized Net (Charge-offs) Recoveries to Average Loans Commercial $ (473) $ 104 $ 101,734 0.10% Commercial real estate (810) 75 350,424 0.02% Consumer 51 (7) 94,702 -0.01% Residential 332 72 58,130 0.12% Total loans $ (900) $ 244 $ 604,990 0.04% 2021 Commercial $ (589) $ 59 $ 126,162 0.05% Commercial real estate 15 72 326,591 0.02% Consumer 1 (9) 91,489 -0.01% Residential 73 137 57,030 0.24% Total loans $ (500) $ 259 $ 601,272 0.04% ‎ 39 Table of Contents The following table sets forth the maturities of the loan portfolio at December 31, 2022 : Remaining Maturities of Selected Loans (dollars in thousands) At December 31, 2022 Less than ‎ One Year After One but Within ‎ Five Years After Five but Within Fifteen Years After Fifteen Years Total Commercial $ 16,639 $ 41,466 $ 16,736 $ 21,044 $ 95,885 Commercial real estate 15,635 16,051 134,577 187,762 354,025 Consumer 4,476 23,945 55,074 14,464 97,959 Residential 20,759 399 3,436 39,162 63,756 Total $ 57,509 $ 81,861 $ 209,823 $ 262,432 $ 611,625 Loans with fixed interest rates: Commercial $ 2,937 $ 22,967 $ 3,423 $ 1,786 $ 31,113 Commercial real estate 9,239 11,044 35,006 566 55,855 Consumer 536 13,000 17,562 9,212 40,310 Residential 15,645 399 2,706 767 19,517 Total $ 28,357 $ 47,410 $ 58,697 $ 12,331 $ 146,795 Loans with variable interest rates: Commercial $ 13,702 $ 18,499 $ 13,313 $ 19,258 $ 64,772 Commercial real estate 6,396 5,007 99,571 187,196 298,170 Consumer 3,940 10,945 37,512 5,252 57,649 Residential 5,114 — 730 38,395 44,239 Total $ 29,152 $ 34,451 $ 151,126 $ 250,101 $ 464,830 Deposits We experienced a decrease in deposits from $887,056,000 at December 31, 2021 to $848,138,000 at December 31, 2022, for a decrease of 4.39%.
Biggest changeThe following table summarizes net charge-offs, average loan balance and the percentage of net (charge-offs) recoveries to average loan balance for each of the Company’s loan segments at the end of the period: 44 Table of Contents Loan Portfolio (dollars in thousands) December 31, 2023 (Recovery of) Provision for Credit Losses Net (Charge-offs) Recoveries Average Loans Ratio of Annualized Net (Charge-offs) Recoveries to Average Loans Commercial $ 37 $ (99) $ 81,340 -0.12% Commercial real estate (170) 96 344,541 0.03% Consumer (28) (40) 88,033 -0.05% Residential 96 16 102,133 0.02% Total $ (65) $ (27) $ 616,047 0.00% 2022 Commercial $ (473) $ 104 $ 101,734 0.10% Commercial real estate (810) 75 350,424 0.02% Consumer 51 (7) 94,702 -0.01% Residential 332 72 58,130 0.12% Total $ (900) $ 244 $ 604,990 0.04% The following table sets forth the maturities of the loan portfolio at December 31, 2023 : Remaining Maturities of Selected Loans (dollars in thousands) At December 31, 2023 Less than ‎ One Year After One but Within ‎ Five Years After Five but Within Fifteen Years After Fifteen Years Total Commercial $ 5,894 $ 33,933 $ 9,201 $ 16,296 $ 65,324 Commercial real estate 19,747 16,319 137,671 155,092 328,829 Consumer 2,800 16,065 46,664 10,988 76,517 Residential 20,032 9,352 21,733 87,546 138,663 Total $ 48,473 $ 75,669 $ 215,269 $ 269,922 $ 609,333 Loans with fixed interest rates: Commercial $ 1,929 $ 20,454 $ 2,597 $ 3,137 $ 28,117 Commercial real estate 12,075 9,518 30,477 292 52,362 Consumer 242 2,288 13,390 7,631 23,551 Residential 15,770 8,683 6,924 1,362 32,739 Total $ 30,016 $ 40,943 $ 53,388 $ 12,422 $ 136,769 Loans with variable interest rates: Commercial $ 3,965 $ 13,479 $ 6,604 $ 13,159 $ 37,207 Commercial real estate 7,672 6,801 107,194 154,800 276,467 Consumer 2,558 13,777 33,274 3,357 52,966 Residential 4,262 669 14,809 86,184 105,924 Total $ 18,457 $ 34,726 $ 161,881 $ 257,500 $ 472,564 Deposits We experienced an increase in deposits from $848,138,000 at December 31, 2022 to $878,459,000 at December 31, 2023, for an increase of 3.58%.
Both the amount of the provision and the level of the allowance for loan losses are impacted by many factors, including general economic conditions, actual and expected credit losses, loan performance measures, historical trends and specific conditions of the individual borrower. In performing its loan loss analysis, the Bank assigns a risk rating to each loan in the Bank’s portfolio.
Both the amount of the provision and the level of the allowance for credit losses are impacted by many factors, including general economic conditions, actual and expected credit losses, loan performance measures, historical trends and specific conditions of the individual borrower. In performing its credit loss analysis, the Bank assigns a risk rating to each loan in the Bank’s portfolio.
The 2020 Notes bear interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes will mature on June 30, 2025 and are subject to full or partial repayment on or after June 30, 2021.
The 2020 Notes bear interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes will mature on June 30, 2025 and are subject to full or partial repayment on or after June 30, 2021.
The following reports and/or tools are used to assess the current interest rate environment and its impact on Financial’s earnings and liquidity: monthly and year-to-date net interest margin and spread calculations, monthly and year-to-date balance sheet and income statements versus budget (including quarterly interest rate shock analysis), quarterly economic value of equity analysis, a weekly survey of rates offered by other local competitive institutions, and gap analysis which matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities.
The following reports and/or tools are used to assess the current interest rate environment and its impact on Financial’s earnings and liquidity: monthly and year-to-date net interest margin and spread calculations, monthly and year-to-date balance sheet and income statements versus budget (including quarterly interest rate shock analysis), quarterly economic value of equity analysis, a survey of rates offered by other local competitive institutions, and gap analysis which matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities.
The balance of the NBB Note is presented on the December 31, 2022 consolidated balance sheet under “other borrowings” and is net of unamortized issuance costs. A portion of the proceeds were used to purchase 100% of the capital stock of PWW. On June 30, 2022, NBB agreed to modify the terms of the NBB Note effective July 1, 2022.
The balance of the NBB Note is presented on the December 31, 2023 consolidated balance sheet under “other borrowings” and is net of unamortized issuance costs. A portion of the proceeds were used to purchase 100% of the capital stock of PWW. On June 30, 2022, NBB agreed to modify the terms of the NBB Note effective July 1, 2022.
Our effective tax rate was lower than the statutory corporate tax rate in 2021 and 2022 because of federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance, and certain tax-free municipal securities.
Our effective tax rate was lower than the statutory corporate tax rate in 2022 because of federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance, and certain tax-free municipal securities.
Since January 1, 2019 the rules have required the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus the 2.5% "capital conservation buffer" (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Since January 1, 2019 the rules have required the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus the 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Investment’s financial impact on our consolidated revenue has been minimal. Although management cannot predict the financial impact of Investment with certainty, management anticipates it will continue to be a relatively small component of revenue in 2023. In the third quarter of 2008, we began providing insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary.
Investment’s financial impact on our consolidated revenue has been minimal. Although management cannot predict the financial impact of Investment with certainty, management anticipates it will continue to be a relatively small component of revenue in 2024. In the third quarter of 2008, we began providing insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary.
Short-term borrowings may also include federal funds purchased, which are unsecured overnight borrowings from other financial institutions, which totaled $0 as of December 31, 2022 and December 31, 2021. As set forth under “ Analysis of Financial Condition - Liquidity ,” above, the Bank has the ability to borrow funds from a number of sources.
Short-term borrowings may also include federal funds purchased, which are unsecured overnight borrowings from other financial institutions, which totaled $0 as of December 31, 2023 and December 31, 2022. As set forth under “ Analysis of Financial Condition - Liquidity ,” above, the Bank has the ability to borrow funds from a number of sources.
The Bank’s net income also is affected by its provision for loan losses, as well as the level of its noninterest income, including deposit fees and service charges, gains on sales of mortgage loans, and its noninterest expenses, including salaries and employee benefits, occupancy expense, data processing expenses, miscellaneous other expenses, franchise taxes, and income taxes.
The Bank’s net income also is affected by its provision for credit losses, as well as the level of its noninterest income, including deposit fees and service charges, gains on sales of mortgage loans, and its noninterest expenses, including salaries and employee benefits, occupancy expense, data processing expenses, miscellaneous other expenses, franchise taxes, and income taxes.
The guidelines define capital as Tier 1 (primarily common stockholders' equity, defined to include certain debt obligations) and Tier 2 (remaining capital generally consisting of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general valuation allowance for loan losses).
The guidelines define capital as Tier 1 (primarily common stockholders’ equity, defined to include certain debt obligations) and Tier 2 (remaining capital generally consisting of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general valuation allowance for credit losses).
Insurance generates minimal revenue and its financial impact on our consolidated revenue has been immaterial. Management anticipates that Insurance’s impact on noninterest income will remain immaterial in 2023. We conduct our investment advisory business through PWW, which Financial acquired on December 31, 2021.
Insurance generates minimal revenue and its financial impact on our consolidated revenue has been immaterial. Management anticipates that Insurance’s impact on noninterest income will remain immaterial in 2024. We conduct our investment advisory business through PWW, which Financial acquired on December 31, 2021.
The balance of the 2020 Notes as presented on the December 31, 2022 consolidated balance sheet is net of unamortized issuance costs. On December 29, 2021 Financial borrowed $11,000,000 from National Bank of Blacksburg pursuant to a secured promissory note (the “NBB Note”).
The balance of the 2020 Notes as presented on the December 31, 2023 consolidated balance sheet is net of unamortized issuance costs. On December 29, 2021 Financial borrowed $11,000,000 from National Bank of Blacksburg pursuant to a secured promissory note (the “NBB Note”).
With respect to the Bank, the rules also revised the "prompt corrective action" regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the previous 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.
With respect to the Bank, the rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the previous 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.
Although we intend to increase other sources of revenue, our operating results depend primarily upon the Bank’s net interest income, which is determined by the difference between (i) interest and dividend income on earning assets, which consist primarily of 31 Table of Contents loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits and other borrowings.
Although we intend to increase other sources of revenue, our operating results depend primarily upon the Bank’s net interest income, which is determined by the difference between (i) interest and dividend income on earning assets, which consist primarily of loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits and other borrowings.
The FOMC continued to increase the target rate, including raises of 50 basis 32 Table of Contents points on May 5, 2022, 75 basis points on each of June 16, July 27, September 30, and November 2, 2022, 50 basis points on December 14, 2022 and 25 basis points on February 1, 2023, at which point the target rate was 4.50% to 4.75%.
The FOMC continued to increase the target rate, including raises of 50 basis points on May 5, 2022, 75 basis points on each of June 16, July 27, September 30, and November 2, 2022, 50 basis points on December 14, 2022 and 25 basis points on February 1, 2023, at which point the target rate was 4.50% to 4.75%.
Item 6. [Reser ved] It em 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist readers in understanding and evaluating our financial condition and results of operations. You should read this discussion in conjunction with our financial statements and accompanying notes included elsewhere in this report.
Item 6. [Reser ve d] It em 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist readers in understanding and evaluating our financial condition and results of operations. You should read this discussion in conjunction with our financial statements and accompanying notes included elsewhere in this report.
On December 31, 2021, Financial completed its acquisition of Pettyjohn, Wood & White, Inc. (“PWW”), a Lynchburg, Virginia-based investment advisory firm with approximately $650 million in assets under management and advisement at the time of the acquisition. PWW operates as a subsidiary of Financial.
On December 31, 2021, Financial completed its acquisition of Pettyjohn, Wood & White, Inc. (“PWW”), a 49 Table of Contents Lynchburg, Virginia-based investment advisory firm with approximately $650 million in assets under management and advisement at the time of the acquisition. PWW operates as a subsidiary of Financial.
Securities Portfolio Maturity Distribution / Yield Analysis (dollars in thousands) At December 31, 2022 Less than ‎ One Year One to ‎ Five Years Five to ‎ Ten Years Greater than ‎ Ten Years Total Held-to-maturity U.S.
Securities Portfolio Maturity Distribution / Yield Analysis (dollars in thousands) At December 31, 2023 Less than ‎ One Year One to ‎ Five Years Five to ‎ Ten Years Greater than ‎ Ten Years Total Held-to-maturity U.S.
The income stream of Financial is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of Financial’s interest earning assets and the amount of interest-bearing liabilities that prepay, mature or reprice in specified periods.
The income stream of Financial is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of Financial’s interest earning assets and the amount of interest-bearing liabilities 56 Table of Contents that prepay, mature or reprice in specified periods.
Under the Program, eligible depository institutions may pledge eligible collateral (which includes direct obligations of the U.S. Department of Treasury and most federal agencies and mortgage-backed securities issued and/or fully guaranteed by Ginnie Mae, Freddie Mac, and Fannie Mae) in exchange for advances equal to 100% of the par value of the collateral pledged.
Under the Program, eligible depository institutions could pledge eligible collateral (which included direct obligations of the U.S. Department of Treasury and most federal agencies and mortgage-backed securities issued and/or fully guaranteed by Ginnie Mae, Freddie Mac, and Fannie Mae) in exchange for advances equal to 100% of the par value of the collateral pledged.
Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the 46 Table of Contents minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
Pursuant to the modification, the balloon payment date was extended to December 31, 2026 from December 31, 2024 and the interest rate was lowered to 3.90% from 4.00%. The approximate amount of the balloon payment on December 31, 2026 will be $8,104,000. Financial uses borrowing in conjunction with deposits to fund lending and investing activities.
Pursuant to the modification, the balloon payment date was extended to December 31, 2026 from December 31, 2024 and the interest rate was lowered to 3.90% from 4.00%. Under the normal amortization schedule, the approximate amount of the balloon payment on December 31, 2026 will be $8,104,000. Financial uses borrowing in conjunction with deposits to fund lending and investing activities.
By using the Bank’s funds to close the loan (as compared to a broker relationship in which loans are funded by the purchaser of the mortgage), the Bank is able to obtain better pricing due to the slight increase in risk.
By using the Bank’s 41 Table of Contents funds to close the loan (as compared to a broker relationship in which loans are funded by the purchaser of the mortgage), the Bank is able to obtain better pricing due to the slight increase in risk.
Service charges and fees and commissions increased to $3,591,000 for the year ended December 31, 2022 from $2,496,000 for the year ended December 31, 2021 primarily due to increases related to commissions on the sales of securities, debit card fees, and treasury management fees. Investment provides brokerage services through an agreement with a third-party broker-dealer.
Service charges and fees and commissions increased to $3,901,000 for the year ended December 31, 2023 from $3,591,000 for the year ended December 31, 2022 primarily due to increases related to commissions on the sales of securities, debit card fees, and treasury management fees. Investment provides brokerage services through an agreement with a third-party broker-dealer.
The balance of the 2020 Notes as presented on the December 31, 2022 consolidated balance sheet is net of unamortized issuance costs. On September 24, 2020 the Bank used $5,000,000 of the proceeds for the payment of principal of unregistered debts securities issued by Financial in 2017.
The balance of the 2020 Notes as presented on the December 31, 2023 consolidated balance sheet is net of unamortized issuance costs. On September 24, 2020, the Bank used $5,000,000 of the proceeds for the payment of principal of unregistered debt securities issued by Financial in 2017.
Other assets acquired and liabilities assumed in the combination were not significant. Refer to Note 26. Acquisitions, included in Item 8 of this Annual Report on Form 10-K for additional information. Liquidity Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities.
Refer to Note 26 . Acquisitions, included in Item 8 of this Annual Report on Form 10-K for additional information. Liquidity Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities.
Securities held-to-maturity at amortized cost decreased slightly from $3,655,000 as of December 31, 2021 to $3,639,000 as of December 31, 2022 . This decrease resulted from the amortization of premiums within the held-to-maturity portfolio.
Securities held-to-maturity at amortized cost decreased slightly from $3,639,000 as of December 31, 2022 to $3,622,000 as of December 31, 2023 . This decrease resulted from the amortization of premiums within the held-to-maturity portfolio.
The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates when compared to previous periods of operation. Interest income increased to $31,853,000 for the year ended December 31, 2022 from $29,181,000 for the year ended December 31, 2021 .
The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates when compared to previous periods of operation. Interest income increased to $39,362,000 for the year ended December 31, 2023 from $31,853,000 for the year ended December 31, 2022 .
We maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment. TDRs occur when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower. TDRs are considered impaired loans.
We maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment. TDRs occurred when we agreed to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower. TDRs were considered impaired loans.
These factors, many of which are beyond Financial’s control, include, but are not necessarily limited to the following: the effects of a resurgence of COVID-19 or other pandemic on the business, customers, employees and third-party service providers of Financial or any of its acquisition targets; operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Financial specifically; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and the Consumer Protection Act and its related regulations); changes to statutes, regulations, or regulatory policies or practices, including changes to address the impact of COVID-19; economic, market, political and competitive forces affecting Financial’s banking and other businesses; competition for our customers from other providers of financial services; government legislation and regulation relating to the banking industry (which changes from time to time and over which we have no control) including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in interest rates, monetary policy and general economic conditions, which may impact Financial’s net interest income; changes in the value of real estate securing loans made by the Bank; adoption of new accounting standards or changes in existing standards; compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Financial may pursue or implement; the risk that Financial’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful; the stability of the overall banking industry in the United States; liquidity and perceived liquidity in the banking industry in the United States; economic and political tensions with China, the ongoing war between Russia and Ukraine and potential expansion of combatants, and the sanctions imposed on Russia by numerous countries and private companies , all of which may have a destabilizing effect on financial markets and economic activity; and other risks and uncertainties set forth in this Annual Report on Form 10 -K and, from time to time, in our other filings with the Securities and Exchanges Commission (“SEC”).
These factors, many of which are beyond Financial’s control, include, but are not necessarily limited to the following: the effects of a resurgence of COVID-19 or other pandemic on the business, customers, employees and third-party service providers of Financial or any of its acquisition targets; problems with technology utilized by us; potential exposure to fraud, negligence, computer theft and cyber-crime, and the Company's ability to maintain the security of its data processing and information technology systems operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Financial specifically; government legislation and policies (including the impact of the Dodd-Frank Wall Street Reform and the Consumer Protection Act and its related regulations); economic, market, political and competitive forces affecting Financial’s banking and other businesses; 35 Table of Contents competition for our customers from other providers of financial services; government legislation and regulation relating to the banking industry (which changes from time to time and over which we have no control) including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act; reliance on our management team, including our ability to attract and retain key personnel changes in interest rates, monetary policy and general economic conditions, which may impact Financial’s net interest income; changes in the value of real estate securing loans made by the Bank; adoption of new accounting standards or changes in existing standards; compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Financial may pursue or implement; the risk that Financial’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful; the stability of the overall banking industry in the United States; liquidity and perceived liquidity in the banking industry in the United States; economic and political tensions with China, the ongoing war between Russia and Ukraine and potential expansion of combatants, and the sanctions imposed on Russia by numerous countries and private companies , all of which may have a destabilizing effect on financial markets and economic activity; and other risks and uncertainties set forth in this Annual Report on Form 10 -K and, from time to time, in our other filings with the Securities and Exchanges Commission (“SEC”).
Non-accrual loans decreased to $633,000 on December 31, 2022 from $954,000 on December 31, 2021 . T otal charge-offs during 2022 were $162,000 compared to $91,000 in 2021. In 2022, the Bank recovered $406,000 in loans previously charged-off as compared with recoveries of $350,000 in 2021. We also classify other real estate owned (OREO) as a nonperforming asset.
Non-accrual loans decreased to $391,000 on December 31, 2023 from $633,000 on December 31, 2022 . T otal charge-offs during 2023 were $236,000 compared to $162,000 in 2022. In 2023, the Bank recovered $209,000 in loans previously charged-off as compared with recoveries of $406,000 in 2022. We also classify other real estate owned ( OREO ) as a nonperforming asset.
However, the held-to-maturity securities may be pledged for such purposes as short term borrowings and as collateral for public deposits. The portfolio of securities available-for-sale increased to $185,787,000 as of December 31, 2022 from $161,267,000 as of December 31, 2021 .
However, the held-to-maturity securities may be pledged for such purposes as short term borrowings and as collateral for public deposits. The portfolio of securities available-for-sale increased to $216,510,000 as of December 31, 2023 from $185,787,000 as of December 31, 2022 .
These concessions typically are made for loss mitigation purposes and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Performing TDRs increased to $431,000 on December 31, 2022 from $372,000 on December 31, 2021.
These concessions typically were made for loss mitigation purposes and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Performing TDRs were $431,000 on December 31, 2022.
No other obligation exists. 52 Table of Contents The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.
The Mortgage Division originated 798 mortgage loans, totaling approximately $213,406,000 during the year ended December 31, 2022 as compared with 1,335 mortgage loans, totaling $331,235,000 in 2021. The decrease in originations was due in large part to a rapid increase in mortgage rates during 2022, particularly the second half of the year.
The Mortgage Division originated 609 mortgage loans, totaling approximately $164,511,000 during the year ended December 31, 2023 as compared with 798 mortgage loans, totaling $213,406,000 in 2022. The decrease in originations was due in large part to a rapid increase in mortgage rates during 2022, particularly the second half of the year.
The Bank had no amounts outstanding on these facilities as of December 31, 2022 and 2021. Off-Balance Sheet Arrangements At December 31, 2022, the Bank had rate lock commitments to originate mortgage loans through its Mortgage Division amounting to approximately $11,200,000 and loans held for sale of $2,423,000.
The Bank had no amounts outstanding on these facilities as of December 31, 2023 and 2022. Off-Balance Sheet Arrangements At December 31, 2023, the Bank had rate lock commitments to originate mortgage loans through its Mortgage Division amounting to approximately $11,562,000.
Bank of the James Financial Group, Inc. (“Financial”) has no material operations and conducts no business other than the ownership of its operating subsidiaries, Bank of the James (and its divisions and subsidiary), and Pettyjohn, Wood & White, Inc.
Bank of the James Financial Group, Inc. (“Financial”) has no material operations and conducts no business other than the ownership of its operating subsidiaries, Bank of the James (and its divisions and subsidiary), and Pettyjohn, Wood & White, Inc., which was acquired on December 31, 2021.
During 2022, the Bank purchased $76,562,000 of available-for-sale securities. 42 Table of Contents The following table shows the maturities of held-to-maturity and available-for-sale securities at fair value at December 31, 2022 and 2021 and approximate weighted average yields of such securities. Weighted average yields on all securities including state and political subdivision securities are shown on a pre-tax basis.
The following table shows the maturities of held-to-maturity and available-for-sale securities at fair value at December 31, 2023 and 2022 and approximate weighted average yields of such securities. Weighted average yields on all securities including state and political subdivision securities are shown on a pre-tax basis.
The following table (along with Note 18 of the consolidated financial statements) shows the minimum capital requirements and the Bank’s capital position as of December 31, 2022 and 2021. 47 Table of Contents Analysis of Capital for Bank of the James (Bank only) (dollars in thousands) December 31, December 31, Analysis of Capital (in 000's) 2022 2021 Tier 1 capital Common Stock $ 3,742 $ 3,742 Surplus 22,325 22,325 Retained earnings 57,840 52,821 Total Tier 1 capital $ 83,907 $ 78,888 Common Equity Tier 1 Capital (CET1) $ 83,907 $ 78,888 Tier 2 capital Allowance for loan losses $ 6,259 $ 6,915 Total Tier 2 capital: $ 6,259 $ 6,915 Total risk-based capital $ 90,166 $ 85,803 Risk weighted assets $ 752,515 $ 693,400 Average total assets $ 934,277 $ 959,794 Actual Regulatory Benchmarks For Capital For Well December 31, December 31, Adequacy Capitalized 2022 2021 Purposes (1) Purposes Capital Ratios: Tier 1 capital to average total assets 8.98% 8.22% 4.000% 5.000% Common Equity Tier 1 capital 11.15% 11.38% 7.000% 6.500% Tier 1 risk-based capital ratio 11.15% 11.38% 8.500% 8.000% Total risk-based capital ratio 11.98% 12.37% 10.500% 10.000% (1) Includes capital conservation buffer of 2.5%, where applicable.
The following table (along with Note 18 of the consolidated financial statements) shows the minimum capital requirements and the Bank’s capital position as of December 31, 2023 and 2022. 52 Table of Contents Analysis of Capital for Bank of the James (Bank only) (dollars in thousands) December 31, December 31, Analysis of Capital (in 000’s) 2023 2022 Tier 1 capital Common Stock $ 3,742 $ 3,742 Surplus 22,325 22,325 Retained earnings 65,172 57,840 Total Tier 1 capital $ 91,239 $ 83,907 Common Equity Tier 1 Capital (CET1) $ 91,239 $ 83,907 Tier 2 capital Allowance for credit losses $ 7,412 $ 6,259 Total Tier 2 capital: $ 7,412 $ 6,259 Total risk-based capital $ 98,651 $ 90,166 Risk weighted assets $ 737,505 $ 752,515 Average total assets $ 953,757 $ 934,277 Actual Regulatory Benchmarks For Capital For Well December 31, December 31, Adequacy Capitalized 2023 2022 Purposes (1) Purposes Capital Ratios: Tier 1 capital to average total assets 9.57% 8.98% 4.000% 5.000% Common Equity Tier 1 capital 12.37% 11.15% 7.000% 6.500% Tier 1 risk-based capital ratio 12.37% 11.15% 8.500% 8.000% Total risk-based capital ratio 13.38% 11.98% 10.500% 10.000% (1) Includes capital conservation buffer of 2.5%, where applicable.
The large decrease in cash and cash equivalents in 2022 can be directly attributed to the decrease in federal funds sold.
The large increase in cash and cash equivalents in 2023 can be directly attributed to the increase in federal funds sold.
The rates charged on loans and received on investments grew faster than rates paid on deposits, which was the primary driver in the increase of our net interest income. Our interest expense increased slightly from $2,102,000 in 2021 from $2,150,000 in 2022.
The rates charged on loans and received on investments grew faster than rates paid on deposits, which was the primary driver in the increase of our net interest income. Our interest expense increased over 348% from $2,150,000 in 2022 to $9,622,000 in 2023.
The decrease was primarily caused by a decrease in average time deposits, which pay a higher rate than demand interest bearing and savings deposits, from $144,206,000 for the year ended December 31, 2021 to $134,821,000 for the year ended December 31, 2022.
The increase was primarily caused by an increase in average time deposits, which pay a higher rate than demand interest bearing and savings deposits, from $134,821,000 for the year ended December 31, 2022 to $183,256,000 for the year ended December 31, 2023.
The following table sets forth selected financial ratios: For the Year Ended December 31, 2022 2021 Return on average equity 15.59% 11.34% Return on average assets 0.91% 0.82% Dividend yield % 2.29% 1.75% Average equity to total average assets 5.86% 7.27% Effect of Economic Trends A variety and wide scope of economic factors affect Financial’s success and earnings.
The following table sets forth selected financial ratios: For the Year Ended December 31, 2023 2022 Return on average equity 17.07% 15.59% Return on average assets 0.92% 0.91% Dividend yield % 2.68% 2.29% Average equity to total average assets 5.36% 5.86% Effect of Economic Trends A variety and wide scope of economic factors affect Financial’s success and earnings.
The Bank recorded $117,000 in other assets in relation to its interest rate lock commitments at December 31, 2022. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close.
The Bank recorded $107,000 in other assets in relation to its interest 57 Table of Contents rate lock commitments at December 31, 2023. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close. No other obligation exists.
RESULTS OF OPERATIONS Year Ended December 31, 2022 compared to year ended December 31, 2021 Net Income The net income for Financial for the year ended December 31, 2022 was $8,959,000 or $1.91 per basic and diluted share compared with net income of $7,589,000 or $1.60 per basic and diluted share for the year ended December 31, 2021 .
RESULTS OF OPERATIONS Year Ended December 31, 2023 compared to year ended December 31, 2022 Net Income The net income for Financial for the year ended December 31, 2023 was $8,704,000 or $1.91 per basic and diluted share compared with net income of $8,959,000 or $1.91 per basic and diluted share for the year ended December 38 Table of Contents 31, 2022 .
The following table sets forth non-deposit sources of funding: Funding Sources (dollars in thousands) December 31, 2022 Source Capacity Outstanding Available Federal funds purchased lines (unsecured) $ 33,000 $ — $ 33,000 Federal funds purchased lines (secured) 4,689 — 4,689 Reverse repurchase agreements 5,000 — 5,000 Borrowings from FHLB Atlanta (1) 229,637 — 229,637 Total $ 272,326 $ — $ 272,326 December 31, 2021 Source Capacity Outstanding Available Federal funds purchased lines (unsecured) $ 33,000 $ — $ 33,000 Federal funds purchased lines (secured) 7,294 — 7,294 Reverse repurchase agreements 5,000 — 5,000 Borrowings from FHLB Atlanta 235,788 — 235,788 Total $ 281,082 $ — $ 281,082 (1) Currently the Bank has in place pledged collateral in the form of 1-4 family residential mortgages in the amount of approximately $21,907,000 against which $0 was drawn and outstanding on December 31, 2022.
The following table sets forth non-deposit sources of funding: Funding Sources (dollars in thousands) December 31, 2023 Source Capacity Outstanding Available Federal funds purchased lines (unsecured) $ 53,000 $ — $ 53,000 Federal funds purchased lines (secured) 4,597 — 4,597 Borrowings from FHLB Atlanta (1) 239,927 — 239,927 Total $ 297,524 $ — $ 297,524 December 31, 2022 Source Capacity Outstanding Available Federal funds purchased lines (unsecured) $ 33,000 $ — $ 33,000 Federal funds purchased lines (secured) 4,689 — 4,689 Reverse repurchase agreements 5,000 — 5,000 Borrowings from FHLB Atlanta 229,637 — 229,637 Total $ 272,326 $ — $ 272,326 (1) Currently the Bank has in place collateral in the form of 1-4 family residential mortgages and securities in the amount of approximately $ 34,535 ,000, against which $0 was drawn and outstanding on December 31, 2023.
We also classify troubled debt restructurings (TDRs) as both performing and nonperforming assets. We measure impaired loans based on the present value of expected future cash flows discounted at the effective interest rate of the loan or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.
We measure impaired loans based on the present value of expected future cash flows discounted at the effective interest rate of the loan or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.
A summary of the Bank’s commitments is as follows: Contract Amounts (dollars in thousands) at December 31, 2022 2021 Commitments to extend credit $ 196,218 $ 179,953 Standby letters of credit 3,606 4,335 Total $ 199,824 $ 184,288 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
A summary of the Bank’s commitments is as follows: Contract Amounts (dollars in thousands) at December 31, 2023 2022 Commitments to extend credit $ 173,148 $ 196,218 Standby letters of credit 2,636 3,606 Total $ 175,784 $ 199,824 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Loans for new home purchases comprised 75% of the total volume in 2022 as compared to 54% in 2021. The Mortgage Division’s revenue is derived from gains on sales of loans held-for-sale to the secondary market.
Rates remained elevated throughout 2023 as compared to recent history. Loans for new home purchases comprised 80% of the total volume in 2023 as compared to 75% in 2022. The Mortgage Division’s revenue is derived from gains on sales of loans held-for-sale to the secondary market.
Investment Securities The investment securities portfolio of the Bank is used as a source of income and liquidity. 41 Table of Contents The following table summarizes the fair value of the Bank’s securities portfolio for the periods indicated: Securities Portfolio (dollars in thousands) December 31, 2022 2021 Held-to-maturity U.S. agency obligations $ 3,135 $ 4,006 Available-for-sale U.S. treasuries $ 4,741 $ 2,002 U.S. agency obligations 59,273 58,470 Mortgage - backed securities 67,842 37,438 Municipals 37,855 50,204 Corporates 16,076 13,153 Total available-for-sale $ 185,787 $ 161,267 Deposited funds are generally invested in overnight vehicles, including federal funds sold, until approved loans are funded.
Investment Securities The investment securities portfolio of the Bank is used as a source of income and liquidity. ‎ 46 Table of Contents The following table summarizes the fair value of the Bank’s securities portfolio for the periods indicated: Securities Portfolio (dollars in thousands) December 31, 2023 2022 Held-to-maturity U.S. agency obligations $ 3,231 $ 3,135 Available-for-sale U.S. treasuries $ 4,947 $ 4,741 U.S. agency obligations 60,955 59,273 Mortgage - backed securities 95,079 67,842 Municipals 40,789 37,855 Corporates 14,740 16,076 Total available-for-sale $ 216,510 $ 185,787 Deposited funds are generally invested in overnight vehicles, including federal funds sold, until approved loans are funded.
For the year ended December 31, 2022 , the Mortgage Division accounted for 36 Table of Contents 11.65% of Financial’s total revenue as compared with 20.46% of Financial’s total revenue for the year ended December 31, 2021 . Mortgage contributed $790,000 and $2,360,000 to Financial’s pre-tax net income in 2022 and 2021, respectively.
For the year ended December 31, 2023 , the Mortgage Division accounted for 7.54% of Financial’s total revenue as compared with 11.65% of Financial’s total revenue for the year ended December 31, 2022 . Mortgage contributed $452,000 and $790,000 to Financial’s pre-tax net income in 2023 and 2022, respectively.
This increase was due primarily to an increase in loan volume as well as an increase in the yields on average earning assets which primarily consist of loans and investment securities, as discussed below. Net interest income for 2022 increased $2,624,000, or 9.69%, to $29,703,000 from $27,079,000 in 2021.
This increase was due primarily to an increase in the yields on average earning assets which primarily consist of loans and investment securities, as discussed below. Net interest income for 2023 increased slightly, to $29,740,000 from $29,703,000 in 2022.
OREO Changes (dollars in thousands) Year Ended December 31, 2022 2021 Balance at the beginning of the year (net) $ 761 $ 1,105 Transfers from Loans — 111 Capitalized costs — — Valuation Adjustment (195) — Sales proceeds — (368) Gain (loss) on disposition — (87) Balance at the end of the year (net) $ 566 $ 761 Non-accrual loans plus OREO decreased to $1,199,000 on December 31, 2022 from $1,715,000 on December 31, 2021, a decrease of 30.09%.
OREO Changes (dollars in thousands) Year Ended December 31, 2023 2022 Balance at the beginning of the year (net) $ 566 $ 761 Transfers from Loans — — Capitalized costs — — Valuation Adjustment (23) (195) Sales proceeds (540) — Loss on sales (3) — Balance at the end of the year (net) $ — $ 566 Non-accrual loans plus OREO decreased to $391,000 on December 31, 2023 from $1,199,000 on December 31, 2022, a decrease of 67.39%.
The Bank’s remaining available credit through the FHLBA was $229,637,000 as of December 31, 2022, the most recent calculation. Currently the Bank has in place pledged collateral in the amount of approximately $21,907,000 against which $0 was drawn and outstanding on December 31, 2022.
The Bank’s remaining available credit through the FHLBA was $239,927,000 as of December 31, 2023, the most recent calculation. Currently the Bank has in place pledged collateral in the amount of approximately $ 34,535 ,000, allowing the Bank to borrow up to $21,052,000, against which $0 was drawn and outstanding on December 31, 2023.
Noninterest-bearing deposits decreased $7,402,000 or 4.56% from $162,286,000 at December 31, 2021 to $154,884,000 at December 31, 2022 . The decrease in noninterest-bearing deposits was due to customers moving funds to higher rate accounts both within and outside the Bank.
Noninterest-bearing deposits decreased $20,609,000 or 13.31% from $154,884,000 at December 31, 2022 to $134,275,000 at December 31, 2023 . The decrease in noninterest-bearing deposits was due to customers moving funds to higher rate accounts both within and outside the Bank.
The return on average assets for the year ended December 31, 2022 was 0.91% compared to 0.82% in 2021 primarily due to the increase in net income and a decrease in total assets.
The return on average assets for the year ended December 31, 2023 was 0.92% compared to 0.91% in 2022 primarily due to a decrease in average assets, which was offset by a decrease in net income.
The decrease in the gain on sales of loans held for sale was caused by an increase in mortgage loan rates. 37 Table of Contents Noninterest Expense of Financial Noninterest expenses increased from $29,337,000 for the year ended December 31, 2021 to $32,737,000 for the year ended December 31, 2022 .
The decrease in the gain on sales of loans held for sale was caused by an increase in mortgage loan rates. Noninterest Expense of Financial Noninterest expenses decreased slightly from $32,737,000 for the year ended December 31, 2022 to $32,507,000 for the year ended December 31, 2023 . The following table summarizes our noninterest expense for the periods indicated.
The average balance of interest bearing liabilities increased 9.44% from $682,089,000 for the year ended December 31, 2021 to $746,479,000 for the year ended December 31, 2022. The average interest rate paid on interest bearing liabilities decreased by 2 basis points to 0.29% in 2022 from 0.31% in 2021.
The average balance of interest bearing liabilities decreased 1.09% from $746,479,000 for the year ended December 31, 2022 to $738,335,000 for the year ended December 31, 2023. The average interest rate paid on interest bearing liabilities increased by 101 basis points to 1.30% in 2023 from 0.29% in 2022.
Additional collateral would be required to be pledged in order for the full $229,637,000 to be available. At the end of 2022, approximately 29.56%, or $180,811,000 of the loan portfolio could mature or could reprice within a one-year period. At December 31, 2022, non-deposit sources of available funds totaled $272,326,000, which included $229,637,000 available from the FHLBA.
Additional collateral would be required to be pledged in order for the full $297,524,000 to be available. At the end of 2023, approximately 28.07%, or $171,016,000 of the loan portfolio could mature or could reprice within a one-year period. At December 31, 2023, non-deposit sources of available funds totaled $297,524,000, which included $239,927,000 available from the FHLBA.
If calculated, the capital ratios for the Company on a consolidated basis would be slightly lower than the capital ratios of the Bank because of the Company’s decision to contribute a portion of the debt offerings to the Bank. 48 Table of Contents Stockholders’ Equity Stockholders’ equity decreased by $19,203,000 from $69,429,000 on December 31, 2021 to $50,226,000 on December 31, 2022.
If calculated, the capital ratios for the Company on a consolidated basis would be slightly lower than the capital ratios of the Bank because of the Company’s decision to contribute a portion of the debt offerings to the Bank. ‎ 53 Table of Contents Stockholders’ Equity Stockholders’ equity increased by $9,813,000 from $50,226,000 on December 31, 202 2 to $60,039,000 on December 31, 2023.
In the event any secured line of credit is drawn upon, the related debt would need to be repaid before the securities could be sold and converted to cash. 45 Table of Contents While we have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of increased interest rates or recent turmoil in the banking system, management continues to monitor our sources and uses of funds in order to meet our cash needs and cash flow requirements while maximizing profits.
While we have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of increased interest rates or recent turmoil in the banking system, management continues to monitor our sources and uses of funds in order to meet our cash needs and cash flow requirements while maximizing profits.
The net interest margin increased to 3.23% in 2022 from 3.14% in 2021. The average rate on earning assets increased 8 basis points from 3.38% in 2021 to 3.46% in 2022 and the average rate on interest-bearing deposits decreased from 0.25% in 2021 to 0.18% in 2022.
The net interest margin increased to 3.29% in 2023 from 3.23% in 2022. The average rate on earning assets increased 90 basis points from 3.46% in 2022 to 4.36% in 2023 and the average rate on interest-bearing deposits increased from 0.18% in 2022 to 1.23% in 2023.
First, all interest accrued but unpaid at the time of the classification is deducted from the interest income totals for the Bank. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Third, there may be actual losses that necessitate additional provisions for credit losses charged against earnings.
Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Third, there may be actual losses that necessitate additional provisions for credit losses charged against earnings.
Noninterest Income (dollars in thousands) December 31, 2022 2021 Gains on sale of loans held for sale $ 5,256 $ 8,265 Service charges, fees and commissions 3,591 2,496 Wealth management fees 3,932 — Life insurance income 452 430 Other 16 18 Loss on sales and calls of securities, net (3) — Total noninterest income $ 13,244 $ 11,209 The increase in noninterest income for 2022 as compared to 2021 was due to an increase in service charges, fees and commissions and wealth management fees and was offset by a decrease in gain on sales of loans held for sale.
The following table summarizes our noninterest income for the periods indicated. ‎ 42 Table of Contents Noninterest Income (dollars in thousands) December 31, 2023 2022 Gains on sale of loans held for sale $ 3,938 $ 5,256 Service charges, fees and commissions 3,901 3,591 Wealth management fees 4,197 3,932 Life insurance income 548 452 Other 283 16 Loss on sales and calls of securities, net — (3) Total noninterest income $ 12,867 $ 13,244 The decrease in noninterest income for 2023 as compared to 2022 was due to a decrease in gain on sales of loans held for sale and was offset by an increase in service charges, fees and commission and wealth management fees.
For the year ended December 31, 2022, its first year of operations as a subsidiary of Financial, PWW had fee income of $3,932,000. For the year ended December 31, 2022 , PWW accounted for 8.72% of Financial’s total revenue. In 202,1 PWW did not contribute any revenue to Financial.
For the year ended December 31, 2022, its first year of operations as a subsidiary of Financial, PWW had fee income of $3,932,000. PWW’s fee income increased to $4,197,000 for the year ended December 31, 2023. For the year ended December 31, 2023 and 2022 , PWW accounted for 8.04% and 8.72% of Financial’s total revenue, respectively.
However, despite our commitment, a reduction of non-accrual loans can be dependent on a number of factors, including an increase in unemployment, adverse housing market conditions, and overall economic conditions at the local, regional and national levels. See “ Asset Quality ” below.
The Bank attempts to work with borrowers on a case-by-case basis to attempt to protect the Bank’s interests. However, despite our commitment, a reduction of non-accrual loans can be dependent on a number of factors, including an increase in unemployment, adverse housing market conditions, and overall economic conditions at the local, regional and national levels.
Additional collateral would be required to be pledged in order for the full amount to be available. Unsecured federal funds lines and their respective limits are maintained with the following institutions: Community Bankers’ Bank, $13,000,000, PNC Bank $6,000,000, First National Bankers’ Bank, $10,000,000, and Zions Bank, $4,000,000. The Bank maintains a $5,000,000 reverse repurchase agreement with Truist Bank whereby securities may be pledged as collateral in exchange for funds for a minimum of 30 days with a maximum of 90 days.
Additional collateral would be required to be pledged in order for the full amount to be available. Unsecured federal funds lines and their respective limits are maintained with the following institutions: Community Bankers’ Bank, $13,000,000, PNC Bank, $6,000,000, First National Bankers’ Bank, $10,000,000, Pacific Coast Bankers’ Bank, $20,000,000 and Zions Bank, $4,000,000.
The acquisition date fair value of consideration transferred totaled $10.5 million, which was paid in cash. 44 Table of Contents In connection with the transaction, the Company recorded intangibles relating to customer relationships and the resultant goodwill, representing the excess of the fair value of the consideration transferred over the fair value of the assets acquired and liabilities assumed in accordance with the acquisition method of accounting.
In connection with the transaction, the Company recorded intangibles relating to customer relationships and the resultant goodwill, representing the excess of the fair value of the consideration transferred over the fair value of the assets acquired and liabilities assumed in accordance with the acquisition method of accounting. Other assets acquired and liabilities assumed in the combination were not significant.
On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.
On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets.
The Bank established the Mortgage Division to serve potential customers that desired fixed rate loans in excess of five years. Management monitors interest rate levels on a daily basis and meets in the form of an Enterprise Risk Management and Asset/Liability Committee (“ALCO”) meeting at least quarterly, or when a special situation arises (e.g., FOMC unscheduled rate change).
The Bank established the Mortgage Division to serve potential customers that desired fixed rate loans in excess of five years. Management monitors interest rate levels on a daily basis and meets quarterly with the board of directors, who acts as the Enterprise Risk Management and Asset/Liability Committee (“ALCO”).
Management intends to continue to be proactive in quantifying and mitigating the ongoing risk associated with all asset classes. If interest rates continue to rise and/or the U.S. economy experiences a recession, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for loan losses.
If interest rates continue to rise and/or the U.S. economy experiences a recession, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the allowance for credit losses. The process of identifying potential credit losses is a subjective process.
As discussed in more detail below, For the year ended December 31, 2022, Financial had net income of $8,959,000, an increase of $1,370,000 from net income of $7,589,000, for the year ended December 31, 2021; For the year ended December 31, 2022, earnings per basic and diluted common share were $1.91, as compared to earnings of $1.60 per basic and diluted common share for the year ended December 31, 2021; Net interest income increased to $29,703,000 for the current year from $27,079,000 for the year ended December 31, 2021; Noninterest income (exclusive of net gains on sales and calls of securities) increased to $13,247,000 for the year ended December 31, 2022 from $11,209,000 for the year ended December 31, 2021; Total assets as of December 31, 2022 were $928,571,000 compared to $987,634,000 at the end of 2021, a decrease of $59,063,000 or 5.98%; Net loans (excluding loans held for sale), net of unearned income and the allowance for loan losses, increased to $605,366,000 as of December 31, 2022 from $576,469,000 as of the end of December 31, 2021, an increase of 5.01%; and The net interest margin increased 9 basis points to 3.23% for 2022, compared to 3.14% for 2021.
As discussed in more detail below, For the year ended December 31, 2023, Financial had net income of $8,704,000, a decrease of $255,000 from net income of $8,959,000, for the year ended December 31, 2022; For the year ended December 31, 2023, earnings per basic and diluted common share were $1.91, as compared to earnings of $1.91 per basic and diluted common share for the year ended December 31, 2022; 36 Table of Contents Net interest income increased to $29,740,000 for the current year from $29,703,000 for the year ended December 31, 2022; Noninterest income (exclusive of net gains on sales and calls of securities) decreased to $12,867,000 for the year ended December 31, 2023 from $13,247,000 for the year ended December 31, 2022; Total assets as of December 31, 2023 were $969,371,000 compared to $928,571,000 at the end of 2022, an increase of $40,800,000 or 4.39%; Net loans (excluding loans held for sale), net of unearned income and the allowance for credit losses, decreased to $601,921, 000 as of December 31, 2023 from $605,366,000 as of the end of December 31, 2022, a decrease of 0.57%; and The net interest margin increased 6 basis points to 3.29% for 2023, compared to 3.23% for 2022.
The Company is the owner and sole beneficiary of the BOLI policies. As of December 31, 2022, the BOLI had a cash surrender value of $19,237,000, an increase of $452,000 from the cash surrender value of $18,785,000 as of December 31, 2021. The Company did not purchase any additional BOLI during 2022.
The Company is the owner and sole beneficiary of the BOLI policies. As of December 31, 2023, the BOLI had a cash surrender value of $21,586,000 an increase of $2,349,000 from the cash surrender value of $19,237,000, as of December 31, 2022.
Agency Fair value $ — $ 30,842 $ 26,728 $ 1,703 $ 59,273 Weighted average yield 1.44% 1.61% 2.07% Mortgage Backed Securities Fair value $ 40 $ 657 $ 12,179 $ 54,966 $ 67,842 Weighted average yield 1.00% 2.00% 1.68% 2.23% Municipals Fair value $ 790 $ 682 $ 10,413 $ 25,970 $ 37,855 Weighted average yield 2.02% 1.84% 2.00% 2.44% Corporates Fair value $ 1,482 $ 4,138 $ 10,456 $ — $ 16,076 Weighted average yield 2 2.61% 3.85% Total portfolio Fair value $ 2,312 $ 41,060 $ 61,907 $ 83,643 $ 188,922 Weighted average yield 2.08% 1.61% 2.07% 2.31% 43 Table of Contents Securities Portfolio Maturity Distribution / Yield Analysis (dollars in thousands) At December 31, 2021 Less than ‎ One Year One to ‎ Five Years Five to ‎ Ten Years Greater than ‎ Ten Years Total Held-to-maturity U.S.
Agency Fair value $ — $ 30,842 $ 26,728 $ 1,703 $ 59,273 Weighted average yield 1.44% 1.61% 2.07% Mortgage Backed Securities Fair value $ 40 $ 657 $ 12,179 $ 54,966 $ 67,842 Weighted average yield 1.00% 2.00% 1.68% 2.23% Municipals Fair value $ 790 $ 682 $ 10,413 $ 25,970 $ 37,855 Weighted average yield 2.02% 1.84% 2.00% 2.44% Corporates Fair value $ 1,482 $ 4,138 $ 10,456 $ — $ 16,076 Weighted average yield 2 2.61% 3.85% Total portfolio Fair value $ 2,312 $ 41,060 $ 61,907 $ 83,643 $ 188,922 Weighted average yield 2.08% 1.61% 2.07% 2.31% Cash surrender value of bank-owned life insurance The Company has funded bank-owned life insurance (BOLI) for certain of its officers.
Cash and Cash Equivalents Cash and cash equivalents decreased from $183,153,000 on December 31, 2021 to $61,762,000 on December 31, 2022. Federal funds sold amounted to $31,737,000 on December 31, 2022 compared to $ 153,816,000 on December 31, 2021 .
Cash and Cash Equivalents Cash and cash equivalents increased from $61,762,000 on December 31, 2022 to $74,838,000 on December 31, 2023. Federal funds sold amounted to $49,225,000 on December 31, 2023 compared to $ 31,737,000 on December 31, 2022.
Income Tax Expense For the year ended December 31, 2021 , Financial had federal income tax expense of $1,862,000, as compared to a federal income tax expense of $2,151,000 in 2022, which equates to effective tax rates of 19.70% and 19.36%, respectively.
No non-recurring adjustments were made to the calculation of the efficiency ratio. ‎ 43 Table of Contents Income Tax Expense For the year ended December 31, 2023 , Financial had federal income tax expense of $1,575,000 as compared to a federal income tax expense of $2,151,000, in 2022, which equates to effective tax rates of 15.32% and 19.36%, respectively.
The advances have a term of one year and bear interest at a fixed rate equal to the one-year overnight swap index rate plus 10 basis points. As of March, the Bank has approximately $100,000,000 of collateral available to pledge under the Program.
The advances had a term of one year and bore interest at a fixed rate equal to the one-year overnight swap index rate plus 10 basis points. As of March 11, 2024, no new advances were available under the program. Although the Bank pledged approximately $30,000,000 of collateral under the program, the Bank did not take any advances.
All earnings per share figures have been adjusted to reflect the 10% stock dividend paid in 2021. Note 13 of the consolidated financial statements provides additional information with respect to the calculation of Financial’s earnings per share.
Note 13 of the consolidated financial statements provides additional information with respect to the calculation of Financial’s earnings per share.
ANALYSIS OF FINANCIAL CONDITION As of December 31, 2022 and December 31, 2021 General Our total assets were $928,571,000 at December 31, 2022 , a decrease of $59,063,000 or 5.98% from $987,634,000 at December 31, 2021 , primarily due to a decrease in federal funds sold which was partially offset by increases in securities available-for-sale, loans, net of allowance for loan losses, and other assets.
ANALYSIS OF FINANCIAL CONDITION As of December 31, 2023 and December 31, 2022 General Our total assets were $969,371,000 at December 31, 2023 , an increase of $40,800,000 or 4.39% from $928,571,000 at December 31, 2022 , primarily due to increases in federal funds sold and securities available for sale and partially offset by decreases in cash and due from banks and loans, net of allowance for credit losses.

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